Given that the BoG already reports APR of Banks in its monthly releases, why should industry pay attention to the Lending Rate Dashboard? Before answering this question, it is important to disclose that the primary source of input for the dashboard is BoG’s monthly release of APRs of Commercial Banks. However, there are several important reasons why the Lending Rate Dashboard should receive not “just”, but the most attention of industry. The first is the summarized – the dashboard – nature of the report. Unlike a base rate which is reported as one rate per bank, the BoG reports seven different APRs for each Bank – three for the household loans comprising vehicle, mortgage and other consumer loan – and four for loans to enterprises – agricultural, manufacturing, commercial and construction. For thirty one Banks, an estimated 217 APRs are contained in each month’s release of APR. Obviously the lack of attention to APRs by the financial media, and excessive concentration of industry on base rates could stem from this large number that needs to be reported. As the APR is a measure of true cost of borrowing, the business community could be better served if these APRs were simplified in a way industry could easily follow and critique. The LRD achieves this goal by reporting only one APR for a Bank, which reflects all the separately published APRs of that Bank. LRD answers the question “what is the lending rate – including risk margins and upfront fees – a Bank would charge its borrower with an average risk profile?”
A second reason why industry should follow the LRD is its informative content. There are reports on statistical measures such as the twelve-month moving average, standard deviation for a Bank’s APR over the past twelve months and the range (the difference between the highest and lowest APR a Bank has quoted within the past twelve months. The standard deviation measures how the individual monthly APR of banks are spread away from their own twelve-month moving average. The range and the standard deviation should help businesses ascertain how a Bank’s APR can swing overtime, a very important consideration in selecting a Bank as financing partner. All things being, equal, a lower standard deviation is preferred to a higher one.
A LRD helps business identify Banks pricing within, below or above the current industry average with Bank classification codes. Bank classifications are done using the current consolidated APR and the twelve month average.
There also reports on the Banking industry as a whole, for example, the dispersion of individual Banks APR around the industry average for the month of reporting, the percentage of Banks charging below the industry average, and those charging above it, a twelve month APR trend graph, year-on-year and month-on-month changes in industry averages. In all the objective of LRD is to assist in the borrowing decisions of individuals and enterprises.