Interest rates will drop- Republic Bank MD optimistic
The high interest rate regime in the country is persistently affecting the growth of the private sector, thereby hindering its ability to absorb the high number of unemployed youth and to compete favourably in the global market place.
But the banks are working around the clock to bring rates down to enable businesses and individuals to borrow at cheaper rates to enhance their operations or start new ones.
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The Managing Director of Republic Bank, Mr Farid Antar, who gave the assurance admitted that the interests rate regime in the country was high, compared with those in the sub-region but indicated that the banks were seriously working on the risk factors that influenced the rates upwards.
He said the banks were engaging constantly with the private sector through training on how to run their businesses to reduce the risk of losses.
Banks are also working to have the cost of funds reduced while at the same time it is engaging the government on its appetite for domestic debts because of its impact on the private sector.
Speaking in an interview on the sidelines of the Graphic Business/Stanbic Breakfast meeting in Accra last Tuesday, November 2, Mr Antar said among the risk factors that influence the interest rates are high non-performing loans (NPLs), high cost of funds, and government’s continuous appetite for domestic debt.
Interest/lending rates
The third quarter Monetary Policy Committee (MPC) report of the bank indicated that average lending rates of banks declined marginally to 20.5 per cent in August 2021 from 21.4 per cent recorded in the same period of 2020, consistent with developments in the inter-bank market.
However, Mr Antar maintained that the rates were high compared to their peers in the sub-region adding that “we want that reduced and we are working on it.
“The government has been meeting us to find ways around it and we will respond accordingly once the risk factors have been favourable”, he said.
NPLs
On the issue of NPLs, he said the COVID-19 pandemic which affected many businesses and individuals in the country badly affected the rates as many of the businesses could not either run at all or operate at their optimum due to lockdowns and other restrictions.
It was, however, obvious that new loans and advances by banks totalled GH¢21.6 billion in the year to August 2021, marginally above the GH¢20.7 billion for the same period in 2020.
Unfortunately, the NPL ratio increased from 15.5 per cent in August 2020 to 17.3 per cent in August 2021, reflecting in part the general pandemic-induced repayment challenges as well as some bank-specific loan recovery challenges.
Mr Antar said with NPLs at 17 per cent, it had become a risk factor which is also calculated as part of the spread in determining the interest rate.
He expressed the hope that this will come down so it can reflect positively in the lending rates.
Govt appetite
The government continues to borrow from the local market as part of the efforts to finance its budget.
This appetite for debt has been largely described as one of the ways by which it crowds out the private sector.
For instance,the total debt stock as at the end of July, domestic debt was GH¢173.4 billion (39.5 percent of GDP).
Mr Antar said this phenomenon has an impact on the lending rates because it cascades into the cost of funds.
“Everybody wants premium so they use the government coupons as benchmark and add their margins.
Once we take it, we are also forced to price to make profit.
Note that we are in business to return profits for our shareholders and therefore, when these developments happen, we are compelled against our wish to ensure that everybody in the chain is catered for, just that in the end, the rates became high for the ones borrowing”.
Land litigation
On the issue of land litigations in the country, Mr Antar described the development as worrying, particularly players in the mortgage industry.
For instance, Republic Bank is a major player in the mortgage industry in the country.
Mr Antar said the challenges with land titles, if not addressed, would continue to negatively impact the housing sector and invariably, lending rates.
According to him, if the government will work to address the challenge head-on, it will have a positive ripple effect on the sector and make the mortgage industry flourish better than it is with more affordable houses being built for the people.
