Universal banks in Ghana are transmitting lower interest rates to borrowers more quickly than community and microfinance banks. This key finding comes from a survey presented at the third Post-Monetary Policy Committee (Post-MPC) Policy Seminar of the Chartered Institute of Bankers, Ghana (CIB Ghana).
The survey highlighted a significant difference in lending rates across the banking sector. Most universal banks reported lending at rates between 10 and 15 percent. In contrast, 46 percent of community banks indicated lending at 21 to 25 percent, an increase from 36 percent in a July survey. Microfinance banks reported even higher rates, typically ranging from 31 to 40 percent. This disparity affects how businesses and households access credit and respond to changes in the Bank of Ghana's policy rate.
This situation underscores a broader challenge in Ghana's economic landscape regarding monetary policy effectiveness. The Bank of Ghana's Monetary Policy Committee (MPC) had unanimously voted on September 24 to keep the policy rate unchanged at 14.0 percent. However, the transmission of this policy rate to actual lending rates for businesses and individuals is not uniform. Efficient monetary policy transmission is crucial for stimulating economic growth and managing inflation across all sectors of the economy.
Dr. Mrs. Ellen Ohene-Afoakwa, President of the CIB Ghana Governing Council, emphasized the importance of effective monetary policy transmission. She stated that the impact of monetary policy extends beyond economists and central bankers, affecting financial markets, lending conditions, businesses, and households. Dr. Ohene-Afoakwa also highlighted the need for a banking sector that provides adequate credit to productive sectors while maintaining strong risk management. Governor of the Bank of Ghana, Dr. Johnson P. Asiama, whose remarks were read by Dr. Simon Harvey, noted that changes in the policy rate do not immediately pass through to borrowers. Banks consider funding costs, credit risk, operating costs, and expected losses when setting loan prices.
The varying transmission rates mean that smaller businesses and individuals relying on community and microfinance banks face higher borrowing costs. This can hinder their growth and investment, potentially creating an uneven playing field in the economy. Decision-makers will need to consider these disparities when formulating future monetary policies and financial sector regulations. The CIB Ghana's Pre-MPC survey, which informs the MPC, will continue to be a vital tool for understanding market sentiment and transmission dynamics. Addressing these transmission gaps could lead to more equitable access to credit and stronger overall economic performance in Ghana.
Robert Dzato, Chief Executive Officer of CIB Ghana, presented findings from the September Pre-MPC sentiment survey. He noted a strong appetite among banks to lend, despite the varied impact of monetary policy transmission across market segments. Mr. Dzato also cautioned that faster credit growth must be matched by stronger monitoring and risk mitigation to prevent an increase in non-performing loans (NPLs). Banks expressed confidence in meeting the 10 percent NPL target by year-end, which is encouraging. However, the panel discussions also highlighted upside risks to inflation, suggesting potential future pressures on interest rates. The seminar brought together key stakeholders including the Bank of Ghana, the Ministry of Finance, and industry representatives to discuss these critical issues. Mr. Clement Boateng, President of the Ghana Union of Traders Association (GUTA), called for repayment terms that reflect traders' import cycles and shipping delays. This highlights the practical challenges businesses face with current lending structures.