The founder of SAS Finance Group, Togbe Afede XIV, has levelled accusations against banks, alleging that they exploit the high policy rate set by the Bank of Ghana (BoG) to impose exorbitant lending rates on customers. According to him, banks secure funds at less than 8% but lend to customers at rates as high as 36%, leveraging the high policy rate of 29%.
The policy rate, the 91-day Treasury bill rate, and interbank lending rates collectively influence the Ghana Reference Rate (GRR), which serves as the basis for banks’ lending rates. Thus, when the BoG-driven policy rate and 91-day bill rate are high, the GRR, and consequently lending rates, go up.
The disparity between savings and lending rates has long been criticised by economists, prompting calls for policy interventions from both the Central Bank and the government. Market watchers believe that it was in response to this call that the GRR was introduced to check arbitrariness in the setting of lending rates by banks.
In his recent article shared with The Accra Times, Togbe Afede, who is the Agbogbomefia of the Asogli State in the Volta Region, held the Central Bank responsible for the high lending rate environment. He alleged that BoG maintains a high policy rate to bolster its interest income, highlighting the dependency of the bank on this revenue source for operational expenses.
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“The stark reality is that BoG is in a financial quagmire because it may find it difficult to meet its operating expenses when interest rates fall significantly”, the Yale-trained investment banker explained.
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Referring to BoG’s financial statements for 2022, Togbe Afede noted that the Bank’s “interest and similar income” amounted to GH₵5.09 billion, constituting 92.7% of its total operating income of GH₵5.49 billion. He warned that a substantial reduction in the policy rate could jeopardize the Bank’s financial stability by significantly reducing its income and rendering it unable to cover operating expenses.
“Going by its 2022 financial statements, if BOG’s policy rate were to fall from 29% to 14.5% (still very high given its target of 8% inflation), BoG would lose close to half of its income and be unable to meet its operating expenses,” he added.
While the Bank of Ghana recently introduced a tiered Cash Reserve Ratio (CRR) aimed at enhancing credit to the private sector, Togbe Afede offered a dissenting perspective in his article. He argued that the new tiered CRR would only provide more liquidity for BoG to engage in what he described as “exploitative and predatory lending activities.”
It is expected that the Central Bank will address some of the concerns raised by Togbe Afede, given his former role as a board member of the Bank of Ghana.
