Ghana’s policy interest rate of 14.50% is ranked second highest in Sub-Saharan Africa, according to Fitch Solutions tracker of policy rates.
This makes cost of borrowing in the West Africa country quiet expensive.
According to the rankings, Central African nation, Angola has the highest policy rate of 15.5%.
Gabon and Cameroon on the other hand have the lowest policy interest rates of 2.95% respectively in Sub-Saharan Africa. This means that lending rates are very low in these countries, making cost of doing business very cheap.
Neighboring Ivory Coast and Nigeria which has a number of its lenders operating subsidiaries in Ghana have much lower policy interest rates, making their markets attractive to businesses than Ghana.
On the other hand, South Africa with the most attractive banking environment in Africa has a base interest rate of 3.25 percent.
From the July 2020 Summary of Economic and Financial Data, Ghana’s cost of borrowing was about 21 percent on the average.
Many market watchers and analysts see it as a major issue as it is the reason why Non Performing Loans is very high.
Beyond the cost of credit, access to credit is also a major issue, particularly, to most businesses.
But the banking players are mindful of the high NPLs and loan loss provisioning, cost of deposits, inflation, address system, amongst others.
Though the present Bank of Ghana leadership have done well to bring down the policy interest rate from 25.5% to the current 14.5%, a lot more work must be done to push lending rates below 20%.
Economist and Business School Lecturer, Dr. Lord Mensah tells Joy Business several bottlenecks must be removed before cost of borrowing can fall significantly.
“Until we structure our identification system very well it will be difficult to have a lower interest rate structure” Dr. Mensah said.
“But then, if you look at the lending rate, it’s not always the monetary policy rate that drives it. I mean the liquidity at the bank level is also important. So if the banks are not liquid enough, I don’t think that the economy will respond to the policy rate”, he emphasized.
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