The reduction in Monetary Policy Rate (MPR) by the Monetary Policy Committee (MPC) of the Bank of Ghana as a response to the negative shocks brought about by the coronavirus pandemic has not reflected in the borrowing rates at which commercial banks lend, as they remain high.
These comments were made by the President of the Ghana Union of Traders Association (GUTA), Dr Joseph Obeng when lamenting on the high cost of borrowing in Ghana, adding that if this situation is not properly addressed by the government as a matter of urgency, it would affect the competitiveness of Ghanaian businesses on the global market.
Speaking in an interview, Dr. Obeng intimated that it behoves on the government to quickly respond to the sentiments of traders and urge mainstream commercial banks to reduce loan rates, or risks having Ghanaian businesses lose out in the competition when Africa commences its free market project.
Currently, with an MPR of 14.5 percent, lending rates hover around an average of 20.9 percent for commercial Banks and inflation rate stands at 9.8 percent.
“Government has done a lot by bringing down the base rate but it is not trickling down on the commercial rates, and that is difficult for us to understand why the gap is too big,” he whined.
The banks usually assert that the high-interest rates are due to the higher risks associated with the failure of local businesses to honour repayments of loans, Dr. Obeng mentioned emphasizing that such excuse was not tenable since it is the responsibility of banks to do the due diligence needed before loan disbursements.
Going further, the GUTA President opined that the government has failed to institute a compelling mechanism for banks to apply flexible interest rates for businesses, and as such advised that the “government should, if possible, introduce a parallel bank which would subsidise credit” to support businesses.
The timely intervention by the government would alleviate the plight of businesses in financing their trade, and would go a long way to give local manufacturers the financial boost needed to augment production, Dr Obeng pronounced.
“Recent events have rendered many businesses challenged, and most of them are on the verge of bankruptcy,” he howled as the “seeming banking crisis in 2018” coupled with the consequences of the COVID-19 pandemic have negatively affected many local traders making it more imperative for the government to intervene with a drastic alleviation measure.
“The stimulus package that was introduced by government which was originally intended for about 200,000 people, at the end of the day, over 850,000 people subscribed to it. It shows how much people need credit to do their business,” he revealed.
Now Ghanaians go as far as reaching out to their business partners and families overseas to access loans in such countries because of their lower rates, he said.
The President of GUTA further emphasised that with the advent of the Continental Free Trade Area, which is intended to promote the trading and consumption of locally produced goods, if the issue of the cost of borrowing is not addressed, the effort would be futile.
“If you import from outside, suppliers there are getting their credit for 3-5 percent, and here our credit cost is 23 percent. It means that Continental Free Trade or not, they have an advantage of about 20 percent to edge you out, even if duties are not demanded from you”.
