Kufuor expresses worry over banks

Accra, Nov. 21, GNA - President John Agyekum Kufuor is worried over the slow responsiveness of financial institutions especially the banks to reduce the lending rates given the overall improvement in macroeconomic indicators.

Mr Kwadwo Baah-Wiredu, Minister of Finance and Economic Planning, who announced this on Monday said: 'His Excellency is particularly pained that the banks in particular have not quickly responded to the declining macro economic indicators for the greater public good and to move the growth agenda forward as expected.'

Presenting a paper to open the 10th National Banking Conference Lecturers in Accra on the theme: The Impact of Banking and Financial Services Industry on the Country's Economic Development' he said President Kufuor was not happy about the slow decline in lending rates to the private sector as well as the high cost of operations of the banks compared to international practices.

The Minister said a cursory look at macroeconomic and financial indicators generally attested to the worrying thoughts within the financial sector.

'Despite consistent declines in the prime rate from 18.50 per cent in 2004 to 14.5 per cent as at date, lending rates are still sticky downwards despite increased liquidity of banks due to the abolishing of the secondary reserves requirement,' he said.

Assigning some possible reasons to the slow responsiveness in the past, Mr Baah-Wiredu cited the cushion or premium cost inefficiency in operations due to huge mismatch of assets and pricing for a long period of time, crowding-out by government and lack of collateral and other credit requirements by banks.

He said the circumstances had changed but realigning operating cost downwards to match declining income from their assets had become a mirage and a short term uncertainty.

In addition the Minister mentioned psychological fear and uncertainty as other factors which by themselves were risks and therefore preventing the banks from positively responding to the already established favourable macroeconomic indicators as at now.

He said there were still about 40 per cent of cash with the non-banking public outside the banking system thereby affecting the rate of diversifying income creation by banks.

Mr Baah-Wiredu said the Government was determined and committed to support and reforms the financial sector to be the key driver for the private and the other sectors of the economy to offer and deepen pro-private sector policy initiatives as well as institutional and legal and regulatory framework. 21 Nov. 06