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15.06.2005 Business & Finance

Lower reserve requirements for commercial banks


Accra, June 15, GNA - Mr Simon Dornoo, Head of Treasury at the Barclays Bank, Ghana, on Wednesday appealed to the Bank of Ghana (BoG) to consider lowering the high reserve requirement for commercial banks. This, he said, was important if the commercial banks were to play their financial intermediation roles adequately.

Speaking to the Ghana News Agency in an interview in response to a call by the Monetary Policy Committee (MPC) to commercial banks to consider reducing their lending rates in response to the prime rate, Mr Dornoo said a lot of factors came into play before commercial banks fixed their rates.

He said commercial banks were required to keep a reserve of 35 per cent for investment in Government bonds and shares and nine per cent to be in local or foreign cash.

Mr Dornoo said commercial banks had a high operation cost, which included overhead cost. He said most commercial banks had responded favourably to the MPC call by reducing their rates by about two per cent to about 23.5 per cent.

He said the reduction should be gradual in order to minimize any interest rate risk since the "banks do not profit from volatility. Significant movement in rates could be disastrous for the banks". Mr Dornoo said that even though the country's economy was currently enjoying some level of stability, it was only proper and prudent for the reduction in rates to be gradual. He said commercial banks were operating in a difficult environment but they remained committed to the vision of the Central Bank to establish a prudent monetary framework to achieve single digit inflation.

"Not all is that rosy for the commercial banks in the country. The penetrating level for most of the commercial banks today is so low that it makes it difficult for any abnormal profit to be made." Mr Dornoo noted that these were challenging times for the banks saying; "the era of high returns is gone".

He expressed concern about the low penetration levels of the banking industry noting that in Ghana less than 10 per cent of the active population had bank accounts.

"It is unfortunate that an industry that is over 100 years old has only managed to attract just over one million customers." On high minimum deposit requirements from customers, Mr Dornoo said Barclays Bank could currently do little about the situation because of high operating costs but added that competition for deposit would continue to act as an effective check on banks that sought to raise their minimum deposits.

He, however, said the success of the banking industry depended largely on the direction of the economy.

Mr Dornoo debunked the allegation that Barclays Bank's loan portfolio favoured corporate customers at the expense of individuals. He said contrary to the perception that the Bank only gave out loans to large cooperate bodies, Barclays was very much involved in unsecured personal loans and Small Medium Enterprise segments of the market.

Mr Dornoo urged businessmen to adopt the practice of polling their resources or go into partnership to make it easier for them to raise loans from the banks.