THE BANK of Ghana (BoG) says it is exploring new prudential and market conduct regulatory measures to help foster more competition in the banking sector and help lower lending rates.
It said this has been necessitated by high operating costs of banks which stem from operational inefficiencies; inadequate disclosures of the risk premium factors in the cost of credit determination; the existence of high NPLs; and government's appetite for domestic borrowing.
Such findings were contained in recent data presented to the BoG by its monetary policy committee (MPC).
The report revealed that the afore-mentioned factors should be addressed comprehensively to help lower lending rates and improve on the transmission of policy changes to the real economy in support of higher and robust economic activity.
Chairman of the MPC, Dr Ernest Addison, who made these known to journalists, Monday, in Accra, said to further provide increased activity in the small and medium enterprise (SME) sector, his outfit was setting aside two per cent of its primary reserve to support targeted lending to SMEs as part of the Enterprise Credit Scheme announced in the 2020 budget. “These funds will be held at BoG and will be available to banks that participate in the scheme.”
He also said his outfit would explore the possibility of setting a minimum loan to deposits ratio to ensure that more deposits mobilized by banks were channeled to viable private sector projects.
According to him, BoG would hold further consultations with the banking industry to determine the impact of such a regulatory measure, and if warranted, determine the level of such a ratio and appropriate monitoring and enforcement mechanisms to promote its effectiveness.
Also, he said “The BoG is putting in measures to reinforce the existing credit infrastructure by, among other things, strengthening enforcement of the credit bureau system under proposed regulations to be made by Parliament pursuant to the Credit Reporting Act of 2007 (Act 726), and further strengthen the collateral enforcement mechanism under a new Borrowers and Lenders Bill to improve the quality of loans made by banks as well as facilitate recovery of loans and collateral.
Furthermore, he said BoG would be working closely with banks to ensure that banks did not pass on their operational inefficiencies and overhead costs to their clients.
Additionally, to further deepen transparency in the determination of lending rates, the governor said banks would be required to develop and publish a clear framework on the risk premium build-up that impacted on an individual borrower's credit profiles. And this, he said was expected to provide borrowers with a more-informed basis for negotiating lending rates with their banks and enhance transparency in the credit delivery process as well as promote responsible credit behaviour from borrowers.
He said BoG was in discussion with key stakeholders to explore a pilot project in a sandbox environment on central bank digital currency with the possibility of issuing the e-Cedi in the near future.
BY Samuel Boadi