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Average lending rate up marginally in February 2021

March 25, 2021
Stephen M.Cby Stephen M.C
in Banking
0
Average lending rate up marginally in February 2021

The average lending rate of Ghanaian banks went up marginally to 21.02% in February 2021, up from 20.97% in January 2021.  This signifies that the cost of borrowing increased in February. The current lending rate is, however, lower than the 23.37% recorded in the corresponding period of 2020. Meanwhile, November recorded the lowest average lending rate of 20.95% in 2020.  This was very much below the overall average lending rate of 21.7% in 2020.

Despite the marginal reduction in the average lending rate of universal banks in Ghana over the past year, the cost of borrowing is still high. The Ghana Traders Association (GUTA) has on several occasions called on the government to reduce the lending rate in the country.  According to GUTA, the average lending rate in Ghana is high compared to other countries in the sub-region.  Despite housing the secretariat in Ghana, GUTA believes that its members may not be able to take full advantage of the AfCFTA.  This is as a result of the high cost of borrowing. 

  • AfCFTA is very good for us, only that we are not ready- GUTA

MPC Maintains Policy rate

Recently, the Monetary Policy Committee (MPC) of the Bank of Ghana has maintained the policy rate at 14.5%.  The Central Bank has kept the prime rate at this level since March 2020, down from 16% in February 2020. This was part of its policy measures to mitigate the impact of the pandemic on businesses and households.

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Reacting to the Bank’s decision, Mr. Franklin Cudjoe, Founding President and CEO of IMANI Centre for Policy and Education, echoed the concerns raised by GUTA.

“The Monetary Policy Committee has maintained the policy rate at 14.5%. We congratulate them. However, this means your average interest rate from your commercial banks will be 23%”.

Franklin Cudjoe
Mr. Franklin Cudjoe

 Mr. Cudjoe therefore indicated that at this rate, it will be impossible for Ghanaian businesses to compete with all imported products from some African countries. This, according to him, is because their average lending rates are lower. Some of the countries he cited with their corresponding interest rates include:

Morocco–4.420%; Egypt– 8.25%; Algeria–8%; Tunisia- 6.7%; Nigeria 11.25%; South Africa 7.25%; Ethiopia -7%; Kenya -12%; and Bostwana -5%.

“So, you can house the Secretariat of AfCFTA and adorn it with flowers from Koforidua for all we care.  But when it matters most, your Ekumfi juice cannot compete with juice from any of the above countries on price”

Franklin Cudjoe

Banks insensitivity to the prime rate

Meanwhile, there are concerns from a section of the general public that Ghanaian Banks are insensitive to a reduction in the policy rate. That is, the banks are unwilling to reduce their lending rate to be in line with the revisions in the prime rate.  Banks, on the other hand, cited the high risk of loan default as one of the reasons behind their actions. 

The Non-Performing Loan (NPL) ratio is often used to measure the magnitude of existing and potential credit risk associated with the loans.  In Ghana, the rate of NPLs is quite alarming. Data from the World Bank show that the average NPL ratio for 23 African countries in 2019 was 10.99%. The NPL ratio was as low as 3.3% in Lesotho. Meanwhile, according to data from the Bank of Ghana, Ghana’s average NPL was 17.7% in 2019. This has, however, declined to 15.2% in 2020.  

Recently, NPL has gone up marginally to 15.3% in February 2021 from 14.7% in January. Even though it is still above pre-COVID levels of 13.8% in February 2020, the BOG attributed the rise to the general pandemic-induced repayment challenges. However, the central bank also acknowledged some bank-specific factors as possible reasons for the rise.

READ ALSO: What to expect as Finance Minister-Designate Faces Parliament today

Tags: Average lending rateBank of GhanaFebruary 2021GUTAMonetary Policy CommitteeMr. Franklin Cudjoe
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