[ 2016-10-29 ]

Banking Consultant calls for review of interest on foreign currency accounts
Information gathered by Citi Business News
indicates that some banks in country lost a
substantial portion of their dollar deposits to
the recently issued local dollar bond.

Government was able to raise 94.6 million dollars
from the security, hinting that it will continue
with such bonds to raise funds in retiring
domestic debt and invest in infrastructure.

Even though the Managing Director of CAL Bank,
Frank Adu Junior, and the Managing Director of
Stanbic Bank Alhassan Andani have openly chastised
the move, Finance Minister, Seth Terkper has
insisted that government is not competing with the
banks.

But Speaking to Citi Business News, Banking
Consultant Nana Otuo Acheampong was of the view
that the Bank of Ghana (BoG) must discuss the
issue with the Ghana Bankers Association for a
possible review since the trend will continue.

“If it is the regulation which is not allowing
the banks to pay interest on foreign currency
account then that regulation needs to be reviewed
vis-à-vis the new dollar bond that have been
issued because it is the same thing they are all
denominated in foreign currency,” he said.

According to him, once dollar accounts in the
country do not earn interest, investors will
always move their deposits into instruments that
guarantee some interest, particularly in the short
term.

“So if they are going to allow the banks to take
these foreign currency deposits and they are not
going to be allowed to pay interest then the
alternative will always be that people will issue
it as a bond because as a bond am getting
interest but if I put it in deposit account am not
getting any interest,” he said.

“The law and the regulation allow you to open a
foreign currency account but those foreign
currency accounts do not earn interest and so the
alternative will be to convert that account into a
bond and earn interest even if it is one
percent,” he stressed.

Terkper allays fears
The Finance Minister, Seth Terkper earlier
rejected claims that government is competing with
banks in the country for dollar currency by
issuing dollar bonds locally.

The Managing Director of CAL Bank, Mr. Frank Adu
Jnr, and the Managing Director of Stanbic Bank,
Mr. Alhassan Andani expressed some level of
dissatisfaction in the new move by government to
issue dollar bonds after a maiden one proved
successful with government raising 94.6 million
dollars.

“I disagree with the Seth Terkper on this
action. I think it is a wrong move. This is
government competing directly with banks for
dollars,” Mr. Adu told the B&FT.

Mr. Andani also cautioned that the move could be
counterproductive if not controlled, since
Ghanaians could be lured to convert their local
currency into dollars to participate in the
security.

Terkper justifies bond
Mr. Terkper maintained that there is no
justification for commercial banks to panic over
the move since the policy will rather benefit the
banks.

“Government policy has benefited the banks, is
the reverse of what the banks are talking about
now, what they are saying here is that we are
mopping dollars from their deposits and it will
lead to competition by government. But you saw the
reverse where government action also benefited the
banks when about 500 milion dollars was used to
pay domestic debt,” he said.

He was of the view that government at the time
incurred higher cost when the interest rate of the
bond was at 10.75 percent, even though it is now
around 10 percent.

“At the time, government was criticized for
borrowing at 10.75 even though those bonds are now
trading at below 10 percent. We did not see the
banks point to the benefit,” he said.

“The point am trying to demonstrate is that we
have been mindful of the impact of government
borrowing in terms of liquidity, in terms of
crowding , in terms of interest rates on the
economy. If you look at that amount that we are
raising which is 90 million dollars compared to
the 250 million dollars in the 2014 bonds to do
refinancing , we have used in excess of 500
million dollars to do domestic refinancing you
will see that the balance is more in favour of
banks and the domestic market in taken pressure
off the domestic market than putting pressure on
the domestic market,” he added.

Reacting to the assertion that the bond could lure
Ghanaians to convert their local currency into
dollars, Mr. Terkper explained that the
transaction was done through the Book Builders
Approach with the participation of the banks.

He pointed out that the transaction was also
limited to participants with accounts, and not
done over the counter.

Mr. Terkper insisted that the banks cannot
criticize the bond since it is also being traded
on the secondary market where the banks are
participants.

Source - Citifmonline

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