First Capital Boss Advocates Legislation

Bringing down interest rates

First Capital Boss Advocates Legislation

The Chief Operating Officer of First Capital Plus, Mr. John Kofi Mensah has said that commercial banks in the country would bring down their interest rates provided there is legislation in place to compel the banks to lower their rate.

Speaking to Capitaline in an interview, John Mensah observed that the huge outlay in commercial banks’ balance sheet to acquiring or upgrading their physical assets such as property and equipment is a major contributing factor to high interest rates.

Mr. Mensah therefore noted that if Ghanaians want to see interest rates down, then, there must be a legislation that will debar banks from using customers’ deposits to acquire capital assets (CAPEX).

Instead, he said shareholders funds should rather be used for acquisition of CAPEX.

He noted that the legislation should spell out the ratio to which a particular fund could be applied to a particular investment.

In 2004, President Kufuor’s government through the Bank of Ghana directed commercial banks to review their rates downwards but that directive short-lived because the direction had no legal backing.

Also there were several persuasions from businesses and individuals to the banks to reduce their interest rates to an appreciable level but to no avail.

However, it has been very difficult to assign particular reason to Ghana’s high lending rates as against low deposit rates. Deposit interest rate in Ghana is averagely 5 percent across all commercial banks.

The banks have attributed the high interest rates to high default rate in payment of loans, high overhead costs and inflation.

Currently, Ghana’s real interest rate is hovering between 20 percent and 35 percent compared with an average rate of 3.5 percent in developed countries, 3.4 percent for Asia emerging economies and an estimated18 percent for sub-Sahara Africa.

In view of the anxiety surrounding interest rates in the country, Mr. Mensah is putting a write-up for consideration to Bank of Ghana.

The current high interest rate situation has accounted for slow growth rate of the economy as private businesses are unable to borrow at a lower rate to expand their businesses so as to create employment to absorb the unemployed masses.

The Bank of Ghana is yet to conduct a thorough investigation into the high lending rates charged by the banks in Ghana as against low deposit interest rates rates.

John Kofi Mensah holds an MSc. degree in Banking and Finance from FINAFRICA in Milan, Italy and a BA degree in Economics and Statistics from the University of Ghana, Legon.

He has over twenty years experience in all areas of banking especially Treasury Management, Credit Management and Foreign Operations.

Before joining First Capital Plus, he was the Deputy Managing Director of UniBank Ghana Limited responsible for the day to day management of the bank’s operations.

Prior to joining UniBank he worked at International Commercial Bank as the General Manager/Deputy CEO and supervised the organic growth of the bank.

He has also previously worked with the erstwhile Bank for Housing and Construction as well as Securities Discount Company Limited.