Interbank borrowing on the rise

Banks borrowing from each other or the central bank, otherwise known as repurchase agreements or repos, has hit GH¢145.7 billion in November 2016, which is a 451 per cent increase from the GH¢26.4 billion registered in 2010.

But some 73 per cent of the repos done this year happened among commercial banks, instead of with the central bank, at an average rate of 25.38 per cent, indicating deeper interbank collaboration.

The remaining 27 percent of the transaction was done with the central bank at a rate of 26.79 per cent.

Repurchase agreements are short-term instruments, usually overnight lending, used by banks and other financial institutions to meet cash or capital reserve obligations with the regulator, and improve liquidity.

Banks are required to declare a percentage in liquid funds of deposits they mobilise from the public, either in short-dated securities or in cash.

At the end of the day, if they do not have enough cash to declare to the regulator as cash reserve, they go to the market to borrow, which constitutes the repos.

Usually collateralised or backed by Government of Ghana (GoG) securities on the books of the borrower, the number of transactions has increased from 5,535 in 2010 to 7,062 as at November, 2016.

Stephen Tetteh, Chief Executive Officer of the Central Securities Depository, explained that collaborating in this manner, rather than relying on the Central Bank for short-term or overnight borrowing is good for business.

“This is very good for the market and industry. In the advanced countries, it is a very lucrative market where they use repos to manage their liquidity.

At the end of the day, if you have excess liquidity and it is sitting on your books, what do you use it for? But if you can get some small margin by loaning it to another institution that is short, then you get some small margin overnight,” he said in an interview with the B&FT.

“Maybe, you are expecting something tomorrow but today you are short, so you borrow today and when the funds come in tomorrow you pay off.”

From a low of GH¢26.4billion in 2010, the repos value went up to GH¢53.96billion in 2012, at a collateral value of GH¢56,99 billion with 5,806 transactions; and GH¢82.1 6 billion in 2013 at a collateral value of GH¢84.22billion, with 6,157 transactions.

In 2014, the figure shot up to its highest level so far of GH¢195. 79 billion, at a collateral value of GH¢211. 43 billion, with 9,985 transactions at an average rate of 21.4percent.

It, however, dropped slightly to GH¢183.29 billion in 2015 at a collateral value of GH¢186.92 billion, with 8,190 transactions at an average rate of 24.23percent.