Stanbic Bank CEO: High Interest Rates Stifle Business Growth

Businesses in Ghana are struggling under the weight of high interest rates, with the country’s central bank maintaining its policy rate at 27% as inflationary pressures continue to rise. These soaring borrowing costs are particularly crippling for small and medium enterprises (SMEs), which are finding it increasingly difficult to access affordable credit. As a result, many SMEs are forced to abandon their expansion plans or seek costly loans from informal lending channels, further straining their ability to grow and succeed. This situation is casting a shadow over the country’s economic recovery prospects.

The ripple effects of these high interest rates extend far beyond just SMEs, with the entire economy feeling the pinch. Commercial banks are charging lending rates above 35%, which severely hampers business growth and investment. This high cost of borrowing is especially detrimental to industries with low-profit margins, such as agriculture and manufacturing, where the financial strain of elevated interest rates is exacerbating existing challenges. Industry leaders are increasingly warning that the ongoing high-interest-rate environment is pushing businesses—particularly those in vulnerable sectors—into financial distress.

In a recent interview with Graphic Business, Kwamina Asomaning, Managing Director of Stanbic Bank Ghana, expressed deep concern over the impact of the current interest rates on the nation’s economic growth. Asomaning pointed out that Ghana’s interest rates are significantly higher than the rates seen in most African markets, with the central bank’s policy rate of 27% standing as evidence of the country’s problematic financial situation. The policy rate sets the foundation for all lending activities, which means that the elevated rate is felt throughout the economy, affecting everything from consumer purchasing power to business operations.

Asomaning explained that inflation is the key driver behind the sustained high interest rates in Ghana. He also noted that inflation has not received adequate attention in national political discourse, even though it is a critical issue. In many developed countries, inflation is treated as one of the central policy concerns alongside unemployment and immigration. However, in Ghana, the debate around inflation has been comparatively muted, even though it is one of the primary forces eroding the purchasing power of ordinary citizens.

Asomaning highlighted how inflation reduces the value of money over time, using the example of how a fixed amount of cedis now buys fewer crates of eggs than it did previously. The result, he said, is that inflation gradually “steals money from people’s pockets,” leaving the average Ghanaian worse off.

Adding to the complexities of Ghana’s economic situation is the alarming rate of non-performing loans (NPLs), which currently range between 24% and 35%. This is significantly above the World Bank’s recommended threshold of 10% for economies of Ghana’s size. As a result, banks are recovering only 75 cedis for every 100 cedis lent. This mismatch forces banks to factor in these losses when determining lending rates, which further raises the cost of credit for borrowers and adds pressure on struggling businesses.

Asomaning also drew attention to the challenges banks face when attempting to realize collateral on loans. The country’s judicial system, he said, is inefficient, with commercial disputes dragging on for years, making it difficult for banks to recover funds. This lack of efficiency in the legal system is preventing banks from fulfilling their role in the economy, which is to facilitate lending and support business growth. The result is that banks are becoming more cautious about lending, particularly to vulnerable sectors such as agriculture and manufacturing, thereby further stifling economic growth.

The connection between high interest rates and the rising levels of non-performing loans is critical. During periods of economic stress, banks tend to reassess their credit risk appetite, which leads them to reduce lending to sectors already facing economic challenges. This is a dangerous cycle that can stunt the economy’s recovery and hinder progress toward a more robust and sustainable economic future.

Asomaning’s statements serve as a crucial reminder for policymakers to address these challenges head-on. A more comprehensive approach is needed to tackle high interest rates, inflation, and non-performing loans, while also fostering a business-friendly environment that can stimulate growth and investment. Ghana’s economic recovery hinges on the ability to create a more stable and affordable lending environment for businesses, allowing them to thrive and contribute to the country’s long-term development goals.