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19.04.2008 Business & Finance

High interest rates stun private sector

High interest rates stun private sector


Some private sector operators have expressed shock and surprise at the high level of interest rates charged by financial institutions in the country which shows a wide gap between interest on deposits and that on lending.

The publication indicated the highest difference between the interest banks offer on deposits and what they charge on advanced funds, otherwise known as the spread, to be 36.05 percent and the lowest being 32.01 percent.

They said the publication by the Bank of Ghana displaying the annual percentage interest rates on lending to individuals and corporate bodies as well as interest paid on customers' deposits was a laudable exercise which should be continued and regularized.

The Presidents of the Association of Ghana Industries (AGI) and the Ghanaian-German Economic Association (GGEA), Messrs Tony Oteng-Gyasi and Stephen Antwi respectively, and an entrepreneur, Mr Francis Koranteng, were among those who commended the Bank of Ghana for the novelty.

"This is one sure way of introducing a regime of competition among the banks. It will get the public and the banks to react and every borrower, whether individual or corporate, will look at these numbers," Mr Antwi stated.

The annual interest rates and interest on deposits were published by the Bank of Ghana last week as a way of getting banks to lower their rates as the investing public begins to react to it.

Until the publication by the Bank of Ghana, most banks only displayed and tried to undo one another with base rates, but the actual interests they charge together with hidden fees are however the overwhelmingly high figures that are often confidential and only known to the borrower or a few.

The lowest deposit average interest rate was three percent by BPI, which charges annual average interest rate of 29.59 percent for individuals and 39.05 percent for businesses.

The highest interest rate on deposit was offered by the National Investment Bank, (NIB) at 8.99 percent for the year. The bank also charges the highest interest rate of 41 percent for credit to individuals.

When it comes to loans to corporate bodies, BPI Bank's rate was the highest at 39.05 percent.

Agricultural Development Bank, (ADB) charges the least interest rate for corporate bodies at 22 percent and gives 5.55 percent per annum interest on deposits.

HFC Bank also charges the lowest interest rate for individuals at 23.39 percent, while offering 5.94 percent interest on deposits.

"It is useful because there was a lack of transparency which made it difficult to compare and I am very surprised to see the various figures," Mr Koranteng, who is also the Managing Director of Crocodile Matchets said.

The GGEA President, who is also a management consultant, said the figures should be published on regular basis and if possible on fixed days, and suggested the first Monday of every month, a view Mr Koranteng supported.

"This will force the banks to re-organise themselves and also help the customer to make informed choices. This is definitely welcome news for the private sector.”

But he contends that the publication did not portray the entire picture as issues of customer service, speedy transactions and other qualitative indices could all not be captured in it.

"This is just the start and I hope that with time, the Bank of Ghana will be able to calibrate other indicators such as average transaction time," which he said, the Central Bank could send mystery customers to do business at the banks so as to capture their average service delivery quality and speed.

Most respondents to the Daily Graphic agreed to a suggestion that it could cause customers to switch banks and therefore deepen the competition.

Mr Oteng-Gyasi was not happy about the wide-spread, which he described as "unconscionable."

For him, much money was kept outside the banking system because the banks discouraged it with low interests on deposits.

The AGI President called for the closing of the interest gap between deposits and lending so as to attract more funds into the banking system, when the financial institutions offered deposit investment instruments.

Mr Oteng-Gyasi has been calling for the lowering of interest rates in the country, saying the influx of banks was not only due to improvements in economic conditions, but also because the country had become a haven for banks to make "cool" profits which they often repatriated to their home countries.

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