THE Bank of Ghana (BoG) is expected to soon introduce a new formula for calculating interest rate on loans, Business Finder has learnt.
The new formula to be called the ‘Reference Rate’ would cap interest rates, therefore preventing banks from going above a certain limit in charging interest rates on loans.
Interest rates in Ghana are generally high at an average of almost 30 percent despite a 550 basis points reduction in the Central Bank’s policy rate in 2017.
Per the reference rate, the interest rate on the loan will equal whatever the prime rate is plus let say 9.0 percent. So if the prime rate is 20 percent, then your loan carries an interest rate of 29 percent. The bank may "reset" the rate from time to time as the reference rate changes.
The reference rate is expected to prevent banks from charging very high lending rates and therefore help reduce the high non-performing loans in the Ghanaian banking industry which stand at 22.7 percent.
Kenya introduced such as a formula called the Kenya Reference Rate which is a benchmark rate prescribed by the Central Bank of Kenya for pricing all floating/variable/flexible interest rate loans or credit facilities. This covers, overdrafts, mortgage loans, stock loans, invoice/bill discounts, asset finance loans, personal loans, credit card facilities; amongst others. It applies to all the Banks and Mortgage Finance Companies regulated by the Central Bank of Kenya and effectively replaces the Base Rates that were previously used for these types of facilities.
But banking consultant, Nana OtuoAcheampongis unhappy with the expected new formula for calculating interest rate on all loans, saying, that approach failed in Kenya Speaking to this paper, Nana OtuoAcheampong said the current base rate formula is good for the banking since it determines how liquid and strong a bank is.
He explained that in as much as lending rates are to come down, the current regime is good for the players since they will want to be competitive in the market, thus building competition.
Sources say the BoG wants to be stricter than never before in order to curb the high NPls and make banks more disciplined in the country.
In this regard, the Bank of Ghana will also soon implement the Basel II and Basel III accord respectively. While Basel II is an international banking regulatory accord that is based on three main pillars: minimal capital requirements, regulatory supervision and market discipline, Basel III is a global, voluntary regulatory framework on bank capital adequacy, stress testing, and market liquidity risk.
The move coupled with the new corporate guideline regulations is expected to increase discipline in the industry.
Per the new corporate guidelines, the tenure of CEOs is expected to be capped at a maximum of three terms of 5 years per term.
Also, Non-Executive Directors shall have tenure of three years for not more than two terms, and shall be in the majority on every Board.
In the case of foreign banks, the positions of Managing Director and Board Chair cannot be occupied concurrently.
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