Information gathered by Citi Business News indicates that some banks in country lost a substantial portion of their dollar deposits to the recently issued local dollar bond.
Government was able to raise 94.6 million dollars from the security, hinting that it will continue with such bonds to raise funds in retiring domestic debt and invest in infrastructure.
Even though the Managing Director of CAL Bank, Frank Adu Junior, and the Managing Director of Stanbic Bank Alhassan Andani have openly chastised the move, Finance Minister, Seth Terkper has insisted that government is not competing with the banks.
But Speaking to Citi Business News, Banking Consultant Nana Otuo Acheampong was of the view that the Bank of Ghana (BoG) must discuss the issue with the Ghana Bankers Association for a possible review since the trend will continue.
“If it is the regulation which is not allowing the banks to pay interest on foreign currency account then that regulation needs to be reviewed vis-à-vis the new dollar bond that have been issued because it is the same thing they are all denominated in foreign currency,” he said.
According to him, once dollar accounts in the country do not earn interest, investors will always move their deposits into instruments that guarantee some interest, particularly in the short term.
“So if they are going to allow the banks to take these foreign currency deposits and they are not going to be allowed to pay interest then the alternative will always be that people will issue it as a bond because as a bond am getting interest but if I put it in deposit account am not getting any interest,” he said.
“The law and the regulation allow you to open a foreign currency account but those foreign currency accounts do not earn interest and so the alternative will be to convert that account into a bond and earn interest even if it is one percent,” he stressed.
Terkper allays fears
The Finance Minister, Seth Terkper earlier rejected claims that government is competing with banks in the country for dollar currency by issuing dollar bonds locally.
The Managing Director of CAL Bank, Mr. Frank Adu Jnr, and the Managing Director of Stanbic Bank, Mr. Alhassan Andani expressed some level of dissatisfaction in the new move by government to issue dollar bonds after a maiden one proved successful with government raising 94.6 million dollars.
“I disagree with the Seth Terkper on this action. I think it is a wrong move. This is government competing directly with banks for dollars,” Mr. Adu told the B&FT.
Mr. Andani also cautioned that the move could be counterproductive if not controlled, since Ghanaians could be lured to convert their local currency into dollars to participate in the security.
Terkper justifies bond
Mr. Terkper maintained that there is no justification for commercial banks to panic over the move since the policy will rather benefit the banks.
“Government policy has benefited the banks, is the reverse of what the banks are talking about now, what they are saying here is that we are mopping dollars from their deposits and it will lead to competition by government. But you saw the reverse where government action also benefited the banks when about 500 milion dollars was used to pay domestic debt,” he said.
He was of the view that government at the time incurred higher cost when the interest rate of the bond was at 10.75 percent, even though it is now around 10 percent.
“At the time, government was criticized for borrowing at 10.75 even though those bonds are now trading at below 10 percent. We did not see the banks point to the benefit,” he said.
“The point am trying to demonstrate is that we have been mindful of the impact of government borrowing in terms of liquidity, in terms of crowding , in terms of interest rates on the economy. If you look at that amount that we are raising which is 90 million dollars compared to the 250 million dollars in the 2014 bonds to do refinancing , we have used in excess of 500 million dollars to do domestic refinancing you will see that the balance is more in favour of banks and the domestic market in taken pressure off the domestic market than putting pressure on the domestic market,” he added.
Reacting to the assertion that the bond could lure Ghanaians to convert their local currency into dollars, Mr. Terkper explained that the transaction was done through the Book Builders Approach with the participation of the banks.
He pointed out that the transaction was also limited to participants with accounts, and not done over the counter.
Mr. Terkper insisted that the banks cannot criticize the bond since it is also being traded on the secondary market where the banks are participants.
By: Lawrence Segbefia/citibusinessnews.com/Ghana