Between September and October this year, all but one of the nine categories of the Bank of Ghana’s Annual Percentage and Average Interest rate report, witnessed a marginal decline in interest rates.

The rates dropped between 0.6 and 1.9 percent within the one month period.

The highest drop was 1.9 percent recorded for interest rates charged on loans for commerce, construction, and other consumer credits.

The rates dropped from 31.3, 31.8 and32.4 percent respectively.

The least drop was recorded on loans granted to the agricultural sector.

The figure declined from 31.0 percent to 30.8 percent between September and October this year.

Reacting to the drop in interest rates on loans to the agriculture sector, however, the General Secretary of the General Agricultural Workers’ Union, Edward Kareweh bemoaned the marginal drop in rates despite issues confronting the sector.

“The drop is not good enough because if we are still hovering around thirty percent then it tells you how we are still not ready to invest in agriculture because the investment will depend on the budget or the interest rate.”

He added, “That will also indicate whether people will be ready to go in for loans from the banks and if the interest rate is so high then it tells us that we still have a long way to go by way o making funds available by way of making funds available from the banks for agricultural purposes” .

For his part, the General Manager of Treasury at HFC Bank, Joseph Nketsia outlined possible reasons underlying the drop in interest rates on banks’ mortgages.

“Because the monetary policy rate has been going down banks have adjusted their cost of funds or deposit rate and that is what is resulting in fall in deposit rate as well as the fall in lending rates by the various banks”

Despite the marginal decline in the interest rates, the industry watchers are hopeful of a further reduction by the end of the year.

Mr. Joseph Nketsia, for instance, believes a further drop in interest rates will have an increase on the loans sought for particularly as the festive season approaches.

“It is not the drop because if you look at the drop in Ghana we will say it is marginal but in other jurisdictions, the interest rate falls by one percent and it’s a big drop. But Ghana at our relatively high-interest rate a one percent drop in interest rates is marginal, its impact on customers is relatively low so it’s not that drop in interest rates that is causing an increase in demand for loans but rather the season that we find ourselves in”

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By: Anita Arthur/citibusinessnews.com/Ghana

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Between 2010 and September this year, the face value of transactions executed under REPOS rose by 366.1 per cent to GH¢123.14 billion.

Data from the Central Securities Depository (Gh) Limited (CSD) showed that after ending 2010 at GH¢26.42 billion, overnight lending within the interbank market and the Bank of Ghana (BoG) rose to GH¢82.16 billion in 2013.

It rose further to GH¢195.79 billion in 2014 before easing to GH¢183.30 billion in December last year.

According to data available to the GRAPHIC BUSINESS, the funds were borrowed at interest rates that averaged 21.4 per cent and 25.54 per cent.

Just like the face value of the transactions, collateral for the REPOS, which is mostly in short-term securities lodged with the CSD, also witnessed a tremendous growth within the six-year period.
From GH¢28.30 billion in 2010, collateral for REPOS rose to GH¢84.22 billion in 2013 before ending on a high of GH¢125.3 billion in the third quarter of this year.

Implications
The Chief Executive Officer of the CSD, Mr Stephen K. Tetteh, praised the development as a positive trend that showed that banks were finding innovative ways to manage their cash reserve requirements.

“Lending and borrowing are means of managing their liquidity. For instance, at the end of the day, if a bank realises that it has funds, it can lend to another bank that is short overnight or for two days and then support it with REPOS.”

“So once it’s going up, I will think that there is recognition of a better way of managing their liquidity,” he told the paper in an interview.

On the rates quoted on the transactions, Mr Tetteh said it was a reflection of the short-term nature of the funds.

Managing liquidity
The Director of Markets and Corporate, Barclays Bank Ghana, Mr Kobla Nyaletey, agreed but added that the growth also reflected the strong growth in the banking sector and the economy.

He said REPOS was the simplest and innovative way to deplore and manage excess liquidity, explaining that such transactions were not used to grow the assets of the banking sector.

“It is simply an avenue to deplore very short liquidity. It is not as if banks are relying on REPOS to fund asset growth or lending.

“It is simply the place you put any surplus that you have for just one day or where you can borrow money for just one day to meet any deficit that you may have,” he said.
He, however, explained that a spike in overnight lending from the BoG would mean that the market was short to contain the pressures from the banking sector.

“If it is that over a certain period of time banks are borrowing mainly from the central bank and not from colleague banks, then it means there is something wrong with the market; it means that the market is short,” he said, explaining that such a development would be an indication that there was a liquidity squeeze in the market.

“If it is within themselves, then it is a fair, balanced and good market. It means that one bank has enough but another does not, and so the excess has to be passed around,” he explained.

He added that the spike in the REPOS showed that the entire banking industry was properly funded such that excess funds existed for those in need.

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Source: Graphic Online

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