By Adnan Adams Mohammed
The Bank of Ghana (BoG) has directed commercial banks to aggressively pursue borrowers of fully provisioned loans, warning that completely erasing bad debts from their books without recovery efforts creates a dangerous “moral hazard” in the financial sector.
Central Bank Governor Dr. Johnson Pandit Asiama issued the directive during a Monetary Policy Committee (MPC) press briefing. He revealed that while Ghana’s gross Non-Performing Loan (NPL) ratio remains elevated at just under 20%, the true underlying risk exposure drops significantly to around 8% when fully provisioned bad debts are accounted for.
The Governor’s remarks were in response to a question as to whether the stubborn NPL levels were a legacy effect of the country’s domestic debt exchange programme, and what regulatory sanctions it would deploy against banks failing to clean up their balance sheets.
The problem with “just erasing” bad debt
Addressing the calls for banks to simply wipe out these long-standing bad loans to make their books look cleaner, Dr. Asiama explained that a rapid write-off policy sends the wrong message to borrowers.
“Your question would be, why don’t we just erase the fully provisioned loans?” Dr. Asiama stated. “We don’t just erase them because there’s something called a moral hazard. If you just erase them, you could be raising moral hazard issues out there.”
The Governor explained that forgiving or quietly erasing debt relieves the pressure on defaulting borrowers, which could encourage reckless borrowing behavior across the wider economy.
Actively hunting defaulters
To ensure financial discipline is maintained, the central bank expects commercial banks to keep debt collection units active, even for loans that have technically been accounted for as losses.
“We still urge the commercial banks to pursue the beneficiaries of those loans, and as much as possible to collect, even though they may have written off fully those loans,” Dr. Asiama asserted. “They go after them and collect as much as they can.”
Countdown to the 2026 deadline
The central bank has already set wheels in motion to force compliance. The BoG has issued a series of strict guidelines to local banks, establishing a hard deadline at the end of 2026 for institutions to drastically reduce their toxic loan portfolios.
According to earlier regulatory directives, the BoG is aiming to push the industry’s benchmark NPL ratio down below a 10% threshold by the time the enforcement window closes.
Dr. Asiama noted that a collaborative framework is already yielding results, expressing confidence that the industry’s balance sheets will undergo a major transformation over the coming months.
“There’s a programme in place. We are working together with the banks to make sure we reduce that stock,” the Governor concluded. “Once we reduce them, we’ll see even the gross NPL ratio declining significantly. So far, there’s been a lot of progress made. We’ll build on that.”
