By Elorm Desewu
By the next couple of months, the government would complete the modalities with regard to the establishment of the Enterprise Credit Fund, (ECF).
The allocation of two percent of the primary reserve requirements into the Enterprise Credit Fund by the 23 universal banks would amount to some GHC2 billion.
According to the governor of the Bank of Ghana, (BoG), Dr Ernest Addison, “the modalities for accessing these funds are progressing steadily and hopefully by next two months, we should have a clearer view of how the banks can access these resources, which are targeted at SME lending”.
The Bank of Ghana is, for a start, exploring a number of new prudential and market conduct regulatory measures to help foster more competition in the banking sector and in the process help lower lending rates:
To further provide increased activity in the small and medium enterprise (SME) sector, the Bank of Ghana is setting aside 2 percent of the banks’ primary reserve to support targeted lending to SMEs as part of the Enterprise Credit Scheme announced in the 2020 budget. These funds will be held at Bank of Ghana and will be available to banks that participate in the scheme.
The Bank of Ghana is working closely with banks to ensure that banks do not pass on their operational inefficiencies and overhead costs to their clients. To do this, steps are being taken to align compensation with overall bank performance by linking it to clear parameters including the quality of a bank’s assets. Bank of Ghana will also scrutinize compensation policies for Chief Executive Officers and key management personnel as well as Board of Directors of universal banks.
To ensure transparency, banks will be required to publish Value Added Statements disclosing details of the compensation packages of key management personnel and Boards of Directors separately from total employee compensation.
To further deepen transparency in the determination of lending rates, banks will be required to develop and publish a clear framework on the risk premium build-up that impacts on an individual borrowers’ credit profiles. This is expected to provide borrowers with a more-informed basis for negotiating lending rates with their banks, and enhance transparency in the credit delivery process as well as promote responsible credit behaviour from borrowers.