BoG orders banks to align interest rate with policy rate

The Bank of Ghana (BoG) has ordered commercial banks in the country to reduce their interest rates in tandem with the recent reduction of the policy rate.

The Monetary Policy Committee of the Central Bank in May announced the reduction of the policy rate from 23.5% to 22.5%. It is indicative of the rate at which the Central Bank lends to commercial banks.

Per the new rate, customers of banks envisage paying less on the loans they are servicing or intend taking from the banks. However, that is not the case and the Central Bank believes the development is unfair to customers.

Announcing the directive Wednesday, June 14, 2017, at the launch of the East Legon Branch of the Heritage Bank, Head of Banking Supervision at the Central Bank, Raymond Amanfu said: “we expect banks to respond favourably to the declining Monetary Policy rate and the Treasury bill rate.”

That, for him, will make “credit more affordable, help boost productivity and at the same time have a favourable effect on the structure of the non-performing loan of the bank.”

Reacting to the order, the Managing Director of Heritage Bank, Patrick Fiscian argued that aligning the interest rates to the policy rate will be quite arduous explaining, “it is a composite of your costs of funds, your overheads and the rate premium you attach to your facilities.”

“So, if you have a bank which has invested heavily in physical infrastructure, technology infrastructure as a result of which there is a huge cost base, the base rate cannot come down immediately because the policy rate is just one of the various components that is considered.

“So, yes it would take time for the policy rate to impact on the base rate because in the long term a lowering of the policy rate will reduce the costs of funds. But remember it is just one of the components of your base rate,” he added.