Ghana’s Central Bank introduces 4 new measures to lower lending rates

GHANA – Ghana’s apex financial institution, the Bank of Ghana has initiated a number of new prudential and market conduct regulatory measures aimed at fostering more competition in the banking sector and as a result lower lending rates.

The new measures being put in place to address high lending rates, include the setting aside of two percent of the central banks’ primary reserve, which is about GHc 2 billion (about US$358.56 million).

BOG revealed that these funds will be used to support targeted lending to SMEs as part of the Enterprise Credit Scheme announced in the 2020 budget and will be held at the central bank and will be available to banks that participate in the scheme.

The Bank of Ghana will also explore the possibility of setting a minimum loan to deposits ratio to ensure that more deposits mobilized by banks are channeled to viable private sector projects.

In view of this, the Governor stated that the Bank will 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.

The central bank is further expected to work closely with banks to ensure that banks do not pass on their operational inefficiencies and overhead costs to their clients.

To do this, BOG’s governor Dr. Addison said that steps will be taken to align bank managements compensation with overall bank performance by linking it to clear parameters including the quality of a bank’s assets.

The BoG is also expected to scrutinize compensation policies for Chief Executive Officers and key management personnel as well as Board of Directors of universal banks.

To further deepen transparency in the determination of lending rates, the Governor stated that banks will be required to develop and publish a clear framework on the risk premium build-up that impacts on an individual borrowers’ credit profile.

This is 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 behavior from borrowers.

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