Credit to the Agriculture sector is set to see a boost in the coming years as the Agriculture Development Bank (ADB) has re-strategized to focus mainly on grating loans to players in this indispensable sector of the economy.

The bank re-strategized to focus on agricultural sector to increase the share;of agriculture loan portfolio from the current 28 percent to 50 percent by 2022.

To achieve this, ADB highlighted that it has created agriculture desks at 36;branches, created agri-business division, and restructured the Agricultural Financing Department. The bank has also created two new departments, i.e., the Agricultural Value Chain Department and the Agricultural Services Department.

High interest rates

ADB currently offers loans with the highest interest rate in the country. Average lending rates of the 23 universal banks published by the Bank of Ghana as of July 31, 2021 show that ADB;currently lends to its customers at 24.89 percent, the highest in the country. This is 8.92 percentage points higher than that of CalBank PLC which offers;the lowest interest rate of 15.97 percent in the country.

Generally, lending rates in the country are very high, making it very difficult for;credit to go to certain growth enhancing sectors of the economy. This has always been the bone of contention between businesses, the Bank of Ghana and the government.

Whilst many people blame the Bank of Ghana for this, others think it’s as a result;of certain policy directions by the government. Earlier this week, Former Finance Minister under the John Mahama Administration, Seth Tekper, said the government’s excessive borrowing is the cause of the high cost of credit. According to him, the government but not the Bank of Ghana is to blame for the high interest rates.

Role of the central bank

The Central Bank also believes it’s doing its best to reduce interest rates as it has reduced its policy rate by 250 basis points over the past one year to the current level of 13.5 percent. Despite this effort, banks have not responded as expected as the average lending of universal banks currently stands at 20.51 as of End-August 2021.

Several suggestions have been made as to how to reduce interest rates in the country; one of which is capping the interest rates. The President earlier this year tasked the new Bank of Ghana board to work towards reducing the interest rates in the country. But for now, it is still not clear what measures the Bank of Ghana is putting in place to help reduce interest rates.

On the part of Banks, the Managing Director of ADB, Dr. John Kofi Mensah, said banks are working together to close the wide gap that exists between policy and lending rates. Dr. Kofi Mensah assured customers that the industry is taking practical steps to address the situation.

“At the Ghana Bankers Association level, we are collaborating very much. Hitherto, it was the independent decision of the banks but now we are trying to collaborate so that we all forge ahead in that direction. Now the central bank is really supporting by changing some of the regulatory policies such as the cash reserves, among others, so that it will help the banks also to depress the rate. So, very soon, we will be dealing with thin margins but still be profitable”.
Dr. John Kofi Mensah

Role of the government

On the part of government, bridging the financing gap between sectors and industries in the country is of major concern. To this end, the government hinted of the establishment of a new Development Bank to give loans to certain sectors, one of which is the agriculture sector. Deputy Minister for Finance, Hon John Ampontuah Kumah, has earlier urged the ADB to collaborate with the yet to be established Development Bank Ghana (DBG) to grant medium and long-term financial assistance to industries.

More specifically, Mr. Kumah urged the Bank to explore professional technical support services to assist with projects to be domiciled at both DBG and financial institutions.

“The anticipated areas of collaboration include grant of financial assistance through ADB to medium and long-term industries (i.e., 1D1F companies currently being financed by ADB)”.

Mr. Kumah