Business News of 2014-08-06

Restrict banks’ investment in gov’t securities - Analyst

Economic and Investment analyst, Kofi Arkaah is asking the Bank of Ghana to introduce a law to cap how much commercial banks can invest in government securities.
This follows reports of a number of banks who are currently investing heavily in government treasury bills, notes and bonds because of the high returns offered.
The Ghana Commercial Bank (GCB), for instance had about 50% of its total assets in government securities as at the end of last year.
This phenomenon is blamed by analysts on the low level of capital available to the private sector for growth.
The 91-day Treasury bill is currently at 25.0104% and 182-day at 26.2519%. Analysts have also predicted it could go as high as 30 percent by next year.
Kofi Arkaah told Citi Business News, this could significantly impede the growth of the private sector and the economy.
According to him “Bank of Ghana should implement a new regulation or policy which will cap the percentage of government’s assets they (banks) can hold on their balance sheet.”
“We can look at the numbers and do some modelling to figure out what the appropriate cap should be”, he said.
He stated that if this is done, there will be more capital available to the private sector.
“There, the banks will take on more risk, because they need to make returns.” However Senior Economist at the institute of Economic Affairs, Dr John Kwakye disagrees.
According to him, having the cap on how much commercial banks can invest will bring too many controls into the banking system.
“The limit should rather be put on the budget”, he said. “It should be placed on the budget deficit. You don’t blame banks for lending to government, it is a commercial (venture). You will be putting too many controls in the system. Let’s operate the market as it is”, he emphasized.
Dr kwakye indicated that the fact that banks do not want to lend to private sector or to agriculture or to small scale enterprises “is a market failure” “That doesn’t mean you should abolish the market. Government must recognize pockets of market failure,” he added.
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