News Guide Africa

Tag: Commercial banks

  • Cut bad loans to spur private sector credit – BoG to commercial lenders

    Cut bad loans to spur private sector credit – BoG to commercial lenders

    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.

     

  • How the BoG’s dynamic Cash Reserve Ratio Regime will work …and what it means for commercial banks in Ghana

    How the BoG’s dynamic Cash Reserve Ratio Regime will work …and what it means for commercial banks in Ghana

    By Toma Imirhe

    This week, the dynamic Cash Reserve Ratio (CRR) framework for commercial banks, announced by their regulator, the Bank of Ghana a fortnight ago, will commence. This marks a significant shift in the country’s monetary policy and liquidity management architecture.

    The new framework, announced on May 20, 2026 by the BoG Governor, Dr Johnson Pandit Asiama,, will take effect from this Thursday, June 4, 2026, and will establish a baseline CRR of 20% for universal banks, with reserves to be held in Ghana cedis.

    The move represents a departure from the traditional fixed CRR regime under which all banks have been required to maintain the same reserve ratio regardless of their liquidity conditions, lending behaviour or balance sheet expansion.

    Under the new system, the 20% CRR will serve as a benchmark rather than a permanently fixed requirement. The actual reserve ratio applicable to individual banks could fluctuate depending on factors such as liquidity growth, deposit mobilisation, lending expansion, risk exposure and compliance with prudential requirements.

    The Bank of Ghana says the change is intended to strengthen monetary policy transmission, improve liquidity control within the banking system and provide greater flexibility in managing inflation and exchange rate stability.

    How the dynamic CRR will work

    The Cash Reserve Ratio refers to the proportion of customer deposits that commercial banks are required to keep with the central bank rather than deploy for loans or investments.

    For example, under the new arrangement, a bank with GH¢1 billion in qualifying deposits would initially be required to maintain GH¢200 million (which is 20%) as reserves with the central bank, leaving GH¢800 million available for lending and other operations.

    However, unlike the old framework where that ratio remained static, the dynamic regime will permit the Bank of Ghana to vary reserve requirements according to the activities and liquidity profile of each bank or according to broader market conditions.

    Banks that aggressively expand lending or create excessive liquidity could face reserve requirements above the baseline 20%. Conversely, institutions considered more prudent in liquidity management or supportive of targeted productive sectors with their lending may benefit from lower cash reserve obligations.

    Financial analysts say the system effectively gives the central bank an additional monetary policy lever beyond the benchmark Monetary Policy Rate.

    “This introduces a more flexible and responsive framework for liquidity sterilisation,” says one banking analyst. “Instead of relying solely on interest rates, the Bank of Ghana can now directly absorb or release liquidity from the banking system more efficiently.”

    Why the BoG is making the change

    The introduction of the dynamic CRR comes at a time when Ghana’s macroeconomic environment is stabilising following several years of elevated inflation, exchange rate volatility and aggressive monetary tightening.

    Although inflation has declined substantially from the peaks recorded during the economic crisis of 2022 and 2023, the central bank remains cautious about excess liquidity conditions that could reignite inflationary pressures or weaken the cedi.

    The dynamic CRR framework is therefore designed to complement recent monetary easing measures while ensuring that liquidity growth remains consistent with price stability objectives.

    By adjusting reserve requirements dynamically, the Bank of Ghana will be able to target liquidity more precisely within the banking sector rather than applying broad tightening measures across the entire economy.

    Economists say this approach could improve the effectiveness of monetary policy transmission in several ways.

    First, it enables quicker absorption of excess cedi liquidity that might otherwise fuel speculative demand for foreign exchange.

    Second, it reduces reliance on continuous increases in benchmark monetary policy interest rates to control inflation, potentially allowing the central bank to support economic growth while maintaining macroeconomic stability.

    Third, it strengthens oversight of systemic liquidity risks within the banking sector.

    The fact that reserves will be held in cedis rather than foreign currency is also viewed as strategically important because it supports domestic currency management and reduces incentives for excessive foreign exchange positioning by banks.

    Advantages for monetary policy management

    Market analysts believe the new framework could significantly improve the Bank of Ghana’s liquidity management capability.

