Business loans at 30% TO 47.24%

-Households loans-50.92%, SMEs loans-55.27%-BoG report

By Elvis DARKO, Accra

The latest report on annualized percentage rates (APRs) for bank loans in February 2024 reveals that borrowing costs remain significantly high, particularly impacting the industry sector.

The report, which provides indicative rates for loans with one, three, and five-year tenors, shows that industries are the hardest hit, with APRs not dipping below 30%.

The persistently high borrowing costs, especially for the industry sector, underscore significant financial challenges.

Industry loan rates soar

For one-year tenor loans to corporates, APRs ranged from 33.68% at OmniBSIC Bank to 45.94% at the Agricultural Development Bank.

Two banks did not offer this loan during the month under review.

Three-year tenor loans for corporates saw APRs from 33.68% at OmniBSIC Bank to 47.51% at Agricultural Development Bank, though 10 banks did not provide loans in this category.

Similarly, five-year tenor loans had rates from 30.58% at Access Bank to 47.24% at Agricultural Development Bank, with another 10 banks abstaining from offering this loan.

High interest rates mean economies, businesses and consumers will have to pay more to borrow and adjust to the new financing conditions

Household loans also costly

Households faced substantial borrowing costs as well. One-year tenor loans had APRs starting at 27.71% from GCB Bank and reaching up to 50.92% at Stanbic Bank. One bank did not offer loans with a one-year tenor.

For three-year tenor loans, the lowest APR was 27.21% at Bank of Africa, while the highest was 43.83%.

Two banks did not provide loans in this category.

Five-year tenor loans saw rates starting at 26.64% at Fidelity Bank and peaking at 44.07% at National Investment Bank, with one bank not offering this loan.

SME loans face varied rates

Loans to Small and Medium Enterprises (SMEs) also exhibited a wide range of rates.

One-year tenor loans ranged from 17.03% at Absa Bank Ghana to 50.27% at Stanbic Bank Ghana, with one bank not participating.

Three-year tenor loans for SMEs had APRs from 17.02% at Absa Bank Ghana to 55.27% at Fidelity Bank.

Five banks did not offer this loan.

For five-year tenor loans, rates ranged from 24.44% at Fidelity Bank to 48.49% at Agricultural Development Bank, with 13 banks not offering this loan.

High non-performing loans

The report also highlighted an alarming non-performing loans (NPL) rate of 25%, indicating that a quarter of the loans granted by banks are unlikely to be recovered in full.

Comprehensive cost reflection

The APR reflects the true cost of a loan, incorporating the Ghana Reference Rate, bank-specific risk premia, and other charges that borrowers face when securing a loan facility.

This situation calls for strategic interventions to manage and reduce lending rates, thereby fostering a more conducive economic environment for growth and development.

APR is the yearly rate charged for a loan or earned by an investment and includes interest and fees.

It calculates what percentage of the principal to pay each year by taking things such as monthly payments and fees into account.

APR is also the annual rate of interest paid on investments without accounting for the compounding of interest within that year.

The APR provides a consistent basis for presenting annual interest rate information in order to protect consumers from misleading advertising.

An APR may not reflect the actual cost of borrowing because lenders have a fair amount of leeway in calculating it, excluding certain fees.