The Lending Rate Dashboard – LRD – is a monthly publication by HM Foundation on release of each month’s Annual Percentage Rates (APRs) of Commercial Banks by the Bank of Ghana (BoG). It is aimed at providing further analysis to lending rates of Commercial Banks in Ghana, and serve as “additional” reference guide for businesses in their borrowing decisions.
Like a report dashboard, the Lending Rate Dashboard presents a single and at a glance source of information for monitoring and analyzing interest rate performance of Commercial Banks in Ghana. Statistically computed metrics and classification codes on the dashboard helps to tell at a glance which Banks are currently pricing or have consistently priced below, within or above the industry APR.
Much attention is given by the financial media to the monthly base rates of Commercial Banks reported by the Bank of Ghana. Although commendable, base rates reflect only the minimum rate a Commercial Bank would charge on its loans. It excludes risk margins and certain upfront fees Banks state in their offer letters to their customers. Therefore whilst base rates serve as reference points for minimum lending rates, it does not communicate the true and full cost of borrowing.
The APR measures the “true and full” cost of borrowing and includes the base rate, risk margins and upfront charges like commitment and management fee. Each month, the BoG publishes seven different APRs for each Commercial Bank. Unfortunately, only the base rate receives attention of the financial media, with praises showered on Banks quoting the lowest base rate. Arguably though, the APR should be the single most important rate that should receive the greatest attention of the financial media and industry. That the APR measures the true cost of borrowing is an argument not only supported by the BoG in its monthly releases, but also grounded in literature.
Using the Dashboard
The LRD, though very useful, should not replace the usual caution exhibited by firms in their dealings with Banks. It should be used as an “additional” reference guide with other business information in evaluating Banks for selection as financing partners. Although a major consideration by a number of firms, there are factors other than a Bank’s APR, which are considered in borrowing decisions. Examples include the ability of the Bank to provide the needed facility, the turnaround time of the Bank in processing the loan, the Bank’s footprint, disbursement windows and whether the Bank can provide the facility over the required maturity period. Firms should seek additional financial advise where necessary.