Banks are bullish about oil but the debts are mounting

Ghana's state-owned banks are in rude health, as oil cash starts to flow into the economy, adding a boost to the insurance and service industries, and creating much needed jobs.

State-owned Ghana Commercial Bank, Agricultural Development Bank and the National Investment Bank have all reported profit gains in 2011. And the insurance industry is benefiting from the oil boom.

But on 1st September, BoG governor Paa Kwesi Bekoe Amissah-Arthur, chairing BoG's Monetary Policy Committee's bi-monthly meeting, announced that the bank's interest [policy] rate would be maintained at 12.5per cent.

The gap between the policy rate and the cost of borrowing is the single biggest challenge facing Ghanaian entrepreneurs. With inflation at about 8.5 per cent, and a policy rate of 12.5 per cent, the commercial banks still charge borrowers between 20-25 per cent on loans.

This impacts negatively on business. The president of the Association of Ghana Industries, Nana Owusu Afari, called yet again for a reduction in the cost of doing business, given the recently announced 7 per cent increase in power and water tariffs.

Governor Amissah-Arthur also warned of the need for the government to restore balance in the government's finances to promote domestic growth. He had earlier advised the government to be cautious in its spending, and in its pricing of petroleum products, in order not to have a negative impact on the 2011 budget.

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© 2011 Menas Associates