Barclays Bank Ghana pays the least on depositors’ funds out of the total of 26 banks in the country, the latest report of the Central Bank has revealed. Barclays pays 5.44 per cent on depositors’ funds while it charges 26.90 percent as its base rate, having the widest interest rate spread in the industry as at 31st May, 2010. Standard Chartered Bank Ghana follows on the heels of Barclays as its average interest paid on deposits within the period was 5.60 percent, charging 25.50 percent as its base rate. The industry average of all the banks in the country in terms of deposit interest rates is 10.25 percent, while the average base rate recorded is 27.54%. The Bank of Ghana publishes the annual percentage rates (APR) and average interest paid on deposits by the banks for the information of the public. The APR is the true rate banks and non-bank financial institutions charge the public on loans and advances. It reflects the true cost of borrowing and includes charges and commissions levied by banks. Average interest paid on deposits is the average interest paid by banks on deposits of savers. The National Investment Bank, which is largely state-owned, paid the highest rate of interest on deposits at 16.94%. It also recorded the highest base rate on lending at 29.60% over the period. Fourteen of the 26 banks in the country charged a base rate higher than the industry average, with SG-SSB having the lowest at 24.50%. Base rates for lending are typically used by banks in their dealings with high-value traditional customers. Therefore, advances to new clientele and other risk-prone customers are made on higher interest rate terms. This is the main challenge for micro businesses that venture into the formal credit market to seek financing for their business needs. Apart from high interest charges, there are also collateral requirements to provide security for a loan - a condition that many small enterprises find difficult to satisfy. Figures released also revealed that direct consumer credit and mortgage loans were costlier than the base rate for household loans. Mortgages have become an important financing tool for homes in the country. Most of them are long-term facilities, but have the advantage that the mortgaged property serves as collateral for the loan. The average annual percentage rate for mortgage loans in the industry is 33.44%, higher than the average of 33.18% for other consumer credit. These rates determine the level of asset ownership by individuals and households through credit facilities as income-earners use these financing options to buy homes and acquire durable household items. Despite the downward trend of inflation over the last few quarters, lending charges in the banking sector have responded sluggishly - even with the current Bank of Ghana policy rate at 15%. This slow response is also to do with the fraction of non-performing loans in the sector, estimated at 20%. This can lead to banks raising the risk provision for loan defaults and high impairment charges in the industry. Inflation for May dipped to 10.7%, a one-percentage point decline over the figure for April, and it is expected that the Bank of Ghana will adjust its policy rate accordingly when its Monetary Policy Committee (MPC) meets in July. There however remain risks to this disinflation process, with announced public sector wage increases of 10% and utility tariff adjustments of 36% on water and a cumulative 89% on electricity. This, coupled with anticipated payments to cocoa farmers in the third quarter of the year, reinforces aggregate demand pressures in the economy that could usher in high inflationary expectations. The quality of bank lending must improve in the coming months in order to provide more space for extensive credit with low associated risk charges. The Central Bank will also have to give events in the real economy a strong weight in its assessments, in order to ensure that monetary policy decisions do not choke growth and job-creation. Source: BFT