Don’t Blame Us – Top Banker

Asare Akuffo is the President of the Ghana Association of Bankers and MD of HFC Bank.
Posted on: www.businessguideghana.com

By William Yaw Owusu

Tuesday November 1, 2011
Asare Akuffo, President of Ghana Association of Bankers (GAB) has debunked claims that the banking sector is deliberately keeping interest rates high.

He said the dynamics of the economy determines the interest rates that the banks are charging.

The issue of high interest rate vis-à-vis low inflation being recorded of late has generated heated debate with policy makers accusing the banks of deliberately sabotaging government’s effort to bring economic stability.

But speaking exclusively to BUSINESS GUIDE, Mr. Akuffo who is also the Managing Director of HFC Bank said, “it is unfortunate that some people want to blame the banks for high interest rates. They must make statements based on facts.”

He said the central bank as a regulator has enough information on banks to correct this wrong view.

He said, “We determine our base rates and lending rates on our cost of funds and cost of operations plus a margin. The facts are there to show that banks are not taking advantage of their customers.”

Mr. Akuffo said the economic dynamics has created a situation whereby even though inflation is coming down interest rates are still quite high, adding, “we have to take a closer look at the fundamental causes.”

He cited the high cost of doing business including stiff competition for highly skilled and qualified human resource for the banking and finance sector.

“The cost of doing business currently is high. We also have 26 banks which are competing for a limited human resource who are qualified and capable. As a result banks were forced to pay a lot more to keep their best staff. These have combined to make the cost of doing business very high.”

Mr. Akuffo said apart from cost there are various taxes that banks pay saying “we have the stabilization levy. All these things go to add to cost. And as banks too are like other businesses, we must also cover our costs to be able to make a good return for our shareholders.”

“For instance HFC is listed on the GSE with over 2500 Ghanaian and foreign shareholders who expect an acceptable return on their investment. As I speak, the banks are not actually rewarding their shareholders enough.

“Take the recently published Ghana Club 100 you can see that the top 10 performers in terms of profit, there are only two banks who even occupied the eighth and ninth positions.”
The GAB president was optimistic that interest rates would come down with time predicting that the consolidation happening in the banking sector would facilitate the reduction of interest rates.

However, Dr. John Kwakye, Member of Monetary Policy Committee (MPC) of the Bank of Ghana and a Senior Fellow at the Institute of Economic Affairs (IEA), said the banking sector is “highly concentrated” and “dominated by a few large banks.”

“It is because there is not enough competition that is making the banks keep rates high and that makes the consumer pay so much. Once everybody’s rate is high they match each other to keep their rates,” he said.

Dr. Kwakye said even though the BoG changes its prime rates quarterly the banks do not respond to it saying “in all these times that the Central Bank has been reducing the prime rate, it has not transmitted through the system as expected.”

He said so far all that the BoG as a regulator has managed to do is to embark on what he called ‘moral switching’ where the Governor would call the banks and try to plead with them.

“But even on this one they can take it or reject it. As a regulator we have suggested that if the banks are not conforming we should find a way of dealing with the situation so that the downward trend in inflation could make real impact.”

Dr. Kwakye however noted that the banks might have justification in what they are currently doing, saying “they have argued that the cost to the monetary policy which is nine per cent is still high. In that sense they may have some point because when they take deposits of hundred, nine is supposed to be frozen at the Central Bank and it is not remunerated.”

“I must admit that they have very large cost including overhead cost. They pay their staff very high income and this is partly because the fiscal expansion that has taken place in the banking sector has not been accompanied in the same degree building capacity of staff since they all have limited staff and therefore pay the well and therefore factor it into their cost.”

This, notwithstanding, he said the Central Banks should step in and try to regulate the system and not control “because people misconstrue regulation to mean the BoG wants to go back to a system of control” which he said “is unfortunate.”