Lending Rates and Access to Credit in Ghana

Ghana's lending rates when compared to its peer countries such as Botswana, South Africa and Nigeria were very high. Similarly access to bank credit and the size of loans received from banks were also higher in these countries than Ghana. The Association of Ghana Industries identified bank credit and lending rates as main challenges its members faced to expand their operations. Ghana and its peer countries allowed banks to determine their lending rates to improve upon availability of credit and level of lending rates.The objective of the study was to determine whether the policy to allow banks to determine their own lending rates had impact on availability of credit. The second objective of the study was to investigate whether this policy also affected the efficiency in credit allocations to various economic sectors. The third objective was to determine the impact of banks lending to government on their lending rates.The study used SUR methodology on panel of lending rates, banks allocation of credit to various economic sectors and banks finance of government deficits. Data on these variables covered the same number of observations for lending rate regulated periods (1963-1986) and lending rate deregulated periods (1987-2010). The study filled the gap that existed in the literature by determining the impact of lending rate deregulation on availability of credit and efficiency in credit allocation to all sectors of the economy.The study found that lending rate deregulation increased availability of credit and efficiency in banks credit allocation. Banks finance of government deficits was also found to impact negatively on banks credit allocations