[ 2015-05-26 ]

T-bills dealing law needed for banks -- Dr. Kofi 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.”

Source - Bus & Fin Times

... go Back