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Commercial Banks begin implementing new formula for calculating base rate
Posted on: 02-Jul-2013         Source: myjoyonline.com
Commercial banks have started implementing a new formula for calculating the minimum lending rate for borrowers. This should mean that banks will no longer have different ways of working out their base rates.

The new formula which took effect Tuesday July 2, 2013, will be based on four modules; cost of funds, return on equity to shareholders, provision for bad debt and risk premium of the borrower.

The Bank of Ghana has also directed the commercial banks not to lend to any customer below their advertised base rate.

The regulator believes this would bring about some transparency in the pricing of loans.

The Bank of Ghana is planning to review the formula every month of each of the commercial banks.

The base rate often serves as the floor for loan negotiations. It is usually influenced by the cost banks incur in securing funds to lend, and the ability of the borrower to pay back the loan.

Meanwhile, Some commercial banks say the implementation of the formula would not necessarily drive down interest rates as expected by many.