Government might vent its spleen on banking institutions for disregarding its directive to reduce interest rates. This is because ever since the prime rate started falling in recent times, commercial banks have shown no sign of cutting their lending rates to borrowers, making it very difficult for companies to expand their operations and create more jobs for the masses. “Ghanaian households and businesses are becoming agitated about the refusal of the commercial banks to respond positively to the favourable macroeconomic indicators currently prevailing in the country. Indeed, Government is gradually losing its patience on this matter,” Kwabena Duffuor, Minister of Finance and Economic Planning, warned in a speech delivered on his behalf at the 10th annual working luncheon of the Ghana Association of Bankers last week. According to him, the argument advanced by banks that the high risk associated with lending to small and medium-size businesses was the major cause of their inability to reduce the lending rates was “hard to accept.” The Monetary Policy Committee (MPC) of the Bank of Ghana has for the 12th consecutive month reduced the prime rate - the rate at which it lends to commercial banks - to 13.5 per cent, but the banks are adamant to ease their lending rates. He therefore appealed to the banks to reduce the rates in response to the falling Central Bank’s policy rate, falling treasury bills discount rates and inflation rate. “The 91-day and 182-day Treasury Bill rates have dropped to 12.9 per cent and 13.4 per cent respectively in the second quarter of 2010 but commercial banks’ average base and lending rates however continue to remain stubbornly high,” the Finance Minister lamented. Dr. Duffuor commended management of the Agricultural Development Bank (ADB) for taking the lead to reduce its base rate as directed by Government. The latest Annual Percentage Rates (APR) and Average Interest Rates (AI) conducted by the Government Statistician’s outfit for June reveals banks are still offering lending rates to businesses at an average of 33 percent. But Asare Akuffo, who is the newly-elected President of the Ghana Association of Bankers (GAB), has said that though banks operating in the country are aware that interest rates should be reduced in conformity with the drop in Bank of Ghana’s policy rate, this cannot be done in the rush manner directed by Government. Mr Akuffo, who is also the Managing Director of HFC Bank, said such adjustments have to be done gradually in order not to negatively affect the balance sheets of banks. “Banks can only reduce their interest rates if the current trend of economic developments is sustained. Meanwhile, bank loans are not the only means by which businesses can expand their operations. There are other alternative tools such as equity to finance businesses.” Frank Adu Jnr., MD of CAL Bank Limited, has also noted that Government’s use of force could weaken the banking industry’s operation and eventually collapse the economy. Source: Business Guide/Ghana