Banks worried over high Treasury Bill rates
The Chief Executive Officer of the Ghana Association of Banks, John Awuah, has expressed concerns about the rising Treasury bill rates in Ghana and its potential impact on the cost of credit and loan recovery for borrowers.
He mentioned that if the market rate for Treasury bills continues to rise into the 30s and 40s percent range, it would be difficult for both companies and households to borrow at such high rates and successfully repay their loans.
Speaking in an interview on JoyNews’ PM Express Business Edition, Mr. Awuah emphasized the fragility of loan portfolios, stating that if even one out of ten loans goes bad, it can wipe out the benefits of the other nine loans. This highlights the importance of maintaining reasonable interest rates for borrowers to ensure loan repayment and financial stability.
“If the market rate moves into the 30 and 40s which company or household will be able to borrow at the rate and make good on the re-payment. We should not forget that if you give 10 loans and one goes bad it wipes off the benefits of the other nine”, he quipped.
The rise in Treasury bill rates in Ghana is attributed to the government’s heavy borrowing through the Treasury bills market, as it has become the primary source of raising funds locally to support government operations. The government’s inability to access international capital markets due to unfavorable credit ratings and high debt levels has exacerbated the situation.
Mr. Awuah pointed out that high-interest rates do not necessarily benefit banks, as they increase the cost of operations for banks and affect their ability to offer new loans. When interest rates rise, depositors also demand higher rates on their funds, which further strains the banks.
He also refuted the notion that banks have contributed to the high Treasury bill rates in the market and called for a reconsideration of how quickly market players adjust rates when they increase.
Regarding the Domestic Debt Exchange Programme, Mr. Awuah acknowledged its successful completion but noted that banks did not fully meet their expectations in terms of interest payments, principals, and regulatory reliefs.
As for the outlook of the banking sector, Mr. Awuah stated that it is too early to draw conclusions and emphasized that the sector’s performance will largely depend on the stability of the overall economy.
Rising Treasury bill rates in Ghana have raised concerns among commercial banks, as they could have serious implications for borrowers and the overall stability of the banking sector. These concerns stem from the government’s heavy reliance on the Treasury bills market for funding, which has driven up interest rates.
