A GN Research analysis of Bank of Ghana’s (BoG) annual percentage rates (apr) and average interest (ai) have shown that 74% of banks in the country failed to match the 300 basis point reduction in Monetary Policy Rate (MPR) for the first half of the year.
Unfortunately, decisions by the central bank have limited effects on its targets which reduce its influence on growth, GN Research analysis indiacted .
There have been calls for banks to reduce their lending rates because of the decline in the MRP in addition to the continuous fall in inflation and Treasury bill rates. Inflation has declined from 15.4% in December 2016 to 12.1% in June 2017, representing 3.3 percentage points reduction while the central bank has reduced the MPR by 3 percentage points from 25.5% to 22.5% between January and June this year. Also treasury bills rates have fallen by an average of 4% over the same period. This suggests that inflation, Treasury bill and MPR has declined on average by more than 3 percentage points.
However, using the 3 percentage points as a benchmark shows that 74% (23) of the 31 banks under review failed to reduce their base rates by 3 percentage points. In addition, 30% (7) of this number have their rates increased by an average of 3.4%. On the other hand, 26% recorded reduction in their base rates above 3 percentage points. GN Bank recorded the highest reduction of 7.3 percentage points which is about 143% more than the benchmark. Universal Merchant Bank, HFC, Fidelity Bank, and Sahel Sahara Bank complete the top 5 reductions above the benchmark with 6.8, 5.5, 4.8, and 4.6 percentage points respectively.
The less than expected responsiveness of the banks to changes in these key variables (MPR, inflation and Treasury bill) should be a great source of worry especially to the central bank. This is because, the banks are the main vehicle through which the central bank policies are transmitted. Therefore the inability of the banks to effectively transmit policies of the central bank will mean failure of the policies.
Currently, the inability of the banks to reduce their lending rate as expected is not directly a policy issue. This is because the main policy variables in the determination of the bank rates have been on the decline since the beginning of the year. Therefore the banks should be looking at solving their internal challenges that have made it impossible for them to help the efforts of the central bank to reduce lending rates.
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