The interest rate at which banks lend to individuals and the private sector has eased significantly to 20.9 percent by the end of November 2020 from 24 percent in November 2019, indicating a year-on-year decline of approximately 3.1 percent.
Dr. Ernest Addison, the Governor of the Bank of Ghana has revealed that the drop in interest rates on bank loans was on the back of the “downward adjustment of the monetary policy rate” to 14.5 percent from 16 percent early this year and has since been kept as such for the rest of the year.
“The Bank of Ghana cut the monetary policy rate by 150 basis points to 14.5 percent in March 2020 and worked with commercial banks (through moral suasion) to transmit the same measure of decline to lending rates”.
This policy rate cut has “impacted positively” on the average lending rate of banks, he reiterated which has steadily declined on a monthly basis as well decreasing marginally by 40 basis point (0.4%) from an average 21.3 percent recorded in October this year.
This means individuals and the private sector can have access to loans at a cheaper interest cost hence, doing business becomes much easier and confirms the Bank of Ghana Governors statement that “while the pandemic has increased the industry’s cost of operations, banks have not passed on the associated costs to consumers through higher interest margins.”
“Net outstanding claims on the private sector, which also captures repayments to the banking sector, show some moderation since the beginning of the year.
“With respect to new advances, the data shows that cumulatively from the beginning of the year, new loans to support economic activity stands at GH¢27.4 billion compared with GH¢21.3 billion for the same period of last year”.
“Banks have also signalled a net easing of credit stance on enterprises’ loans in the months ahead as new advances steadily rise,” Dr Addison remarked.
Despite contractions experienced in the year amid the coronavirus pandemic, there are signs of recuperation in economic activities, he said adding that the policy and regulatory relief measures introduced by the Bank of Ghana have enhanced liquidity in the banking system, preserved capital buffers, enabling banks and specialised deposit-taking institutions provide support to critical sectors of the economy and offer relief to customers severely affected to mitigate the adverse impact of the pandemic.
Also, the corrective policies introduced by the Bank of Ghana have gone a long way to improve the economic situation of the country.
“In ensuring financial stability, the financial sector will require constant regulatory and policy attention to identify and mitigate emerging risks. By and large, the economic impact of the pandemic may result in higher non-performing loans and some capital erosion of banks. Hence, the Bank is putting greater focus on identifying the early warning signals and initiating prompt corrective actions.
“Over the next three years, in the aftermath of the pandemic, the Bank of Ghana will carefully unwind the countercyclical measures implemented and allow the financial system to function without the regulatory forbearance put into place due to the pandemic”.
In conclusion, Dr. Addison enunciated that the Bank of Ghana is optimistic that with this approach, a resilient and capable financial sector will weather the storms brought about by the pandemic and ensure soundness of the industry.
