Governor Acquah calls for consumer pressure over high interest rates

Paul Acquah, BoG Governor

Since President Kufuor's call, earlier this month on the Bank of Ghana to act on the high interest rate charges by the Commercial Banks, the Central Bank, the body tasked to regulate the banking sector, has rather thrown that challenge to the public to put consumer pressure on the banks.

"Consumer pressure should be exercised on the banks by patronising the services of banks with friendly and convenient products," says the Bank of Ghana Governor Paul Acquah at a news conference in Accra to announce the Monetary Policy Committee decision on the Prime Rate, which was maintained at 12.5 percent.

However, some critics point out that, generally there isn't much to choose from. Some have even gone as far as accusing the banks of operating an effective cartel on interest rates.

"The spreads between rates on savings and the interest rates lending are too sticky and so it is up to the consumer to exercise some pressure in his banking decisions" Dr Acquah insisted.

"I think the banks will begin to act if the customer exercises his banking options wisely", he added.

Average base rate quotations of the banks had declined by 8 basis points at the end of June 2007 on top of the 141 basis points downward revision in March this year.

Base rates of banks moved to cluster within the range of 18.00 and 21.45 in July this year from a range of 18.5 and 22.50 percent in January 2007.

The average lending rates however remained unchanged within the range of 15.0 percent and 33.5 percent depending on the credit worthiness of the borrower and the asset class.

According to Governor Acquah, the banking industry’s loan portfolio remained strong and non- performing loans, assigned by the commercial banks as the cause of high interest rates spreads inched up marginally to 7.0 percent as at the end of June this year from the March figure of 6.9 percent compared with 12.7 percent recorded a year ago.

Interest rates continued to ease downwards on the auction market during the second quarter of 2007 with a pronounced shift in investor preference towards longer dated instruments, and realignment of interest rates at the long-end of the maturity range.

Commercial Banks’ solvency as measured with the Capital Adequacy Ratio remained strong, recording a rate of 15.2 percent as at the end of June this year from the 15.5 recorded in June last year.

"Overall, financial soundness indicators of the banking industry are strong and robust, measured in terms of the earnings, portfolio liquidity and capital adequacy," Dr Acquah said.

According to him, "the rapid growth in the loan portfolios of banks and in the banking industry asset size was funded mainly by deposits".

He said the increased private sector lending and diversification of products continued the substitution since last year, with banks increasingly giving out their resources as credit rather than investing in Government debt instruments due to the scrapping of the secondary reserve requirement restrictions.

Annual distribution of credit flows remained broad-based across sectors, particularly for services, which recorded a significant 25.0% growth, with miscellaneous including personal and mortgages attracting 15.9%.

The construction sector recorded a credit growth of 13.0% while commerce and finance recorded a 12.3 credit growth, with manufacturing recording a 10.3 percent.

All other sectors recorded increases ranging between 0.5% for Export Trade and 8.7% for Mining and quarrying.

Governor Acquah said banks are using "their strong financial position to shift their lending portfolios in favour of private sector lending funded by a surge in deposits in the banking system".

He said economic activity remained robust, with consumer confidence and expectations generally high about macroeconomic conditions and prospects.

The share of medium-long term fixed Government securities for the 2, 3 and the 5 -year bond to 55 percent at the end of June 2007 from 42 percent at the end of March this year and 34 at the end of December 2006.

The 91- day Treasury bill continues to lose market share, dropping additional 8 percentage points at the end of June 2007.

The Statesman : Business : Governor Acquah calls for consumer pressure over high interest rates