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30.11.2005 Business & Finance

Private sector borrowing still disappointing

By Statesman
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PRIVATE sector businesses are expected to access credit from the banks due mainly to the reduction in the base rate of Commercial Banks and Government's pragmatic fiscal policies aimed at making the sector the engine of growth. However, the operators in the sector are not ready to borrow.

Currently, the base rates for most Commercial Banks are between 20.99% percent and 23.5%. The secondary reserve requirement for banks now stands at 15 percent, a more than 100% cut from the previous level of 35%. Further, the requirement that the banks must hold 15 percent of their deposits in the form of medium term securities has been abolished, making money available to them to extend credit.

However, The Statesman's investigations at the commercial banks indicate that businessmen are not accessing loans as expected although the banks are prepared to give out long term loans in order to increase productivity and create employment in the country.

As of September this year, ¢3.336.2 billion of credit had been extended to the private sector through the Deposit Money Banks and more are available even as the base rate keeps declining.

Out of the total, commerce and finance, manufacturing, services and import trade sector dominated and accounted for about 93.9% of the credit within the period. Ironically, credit to agriculture and export trade recorded single digit percentages.

Asked why the private sector is not taking advantage of these facilities, a commercial bank manager said very little concrete follow up enquiries have been made about the possibility of accessing loans.

''They are either interested in where to invest their money to earn higher interest instead of asking for credit for expansion or improved productivity.” The Central Bank, by their stringent monetary policies, have recently made more than ¢3 billion available to the banking sector for their operations. Besides, Government has reduced its borrowing from the commercial banks, a situation that has enabled the banks to have more money in their vaults.

But Oteng Gyasi, CEO, Tropical Cable, Accra at a budget review seminar said the private sector does not need credit, 'they are not borrowing because they do not need it, what they need is tax relief and market for their produce.”

Statesman investigations discovered that the Commercial Banks ever stringent requirements for prospective borrowers have seen little improvement, despite the much published reduction in their base rates which are quite attractive for would be borrowers. Commercial banks have rates charged per a particular business sector and per personality while doing little to streamline the rigorous and difficult task required in the various stages before loans are acquired.

To them, reduction in the base rate does not mean “we should relax in the requirement for loans. Most businesses are not properly registered, they do not keep proper account records and most of them have dubious and suspicious businesses,'' disclosed a bank manager.

This paper's investigations also showed that although most private sector businesses make enquiries on how they can access loans, they do not go back when they are shown the requirements – either they cannot meet the requirements or they simply do not want to open up their businesses to the banks, an observation made by most bankers the paper spoke to.

“Ghanaian businessmen are self centered; they are not prepared to discuss their business operations with their bankers. They must see the banks as their partners in development and be prepared to share their concerns and problems with us,” one banker said.

Enoch Teye, a prominent spare parts dealer at Abossey Okai in Accra expressed his frustration with his bankers when he applied for a loan. According to him, he was subjected to a series of questions on his business activities – “questions they did not ask me when I started saving my millions with them every month. When I bring millions, you do not ask me where I got them from but when I ask for your millions, I am bombarded with questions,” he queried. A bank manager responded to Mr Teye's complaints by stressing that every business loan should be defined appropriately. “Loan seekers must be prepared to tell us what they intend to use the money for and prove beyond all doubt their capacity to repay the loan.

“The fact that we are prepared to extend credit to our customers does not mean that everybody that calls at our counter should be given a loan more especially when some cannot even indicate properly their residential addresses. “Our businessmen run their operations as if it is for their own eyes thereby failing to comply with the needed documentation. Most do not file proper tax returns, while majority fail to renew their licenses when they are due, a prerequisite for any extension of credit.”

The bank manager further argued that perhaps what private sector businesses should consider is enlisting on the Stock Exchange. Elsewhere in Europe and the Americas, private businesses take advantage of the Stock Exchange. They enlist on the market to raise the needed capital for their expansion provided they are prepared to open up and share ownership of their businesses.

“Indeed it is easier if the businesses will let go their sole owners and be prepared to share their investment with others and take advantage of the Stock Exchange instead of holding on to their little capital and blaming their inability to access credit on Government and the banks.”