Lending Rates to Remain High Despite Drop in Reference Rate

Lending rates of commercial banks may not be declining anytime soon despite the change in the formula of calculating the lending rates of banks.

That is the position of Economist, Professor Godfred Bokpin. His comments come despite a marginal reduction in the Bank of Ghana’s new reference rate for May.

Meanwhile business associations have lauded the marginal drop for this month.

The Ghana reference rate for this month has been pegged at 16.74 percent.

This is a 0.8 percent reduction from the 16.82 percent.

The reference rate is among others to guide the interest setting of commercial banks on credit they offer to their clients.

Banks are therefore permitted to adjust their interest rates by either adding or subtracting the risk of the customer in question before determining the rate to charge on a loan.

But the Head of Finance Department at the University of Ghana Business School, Professor Godfred Bokpin explains that the reduction in the reference rate may not necessarily affect borrowers unless other economic factors point to a reduction.

“We only  hope that the reduction will come along with general improvement in the macroeconomic environment and at the same time borrowers must be transparent and keep proper records which will lend to the payment of lower interest rates,” he explained.

As at February this year, the average lending rates among commercial banks stood at 24.5 percent.

The rising interest rates among commercial banks have been cited as partly accountable for the increasing Non Performing Loans (NPLs) of commercial banks.

Meanwhile, the Association of Ghana Industries, AGI has welcomed the drop in the reference rate.

Though the Vice President of the AGI, Humphrey Ayim Darkeh admits that it will require a relatively longer time for the impact to reflect, he is hopeful the current development is an indication of an eventual drop in the interest rate.

“We believe this is in a positive direction…nonetheless we still believe that this among many other reforms that the central bank is in collaboration with the banks is doing, is necessary,” he said.

Source: Citibusinessnews