    Under a fixed CRR system, reserve requirements often become blunt policy instruments because they do not differentiate between banks with varying liquidity and risk profiles. But the dynamic approach gives the central bank flexibility to respond to changing economic conditions in real time.

    During periods of rapid money supply growth or excessive lending expansion, reserve requirements can be raised to absorb liquidity without necessarily increasing interest rates sharply. Conversely, during periods of economic slowdown, reserve requirements could be eased to encourage lending to businesses and households.

    The framework is also expected to improve alignment between interbank liquidity conditions and the central bank’s monetary policy objectives.

    Analysts note that the policy could further strengthen exchange rate stability by limiting the amount of excess cedi liquidity available for speculative foreign exchange purchases.

    What this means for commercial banks

    While the policy is expected to strengthen macroeconomic management, it is likely to have mixed implications for commercial banks.

    On the positive side, the framework could enhance overall financial system stability by discouraging excessive risk-taking and aggressive balance sheet expansion. It may also encourage banks to adopt more disciplined liquidity management practices and improve asset quality monitoring. Banks that maintain prudent liquidity profiles could potentially benefit from relatively lower reserve obligations under the dynamic system.

    However, the framework could also constrain profitability.

    Higher reserve requirements reduce the amount of funds banks can deploy for income-generating activities such as lending and investments. If the reserves held with the Bank of Ghana are unrewarded in terms of interest payments or attract below-market interest rates, banks could experience pressure on net interest margins.

    Some industry observers also warn that tighter reserve requirements may contribute to relatively high lending rates if banks attempt to recover the opportunity cost of locked-up liquidity from borrowers.

    Smaller banks with narrower liquidity buffers may face greater pressure under the new framework than larger institutions with stronger deposit bases.

    Nonetheless, banking sector analysts generally view the policy as consistent with the central bank’s broader strategy of consolidating macroeconomic stability while modernising monetary policy operations.

    For Ghana’s financial system, the success of the dynamic CRR regime will likely depend on how transparently and predictably the Bank of Ghana applies the framework in practice over the coming months

     

     

  • BoG warns banks to adapt as falling interest rates threaten profitability

    BoG warns banks to adapt as falling interest rates threaten profitability

    By Adnan Adams Mohammed

    The Bank of Ghana (BoG) has issued a wake-up call to commercial banks, warning that their heavy reliance on government securities and interest income could undermine profitability as the country enters a cycle of lower interest rates.

    The Governor of the Bank of Ghana, Dr. Johnson Pandit Asiama, delivered the warning following the latest benchmark interest cut announced at the 128th Monetary Policy Committee (MPC) meeting in January. He noted that while macroeconomic stability has been restored, the banking sector must now undergo structural adjustments to survive a low-yield environment.

    For years, Ghanaian banks have sustained high earnings by investing heavily in sovereign instruments (Treasury bills and bonds). However, with inflation plummeting from 23.8% in December 2024 to a historic low of 3.8% in January 2026, the central bank has aggressively cut its policy rate to 15.5%.

    This shift has triggered a sharp decline in money market yields. The 91-day Treasury bill, for instance, recently dropped to 8.61%, down from over 11% at the start of the year.

    “There is nothing inherently problematic about net interest income,” Dr. Asiama told bank CEOs. “However, a high dependence on it increases sensitivity to interest rate cycles and sovereign exposure dynamics.”

    A BoG thematic review revealed that approximately 68% of industry profitability is currently driven by net interest income, while actual loans to the private sector account for less than one-fifth of total industry assets.

    Call for diversification

    To mitigate the risk of shrinking margins, the Governor urged banks to pivot toward: fee-based income by strengthening transactional banking, trade services, and digital payments; private sector lending by expanding credit to productive sectors like agriculture, manufacturing, and SMEs; and treasury operations, diversifying revenue streams through more sophisticated treasury management rather than passive sovereign investment.

    Dr. Asiama emphasized that “stability must now translate into purposeful intermediation,” adding that the BoG will now embed business model analysis into its supervisory framework to catch vulnerabilities early.

    Modernizing the financial perimeter

    The Governor also touched on legislative reforms intended to modernize the sector. These include the Bank of Ghana Amendment Act 2025, which bolsters the central bank’s independence, and the Virtual Asset Service Providers Act, which brings digital assets under formal oversight.

