Bank rates go up as cedi falls further

The Business Finder can confirm that banks in the country are raising their base rates citing high operational costs and developments on the foreign exchange market among others.

The Standard Chartered Bank, for instance, has announced an increment of 2.5 percent in its base rate effective May 1, 2015. The bank, however, maintains that the increment will affect only customers with loan accounts.

Customers of the bank have confirmed receipt of a notice in­forming them of the said increment.

A source close to the bank told the Business Finder that recent developments in the macro-eco­nomic environment coupled with the monetary stance of the Bank )f Ghana (BoG) regarding the local currency have necessitated he move.

While some banks, pleading anonymity, revealed to this paper that they had raised their base rates by mid-March, others said they were most likely to review their rates upwards in the coming weeks.

"As the dollar gains more value against the Cedi, the base rate is likely to be reviewed so we are likely to increase our rates n the shortest possible time," a major bank has said.

The Monetary Policy Committee of the BoG in February, this year, maintained its policy rate at 21 per cent attributing it to the drop in the risk to inflation resulting from lower oil prices on the world market.

It will be recalled that the BoG in November 2014 increased the policy rate by 200 basis points to 21 per cent from 19 percent and attributed the hike to moves to help tame inflation which at the time stood at 16.9 percent, the highest since March, 2010.

Inflation for the first month of this year, January dropped to 16.4 per cent from the 17 percent recorded in December 2014 but rose marginally to 16.5 per cent in February 2015.

Customers who have signed on to loan facilities will be re­quired to pay more in terms of the cost of servicing the loan and for businesses, especially small and medium scale enterprises (SMEs). This development is a serious concern as SMEs constitute the backbone of the Ghanaian economy.

President of the Association of Ghana Industries (AGI), Mr James Asare Adjei remarked "we are in big trouble now."

Banking expert, Nana Otuo Acheampong suspects that banks are coming up with measures to control the risk of loan defaulting customers.

Banks, in determining interest rates consider the risk factor, the risk of people defaulting and ad­just the rates accordingly.

"The power crisis has in­creased the propensity of default. It is not that people do not want to repay the loans but they are put into a position that barely gives them the breathing space to repay," he explained.

Businesses budget to spend specified amounts of money on electricity for a year. If the amount doubles beyond what obtains in the budget due to the fact that operators will have to power their generators to stay in business then it has dire implications for loan repayment.

"Since expenditure has gone up and income has dipped, the ability to repay a loan facility is weakened. Someone who must pay a GHC1,000.00 per month may be able to part with only GHC500.00 while the other GHC500.00 will be attracting inter­est," Nana Acheampong ex­plained.

Concurring with the experienced Banker, money market analyst, Nana Agyeman Gyamfi adds that beyond stem­ming the incidence of high loan defaults the moves by the banks are attributable to the mounting pressure on the Cedi.

In his view, the monetary policy stance of the BoG on the Cedi could make the local currency unattractive to investors and could result in further depreciation.

He noted that the cedi's predicament which has partly culminated in high bank rates is as a result of the lack of investor confidence in the economy.

"Once investors have confidence in Ghana's economy and are sure that things will improve , those who are rushing for the dollar and putting pressure on demand will free up the currency on the market," he ex­plained.

According to Nana Gyamfi, inflation is further fuelled as im­porters trade at higher prices due to the depreciating cedi against the dollar and other major trading currencies.