By Adnan Adams Mohammed
Commercial banks operating in Ghana must step up credit extension to the private sector while aggressively cleaning up their balance sheets, the Bank of Ghana (BoG) declared in a broad policy enforcement drive aimed at spurring national economic recovery.
Addressing financial sector leaders, the BoG Governor emphasized that avoiding lending under the guise of risk aversion undermines economic growth and hinders business development across the country.
“Banks must learn to manage risk, not avoid lending,” the Governor stated, urging financial institutions to adopt robust risk-assessment frameworks that allow them to extend credit responsibly to key sectors of the economy.
The central bank chief noted that while maintaining asset quality is critical, a complete freeze or excessive restriction on credit facilities deprives viable businesses of the capital needed to expand and drive national recovery.
Warning Over Post-Commencement Financing
In a related directive, the central bank issued a stern warning to financial institutions regarding financial engineering practices that obscure the true health of their loan books. Specifically, banks were cautioned against misusing post-commencement financing mechanisms to mask underperforming assets.
“BoG warns banks against using post-commencement financing to conceal bad loans,” the Governor cautioned, highlighting that transparency in financial reporting remains non-negotiable.
The central bank expressed concern that some institutions might be leveraging restructuring mechanisms and distress financing tools inappropriately to avoid provisioning for impaired assets, thereby presenting a misleading picture of their balance sheets.
Target Set: 10% NPL Ratio by End of 2026
To ensure stability and enforce discipline within the banking industry, the central bank has established a firm target for balance sheet cleanup over the next two years.
The BoG Governor officially directed all commercial banks to reduce their Non-Performing Loan (NPL) ratios to a maximum of 10% by the end of 2026.
“The Bank of Ghana has directed banks to reduce their Non-Performing Loan ratio to 10% by the end of 2026,” the Governor stated, underscoring that achieving this benchmark is vital for safeguarding depositors’ funds and restoring confidence in the banking sector.
Financial analysts have welcomed the central bank’s firm stance, noting that bringing NPL levels down to targeted thresholds will lower the cost of credit, boost profitability, and ultimately allow banks to perform their core role of intermediation more efficiently.
Banks are expected to submit detailed action plans outlining their strategies for loan recovery, write-offs, and risk mitigation to meet the mandatory deadline.