    “We are not creating a parallel financial system. All we are doing is extending the perimeter of the existing one,” Dr. Asiama explained, noting that banks will soon play a key role in settling transactions for regulated virtual asset providers.

    Outlook for the sector

    Despite the warning, the Governor remained optimistic about the broader economy, citing a 6.1% GDP expansion in 2025 and strengthening foreign reserves. However, he maintained that the “next phase” of the sector’s development would be defined by how quickly banks can move away from being “sovereign-driven” to becoming true engines of private-sector growth.

    The central bank also inaugurated a steering committee to encourage more banks to list on the Ghana Stock Exchange (GSE), a move intended to broaden ownership and improve corporate governance across the industry.

     

     

     

  • BoG cautions commercial banks as they adjust lending rates

     

     

    Dr. Johnson Asiama engages banking CEOs, urging caution and transparency as lending rates adjust to new monetary policy changes.

     

     

    Adnan Adams Mohammed

     

    Commercial banks operating in the country are being cautioned by the Bank of Ghana to be transparent and reasonable in adjusting their lending rates upwards in line with the monetary policy rate upward adjustment by 100 basis points a fortnight ago.

     

    At the most recent Monetary Policy Committee meeting held in the last week of March, the policy rate was increased to 28 percent from the previous 27% with three Committee members voting in favour of the hike while two members voted in favour of retaining the previous rate.

     

    The MPR hike provides guidance for commercial banks and other lenders to adjust their rates if they wish to do so. However, the central bank wants lenders to be mindful of the impact of their rate increase on both businesses and households.

     

    “While the policy tightening will affect funding costs and credit pricing in the near term, the financial system is well-positioned to absorb these effects”, Governor of the Bank of Ghana, Dr. Johnson Asiama, speaking at the maiden post-MPC meeting with CEOs of commercial banks in Accra last week, noted.

     

    “We therefore urge banks to exercise prudence in adjusting lending rates and maintain transparent communication with clients.”

     

    Recognizing the significant impact the adjust in lending rate could have on businesses and households, the central bank has urged the commercial banks to support struggling sectors with targeted financial support.

     

    “The policy rate increase also strengthens external buffers, supports the cedi, and signals our commitment to macroeconomic stability at a time of heightened global uncertainty. However, we also recognize that the policy rate hike will affect borrowing costs for businesses and households. Viable businesses should continue to receive support, and tailored solutions should be explored to mitigate the impact on the most vulnerable sectors,” the Governor added.

     

    The hike in the policy rate by 100 basis points is the first adjustment since September 2024.

     

    Meanwhile, Dr. Asiama has explained that the decision was “aimed at reinforcing the disinflation process, which, while underway, remains too gradual to secure lasting stability. The decline in headline inflation from 23.8 percent in December to 22.4 percent in March confirms that recent policy actions are having the intended effect. However, inflation expectations remain elevated, and core inflation is still above the medium-term target.”

     

    Despite recent challenges, the Governor also expressed cautious optimism about the state of the banking sector. He noted that, even in the absence of relief measures, the sector has shown sustained improvement, driven by gains in solvency, asset quality, liquidity, and profitability.

     

    Consequently, Dr. Asiama highlighted ongoing concerns regarding solvency issues in a few domestically controlled and state-owned banks, where recapitalization efforts remain unclear.

     

    “Addressing these capital shortfalls remains a top priority,” he stated. “We are working closely with the affected institutions to achieve sustainable capital levels, restore depositor confidence, and ensure full compliance with regulatory requirements.”

     

    Dr. Johnson Asiama, also announced plans to enhance the central bank’s supervisory and crisis resolution tools.

     

    Central to this initiative is the upcoming launch of a Resolvability Assessment Framework, designed to ensure that banks remain well-capitalized and are adequately prepared for distress scenarios—particularly in an increasingly interconnected financial landscape.

     

    This framework, he noted, draws on lessons from past bank resolutions and forms part of a broader strategy to bolster crisis preparedness.

     

    “To build true resilience, we must move decisively beyond traditional, reactive supervision toward a more forward-looking, risk-sensitive, and system-aware model,” the Governor stated.

