Ghana’s banking sector is experiencing a notable shift in borrowing costs, with new bank loans now attracting interest rates as low as 9%, according to the Chief Executive Officer of the Ghana Association of Banks, John Awuah.
The development comes despite the Bank of Ghana maintaining its monetary policy rate at 14% since March, highlighting how broader financial conditions are influencing the cost of credit.
Mr Awuah said the decline in commercial lending rates, combined with strong private sector credit growth, provides evidence that banks are responding to improved monetary conditions.
Speaking at a post-Monetary Policy Committee policy discussion organised by the Chartered Institute of Bankers Ghana, he challenged perceptions that banks have become reluctant to lend to businesses and individuals.
“Contrary to perhaps public view that banks are not lending, banks are interested in this or that, there is actually evidence on the ground to suggest that banks are lending.”
John Awuah
New Loans Fall Into 9% to 12% Range
The most striking aspect of the current lending environment is the difference between average lending rates and the rates available to new borrowers.
Mr Awuah explained that while the average commercial lending rate has fallen to 15.9%, new loans are being priced substantially lower. “If you are taking real exposures on the books, new exposures, you are talking about between nine and 12 %,” he stated.
This represents a significant change from lending conditions experienced over the past year and a half. It also indicates that borrowers entering the market today may be benefiting from lower funding costs than customers with older loans.
The average 15.9% lending rate still incorporates legacy exposures that were priced under earlier financial conditions. New credit, meanwhile, is increasingly reflecting the easing that has taken place across the financial system.
Lending Rates Decline Despite 14% Policy Rate
Mr Awuah pointed specifically to the period between March and September, when the Bank of Ghana maintained its benchmark policy rate at 14%.
“Between March and September, the policy rate has been kept at 14 %. But I can tell you between March and September, bank lending rate has continued to decline from upwards of 18% somewhere in March to around where we are now, where we’re talking about 15.9.”
John Awuah
The decline suggests that movements in commercial lending costs are not determined solely by the headline policy rate.
Banks also consider funding conditions, credit risk, liquidity, competition, borrower quality and other factors when pricing loans. As these conditions improve, lending rates can fall even when the central bank leaves its benchmark unchanged.
Private sector credit growth has also strengthened, with Mr Awuah citing Bank of Ghana data showing real year-on-year growth of 29%.
That expansion provides another indication of increased credit activity within the economy.
High NPLs Still Threaten Cheaper Credit
Despite the improvement in borrowing costs, Ghana’s banking sector continues to face a major challenge from non-performing loans.
Mr Awuah put the sector’s NPL ratio at approximately 15.8%, considerably higher than the figures he cited for neighbouring and comparable markets.
“The non-performing loan ratio in Togo is under 10 %. The non-performing loan in Côte d’Ivoire is under 7 %. The non-performing loan in Nigeria is under 9 %, and Ghana, we are clapping at 15.8%.”
John Awuah
He used the situation to demonstrate how loan defaults can directly affect banks and ultimately influence the price of credit.
“For every 100 cedis of your money that we give out, we are likely going to lose 16 cedis. That is how, if you express it in cedis, it tells the story better.”
John Awuah
A high level of bad loans means banks must account for greater credit risk when extending new facilities. That risk can eventually be reflected in the interest rates charged to borrowers.
Recovery Delays Keep Credit Risks Elevated
Mr Awuah also pointed to challenges surrounding the enforcement and recovery of collateral as an important factor affecting lending.
Although the Borrowers and Lenders Act provides a framework for collateral enforcement, legal disputes can delay recovery when borrowers default.
“What do we see? A bank uses the Borrowers and Lenders Act, notifies the collateral registry, notifies the court that this customer has met all the conditions for recovery and therefore the underlying asset is going to be disposed of. What do we see? They run to the court.”
John Awuah
He argued that faster and more effective recovery processes would help banks recycle funds into new loans instead of keeping capital tied up in distressed exposures.
“Why it is important to do that is so that the next borrower does not suffer, so that the bank is enabled to be able to give funding to the next borrower,” he explained.
Banks Say Cheaper Credit Remains Possible
Mr Awuah maintained that lending is fundamental to the existence of commercial banks and rejected suggestions that banks deliberately avoid extending credit.
“Our job is to financially intermediate. The day we fail at that job, we don’t have banks, but we need the system to facilitate that. Tomorrow, a bank will pick up the phone and tell you, ‘Ellen, there’s a funding for you. We’ve looked at your credit history. We think you deserve one million Ghana cedis at 5 per cent.’ And then you come for it. That is why we exist. Banks do not shy away from lending because that is a piece of cake.”
John Awuah
His comments place the debate over expensive credit within a broader framework that includes loan recovery, credit risk, borrower quality and the wider business environment.
With new loans already reaching rates between 9% and 12%, further improvements in these areas could have an important bearing on how cheaply banks can extend credit to businesses and households.
The developments also show that the transmission of monetary policy can continue through the banking system even when the policy rate remains unchanged, as banks adjust their pricing in response to changing market conditions.
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