Recent data from the central bank point toward more investment in bills and bonds by banks. For shareholders, as long as profits are generated which result in handsome dividends, that is fine.

The latest banking sector report released by the Bank of Ghana disclosed that this component of income increased to 44.8percent in October 2019 from 42.9 percent in October 2018.

The Bank of Ghana’s industry report showed that income from investments comprising bills and securities reached GHC47.47billion in October 2019, compared to GHC42.84billion recorded in the preceding year. Of this amount, bills – refer to promise papers that mature in a year or less – raked in GHC16.47billion in October 2019; up from the GHC14.81billion recorded in the same period of 2018.

Also, securities – which refers to stocks or investments in companies and bonds which usually mature after ten years and above – gave banks GHC30.99bilion last year, indicating a rise from the GHC28.02billion made from the year before.

Meanwhile, income from loans – the second income generating venture for banks declined to 34.5 percent from 36.1 percent during the same review period.

What this means is a significant reduction in the loan-deposit ratios of the banks. Banks’ main source of funds are deposits, and what is expected from them is the advancement of such deposits as loans to businesses seeking to expand and grow. With expansion and growth comes job creation, and everyone including the tax collectors benefits.

A low-loan deposit ratio means less loans to businesses, this has been worrying the regulator. Governor Ernest Addison last month warned banks to improve their ratios by offering more loans at cheaper rates – or else he will be forced to introduce a directive to that effect.

Even a lending rates have dropped from the high of 33 percent to 2016 to current rates of between 22 to 26 percent, the regulator believes there is still significant room for improvement even as banks pursue value creation for shareholders.

“We do understand that banks have an interest in creating an interest in creating value for their shareholders, but creating value for shareholders must have some constraints – because it has to be done in a way in which the customer and consumers and feel they have been treated fairly by reviewing interest rates in the pricing of their loans,” the Governor pointed out.

What banks would detest at this time is another directive that points to micro-management of the system – and so for the central bank to be exploring the possibility of setting a minimum loan to deposit ratio to ensure that deposits mobilised by banks are channeled to viable private sector projects is not good news to them.

To avoid the central bank introducing another directive, banks should reduce their holdings in bills and bonds and look at offering more loans to businesses – which would then expand, grow and create jobs for the economy. That is the only way forward.