By Kofi AHOVI
Universal banks in the country have begun reducing the base rates to reflect economic condition and changes in the banking sector. Traditionally, the banks turn to either up or down their base rates in response to signals sent by the Bank of Ghana (BoG) through its policy rate.
Ghana Commercial Bank (GCB), Stanbic Bank, Bank of Baroda have all reduced their base to 20.50% from 21.5%, 21.95% from 23.95% and 21.75% from 23.00% respectively. UT bank has also reduced its average lending rates to 25.95% from 26.90%. The average reduction in the base lending rates is 1.55%. More banks are expected to follow this trend in the coming weeks.
The central bank’s policy rate is currently at 13.5% since June last year. The policy rate is the rate at which the central bank does overnight lending to universal banks in the country. It serves as a basis for the banks in setting their respective base lending rates, as well as lend to their most favoured customers.
Banks at that time were under pressure to cut their lending rates from an average of 29%. The banks responded with a marginal decrease, explaining that they hardly fall on the central bank for support therefore the policy rate alone was not an adequate yardstick for a further reduction in the rates, while others maintained that their contracts with lenders had not matured and non performing loans were high.
Financial experts are attributing the current reduction in lending rates to recent funds released by the government of Ghana for the payment of arrears to contractors who contributed significantly to the NPLs of the banks as well as the payment of Tema Oil Refinery’s debt to the banks.
Speaking to the Managing Director of Stanbic Bank, Alhassan Andani, he explained that NPLs are reducing, and inflation has also reduced significantly creating a better environment for lending. “In the coming months I expect further drop in lending rates of some of the banks,” adding that the average lending rates should be around 18% over the coming period.
Inflation, which stood at 9.1% in November 2010, eased considerably to 8.6% in December 2010 and picked up to 9.1% in January 2011, mainly on account of the increase in the prices of petroleum products announced in the first week of January. Food inflation was 5.3% in November 2010. It dropped to 4.5% in December 2010 but picked up to 4.8% in January 2011. Non-food inflation followed a similar pattern, falling from 11.5% to 11.2% in December increasing to 11.8% in January 2011.
Interest rates have continued to decline along the entire yield curve in line with the disinflation process.
Between November 2010 and January 2011, the 91-day Treasury bill rate declined from 12.32% to 12.15 %. The 182-day Treasury bill rate also declined from 12.71 to 12.53%.
The rate on the 1-year note fell from 12.72% to 12.60 %. That for the 2-year fixed rate note also dropped from 12.75 % to 12.55%.
Over the same period, the overnight interbank rate, the rate at which commercial banks borrow from each other, increased marginally by 2 basis points to 11.65%
Between November 2010 and January 2011, the average base rate quoted by Deposit Money Banks declined by 134 basis points to 24.69% while average lending rates were unchanged at 27.63% over the same period.
The average deposit rates of the commercial banks rose by 125 basis points to 10.75% in January 2011. Consequently, commercial banks’ spreads, defined as the difference between average lending rates and average deposit rates, narrowed by 125 basis points over the period.
Institutions such as the Association of Ghana Industries (AGI) and the Private Enterprise Foundation (PEF) see the reduction as boost to production, as they have consistently complained about the relatively high interest rates, despite the consistent decline in the central bank’s policy rate over the past years.
Universal banks in the country have begun reducing the base rates to reflect economic condition and changes in the banking sector. Traditionally, the banks turn to either up or down their base rates in response to signals sent by the Bank of Ghana (BoG) through its policy rate.
Ghana Commercial Bank (GCB), Stanbic Bank, Bank of Baroda have all reduced their base to 20.50% from 21.5%, 21.95% from 23.95% and 21.75% from 23.00% respectively. UT bank has also reduced its average lending rates to 25.95% from 26.90%. The average reduction in the base lending rates is 1.55%. More banks are expected to follow this trend in the coming weeks.
The central bank’s policy rate is currently at 13.5% since June last year. The policy rate is the rate at which the central bank does overnight lending to universal banks in the country. It serves as a basis for the banks in setting their respective base lending rates, as well as lend to their most favoured customers.
Banks at that time were under pressure to cut their lending rates from an average of 29%. The banks responded with a marginal decrease, explaining that they hardly fall on the central bank for support therefore the policy rate alone was not an adequate yardstick for a further reduction in the rates, while others maintained that their contracts with lenders had not matured and non performing loans were high.
Financial experts are attributing the current reduction in lending rates to recent funds released by the government of Ghana for the payment of arrears to contractors who contributed significantly to the NPLs of the banks as well as the payment of Tema Oil Refinery’s debt to the banks.
Speaking to the Managing Director of Stanbic Bank, Alhassan Andani, he explained that NPLs are reducing, and inflation has also reduced significantly creating a better environment for lending. “In the coming months I expect further drop in lending rates of some of the banks,” adding that the average lending rates should be around 18% over the coming period.
Inflation, which stood at 9.1% in November 2010, eased considerably to 8.6% in December 2010 and picked up to 9.1% in January 2011, mainly on account of the increase in the prices of petroleum products announced in the first week of January. Food inflation was 5.3% in November 2010. It dropped to 4.5% in December 2010 but picked up to 4.8% in January 2011. Non-food inflation followed a similar pattern, falling from 11.5% to 11.2% in December increasing to 11.8% in January 2011.
Interest rates have continued to decline along the entire yield curve in line with the disinflation process.
Between November 2010 and January 2011, the 91-day Treasury bill rate declined from 12.32% to 12.15 %. The 182-day Treasury bill rate also declined from 12.71 to 12.53%.
The rate on the 1-year note fell from 12.72% to 12.60 %. That for the 2-year fixed rate note also dropped from 12.75 % to 12.55%.
Over the same period, the overnight interbank rate, the rate at which commercial banks borrow from each other, increased marginally by 2 basis points to 11.65%
Between November 2010 and January 2011, the average base rate quoted by Deposit Money Banks declined by 134 basis points to 24.69% while average lending rates were unchanged at 27.63% over the same period.
The average deposit rates of the commercial banks rose by 125 basis points to 10.75% in January 2011. Consequently, commercial banks’ spreads, defined as the difference between average lending rates and average deposit rates, narrowed by 125 basis points over the period.
Institutions such as the Association of Ghana Industries (AGI) and the Private Enterprise Foundation (PEF) see the reduction as boost to production, as they have consistently complained about the relatively high interest rates, despite the consistent decline in the central bank’s policy rate over the past years.
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