Banks begin suspending loans to new customers
Reports indicate that some banks in the country have started suspending loans to new customers.
This follows the increase in the policy rate by 250bps by the Central Bank to 24.5%.
The move by banks is to help reduce their risk exposure in advancing loans to new customers.
Usually, in times of rising interest rates, banks’ non-performing loans also shoot up, a reason why some financial intermediaries suspend or slow down lending, particularly to fresh customers. This is to help keep the non-performing loans in check.
Therefore, despite the demand for loanable funds going up during times of economic challenges, supply remains low.
However, existing and credit-worthy customers will continue to receive loans, but at a higher rate.
Per the latest Banking Sector Report by the Bank of Ghana, the latest credit conditions survey conducted in August 2022 indicated an overall net tightening of credit stance to corporates and households by the commercial banks.
This was reflected in the steady increase in average lending rates.
This notwithstanding, new advances increased by 56.1% year-on-year to GHS 33.8 billion in August 2022, relative to a 4.9% increase in August 2021.
The Central Bank once again increased its monetary policy rate by 250 basis points (2.5%) on Thursday.
On the back of the increment, the Bank of Ghana’s monetary policy rate rises to 24.5% from the previous rate of 22%.
Cumulatively, the policy rate hikes by the Central Bank since November last year, comes to some 11,000 basis points (11%).
The hike in policy rate by the BoG is on the back of the increment in the country’s headline inflation rate which hit a record high of 33.9% in August.
Given the hike in policy rate, interest rates on loans to the private sector is expected to increase, further making costs of production by businesses in the country more expensive.
Announcing the new policy rate, the Governor of the Central Bank, Dr Ernest Addison, noted the Bank’s decision to increase the policy rate is due to the fact that, “inflation remains elevated and the balance of risks is on the upside. Although the forecasts are for monthly inflation to continue to slow down, the risks are on the upside, emanating largely from pass-through effects of the currency depreciation, the recent upward adjustment in utility tariffs, and rising inflation expectations.
“The Committee remains committed to re-anchoring inflation expectations and returning to a disinflation path. Under the circumstances, the MPC decided to increase the Monetary Policy Rate by 250 basis points to 24.5 percent”.
