Blame “greedy” banks for expensive credit - Fiifi Kwetey

Fiifi Kwetey, Minister of State in charge of allied financial services, says the high cost of borrowing in Ghana is the result of “greedy” banks.

Banks, he said, have always put up a new excuse for not bringing down their lending rates when economic conditions warrant so, frustrating the efforts of government to bolster the private sector.

“In November 2011, Treasury bill rates were as low as 9.1% but the lending rates did not come down. The banks then shifted the excuse to a high policy rate, which also came down to 13% from as high as 18.5%, but the lending rates never came down.

“Then they said that it had to do with high non-performing loans (NPLs), [but when] NPLs dropped from 22% to 13%, they went on to say they want to see a longer and more sustained stability in the economy before lending rates could come down.

“We are therefore talking about a pattern by the bankers which is absolute greed on their part. It is a natural private sector way of making money, which is short-sighted because over the long term it will be counterproductive as the more you do that the more your own default rate will be high,” Mr. Kwetey said in an interview with the B&FT.

He added that what is happening now is an obsession with short-term profits – that is achieved through keeping the saving rate low and lending rates high to raise prices.

“The banks are making profits not on the back of large transactions, higher creativity and productivity, but by driving prices high – and no economy can sustainably grow over the long term and see transformation and development if there is always an obsession with prices and short-term profitability.”

He bemoaned the inability of heightened competition to reduce rates in the banking industry, citing the example in the telecoms and aviation industries where competition is driving prices down.

“That is what is happening in the airline industry where some local players are crying that prices are coming down. The telecom industry is also experiencing the same thing. More and more entries are driving prices down and bringing in more productivity and creativity, thereby delivering greater services and products.

“That is what should be happening in the banking sector too, but it is sad that the banking sector in this country is not reflecting that theory despite the huge number of banks.”

The comments of Mr. Kwetey, who is a former Deputy Minister of Finance, are certain to incur the ire of the industry, which has often said that excessive government borrowing, which fuels high yields on Treasury bills, give banks an incentive to stash their cash in government paper rather than lend to the private sector. At best, they are compelled to set their lending rates above T-bill rates, banks say.

Asked whether these are not genuine concerns being expressed by the industry, Mr. Kwetey said: “What is happening now [in the banking industry] is not because of certain temporary difficulties with fiscal management. These are long-term concerns of the banking public. It has become a pattern for the bankers and this has gone on across decades rather than being temporary.”

The average interest rate on bank credit is 27.4%, according to the BoG. Worse, most Ghanaian borrowers have not known interest rates below 20%, while many often gripe about hidden charges and fees on their credit lines.

Mr. Kwetey said government’s hands are tied as it cannot compel banks, which are private businesses, to raise their saving rates or lower their lending rates.

“All we can do is to create an environment that drives more competition, and incentivise the banks to take the necessary steps to see to their own long-term growth, make sustainable profits and help the economy.”

He said his hope is for more innovative and long-term-oriented banks to come into the industry, which would force the existing banks to adapt quickly or be driven out of business. “That is the way to go; even though they don’t seem ready, they have to do it now or it will become too late.”