Monday, 26 February 2018

Commercial banks expected to cut interest rates soon

Image result for cut interest rates

Adnan Adams Mohammed

As several businesses and domestic loan consumers are complaining over inordinately high interest rates charged on loans acquired from most of the commercial banks and other financial institutions in the country, the Bank of Ghana has assured that, banks will soon reduce their interest rates.
This is to reflect influence of the continuous drop in the policy rate on the various base lending rates of the banks.

The central bank’s anticipation of a reduction in the interest rates of commercial banks is due to what it describes as the possibility of a potential setback to commercial banks’ survival if the current situation goes unresolved.

The Head of Research at the Bank of Ghana is Dr. Benjamin Amoah therefore expects that banks will respond soon.

“It is at the banks’ own peril that they do not respond positively” he asserts pointing out that the higher the interest rate on a loan, the higher the likelihood that the loan will not be repaid. Indeed, the non performing loans ratio for Ghana’s banking industry has reached a long term high of over 20% during the current dispensation of very high lending rates.

Since late last year, the BoG has reduced its policy rate which is the rate at which commercial banks borrow from the central bank, by a cumulative 550 basis points.

The rate has been cut from 25.5 to 20 percent.

This was subsequently maintained by the Monetary Policy Committee (MPC) in January this year (2018) at its latest meeting.

But, the latest Annual Percentage Rates (APR) and Average Interest (AI) rates report shows that interests on loans for various categories, still averaged well over 30 percent as at January this year

 Majority of the commercial banks are charging interest of not less than 30 percent on lending to businesses as well as domestic use lenders.

The information revealed that, about 16 banks set base lending rates of above 30 percent were higher than the average lending rate.