- Banks Respond to Easing Conditions as Private-Sector Credit Grows 29% In Real Terms
Ghanaian banks are pricing some new loans at between 9 and 12 per cent as improved monetary conditions feed through to the credit market, although persistent loan defaults remain a significant obstacle to broader reductions in borrowing costs.
John Awuah, chief executive of the Ghana Association of Banks, said commercial lending rates had continued to decline even as the Bank of Ghana maintained its monetary policy rate at 14 per cent.
The average lending rate fell from more than 18 per cent in March to 15.9 per cent in September, while inflation-adjusted private-sector credit expanded by 29 per cent year-on-year, according to figures he cited from the central bank’s latest Monetary Policy Committee report.
“Contrary to perhaps public view that banks are not lending, there is actually evidence on the ground to suggest that banks are lending,” Mr Awuah said.
Speaking at a post-MPC policy discussion organised by the Chartered Institute of Bankers Ghana, he argued that the data showed the banking industry was responding to the improvement in Ghana’s macroeconomic environment.
“Between March and September, the policy rate has been kept at 14 per cent,” he said. “But I can tell you between March and September, bank lending rates have continued to decline from upwards of 18 per cent somewhere in March to around where we are now, where we’re talking about 15.9.”
The decline suggests that the transmission of monetary policy is taking place through more than changes in the Bank of Ghana’s headline rate.
Falling inflation, improved liquidity, lower funding costs and greater stability in the domestic economy can influence loan pricing even when the policy rate remains unchanged. Competition among banks for creditworthy customers may also push rates on new facilities below the industry average.
Mr Awuah said the 15.9 per cent average included loans contracted when borrowing conditions were less favourable. New facilities offered to borrowers with acceptable risk profiles were being priced at lower rates.
“If you are taking real exposures on the books new exposures you are talking about between 9 and 12 per cent,” he said.
That represents a substantial improvement from the lending environment of the previous 12 to 18 months. But the availability of single-digit or low double-digit credit is likely to remain uneven because banks price loans according to the borrower’s repayment history, collateral, sector and perceived risk.
The stronger credit numbers do not resolve the deeper structural problem facing Ghana’s banking industry: a high proportion of loans is still not being repaid on schedule.
Mr Awuah placed the sector’s non-performing loan ratio at approximately 15.8 per cent, significantly above the comparative figures he cited for several neighbouring economies.
“The non-performing loan ratio in Togo is under 10 per cent. The non-performing loan in Côte d’Ivoire is under 7 per cent. The non-performing loan in Nigeria is under 9 per cent, and Ghana, we are clapping at 15.8 per cent,” he said.
He translated the ratio into a more direct measure of risk confronting lenders.
“For every GH¢100 of your money that we give out, we are likely going to lose GH¢16,” he said. “That is how, if you express it in cedis, it tells the story better.”
The comparison highlights why a lower policy rate does not automatically translate into equally cheap credit for every business.
A bank’s lending price reflects not only its cost of obtaining funds but also the probability that a borrower will fail to repay. When defaults are high, compliant customers effectively bear part of the cost through wider risk margins, stricter collateral requirements and more cautious credit approvals.
This creates an uncomfortable paradox. Ghana requires cheaper credit to enable businesses to expand and improve their ability to repay, but the existing level of default encourages banks to remain selective and charge premiums that can make borrowing more difficult.
Private-sector credit growth of 29 per cent in real terms is therefore encouraging, but it must be interpreted carefully. It demonstrates that banks are expanding lending from the compressed levels recorded during Ghana’s recent economic instability. It does not establish that credit has become equally accessible to small businesses, informal enterprises and borrowers without substantial collateral.
Mr Awuah argued that Ghana must address the institutional weaknesses that make credit recovery difficult.
Although the Borrowers and Lenders Act provides a framework through which banks can enforce security interests, borrowers can use court action to delay the disposal of pledged assets.
“What do we see? A bank uses the Borrowers and Lenders Act, notifies the Collateral Registry, notifies the court that this customer has met all the conditions for recovery and therefore the underlying asset is going to be disposed of. What do we see? They run to the court,” he said.
The right of borrowers to seek judicial protection must be preserved, particularly where lenders have failed to follow due process. But prolonged or tactical litigation can weaken the value of collateral, delay the recycling of funds and increase the cost of credit throughout the system.
“Why it is important to do that is so that the next borrower does not suffer, so that the bank is enabled to give funding to the next borrower,” Mr Awuah said.
His argument places loan enforcement alongside monetary policy as a determinant of borrowing costs. The Bank of Ghana may create conditions for lower rates, but sustainable credit expansion also requires reliable credit information, effective collateral enforcement, disciplined borrowers and a business environment that supports repayment.
The Bank of Ghana’s decision to hold the policy rate at 14 per cent for a third consecutive meeting reflected a desire to preserve monetary stability while assessing inflation, exchange-rate and external-sector risks.
For banks, the unchanged rate provides an anchor around which lending and deposit prices can adjust. The decline in average lending rates indicates that keeping the benchmark steady does not necessarily prevent credit conditions from easing.
The greater test will be whether lower rates reach productive businesses beyond the strongest corporate borrowers.
“Our job is to financially intermediate. The day we fail at that job, we don’t have banks, but we need the system to facilitate that,” Mr Awuah said.
He added that banks could become more proactive in offering competitively priced loans when credit histories improve and the risks surrounding recovery decline.
“Tomorrow, a bank will pick up the phone and tell you, ‘There’s funding for you. We’ve looked at your credit history. We think you deserve GH¢1mn at 5 per cent,’” he said. “That is why we exist. Banks do not shy away from lending because that is a piece of cake.”
The latest data suggest Ghana’s monetary recovery is beginning to reach the banking system. Whether it produces durable and widely available credit will depend on something monetary policy alone cannot deliver: a lending culture in which borrowers repay, contracts are efficiently enforced and lower risk is passed on through lower rates.
