The cost of credit for companies in Ghana remains high, with all banks in the country unable to offer corporate loans at rates below 30%.

Businesses seeking loans from banks are facing interest rates as high as 50%. This situation is exacerbated by the risk these high rates pose to the solvency of banks, leading to an increase in non-performing loans.

According to the latest report from the Bank of Ghana (March 2024), no bank is offering loans to companies at rates below 30%.

Whether a loan is for one year, three years, or five years, companies are paying interest rates between 30% and 47%, compared to the industry average of 30.45%.

One-year Loan Rates

For instance, if a company sought a one-year corporate loan, the most favorable rate available was from Standard Chartered Bank, offering the credit facility at 32.71%.

Following closely were CalBank PLC (33.07%), GCB Bank Limited (34.00%), OmniBSIC Bank Ghana Limited (33.06%), and Ecobank Ghana Limited (34.45%).

Agricultural Development Bank Ghana Limited offered the highest rate for this duration at 42.94%. First National Bank (Ghana) Limited and Universal Merchant Bank Limited trailed with rates of 40.47% and 40.03% respectively.

Three-year Loan Rates

For loans spanning three years, the four banks offering the lowest rates were United Bank for Africa (Ghana) Limited (32.46%), Standard Chartered Bank (Ghana) Limited (32.71%), OmniBSIC Bank Ghana Limited (33.06%), and FBNBank (Ghana) Limited (33.20%).

Once again, Agricultural Development Bank Ghana Limited had the highest rate at 42.81%.

Rates from other banks included Stanbic Bank Ghana Limited (39.23%), Prudential Bank Limited (37.29%), Societe Generale Ghana (35.45%), and Access Bank Ghana Plc (35.38%).

Five-year Loan Rates

For loans extending over a five-year period, only Access Bank Ghana Plc’s rate differed by just 0.23 points from the industry’s average, standing at 30.22%.

Other rates for this duration were as follows: Societe Generale Ghana PLC (31.00%), GCB Bank Limited (32.20%), Standard Chartered Bank (32.71%), Prudential Bank Ghana Limited (36.36%), Zenith Bank (Ghana) Limited (37.29%), and Fidelity Bank Ghana (37.32%).

Again, Agricultural Development Bank Ghana Limited maintained its position with the highest lending rate in this category, at 47.24%.

While most banks offered rates around these figures, some did not provide any loans at all under any of the specified tenors during the period under review.

The soaring cost of borrowing is greatly hindering companies’ capacity to invest, grow, and effectively manage their cash flow.

Factors Affecting Rates

Various factors, including the prevailing economic conditions, monetary policy rates, and inflation levels fuel this surge.

The combination of these factors has severely constrained companies’ ability to make timely repayments, resulting in a surge in non-performing loans for banks.

By February 2024, non-performing loans (NPLs) had reached a concerning 25%, indicating that a quarter of the loans extended by banks may not be fully recovered.

Although the financials of banks are showing a strong recovery from the Domestic Debt Exchange Programme (DDEP)-induced losses, their profitability remains at risk due to bad loans, which could have a greater impact on the stability of the overall financial sector.

Funding Alternatives

Companies facing high borrowing costs may need to consider alternative funding avenues, such as issuing bonds or equity or obtaining loans from non-bank financial institutions.

Meanwhile, banks need to enhance their risk assessment processes for corporate borrowers by bolstering their credit underwriting systems.

Banking Consultant Dr. Richmond Atuahene attributes part of this situation to the government’s failure to settle debts owed to contractors.

The Annualized Percentage Rate (APR), comprising the interest rate and additional fees associated with the loan, serves as a crucial metric for borrowing from financial institutions. It enables borrowers to grasp the total expense of borrowing from a bank.