Ghana’s lending rates could fall if banks’ actual funding costs replace T-bill rates in benchmark – Prof Peprah

Professor of Finance William Kwasi Peprah of Andrews University in Michigan has called for Ghana to replace the Treasury bill component of the Ghana Reference Rate (GRR) with banks' actual deposit funding costs. Speaking on the Asaase Breakfast Show on Asaase Radio, Peprah argued that the change could reduce lending rates for businesses and households. The GRR serves as a benchmark for commercial bank loan pricing, with lenders typically adding a risk premium to set the rate charged to individual borrowers. Peprah said that reducing the benchmark through a revised methodology could lower borrowing costs, provided banks kept their existing risk margins.

Peprah said the GRR was originally designed to combine the Bank of Ghana's monetary policy rate, the interbank rate and the 91-day Treasury bill rate, with intended weights of 40%, 20% and 40% respectively. He said his analysis of data from April 2018 to September 2026 indicated that the Treasury bill rate and reserve-related adjustments accounted for approximately 78% of the factors driving the benchmark. He added that he and a colleague had been unable to reproduce some GRR figures using the published methodology and called for greater transparency in the weighting and calculation process.

On funding costs, Peprah argued that banks obtain funds through savings, current, fixed and other deposits at differing costs, and that interest expenses on interest-bearing deposits give a more direct measure of funding costs than Treasury bill yields. He cited August 2026 figures showing a GRR of 10.61% and an average lending rate of 15.94%, a difference of 5.33 percentage points, and said the gap points to the need to examine how banks set lending margins. The article notes that this gap does not on its own establish excessive pricing or abnormal profits, since lending rates also reflect borrower credit risk, operating expenses and capital requirements.

Peprah proposed keeping the existing monetary policy and interbank components while replacing the Treasury bill component with an average of banks' actual funding costs. He said the Bank of Ghana and the Ghana Association of Banks could source the data from banks' monthly submissions, adjusting for non-interest-bearing funds and relevant reserve requirements. He also called on banks to pass benchmark reductions through to floating-rate borrowers where contracts tie loan rates to the GRR plus a margin, and to publicly explain any failure to adjust lending rates when the benchmark falls. He said a more transparent benchmark could push banks to compete more actively for borrowers rather than relying on returns from government securities, and that reform should be judged by actual lending rates and the real cost of credit.