We’ll address high cost of lending— BoG

The Bank of Ghana (BoG) will look into issues raised by experts concerning the regulation of the banking industry and take appropriate action, Franklin Belnye, Head of Banking Supervision at BoG has assured.

Responding to calls from the Institute of Economic Affairs (IEA) for the central bank to regulate the banks to address the high costs of lending, Mr. Belnye said there was the need to clearly define regulation since the bank had moved from the era of control, which it would not like to go back to.

Mr. Belnye, who was speaking at the Ministry of Trade and Industry (MOTI) and the IEA forum on “The high cost of credit: Implications for Ghana and the way forward”, said the central bank could only take an industry-wide look at the issues of some unreasonable fees and charges in the banks and address them.

“We have engagements with the banking sector, they meet every quarter so if we come to the conclusion that those charges are not right, such as those for repaying your loans, and see how widespread and pervasive it is in the industry, then we make provision for management.”

“If that’s what they mean by regulation, because we don’t want to go back to the time when we fixed charges for banks, but regulation will be trying to see whether certain fees and charges are reasonable and whether they are uniformed and comparable across the industry,” he stated.

Mr. Belnye according to the Ghana News Agency said the central bank was very interested in reducing the high costs of lending that prevailed in Ghana as the situation was not good for a growing economy like Ghana.

He stressed however that the situation was attributable mainly to the fiscal deficits, which the country had run for several years now, but added that, the bank was currently working on addressing some of the challenges in the review of its base rates formula, as well as the review of the law on the central bank.

Other panelists at the session, including Dr. Eric Osei Assibey, Lecturer at the Economics Department of the University of Ghana, and Professor Felix A Asante, from the Institute of Statistical, Social and Economic Research of the UG, also stressed the need to address the disconnection between Ghana’s monetary policy, run by the Central Bank and the fiscal policy by the government, as this had an impact on inflation and interest rates.

Dr. Eric Osei-Assibey said there was a need for the central bank’s policy to be transparent and consistent and for the bank to be independent of government.

This, he said, was important because the BoG’s inflation targeting regime used the policy rate to anchor an inflation rate, which in turn serves as a benchmark for interest rates.

“The independence of the central bank itself is very important in trying to achieve the targets of the policy, and I believe this is one area that is not helping the central bank to achieve its inflationary targets,” he stated.

Dr. Osei-Assibey explained that when the bank is not consistent with its own policy, it is likely to fall into policy inconsistency problems, where banks and other financial agencies consistently set their rates based on the BoG’s published inflation target and policy rates.

This leads to banks not believing the bank when it sets inflation targets and rather goes ahead of the bank to fix their own inflation rates at higher rates. “That expectation of higher inflation will disable the central bank in achieving its own lower rate because it will itself ensure that inflation overshoots its target.”

He noted that countries which had been able to maintain low inflation rates were those whose central banks were truly independent and strong and did not finance government deficits or pegged such finance at some levels.

Although the BoG was allowed to fund government deficit only up to 10 per cent of previous year’s revenue, it had funded about 30 per cent as at last year.

He stressed the need to make the bank independent so it can better carry out the inflation rate regime.

Dr. Tony Oteng Gyasi, who chaired the session, also advocated the inclusion of economic history in the academic curriculum in universities since it would help economists to know what happened in the past, what measures were instituted to address it, what worked and what did not work in order to better handle new challenges.