By Elorm DESEWU
Even though interest rates are falling in the country, universal banks’ interest margins are not declining but are rather increasing, according to the latest Annual Percentage Rates (APR) by the central bank.
For instance, the Standard Chartered Bank has pegged its base lending rate at 25.50%, while the average interest on depositors is 5.60% lower than the previous 8.40%. Even as the policy rate was cut by 1%, most banks have now lowered their deposit rates lending rates.
The annual percentage rates and average interest rate paid on deposits indicate that nine out of the 26 universal banks operating in the country demand at least three times the interest from their most favoured borrowers more than what they offer to depositors.
Indeed, two banks even demand five times more from their most favoured borrowers than what they offer to their depositors.
Barclays Bank Ghana’s base lending rate is pegged at 26.90%, while its average interest rate for depositors is 5.44%.
Zenith Bank’s base lending rate is pegged at 27.90%, while its average interest for depositors is 9.34%.
Fidelity Bank’s base lending rate is presently pegged at 29%, while its average interest for depositors is 8.90%.
The widest interest margins with regard to the difference between average deposit rate and the base lending rates demanded by the banks are Barclays Bank (21.46%), Fidelity (20.10%), Merchant Bank (20.72%), Sahel-Sahara Bank (BSIC) (20.69%), UniBank (20.62%), UT Bank (20.02%) and Standard Chartered (19.90%). Conversely, the lowest interest margin is charged by Stanbic Bank at 11.53%.
The statutory regulator of the banking industry, the central bank, publishes these rates to promote transparency in the pricing and provision of banking services.
Banks operating in Ghana offer the widest interest rate margins, compared to other banks in Africa.
The situation even gets worse when a comparative analysis is made between the average deposit rates and the effective lending rates to enterprises, which include charges and commissions levied by banks, such as commitment fees, management fees and facilitation fees.
For example, the interest spread demanded by Access Bank between its average deposit rate and its effective lending to agriculture, manufacturing, commerce and construction is 36.38%.
The National Investment Bank (NIB) demands a margin of 39% in its lending to construction and commerce.
Most banks display similar traits, according to the statistics emanating from the central bank.
It is instructive to note that such interest margins are more than three times the current consumer price inflation rate, which is10.66%.
BusinessWeek learnt that the real interest margins are often narrower than what the BoG’s statistics suggest.
This is because many, indeed most, banks do not report their highest cost funds as deposits in their returns to BoG, rather they report them as managed funds or other funds.
There are several other reasons for this; one is that they do not have to provide non-interest bearing reserves with the BoG against deposits which they instead report as other forms of funds.
Another is that banks are reluctant to admit to taking relatively high cost funds because this may be interpreted (wrongly) as the result of liquidity problems and also because they fret that other potential depositors if they are aware may also demand for similarly high rates.
The defence that the banks make publicly however is that in the current dispensation of fallen inflation and benchmark interest rates (measured by the yields on short term government treasury bills) they are usually locked into relatively high, earlier negotiated deposits rates which prevent them from lowering their effective lending rates as quickly as they would like to do.
Nevertheless, the latest statistics released by the BoG will intensify the already palpable resentment by depositors and borrowers alike that the banks are making excessive interest income at their expense.
Indeed, this sentiment is shared by the BoG, which in fact is why the central bank makes public their deposits and borrowing rate in the first place as a less than subtle way of pressurizing to demand narrower interest margins.
Ironically however, the interest margins currently demanded on average by the banks are higher than what they were when the BoG first began publishing their interest rates a couple of years ago.
Even though interest rates are falling in the country, universal banks’ interest margins are not declining but are rather increasing, according to the latest Annual Percentage Rates (APR) by the central bank.
For instance, the Standard Chartered Bank has pegged its base lending rate at 25.50%, while the average interest on depositors is 5.60% lower than the previous 8.40%. Even as the policy rate was cut by 1%, most banks have now lowered their deposit rates lending rates.
The annual percentage rates and average interest rate paid on deposits indicate that nine out of the 26 universal banks operating in the country demand at least three times the interest from their most favoured borrowers more than what they offer to depositors.
Indeed, two banks even demand five times more from their most favoured borrowers than what they offer to their depositors.
Barclays Bank Ghana’s base lending rate is pegged at 26.90%, while its average interest rate for depositors is 5.44%.
Zenith Bank’s base lending rate is pegged at 27.90%, while its average interest for depositors is 9.34%.
Fidelity Bank’s base lending rate is presently pegged at 29%, while its average interest for depositors is 8.90%.
The widest interest margins with regard to the difference between average deposit rate and the base lending rates demanded by the banks are Barclays Bank (21.46%), Fidelity (20.10%), Merchant Bank (20.72%), Sahel-Sahara Bank (BSIC) (20.69%), UniBank (20.62%), UT Bank (20.02%) and Standard Chartered (19.90%). Conversely, the lowest interest margin is charged by Stanbic Bank at 11.53%.
The statutory regulator of the banking industry, the central bank, publishes these rates to promote transparency in the pricing and provision of banking services.
Banks operating in Ghana offer the widest interest rate margins, compared to other banks in Africa.
The situation even gets worse when a comparative analysis is made between the average deposit rates and the effective lending rates to enterprises, which include charges and commissions levied by banks, such as commitment fees, management fees and facilitation fees.
For example, the interest spread demanded by Access Bank between its average deposit rate and its effective lending to agriculture, manufacturing, commerce and construction is 36.38%.
The National Investment Bank (NIB) demands a margin of 39% in its lending to construction and commerce.
Most banks display similar traits, according to the statistics emanating from the central bank.
It is instructive to note that such interest margins are more than three times the current consumer price inflation rate, which is10.66%.
BusinessWeek learnt that the real interest margins are often narrower than what the BoG’s statistics suggest.
This is because many, indeed most, banks do not report their highest cost funds as deposits in their returns to BoG, rather they report them as managed funds or other funds.
There are several other reasons for this; one is that they do not have to provide non-interest bearing reserves with the BoG against deposits which they instead report as other forms of funds.
Another is that banks are reluctant to admit to taking relatively high cost funds because this may be interpreted (wrongly) as the result of liquidity problems and also because they fret that other potential depositors if they are aware may also demand for similarly high rates.
The defence that the banks make publicly however is that in the current dispensation of fallen inflation and benchmark interest rates (measured by the yields on short term government treasury bills) they are usually locked into relatively high, earlier negotiated deposits rates which prevent them from lowering their effective lending rates as quickly as they would like to do.
Nevertheless, the latest statistics released by the BoG will intensify the already palpable resentment by depositors and borrowers alike that the banks are making excessive interest income at their expense.
Indeed, this sentiment is shared by the BoG, which in fact is why the central bank makes public their deposits and borrowing rate in the first place as a less than subtle way of pressurizing to demand narrower interest margins.
Ironically however, the interest margins currently demanded on average by the banks are higher than what they were when the BoG first began publishing their interest rates a couple of years ago.
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