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BoG mounts pressure on banks to reduce interest rates

16. 6. 2017

The Bank of Ghana (BoG) has begun mounting pressure on banks in the country to start reducing their interest rates in the face of the declining policy rate and the Treasury bill rates.

BoG mounts pressure on banks to reduce interest rates

The central bank in May reduced the policy rate from 23.5 percent to 22.5 percent.

This was after it reduced it from 25.5 to 23.5 in March this year.

After the reduction, expectations were high that the decrease would impact on cost of borrowing since the policy rate is the rate at which the central bank lends to banks in the country.

However, interest payment has still not seen any significant improvement as cost of borrowing still hovers around over 32 percent.

Speaking at ceremony to open the East Legon branch of Heritage bank, the Head of Other Financial Institutions Supervision Department at the Bank of Ghana Raymond Amanfu pressed on banks to positively respond to the policy rate by reducing interest rates.

“We expect banks to respond favorably to the declining monetary policy rate and the Treasury bill rate. This I believe will make credit more affordable and help boost productivity and at the same time have a favorable effect on the non-performing loans structure of banks,” he stressed.

He explained that the reduction in the policy rate was targeted at having some impact on other macroeconomic indicators.

Stressing the need to reduce interest rates, Mr. Amanfu argued that such a move will also have a positive impact on the loan portfolio of banks.

Response to request

Meanwhile, responding to the issue, the Managing Director of Heritage bank, Mr. Patrick Fiscian welcomed the call but explained that the policy rate is just a component in the determination of interest rates.

“You must realize that the lending rate is not just driven by the Bank of Ghana policy rate. Your base rate is a composite of your cost of funds, your overheads and the risk premium you attach to your facilities. So if you have a bank which has invested heavily in fiscal infrastructure and technology infrastructure as a result of which there is a huge cost base, the base rate cannot come down immediately,” he explained.

“The policy rate is just one of the various components you have to consider. So it will take time for the policy rate to impact on the base rate,” he added.

Source: Citibusinessnews

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