Mr. William Mensah, Non-Executive Director with Ecobank Capital, has asserted that the government should consider stimulating the economy directly and not through a financial intermediary, like banks, if it seeks to boost economic activities through the private sector amid the coronavirus pandemic.
Mr. William Mensah made these comments on the back of the Monetary Policy Committee’s press release which indicates that on an annual basis, credit extended to the private sector moderated by over 17 percent to 5.8 percent in December 2020 compared with 23.8 percent in the corresponding period in 2019.
However, according to the statement, the banking sector received strong policy support and regulatory reliefs to boost their resilience to the first wave of the pandemic. As such it was expected that banks equally give more credit to the private sector to stimulate the economy. Hence, it is quite worrying if banks have significantly reduced their credit to the private sector.
Speaking on the issue of why the banking sector will reduce its credit to the private sector despite the implementation of COVID-related regulatory reliefs and policy measures to support their lending activities, Mr. William Mensah held that most banks are looking for a safe haven in times of uncertainty.
“The risk associated with giving money to private sector during the time of crises is also high. So, it is difficult to get the bank to be the one to give money to stimulate the economy because the bank is thinking about how do I return the money in future?
“If you will look …the banks activity in terms of buying government papers would have gone up…in times of uncertainty, there is a flight to safety. In our side of the world, what we understand by flight to safety… is to buy government papers.
“When people are thinking about managing their money, they are not thinking about how the economy will get out of crises. They are thinking first about the safety of the money that they are managing. So, usually…if you want to stimulate the economy, you do it directly, you don’t do it through an intermediary”.
Mr. William Mensah
Additionally, Mr. William opined that because of the decline in economic activity due to the COVID-19 pandemic, there were no available opportunities for banks to give out monies to the private sector.
“If you give money to a hotel because…it’s in crises, all the hotel will use that money to do will be to pay salaries because…it’s not like by opening the hotel you will get people to come in… nobody wants to go out”.
Mr. William Mensah
Speaking on the issue of the government crowding out the private sector, Mr. William Mensah intimated that although “crowding out the private sector will hurt all of us in the long run,” but in the short run what banks are thinking about is money that they have to work with and as such are concerned about the safety of that money first.
Finally, the Financial Analyst advised that policy and regulatory reliefs given to a financial intermediary, like banks to stimulate the economy should come at a concessionary rate with conditions attached to its use and insist that they go into specific industries.
“Unless you [Bank of Ghana] give the money to the intermediaries at a concessionary rate and put a condition to it that [such] money should go into specific purposes, then you can achieve that.
“If you have funds like that [banks] are forced to put it to the use for which it was intended.
“So, when you want to stimulate the economy, you have to be strategic about it and ensure…that money you are putting in the economy will actually go into the real economy to stimulate it”.
Mr. William Mensah
