The banking sector in Ghana recorded its lowest average lending rate of 28.8% in the fourth quarter (Q4) of 2024, marking a slight decrease from the 28.8% recorded in Q4 2023.

This was the lowest rate across all lending institutions, according to the latest data from the Bank of Ghana.

Among the various financial institutions, banks remained the most competitive in terms of lending rates. The average lending rate for secured loans by banks stood at 28.6% in Q4 2024, marginally lower than the 28.8% recorded in Q4 2023.

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Finance and Leasing companies followed with an average lending rate of 33.1% in Q4 2024, representing a notable decline of 5.7 percentage points from the 27.4% recorded in Q4 2023. Similarly, Rural and Community Banks saw a slight drop in their lending rates, recording an average of 33.5% in Q4 2024 compared to 34.4% in Q4 2023.

However, Micro Credit Companies experienced a marginal increase in their lending rates, rising to 49.5% in Q4 2024 from 47.7% in Q4 2023. Savings and Loans Companies witnessed a slight reduction, with their average lending rate declining from 44.1% in Q4 2023 to 43.0% in Q4 2024.

Microfinance Institutions also saw a decline in their lending rates, dropping from 51.1% in Q4 2023 to 46.5% in Q4 2024. Finance Houses continued to charge the highest lending rates, with an average of 59.4% in Q4 2024, though slightly lower than the 60.3% recorded in Q4 2023.

Sectoral Distribution of Secured Loans

The Commerce and Finance sector remained the highest recipient of secured loans in Q4 2024, accounting for 44.1% of the total value. This marks a marginal increase of 0.8 percentage points from the 43.3% recorded in the same quarter of 2023.

The Construction sector followed closely, receiving 19.2% of the total secured loans, while the Services sector accounted for 15.9%. The Manufacturing sector secured 4.8% of the total loans, reflecting the continued demand for financing in Ghana’s industrial landscape.

Other sectors that received secured loans included Information & Communications, which accounted for 3.9%, and Mining & Quarrying, which received 2.9% of the total secured loans. The Agriculture, Forestry, and Fishing sector obtained 2.2%, while the Electricity, Gas, and Water sector secured 1.2%.

Cottage Industries, a vital sector for small-scale entrepreneurs, received only 0.2% of the total loans, reflecting limited financing options for smaller enterprises. The Transport and Haulage sector accounted for 0.9%, while the remaining 4.8% was distributed among other sectors.

Implications of the Declining Lending Rates

The decline in lending rates, particularly among banks and other lending institutions, suggests a shift towards a more favorable borrowing environment. The reduction in rates can be attributed to improved monetary policies, enhanced liquidity in the banking sector, and increased competition among financial institutions.

For businesses, the lower lending rates present an opportunity for expansion and investment. The Commerce and Finance sector’s dominance in accessing secured loans underscores the growing demand for trade financing, which is critical for sustaining Ghana’s economic growth. Similarly, the significant share of loans allocated to the Construction and Services sectors highlights continued investment in infrastructure and service-oriented industries.

Despite the reductions in lending rates, some institutions, particularly Finance Houses and Micro Credit Companies, continue to charge higher rates, making borrowing relatively expensive for small and medium-sized enterprises (SMEs). The high cost of credit remains a challenge for entrepreneurs seeking to scale their operations.

Moving forward, businesses must leverage the lower lending rates to boost investments, while policymakers and financial institutions should continue working towards a more inclusive credit system. With a stable macroeconomic environment, Ghana’s lending landscape is poised for further improvement, supporting sustainable economic development.