AGI watching impact of new base rate formula on lending rates

Nana Owusu-Afari, AGI PresidentNana Owusu-Afari, AGI PresidentThe Association of Ghana Industries (AGI) just like many other individual and institutional borrowers are keeping a keen eye on the impact of the new base rate calculation formula for banks on the future lending rates in the country.

“We want to wait for the next three to six months to see what the effect will be and, therefore, we are watching with a keen eye”, the President of the AGI, Nana Owusu Afari told the Graphic Business in an interview.

He said in the next Business Barometer survey, the AGI will seek to find out what the impact had been and make the findings public as usual adding that “we hope it does but like I said, we are watching for now”.

Barometer Survey, the AGI will seek to find out what the impact had been and make the findings public as usual adding that “we hope it does but like I said, we are watching for now”.

Base rate

To promote transparency in the setting of lending rates and uniformity in the definition of the determinants of ‘base rate’, the Bank of Ghana (BoG), in consultation with the universal banks, constituted a Working Group, which included the AGI, on ‘base rate determination in the banking industry’ in July 2011 to review the then existing base rate system and suggest changes to make the pricing of credit/loans more   transparent.

It was also to promote uniformity in the definition of the determinants of the base rate.

The group submitted its report in October 2011 and presented it to the chief executives of the universal banks for their comments.

Based on the recommendations of the Working Group and the suggestions from the universal banks, the recommended base rate model was further discussed with representatives of banks and treasurers and a supplementary report embodying additional refinements was presented to the chief executives of the banks the second time, in December 2011.

On account of the further comments and suggestions received, which were included in the final model, BoG and the universal banks decided to migrate to the new system of base rate determination – the Consensus Model.

The model was aimed at promoting transparency in lending rates of banks and also facilitating better assessment of monetary policy transmission by the central bank.

The Consensus Model was thus made ‘mandatory’ on 2nd July 2013.


According to a banking analyst and Head of the Osei Tutu II Centre for Executive Education & Research (OTCER), Nana Otuo Acheampong, “As if to determine the interest rate a bank charges a borrower for a loan is not difficult enough, how the bank sets the rate at which to charge its customers for the loans they take from the bank is indeed a puzzle”.

“For the corporate/business communities; small/medium/large; the consensus model offers a chance to shop around for the best rates”.

However, he noted that “the base rate is only one of several factors to be considered when accessing facilities from a bank financial institution but it is worth shopping for the best base rate”.

Meanwhile, Nana Acheampong is of the view that while the new consensus model attempts to solve the interest rate puzzle in part, more empirical research is required to test the alignment of base rates with the actual lending rates of banks in the country.

A Senior Research Fellow of the Institute of Statistical, Social and Economic Research (ISSER), Dr Robert Osei Darko, is also of the view that the impact of the new base rate was yet to be felt.

He wondered, however, whether the calculation of the lending rates would be anything below the prevailing Treasury Bill (TBill) rate which hovers around 22 per cent.

The trend so far

But there is some evidence that the high base rate regime which has characterised the banking industry in the last couple of years has begun crashing, though gradually.

In the last few days, the average interest rate which hovered around 30 per cent prior to the directive has dropped to between 22 and 24 per cent on the average.

For instance from 21.50 per cent, Societe General has advertised a new rate of 18 per cent which took effect from July. Bank of Baroda is also down from 17.95 per cent to 10.61 per cent while Barclays Bank is down from 18 per cent to 15.43 per cent.

The Bank of Africa has advertised a base rate of 25.57 per cent while the National Investment Bank also has 20.12 per cent advertised and it is supposed to take effect from July 15.

Standard Chartered Bank is also has a base rate of 16.66 per cent.

By Charles Benoni Okine/Ghana

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