The Managing Director of Premium bank Mr Kwasi Tumi, has advised government against capping interest rates in Ghana.
‘Capping interest rates in Ghana will be counterproductive. I am a market believer, I believe that when you try to control things unnecessarily or put a lid on things, you are not able to take into account all the preambles that go to control and it will blow if you try to do so’.
The advice follows growing calls for a cap on interest rates as being done in Kenya.
Govt’s position on capping interests
Government earlier this year asserted that it is yet to consider capping interest rates as being done by Kenya.
President John Mahama speaking to business associations in November, 2016 stated that, ‘“Interest rates are not controlled by government…I notice that in some countries they have passed legislation to cap interest rates but I do not know if that is the way to go…But my belief is that prudent management of the economy will see interest rates decline continuously.” he stated.
The President added, “If government is borrowing less on the domestic market and Treasury bill rates are coming down, there is no way interest rates will remain up there. There is also the issue of high default rate in the market and that poses a high risk to commercial banks leading to high interest rates. So all of us need to deal with this issue of interest rates together.”
Interest rates in Ghana
The latest Annual Percentage Rates (APR) and Average Interests (AI) on deposits report released by the Bank of Ghana shows that the average minimum interest rates that can be charged on loans and advances by commercial banks in the country increased marginally between May and September 2016.
The figure increased from 27.5 percent to 27.8 percent during the period, while average interest on loans in Ghana is between 30 and 35 percent.
Bankers make case
Speaking to Citi Business News after the media launch of the bank the MD of Premium Bank Mr Kwasi Tumi said any move by government to cap the rates will rather cause chaos in the financial industry.
‘ I’m not a proponent of capping anything. Remember we have seen in this country before interest rates at eighteen and stuff like that and we have seen this thirty something before. So we basically are swinging between two extremes and I don’t see it going beyond where it is going now. It has to come down’.
‘I think that the best thing to do in my view is to work on the macro because if you do so things will fall into shape as opposed to trying to create an artificial environment, because there are too many factors that go into anybody setting their rates, so to say that you are capping it at a certain level could backfire’ He added.
Mr Kwasi Tumi joins a growing list of bankers who have advised against the move in Ghana.
Banking consultant and Principal Consultant at Osei Tutu II Centre for Executive Education & Research, Nana Otuo Acheampong, earlier told host of Business Today, Vivian Kai Lokko, that “It will be a disaster if we decide to go that way.”
At the end of the day interest rates is a price and therefore the free market economics tenets are to be allowed for items of prices to find their own level and if you start with one you must continue with the rest unless you want to return to the 70’s with price controls and the problems it came with’.
Kenya in August this year defied opposition from the central bank and industry and signed a legislation that imposes limits on bank lending and deposit rates.
Under the new law in Kenya lending rates will be capped at four percentage points above the central bank’s benchmark rate, which is 10.5 per cent, while deposit rates must be at least 70 per cent of the benchmark rate.
By: Vivian Kai Lokko/citibusinessnews.com/Ghana