The Governor of the Bank of Ghana Dr. Ernest Addison has said the bank is putting in place measures to streamline the remuneration of banks’ employees as a way of curtailing inefficiencies in the sector which is passed on to consumers in the form of high lending rates.
“Bank of Ghana will work closely with banks to ensure that banks do not pass on their operational inefficiencies and overhead costs to their clients. To do this, the Bank of Ghana will be taking steps to align compensation with overall bank performance by linking it to clear parameters including the quality of a bank’s assets.
To ensure transparency, banks will be required to publish Value Added Statements disclosing details of the compensation packages of key management personnel and Boards of Directors separately from total employee compensation,” the Governor said in a speech read on his behalf by Philip Abradu-Otoo, Head of Research Department at the Bank of Ghana.
The lending rate in commercial banks is around the mid-twenties; giving businesses a cause to complain about the negative impact on their operations.
Mr. Abradu-Otoo was addressing journalists at a training workshop in Koforidua organised by the Institute of Financial and Economic Journalists (IFEJ) on the general operations of the central bank as well as recent banking sector reforms.
According to Mr. Abradu-Otoo, the decision by the central bank to benchmark remuneration of banks’ employees to performance is part of a wider reforms meant to boost credit growth and financial intermediation.
He added that the central bank has recently passed a number of macro-prudential and market conduct regulatory measures to help boost credit to the Small and Medium Scale Enterprises (SMEs), foster more competition in the banking sector and to help lower lending rates.
These measures include setting aside two percent of the banks’ primary reserve requirement to support targeted lending to SMEs as part of the Enterprise Credit Scheme announced in the 2020 budget. These funds will be held at Bank of Ghana and will be available to banks that participate in the scheme.
A minimum loan to deposit macro-prudential ratio for banks to ensure that deposits mobilized by banks are channeled to viable private sector projects has also been instituted.
“We are strengthening enforcement of the credit bureau system under proposed Regulations to be made by Parliament pursuant to the Credit Reporting Act of 2007 (Act 726), and further strengthening the collateral enforcement mechanism under a new Borrowers and Lenders Bill to improve the quality of loans made by banks as well as facilitate recovery of loans and collateral,” he noted.
According to him, to further deepen transparency in the determination of lending rates, banks will be required to develop and publish a clear framework on the risk premium build-up that impacts on an individual borrowers’ credit profiles.
This, he said, is expected to provide borrowers with a more-informed basis for negotiating lending rates with their banks, and enhance transparency in the credit delivery process as well as promote responsible credit behavior from borrowers.