Fiifi Kwetey attacks banks

Banks in Ghana underpay savers, do little to mobilise deposits from the informal sector, and pursue short-term profits to the detriment of long-term growth of companies and the economy, Fiffi Kwetey, Minister for Financial and Allied Institutions has said.

Speaking in an interview with B&FT, the Minister, who is soon to leave his current portfolio to head the Ministry of Agriculture, issued a scathing criticism of an industry which due to its fat margins -- 41 percent in 2013 -- has become the envy of most other sectors of the economy.

The industry’s stunning profits are largely due to high lending rates, not rising transaction volumes, and banks have been squeezing savers by paying paltry interest on their deposits, he charged.

“Instead of banks working hard to tap into the huge volumes of deposits outside of the banking sector, they are busy chasing SSNIT, a few large institutions and fighting among themselves -- snatching each other's customers, hardly wanting to go out there and get deposits from the vast majority of Ghanaians because it takes a lot of hard work.

“The banks need to have a long-term perspective; they need to understand short- term profitability is great, but far better is the economic transformation that will ensure they are in business over a longer time.

“If you have a long-term perspective, you are far more patient and diligent with the way you go about things; but if you have a short-term outlook, nothing happens.

“Having a more long-term approach and working for economic growth is better, as opposed to the need to show profitability at end of the year which can derail progress.

“If I get 10 percent profit this year with a view that in five years the various companies I am financing will grow larger and make profit in the next five years, I am doing far more service to myself and the country than putting emphasis on making 50 percent this year while literally diminishing the long-term transformational capacity of the companies I am dealing with.”

The former Deputy Minister of Finance also scolded the industry for its treatment of savers, saying banks do not reward depositors proportionately compared to the interest rates they charge on their loans.

“What they do is put more emphasis on how much it is they are charging for lending, while savings rates are low; so they are getting bigger margins,” he said.

Banks’ average interest spread -- the gap between lending and deposit rates -- is around 17 percentage points, according to the most recent data published by the central bank in August 2013.

Mr. Kwetey rejected the view that while banks’ interest spread may be high, they finance much of their lending at rates close to the Treasury bill rate; thus the high cost of loans is the result of high government borrowing rates.

He stated: “At the end of 2011, the Treasury bill rate was as low as 9 percent. Between 2010, 2011 all the way to the middle of 2012, Treasury bill rates were very low.

“During that period, the banks still did not make the move we expected them to make. When the T-bill rate is going up, lending rates move very swiftly; and when it is moving down, it takes forever for lending rates to come down. It is not natural. They give all kinds of excuses.”

Banks’ costly lending rates are the reason for the high default rate of borrowers, he said, and the industry needs to discard its exploitative mindset.

“We are a people who are obsessed with exploitation; we think the only way we can make profit is exploit each other. That is why a consciousness change needs to happen. Why do you think this is the only country where people charge three years rent advance? Because we are a cheating lot, and we need to change.”