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Business News Wed, 7 Aug 2019

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Single digit interest rate achievable – BoG Governor

Governor of the Bank of Ghana, Dr. Ernest Addison is confident Ghana can achieve a single digit interest rate once the banks drastically reduced the non-performing loans in their books.

In addition, he said a further reduction in policy rate would have an impact on the lending rate.

Dr. Addison in an interview also stated that since assuming his position as the Governor, the policy rate has reduced from 25% to 16% almost 900 basis points.

Though the central bank has reduced policy rates in successive years, borrowers are yet to experience a significant drop in the interest rates.

The average interbank interest rate according to the Bank of Ghana is about 15.2%, however most banks are lending to customers at a rate hovering around 25%.

The Governor who acknowledged these concern revealed that banks were cautious to reduce the interest rates due to the high concerns of the non-performing loans (NPL) on their books.

In his estimation, the reduction of the policy rate has had an effect on the lending rate “but we don’t think that we have seen the full impact and we think that the lending rate could probably go down a little more than where they currently are,” he said.

“If you talk to the banks, they will tell you about the non-performing loans is a major factor. If 24% – 25% of your portfolio is not performing then the rest of the 75% or so will have to generate enough resources to keep the bank going.”

The governor noted that “Until we are able to drive NPLs into single digit, it will be very difficult to push lending rates into single digits.

“This is where we want to go. We all want to see interest rates go into single digits; it means the non-performing loans will have to go down,” he explained.

Source: 3 News

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