The Chief Executive Officer of the Ghana Association of Bankers (GAB), John Awuah, says high interest rates do not translate into high returns for banks.

According to him, when interest rates sky rocket as they are now, it affects lending rates which subsequently lead to an increase in the risk of loan impairment leaving banks at high risk.

Ghana’s interest rate currently stands at 27.34% (91-day Treasury bill), consequently pushing lending rates high at over 30% on the average.

Yields have been on the rise across the Treasury bill curve, with the 91- day going for 27.34% and the 364-day selling at 28.83%.

But this comes at a cost as lending rates continue to surge.

According to John Awuah, banks do not profit from high lending rates, rather from the banking sector’s net margin which currently is narrowing.

Explaining this further on PM Express Business Edition, he said, “If the interest rate or lending rate go up that level, loans become almost unaffordable. It becomes difficult to take money at 30%. What business are you going to run to make so much money that you can set financing cost 30% aside, pay salaries, pay for your everything and still make profit?

“So when rates are at that level banks are concerned because then the interest burden on borrowers becomes heightened. And when interest burden is heightened, even good borrowers begin showing signs of distress and all of a sudden you’ll find that your impairment expectation is also going up and then bottom line is risk.

“So it’s a very difficult period for banks, and it is not like we’re sitting here and lending rates are high and because of that the banks are making money, I’m telling you the reverse is the case.”