     

    Dr. Asiama also reaffirmed the Bank’s commitment to supporting the sector through effective policy, open dialogue, and collaboration, aiming to build a more inclusive and stable financial ecosystem that meets the needs of all Ghanaians.

     

     

     

     

     

     

     

     

     

  • Deregulate financial sector’ or watch the economy totally collapse – ACEYE

     

    Emmanuel Acquah, co-founder, Africa Centre for Entrepreneurship & Youth Empowerment (ACEYE)

     

    As a matter of urgency, Ghana must “deregulate the financial sector,” reducing government interference, Emmanuel Acquah, co-founder, Africa Centre for Entrepreneurship & Youth Empowerment (ACEYE), has posited.

     

    He said the country had “been good at fighting for political freedom because that’s where the political actors have the space to flourish.

     

    “But we’ve not been good at promoting economic, and its subset, entrepreneurial freedom, where the private sector can thrive with ease.”

     

    He questioned how government interventions by way of tightening regulations, for instance, have rightly addressed problems in the financial sector, inviting his audience to compare the current situation to “what used to be in the past when banks had the freedom”.

     

     

    Too much regulations, Acquah said, stifled innovation and creativity across fields, disciplines, and industries.

     

    Acquah spoke during a ACEYE Public Policy Value Rating presser in view of the 2024 general elections, held at their headquarters in Dome, Accra.

     

    Indicating anarchy was not what he was advocating, he observed the obvious inconsistency in enforcing existing regulations, illustrated by the financial sector cleanup of 2017/2018 where struggling and defaulting banks and finance houses were shut down by government.

     

    “The funny thing is when an entrepreneur makes a mistake, the government is so quick to punish the indigenous or local businessman. But look at what the central bank has done – the losses – who is going to punish those actors?” he quizzed.

     

    “There are no permanent solutions. There are incremental trade-offs. If you give [local businesses] the freedom to operate [with time, they will prosper].”

     

    Emmanuel Acquah lamented the minimal capital required to open a bank in Ghana, and the limitation is presented to investors.

     

    “I think GHS400 million. I mean, how many indigenous or local entrepreneurs or investors will have that kind of money? In actual sense, if you reduce it, you’ll have lots of these people coming in,” he said.

     

    “In the short term, you may not get the results [desired] but in the long term, you will.”

     

    Cost of Restrictions

     

    “When an economy is at the verge of collapsing, it gets to a point where there are so many regulations,” Acquah underlined, warning Ghana.

     

    With freedom to operate and “pilot their ideas and all,” businesses and entrepreneurs will be incentivised into heavy production and innovation across various industries, instead of “all of the banks we have [offering] the same packages,” he argued.

     

    Duplication

     

    Also, he bemoaned the duplication of government institutions and ministries, leading to ineffective accountability and misuse of public funds. He implied these institutions, instead of enabling entrepreneurial freedom, obstructed it, rather.

     

    MPR and Interest Rates

     

    Another challenge in the financial sector, Emmanuel Acquah identified, was the Bank of Ghana setting the monetary police rate (MPR) “so high”.

     

    “The commercial banks will go to the central bank for monies. When they come back, because they’re also in business, they have to add to their interest rate. In so doing, what happens? The rate at which they’re going to give funds to entrepreneurs also becomes very high, creating a problem where entrepreneurs cannot go for these loans,” he highlighted.

     

    “This is also an avenue for political actors to also make some money. They cripple the financial sector then they will say, ‘Well, we can come in and offer more grants, and funds to entrepreneurs.

     

    “So they end up creating lots of cash-transfer programmes but if you look at the impact, it’s very, very low.”

     

    The ACEYE executive challenged, “Anytime any government says they’ve created or supported this number of jobs, let’s ask about how many jobs or businesses they have also collapsed as a result of their intervention. That’s the only way we can measure how impactful their policy has been to Ghanaians.”

     

    Emmanuel Acquah said, ultimately, “you and I know what our neighbour [truly] needs and wants more than government,” underlining the need for entrepreneurs of the micro, small, and medium enterprises (MSMEs) and upwards to have the freedom to provide innovative goods and services to satisfy said needs and wants.