Charles Benoni Okine takes a look at the base rate
trends, a month after the banking regulator directive for the banks to use a
common formula in its calculation.
THE Association of Ghana
Industries (AGI) just like many other individual and institutional borrowers
are keeping a keen eye on the impact of the new base rate calculation formula
for banks on the future lending rates in the country.
“We want to wait for the
next three to six months to see the effect will be and, therefore we are
watching with a keen eye”, the President of the AGI, Nana Owusu Afari told the
Graphic Business in an interview.
He said in the next Business
Barometer survey, the AGI will seek to find out what the impact had been and
make the findings public as usual adding that “we hope it does but like I said,
we are watching for now”.
Base
Rate Calculation
To promote transparency
in the setting of lending rates and uniformity in the definition of the
determinants of ‘base rate’, the Bank of Ghana (BoG), in consultation with the
universal banks, constituted a Working Group, which included the AGI, on ‘base
rate determination in the banking industry’ in July 2011 to review the then
existing base rate system and suggest changes to make the pricing of
credit/loans more transparent.
It was also to promote
uniformity in the definition of the determinants of the base rate.
The group submitted its
report in October 2011 and presented it to the chief executives of the
universal banks for their comments.
Based on the
recommendations of the Working Group and the suggestions from the universal
banks, the recommended base rate model was further discussed with
representatives of banks and treasurers and a supplementary report embodying
additional refinements was presented to the chief executives of the banks the
second time, in December 2011.
On account of the
further comments and suggestions received, which were included in the final
model, BoG and the universal banks decided to migrate to the new system of base
rate determination – the Consensus Model.
The model was aimed at
promoting transparency in lending rates of banks and also facilitating better
assessment of monetary policy transmission by the central bank. The Consensus
Model was thus made ‘mandatory’ on 2nd July 2013.
Opportunity
According to a banking analyst
and Head of the Osei Tutu II Centre for Executive Education & Research
(OTCER), Nana
Otuo Acheampong, “As if to determine the interest rate a bank charges a
borrower for a loan is not difficult enough, how the bank sets the rate at
which to charge its customers for the loans they take from the bank is indeed a
puzzle”.
“For
the corporate/business communities; small/medium/large; the consensus model
offers a chance to shop around for the best rates”.
However, he noted that “the
base rate is only one of several factors to be considered when accessing
facilities from a bank financial institution but it is worth shopping for the
best base rate”.
Meanwhile, Nana
Acheampong is of the view that while the new consensus model attempts to solve
the interest rate puzzle in part, more empirical research is required to test
the alignment of base rates with the actual lending rates of banks in the
country.
A Senior Research Fellow
of the Institute of Statistical, Social and Economic Research (ISSER), Dr
Robert Osei Darko, is also of the view that the impact of the new base rate was
yet to be felt.
He wondered, however,
whether the calculation of the lending rates would be anything below the
prevailing Treasury Bill (TBill) rate which hovers around 22 per cent.
The
trend so far
But there is some
evidence that the high base rate regime which has characterised the banking
industry in the last couple of years has begun crashing, though gradually.
In the last few days,
the average interest rate which hovered around 30 per cent prior to the
directive has dropped to between 22 and 24 per cent on the average.
For instance from 21.50
per cent, Societe General has advertised a new rate of 18 per cent which took
effect from July. Bank of Baroda is also down from 17.95 per cent to 10.61 per
cent while Barclays Bank is down from 18 per cent to 15.43 per cent while
The Bank of Africa has
advertised a base rate of 25.57 per cent while the National Investment Bank
also has 20.12 per cent advertised and it is supposed to take effect from July
15.
Standard Chartered Bank
is also has a base rate of 16.66 per cent.
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