‘Stop hiding under Treasury bills, bonds’

Banks and other lending financial institutions should reduce their investment in government securities and rather advance credit to businesses, Dr. Nii Kotei Dzani, Chief Executive Officer of Ideal Finance, has said.

“I think the responsibility of banks is to advance credit facilities to businesses and individuals and not invest all their deposits in Treasury bills. They should reduce their investments in government securities and help the economy grow,” he said.

Due to high returns and the risk-free nature of government securities, banks and other financial institutions tend to commit more funds to buying Treasury bills and bonds as against advancing credit to businesses that need funds to expand.

The 2014 PWC Banking Survey report stated that loans and advances remain the most significant component of the banking industry’s operating assets. It accounts for 43 percent of these assets but has not changed from 2012 to 2013 because of the limited opportunities for banks to extend credit to customers, the report said.

The report noted that the general industry perception is that the risk profile of customers has not improved. This condition is further aggravated by the unfavourable macro-economic environment, which has created constraints for profitable business.

“Investment holdings in money market instruments as liquid assets by banks increased by 47percent from GH¢7.3billion in 2012 to GH¢10.7billion in 2013, but 87 percent of these money market instruments are held in government of Ghana Treasury bills and bonds,” the PwC report said.

According to the Central Securities Depository (CSD), commercial bank holdings in bills and bonds as at September 2015 stand at GH¢9.49billion.

But Dr. Dzani believes that despite the current economic challenges, banks can do more in order to lend to businesses. “Banks must enable their risk departments to be functional, so they can lend to support the economy instead of dumping deposits into government securities.

“It is up to banks to have a strong risk management structure that can help reduce their lending rates. We have to make sure that we lend strategically so we don’t lend to ‘toxic’ companies,” he said.

Dr. Dzani cautioned that: “If your interest rates are very high it is also an avenue for people to default, because it will be difficult to service those loans”.

Touching on government’s plan to raise GH¢1.5billion three-year fixed rate bond which is expected to restructure Government of Ghana debt and for maturity settlement, Dr. Dzani decried government’s extensive borrowing, especially from the domestic market.

“I don’t have any problem with government borrowing to undertake development, but if you look at the rate of borrowing of this country the money will be used to settle debt. How long can we continue to do this? It is about time we looked at our borrowing and took a proactive decision to curtail it.”

Already, the International Monetary Fund has predicted that the country's public debt stock will hit 72 percent of GDP, about GH¢83billion by December 31, 2015.

“Government’s continued borrowing from the domestic market is a challenge because there is little funds left available for financial institutions to lend to businesses that want to grow and expand,” he said.

Dr. Dzani suggested that government should find innovative ways to expand the tax net in order to increase revenue instead of arbitrarily increasing taxes or borrowing.