Are Bank Interest Rates in the Forefront of our Economic Plight?

Are Banks operating in Ghana really development oriented???

by World Bank Ghana on Friday, May 27, 2011 at 8:51am THE BiG DEBATE Live on Citi FM 97.3 ---- Tuesday, 31st May, 2011 ---- 2:00pm ----- British Council Hall

Are Bank Interest Rates in the Forefront of our Economic Plight? When Bank Lobbies Are Thermostatically Controlled By High Interest Rates

PROGRAM CONTENT OF THIS DEBATE On 31st May, The BiG Debate considers the issue of high bank interest rates and its impact on Ghanaian businesses. With bank interest rates as high as 30% in some cases and spreads ranging between 12% and 15%, banks continue to make high profits despite the claim that non-performing loans are a restriction on their performance and a key reason for less lending. But there are other related arguments suggesting that Regulators, Government, Borrowers of Funds, Lenders to the banking sector as well as Banks own weak accounting all contribute in large measure to the persistently high lending rates in Ghana.

Clearly, our stuttering economy will benefit from lower borrowing rates in the market place. How to intervene and trigger a downward spiral in favor of the borrower has eluded analysts, Government and Donors. The BiG Debate attempts to identify the intervention points and offer answers to Government. With Treasury Bill rates at 10%, the competing business of risk lending takes a back-step while Banks divert deposits into 91-day bills and quicker profit yielding trade.

ISSUES OF ECONOMIC GOVERNANCE Government is cash-hungry and weak cash planning is weak translates into drawn-out payments to contractors and suppliers of credit to GoG. Recourse against Government is still a no-no in Ghana, because Ghanaian businesses still see Government as a potential ally when on good terms and a major foe when they disagree. Political faux pas are still a fresh recollection for most Ghanaians and one treads with caution when taking a case against Government to court. Can and will a Ghanaian therefore take up their rights to hold Government Institutions to the letter when we have performance contracts in place? How does a Ghanaian charge Government when there is a clear case of corruption in contracts? Despite the Whistle Blower s Act and other safeguards we still rarely prosecute Government.

DEBATABLE MATTERS REGARDING THE ECONOMY With debates in Parliament on key issues now openly challenged by the minority, we have a say in debates that are made public. But how did a previous Government resolve the challenges of the economy and another struggles? Learning experiences are certainly a good debate.

HISTORY OF THE INTEREST RATE REGIME In the past month, two Government-owned banks have dropped rates below 21%. Is this a tactic by Government to use its majority position in the market place to force rates down and is this the beginning of an era of lower rates? Ghana Commercial Bank rates are at 20.5% and Agricultural Development Bank is down to 20%. If this is to work, other banks should follow suit soon and Barclays Bank Ghana last week announced a drop in their rate to 18%. BANKS LENDING POLICIES AND COST OF FUNDS The incidence of high interest rates is a challenge for Government, Bank of Ghana, Ghana Industries and consequentially the economy and business survival. Lower interest rates and the level of non-performing loans have a direct impact on the viability of financial sector operations, and aggressive lending in the market place has been fingered as one of the possible reasons why loan defaults are high. Banking in Ghana is a profitable business, made so from the high interest spreads. Lending rates range from between 20% to 35% with an uncanny resistance to Government moral persuasion and market forces. Some conspiracy theorists tell stories of collusion between banks to keep rates at these levels. Certainly if the rates as set are anything to go by, this could be true, seeing as not a pair of banks have the same rates in an open market competitive arena.

CENTRAL BANK REGULATORY ISSUES Are we over-banked? Are the banks adequately capitalized? How tough is the Central Bank when it comes to high interest rates? How do we compare with the rest of Sub-Sahara Africa? How is the Central Bank using monetary and/or fiscal policy to regulate the rates? Central Bank policy rates are at 13%. Is this adequate or still too high?

STATISTICAL ANALYSIS AND CORRELATION OF ECONOMIC INDICES Is there a correlation between Interest rates and some index of measurement in the economy? What is the real driver of the high rates? This question has to be answered in order to focus the debate on the real reasons. If there is a relationship someplace and it can be monitored and regulated, we have an answer to this problem.

REAL LIFE CHALLENGES OF AN INDUSTRIALIST All this is meaningless and just speculation unless we have real life examples narrated by victims of the excesses of Banks.

COMMERCIAL COURTS ARE A CHALLENGE Delays in resolving commercial cases especially where it involves land cases have become notoriously bogged down in Commercial Court. Banks complain incessantly about their inability to process their security from lending. Cases have been known to drag for up to 5 years and the ripple effect is less lending to other borrowers and an overload of securitized lending, including financial guarantees both personal and directorial by the banks. Without speedy recovery, Banks complain that they have no confidence in brick and mortar assets.

With all these issues we can debate High Interest Rates within three arenas.

Competition for key accounts in the market place and the incidence of non-performing loans The persistent cost of banking with a 10% spread The cyclical impact of profligate spending in a voting year

PROGRAM FOR THE DEBATE

            

2.00pm 3.00pm 3.04pm 3.05pm 3.15 pm 3.20pm 3:30pm

Arrival of participants, networking and voting Welcome Prayer Bernard Avle, Citi Fm Christian, Moslem, Traditional

Welcome & Introduction of Chairman Sydney Casely-Hayford Chairman s Opening Backdrop to the Debate Dr. Sam Mensah Sydney Casely-Hayford

Presentations by Speakers: 10 minutes each with Explanatory Resource Interventions Speaker Bank of Ghana (TBC) Speaker Prof. Cletus Dorduonu

Regulation and the Banking Industry The Cost of Banking in Ghana

Lower Interest Rates, Experience from the Past Speaker Practical Experience from Industry Our Rights and Expectations as Ghanaians Improving Efficiency and Development Impact Speaker Speaker Speaker

Hon Dr Akoto Osei Mrs. Akua Herbstein CHRAJ, IDEG (TBC) Nana Owusu Afari

4:30pm

Voting, General Discussions, Q&A

 

5:00pm 5:30pm

Final Comments

Towards a Development Oriented Banking Sector Dr Sam Mensah

Closing Remarks, Communiqu

Co Moderators: Bernard Avle and Sydney Caseley-Hayford Like Comment Share