T-bills dealing law needed for banks — Dr. Amoah

A development economist and entrepreneur, Dr. Kofi Amoah, has advocated a new banking regulation that will limit the participation of banks in the Treasury bills market in order to free money for the private sector in yet another radical proposal that is expected to enrage bankers.

Dr. Amoah, who himself owns a significant stake in a banking firm, advised that banks must be regulated so that they do not invest more than 10 percent of their deposit base in Treasury bills amidst concerns that the allure of government’s short-term borrowing in the securities market is driving funds away from the private sector.

Other economists and financial analysts have also explained that interest on Treasury bills are behind the high cost of borrowing in the financial services industry.

As of April this year, commercial banks held GH¢2.46billion of government’s 91 day Treasury bills.

“Our economy is not presently well-organised, nor is it matured enough to rely on market forces. We must regulate to help chart a more sensible, pragmatic and sustainable roadmap for our development.

“We all know that the present high cost of credit cannot help us progress, and it is time to act and change,” Dr. Amoah remarked.

Dr. Amoah, in his keynote address at a product launch by Bond Savings and Loans Limited in Accra, also called on the legislature to ensure that government does not borrow more than 10 percent of all available investible funds in the system at any given time to leave ample room for private sector and consumer borrowing.

He said governments must be made to reduce their borrowing through issuance of Treasury bills and instead focus on improving public sector productivity and cost control, reduce wastage and pilfering, and help grow internal strength to boost tax revenues.

“I call on parliament to ponder on this and enact laws that can help free funds to support and fast-track private sector growth, create jobs and increase exports,” he added.

Dr. Amoah’s proposals for the banking sector comes at a time that policymakers, led by the Trade Minister Ekwow Spio Garbrah, have led a campaign to drive down the high cost of borrowing in the country — with Treasury bills and weak management of the economy being cited for the high price businesses pay for accessing credit.

The average lending rate in the banking sector is about 30 percent, and some bankers have argued that they cannot lend below that to the private sector businesses when government securities — especially the Treasury bills, considered to be risk-free — are going at 25 percent.

This is evident in the increased value of banks’ investments in government’s securities, as they continue to tighten credit to the private sector as reported by the central bank.

According to the Bank of Ghana, the banking sector’s total deposits, liabilities as at end December 2014 was GH¢32.43billion while their investment portfolio (bills and securities) increased, in year-on-year terms, by 11.2 percent to reach GH¢12.096billion — more than half of the GH¢22.22billion the banking sector recorded as loans and advances.

According to the Dr. Amoah, the prevailing lending rate in the country cannot and will never promote fast-track growth to help absorb the high levels of unemployment and also curtail the high levels of importation.

“We need a set of policies that will make credit cheaper and available to underpin business growth and expansion, sustainable employment growth, expansion of agriculture and agribusiness, establishment and expansion of manufacturing for both domestic and export markets, as well as significant growth in corporate profit and workers income,” he said.

Major economists have opined that the current high-interest rates are a major constraint to the country’s development effort, describing them as economic suicide.

The cost of credit in the country, which has been persistently high for the past two decades, is impeding business growth and affecting private sector businesses as interest rates in most parts of Europe and North America are currently between zero and five percent.

Dr. Amoah observed that high cost of credit has been a disturbing matter for a number of years and needs to be resolved, as credit is the petrol to ignite and catalyse development.

“The issue of exorbitant interest rates on loans charged by banks, savings and loans and micro finance companies is a gargantuan matter — which if not tackled once and for all can derail, delay and even crush Ghana’s efforts to develop.

“Credit availability and affordability is essential for business growth in all areas: agriculture, manufacturing, housing, retail,” he said.

Providing historical observations to support the critical role that credit plays in promoting economic development through entrepreneurship and business growth, Dr. Amoah said: “In the Bible, the prophet Ezekiel lists exorbitant interest as one of the abominable things along with rape, murder, robbery and idolatry.

“During Queen Mary’s reign between 1553-1558, the English Parliament abolished the collection of interest. In 1776 all states in the United States pegged the maximum interest at six percent.”

He said the economic history of developed nations should be a guide to help understand the proper credit policies that are normally appropriate and necessary for developing economies, especially for a development environment like Ghana’s — characterised by mass unemployment, illiteracy, raw material and land abundance, and lack of manufacturing, import dependency and like.

He said in the early stages of U.S. development, they had strict regulations geared towards making credit cheap and available. By law, savings attracted interest of only 3 percent, and this was for all U.S banks to follow. Loans attracted interest of 8-10 percent, with a spread of 5-7 percent.

“Of course, we are aware that some Fixed Deposit products attract higher rates; as well as Bank of Ghana reserve requirements and base rate lending stipulations, and government’s own appetite for loans crowding out the private sector and bumping the cost of credit up.”


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