Banks charge up to 5 times what they offer depositors

Despite the concerted efforts by the Bank of Ghana (BoG) to get the country’s universal banks to reduce their lending rates, which requires a reduction in the interest rate spread they demand, the latest compilations of annual percentage lending rates and average interest paid on deposits, released by the Central Bank shows that deposit money banks still insist on demanding some of the highest interest spreads in Africa.

The latest BoG survey revealing the interest rates paid and demanded by the universal banks dated July 31, 2013 shows that many banks make interest rate spreads of over 20 percent and in some cases these reach as high as 25 percent.


The rates compiled by the Central bank are effective rates, rather than published ones, since they include the annualized effects of fees charged by banks on the loans they give such as management, facilitation and commitment fees.


Average deposit rates charged range between 3.92 percent which is the lowest as offered by Agricultural Development Bank (ADB) and 15.39 percent as offered by the Guaranty Trust Bank.


However base lending rates which are the rates charged by each bank on loans given to their most favored customers range between 10.61 percent, charged by Bank of Baroda and 26.55 percent demanded by Fidelity Bank.


Effective lending rates themselves however are considerably higher than the base rates announced by each bank. For instance, the lowest lending rate charged by a bank for loans to agriculture is 22.23 percent, charged by Bank of Baroda, while the highest is 36.26 percent charged by CAL Bank.


Similarly, with regards to lending to the manufacturing sector, the lowest average rate charged is 22.23 percent again charged by Bank of Baroda, while the highest is 36.26 percent again charged by CAL Bank. Both the lowest and the highest average lending rates are replicated by the same banks in their lending to the construction sector.

However the lowest average rate charged to enterprises engaged in commerce is Access Bank’s 20.46 percent while the highest is Bank of Africa’s 38.02 percent.


The widest spreads between the average deposit rates and average lending rates are those of Energy Bank (29.29 percent), Societe Generale (26.68 percent), CAL Bank (26.49 percent), ADB (26.22 percent) NIB (26.07 percent) HFC bank (25.53 percent) and UT bank (25.48).


The sheer magnitude of the interest spreads demanded by the universal banking industry is duplicated in the transactions with households.


For vehicle loans the average annual interest rates demanded range between 36.26 percent demanded by CAL bank and 24.18 percent charged by Standard Chartered Bank. The highest average interest rate on mortgage loans is Cal Bank’s 36.26 per cent while the lowest is International Commercial Bank’s 23.04 per cent. For other consumer credit the highest is Cal Bank’s 36.62 per cent while the lowest is ICB’s 23.04 per cent.


Again, several banks demand interest spreads of over 25 per cent in terms of the difference between their average deposit rate and their average lending rates to household borrowers. These include Barclays Bank (31.27 per cent), Cal Bank (26.47 per cent), Energy Bank (29.74 per cent), HFC (27.63 per cent), and NIB (26.07 per cent).


The International Monetary Fund recently released a study that reveals that on average banks in Ghana insist on interest spreads of about 18 per cent which is very high compared to most other banks in Sub-Saharan Africa. This compares with average spreads of about 12 per cent in countries such as Kenya and Zambia.