Master Lending Agreement to prevent banks from investing DBG funds in gov’t securities – Dep. CEO
Deputy Chief Executive Officer (CEO) of Development Bank Ghana (DBG), Michael Mensah Baah, has said a number of measures have been put in place to prevent commercial banks from investing funds meant to be used as loans to businesses, in government securities.
According to Mr Baah, the creation of the Master Lending Agreement (MLA) by the DBG, will ensure that loans given to selected partner commercial banks are indeed made available to businesses in need of them and not diverted into government securities by the banks.
Speaking at media brief on Monday, June 13, 2022, Mr Baah outlined three measures the DBG has put in place to check the possibility of selected commercial banks diverting loans from DBG into government securities.
“We want to be different, and that’s why we’ve taken a different approach. And the reason for that, is the lessons we’ve learnt about the challenges that you come across if you decide to act almost like a universal bank.
“We have specifically put in place certain measures that will ensure that the banks are working and funds that are given to the selected commercial banks gets to businesses.
“The first measure is the selection of the commercial banks, we will select banks that you can tell are already lending to SMEs.
“The second, is making sure that commercial banks understand how to assess the credit risk of SMEs, because we understand that has been one of the fundamental reasons why commercial banks do not lend to SMEs, and we will be providing capacity building for the selected banks.
“Then the last one is ensuring that commercial banks actually make funds available to the specific sectors that the Bank is mandated to provide loans to. This, the Master Lending Agreement (MLA) will enforce, because within the agreement, there is a specific timeframe (one month) which banks are supposed to lend to businesses.
“Within that timeframe, if the commercial bank is unable to lend the funds to businesses, the funds come back to the DBG. So these, among others are the measures put in place to ensure banks actually lend to businesses,” he remarked.
Meanwhile, CEO of Development Bank Ghana (DBG), Kwamina Duker, has averred interest rates provided SMEs in the country by the Bank will remain competitive despite the inclusion of credit risk by its partner commercial banks.
According to Mr Duker, interest rate on loans made available by the DBG to its partner commercial banks in the country, will be low enough to allow the banks add their credit risk margin and still be able to lend SMEs at competitive interest rates.
“We aim to provide to our banks, loans at a rate that will allow them to take the credit risk to the SMEs and still be able to provide competitively priced loans. And that is work in progress, but we continue to work hard to make sure that the loans that we give to our banks are low enough that when they add their margin for credit risk, they will still be able to provide these loans to the SMEs that allow them [SMEs] to grow,” Mr Duker stated speaking to norvanreports at a media brief on Monday, June 13, 2022.
The DBG is expected to be launched on Tuesday, June 14, 2022.
43.1% of the banking industry’s total assets value invested in gov’t securities
Some GHS 83.9bn (43.1%) of the banking industry total assets value have been put in securities (mainly government securities) by the various banks in the country.
In its May 2022 Monetary Policy Report, the Bank of Ghana notes that, investment (comprising bills, securities and equity) grew by 14.5 percent to GHS 83.9 billion as at end-April 2022 compared to a growth of 34.9 percent in April 2021.
Investments, the Central Bank noted, continued to dominate the asset mix, but its share declined from 47.0 percent in April 2021 to 43.2 percent in April 2022.
According to the Bank of Ghana, banks’ investment portfolio as at end-April 2022 remained in favour of long-term debt instruments (securities), a response to higher interest rates on the long-term instruments compared to rates on money market instruments.
The share of securities increased to 78.4 percent in April 2022 from 71.6 percent in April 2021. The share of short-term bills in total investments, however, declined to 21.3 percent from 28.1 percent during the same comparative period.
The share of bills may, however, increase as banks move to the shorter end of the market to take advantage of the increasing yields in that segment of the market following the recent hikes in the Monetary Policy Rate (MPR).
Per the May 2022 Monetary Policy Report, the banking industry’s total assets is valued at GHS 194.3bn.
