Exercise prudence in adjusting lending rates up - BoG Governor to banks

The Bank of Ghana Governor, Dr. Johnson Asiama, has urged banks to be careful with lending rates. This follows the recent increase in the policy rate.

He emphasized that banks should communicate transparently with clients about these changes.

Dr. Asiama spoke at a meeting with commercial bank leaders after the Monetary Policy Committee meeting.

This was the first meeting between the new central bank management and bank heads. It took place at the Bank of Ghana's headquarters.

Attendees included chief executives or representatives from regulated banks and officials from the Bank of Ghana, including 1st Deputy Governor Dr. Zakari Mumuni.

Background

The Monetary Policy Committee recently raised the policy rate by 100 basis points to 28%.

This is the first adjustment since September 2024 for key lending rates to banks.

Justification

The Governor explained that this decision aims to support disinflation efforts. He noted that inflation remains too gradual for lasting stability.

Headline inflation dropped from 23.8% in December to 22.4% in March, indicating some success from recent policies.

However, Dr. Asiama pointed out that inflation expectations are still high, and core inflation exceeds medium-term targets.

He added that a proactive approach is necessary because delayed tightening can lead to persistent inflation and costly adjustments.

Post Policy Rate Hike and Concerns

During his meeting with bank leaders, Dr. Asiama acknowledged the impact of higher borrowing costs on businesses and households.

He stressed that viable businesses should continue receiving support through tailored solutions for vulnerable sectors.

Outlook and Concerns

Despite recent challenges, Dr. Asiama noted improvements in the banking sector's solvency and asset quality measures amid strong liquidity and profitability.

However, he expressed concerns about solvency issues in some domestically controlled and state-owned banks where capitalization efforts are unclear.

Addressing capital shortfalls in these banks is a priority for the Bank of Ghana.

Dr. Asiama stated they are working closely with affected institutions to achieve sustainable capital levels and restore depositor confidence while ensuring regulatory compliance.

He also advised commercial banks to learn from past banking resolutions when preparing for crises.