Banks still charge abnormally high interest rates

Governor of the BoG, Ernest Addison

Data released last week by the Bank of Ghana on lending rates charged by commercial banks in Ghana reveals that most banks still charge unusually high interest rate differentials between the cost of their funds and the rates at which they are charged. they are willing to provide loans to their clients.

However, the new data covers the first quarter of 2021 and therefore does not take into account the lending rate cuts implemented following the 100 basis point cut by the central bank of its benchmark monetary policy rate, announced at the end of March.

This rate cut was followed by a 40 basis point cut in Ghana’s benchmark rate, which is calculated as the base lending rate for all banks, with each bank adding an interest spread for each specific loan. that it grants, depending on the inherent inherent risk. in this particular loan.

The GRR currently stands at 13.51 percent, in effect since August 4, and is virtually the same as the MPR which has been withheld at 13.50 percent for the past five months.

The new data reveals that 17 of the 23 commercial banks currently operating in Ghana require average lending rates that give them interest spreads of at least five percent over the average base lending rate for the entire industry. .

These include in particular the Consolidated Bank, 21.62%; NBF Bank 22.25%; Fidelity, 20.64%; First Atlantic 21.23%; First National Bank, 20.55 percent; GCB Bank 22.80%; National Investment Bank, 21.77%; Prudential, 21.93%; Bank of the Republic, 21.03%; Stanbic, 20.86%; Standard Chartered; 20.82%; United Bank for Africa, 20.05%; Universal Merchant Bank, 20.39%; and Zenith Bank, 19.45 percent.

The three banks with the highest average lending rates require spreads of more than 10% above the GRR. These are Absa Bank, 23.59%; Societe Generale and 23.61% and ADB, 24.89%.

On the other hand, the lowest average effective lending rates are offered by: CAL Bank – 15.97%; Access bank – 17.77%; Bank of Africa 17.19%; Ecobank Ghana – 18.41 percent; Trust Bank Guarantee – 16.97 percent; and Omni / BSIC Bank – 17.95 percent.

It is important to note that all effective lending rates disclosed by the BoG include the effect of fixed loan charges – such as loan management fees – which are duly annualized and added to the respective coupon rates.

However, these averages can be misleading because some banks apply extraordinarily wide ranges between the lowest and highest effective rates, the latter being significantly higher than the highest rates charged by other banks that have lending rates. relatively lower means.

In addition, banks that are willing to provide relatively high risk credit – especially to SMEs as opposed to multinationals, and agriculture as opposed to commerce – must charge relatively high lending rates to compensate for default rates. payment inevitably higher than they are obligated to pay. to face.

Here the AfDB is a clear example, lending about half of its loan portfolio to an agricultural sector to which most other banks are hardly willing to expose themselves due to the excessive credit risk that accompanies it; It is instructive that the AfDB’s NPL rate, close to 30 percent, is inevitably double the sector average of 14.89 percent at the end of 2020.

Indeed, many banking industry analysts argue that the level of risk a bank is typically willing to assume in its loan portfolio is reflected in the average interest rates it charges; the higher the average lending rate, the higher the risk a bank is willing to take.

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