Mr Daniel Asiedu MD/CEO of Zenith Bank Ghana Limited has stated that the nature of competition within the banking sector will not allow players in the industry to form a cartel to rip-off their customers and starve industry of needed funds to grow their businesses.
“Banks are not ‘shylocks’ hence we would be interested in seeing the rates go down because high interest rates result in high default rates and competition amongst us will not even encourage unreasonable pricing,” he said.
But many analysts find this explanation of the banks suspicious because of the levels they have all come to as far as the reduction in interest rates is concerned.
Apart from the non-tax paying Agricultural Development Bank (ADB) which was able to come to about 22 per cent, the average reduction is about 26 per cent. Banks also charge other fees such as processing and insurance among others, which eventually put the rates higher than what they publish in the newspapers and on their websites.
When the macro-economic situation was unfavourable at the beginning of last year with inflation around 20 per cent and Treasury Bill (TB) rates hovering around 26 per cent, the banks used that as an excuse to keep their interest rates higher.
Today both indicators have dropped drastically with inflation hitting a single digit of 9.52 per cent, the first time since 2007 and TB rates also at 13.5 per cent and still dropping.
Unfortunately, the banks have shifted the goal posts and are now using the high cost of funds and others to justify their action.
“What we are saying is that we have locked in rates and until we have re-priced, we may not be able to reduce our rates immediately. However, over time, we will come down,” Mr Asiedu stated.
He said “there is a believe that majority of Ghanaians do not bank and that only a small percentage of Ghanaians save with banks, making the pool of funds available for lending rather small.
“In addition banks are also faced with the lack of reliable identification systems, inappropriate residential address system, the slow legal process for settling business disputes, which is improving with the introduction of commercial courts, and the difficulty in validating the authenticity of collateral,” he said.
“All of these factors, he explained, impacted negatively on the risk profile of customers or potential borrowers – defined as capacity, character, conditions (factors in client’s industry), collateral and character (borrowing history).
“You will also have noticed from the financial statements published by many banks that the industry loan default rate has significantly increased and that credit risk is very high in Ghana compared to international trends,” he added.
Mr Asiedu said banks base rates are therefore a reflection of industry and economic trends in the country.
“However, I believe that it is not going to stay like this. Rates used to be higher but now as the economic situation continues to improve, things will get significantly better,” he said.
It has been the belief that since the banks have one association, they will, during their meetings determine what rates they should announce to the public to be able to make more money to sustain their businesses.
But in explaining further why the banks cannot be in a cartel as perceived, he said that “on the contrary what we discuss is the general issues that could enhance the association and the economy but not to strategise to rip-off Ghanaians and their businesses.”
On the performance of the bank, he said: “The bank is gradually picking from the effect of the global financial crises that impacted on the world’s economies.”
He said in recent times, the general indicators of the health of the economy have shown positive trends and internally, many of the initiatives “that we had at the beginning of the year are taking shape and we are very optimistic that by the close of the year, the targets that we set for ourselves at the beginning of the year would have been achieved.”
Source: Graphic Business