Dan Mohenu, Senior Manager for Commercial & Retail Banking of Republic Bank (Ghana) PLC, has provided some justifications for the high interest rates on mortgage facilities in the country. He thus, suggested that interest rates on all loans may not go down as significantly as a section of the public may expect.

According to Mr. Mohenu, Government is competing with Banks in the same domestic market, borrowing from the market at relatively high rates, which he thinks, is pushing the rates high.

“…for example, 364-day Treasury bill is priced at 16.2% p.a., 2-year at 17.25%, 18.3% for the 5-year bond and 20% for the 15-year bond issued in 2019. It is therefore, practically impossible for Banks to lend lower, since businesses will have to price higher in order to compete for the same funds and will end up being crowded out. After factoring in various provisions, rollover risk and making the necessary reserves, it ends up pushing the rates high.”
Dan Mohenu

The Senior Manager explained that because depositors demand interest on their deposits, financial institutions go for short term securities to finance loans.

“Mortgage loans are usually long term in nature, however Banks tend to finance these loans using short term funds mainly due to reliable flow of such funds. Banks and other financial institutions have invested in innovative solutions to mobilize deposits. However, after these deposits are mobilized, depositors demand high returns on funds placed with financial institutions. Most often, their expected investment rates are benchmarked to the risk free investment instruments issued by Government”.
Dan Mohenu

Recommendations to Lower Mortgage Rate

Specifically, on mortgage rates, Mr. Dan Mohenu offered some recommendations that may lower the cost of mortgage financing. He advocated long term cheaper funding from Government to financial institutions.

“Government could issue ‘Affordable Housing Bonds’ at lower rates with incentives for investors to compensate them for the relatively low returns.”
Dan Mohenu

Mr. Mohenu acknowledged the partnership with National Housing and Mortgage Fund (NH&MF), where Government has provided funding to subsidize mortgage interest rates for Public Sector workers.

“Republic Bank is currently offering an interest rate of 11.9% p.a. for mortgages per this arrangement. As a Bank, we have currently exhausted the funds allocated to us, and awaiting new allocation”.
Dan Mohenu

Mr. Mohenu applauded the move by Government to acquire lands for the construction of affordable homes. According to him, this will drive down the cost of houses to enable qualified individuals to purchase. “Where land is available, Government could go into a partnership with the private sector to develop and sell at lower prices”.

According to the Senior Manager, Republic Bank has also made mortgage loan repayment flexible for mortgagors.

“We appreciate the high interest rates and its impact on customers – reason we have introduced two additional mortgage repayment options, to allow customers save up to 40% on their mortgage interest cost. This will help them to pay their mortgage even faster, and thus, reducing their repayment period. This is available to existing and new customers. Affordable housing is possible. However, it must involve partnership and buy-in from all stakeholders and ultimately guided by Government’s policy. Once each partner knows their role, we will be getting there as a country”.
Dan Mohenu

With a history of Home Finance Company in Ghana, Republic Bank (Ghana) PLC has been very instrumental in the development of the mortgage industry in Ghana and continues to be the number one home loan provider in the country.

The Bank has supported many Ghanaians home and abroad to access loans and own their homes for over 31 years and currently a partner of the National Housing and Mortgage Fund (NH&MF) where the Government of Ghana has provided funding to subsidize mortgage interest rates for Public Sector workers.