The Managing Director of Zenith Bank (Ghana) Limited, Mr Daniel Asiedu, has commended the Bank of Ghana (BoG) for revising the cash reserve ratio (CRR) of banks from 11 per cent to 10 per cent last month.
The reduction, he said, was timely because it would make additional funds available to the banks which could be channeled into loans and advances to businesses, particularly Small and Medium Enterprises (SME) which hitherto had been grappling with a tightened credit stance.
“If the businesses get more money, it means they can invest and expand, which will increase the production of goods and services; help grow the economy and ultimately benefit the entire country,” Mr Asiedu said in an interview.
He was commenting on policy initiatives from the BoG, the regulator of the financial services sector, vis-a-vis their impact on banks and the financial services industry as a whole.
BoG Policy
The BoG in November, this year, announced a 100 per cent basis points reduction in the cash reserve requirement, which is the minimum portion of depositors’ funds banks must keep with the Central Bank as back-up for rainy days.
The reduction meant that banks, which had recorded dwindling credit outflow to businesses, would have an additional one per cent of their respective total deposits available as loanable resources to interested businesses and individuals.
The extra funds are expected to help spur real credit growth to the private sector, which the BoG quoted at 26.6 per cent in September 2014, compared to 13.1 per cent the same period last year.
“As you may be aware, the amount banks can lend to businesses depends to an extent on the limit the Central Bank places on them through the CRR. Therefore, the reduction in the CRR to 10 per cent means more money at the disposal of banks, lower interest rates on loans and advances, and hence more liquidity in the market, which means well for the country’s economy,” Mr Asiedu explained.
On whether or not the ratio should be reviewed again, he said a further review should be done after proper monitoring and assessment of the real impact of the recent downward revision on businesses in particular and the economy as a whole.
Credit: Graphic