News Guide Africa

Tag: Non-performing loans

  • 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.

     

  • Banks profit jumps near 50% amidst all-time low private sector credit-to-GDP gap

    Banks profit jumps near 50% amidst all-time low private sector credit-to-GDP gap

    As commercial banks posted a profit-after-tax of about GH¢9.7 billion, a 46.1% jump compared to GH¢6.7 billion recorded during the same period in 2024, private sector credit-to-Gross Domestic Product (GDP) gap remained negative at all-time in the first eight months of 2025.

    According to the September 2025 Monetary Policy Report, the sector posted gains across all income lines, with other income surging 47.3% in August 2025, reversing a 2.9% contraction recorded a year earlier.

    Other indicators, such as net interest income rose 21.8% to GH¢19.2 billion, up from GH¢16.9 billion in August 2024, driven by a slowdown in interest expenses due to lower interbank lending rates. On a year-on-year basis, interest income increased 21.5% to GH¢29.3 billion, while interest expenses climbed to GH¢10.2 billion from GH¢8.4 billion, representing 20.9% growth — slightly below the 22.1% growth in August 2024.

    Overall, profitability indicators strengthened, with return-on-equity (ROE) increasing from 31.4% in August 2024 to 32.2% in August 2025, and return-on-assets (ROA) improving from 4.9% to 5.6% over the same period — underscoring the industry’s robust recovery and stronger balance sheet performance.

    Private sector credit-to-GDP gap at all time low

    Although, the Banking Sector Soundness Index was significantly above the long-term trend, nearing the pre-DDEP level, reflecting an improving solvency positions, adequate liquidity and strong earnings performance. However, the private sector credit-to-GDP gap is at an all-time low.

    The ratio is another measure of macro-financial risk. A positive credit-to-GDP gap indicates that total private sector credit extension relative to the size of the economy is above its long-term trend and vice versa.

    “Ghana’s credit-to-GDP remains negative and declining, suggesting the need for measures to promote credit delivery to support the real economy”, the central bank disclosed in its September 2025 Monetary Policy Report.

    NPLs ratio expected to improve

    The Bank reported that the non-performing loans ratio, though marginally improved, remained elevated.

    That notwithstanding, the report said the ongoing macroeconomic recovery, supported by the implementation by banks on how to reduce Non-Performing Loans (NPLs), should help moderate the build-up of new non-performing loans and improve overall asset quality.

    However, provisions for depreciation, bad debts, and impairment losses contracted sharply by 46%, against a 19.2% contraction in 2024, on account of higher recoveries and write-offs.

    The report further noted that net fees and commissions grew 13.1% by August 2025, down from 22.9% a year earlier, while overall net operating income expanded by 28%, compared to 10.9% growth in 2024.

    Operating expenses also increased moderately, rising 19.5% compared to 18.9% in the previous year, reflecting marginal growth in staff and administrative costs.

     

    By Adnan Adams Mohammed

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

  • Bank of Ghana plans to sell up to US$1.15bn from October

    Bank of Ghana plans to sell up to US$1.15bn from October

    The Bank of Ghana (BoG) will commence foreign exchange (FX) intermediation under the Domestic Gold Purchase Programme, with plans to sell up to US$1.15 billion between October and the end of 2025

    These sales will be conducted on a spot basis through twice-weekly, price-competitive auctions open to all licensed banks.

    Dr Johnson Pandit Asiama, the Governor, made this known during a post-Monetary Policy Committee engagement with heads of banks.

    He disclosed that there will be no conditions or earmarking for allocations so as to ensure a level playing field and transparent access to the market.

    “Monthly auction volumes may be adjusted depending on evolving market conditions, but our overarching objective remains clear: to deepen the interbank FX market, enhance price discovery, and smooth volatility,” he said.

    He indicated that the central bank remained committed to transparency and would continue to disclose all foreign exchange market operations and outcomes in line with best international practice.

    He commended the banking industry for maintaining strong performance and resilience.

    “The Capital Adequacy Ratio has risen to 17.7%, while Non-Performing Loans have improved to 20.8%, though still elevated and requiring sustained vigilance.”

    To strengthen prudential oversight and risk management to sustain strong performance, he said, the BoG had introduced a number of new directives.

    These include the Bancassurance Directive, the Large Exposures Directive, and the Guidelines on Credit Concentration Risk Management.

    The Bank has also extended the transition period for the outsourcing Directive to the end of December 2025, following consultations with the Ghana Association of Banks.

    “I want to emphasise that this will be the final extension, and banks must ensure full compliance thereafter,” he added.

     

     

     

     

  • BoG goes hard on defaulters as it strategises to cut down NPLs

    BoG goes hard on defaulters as it strategises to cut down NPLs

    The Bank of Ghana (BoG) has issued new regulatory directives aimed at curbing rising non-performing loans (NPLs) as well as reducing risks to the profitability, liquidity, and solvency of the banking sector.

    Among the directives are that wilful loan defaulters could face a five-year ban from accessing credit from any regulated financial institution in Ghana. The directive also requires commercial banks and other regulated lenders to publish the names of such defaulters twice a year, on June 30 and December 31, in at least two national daily newspapers and on their websites in a prescribed format.

    Also, in a notice to commercial banks, Specialised Deposit-Taking Institutions, non-banking financial institutions and the public, the central bank urged financial institutions to maintain a robust Credit Risk Management Framework to help reduce Non-Performing Loans (NPLs).

    It explained, a Regulated Financial Institution (RFI) shall, on a continuous basis, enhance its credit risk management function and processes in compliance with the Bank of Ghana’s credit risk management requirements and shall demonstrate the robustness of such processes to the Bank of Ghana.

    “The Board of an RFI shall have overall responsibility for approving and periodically, at least annually, reviewing the credit risk management strategy and policies of the RFI” it added.

    In terms of observing the prudential limit on NPLs, the Bank of Ghana said RFIs shall ensure that the level of NPLs to gross loans (NPL ratio) does not exceed 10.0%, or such other levels as may be prescribed by the BOG from time to time.

    However, microfinance Institutions are required to comply with their existing prudential NPL ratio limit of 5%.

    It added that the Board-approved NPL reduction plan shall be aimed at returning the RFI to full compliance within one year.

    It continued that RFIs with NPL ratios exceeding the prudential limit shall, from 1st January 2027, be restricted from the payment of dividends and bonuses, as well as growing their loan portfolio lending to related parties and sectors of the RFI’s credit portfolio with NPL ratios above the prudential limit etc., except for cash-backed facilities.

    For restructuring NPLs to qualifying borrowers, it said RFIs may initiate the restructuring of a loan facility and shall discuss sustainable payment options with borrowers or restructure a loan at the borrower’s request to enhance the affordability and sustainability of loan repayment by qualifying borrowers. This aims to minimise the potential losses to the RFI due to default or deterioration in borrowers’ creditworthiness.

    To maintain the integrity of RFIs’ financial statements, it urged RFIs to ensure that the restructured loans are appropriately classified and treated in accordance with the requirements of IFRS 9 impairment and BOG’s prudential loan classification and provisioning norms.

    Who Is Wilful Loan Defaulter?

    Under the new rules, a borrower is deemed a wilful defaulter if they fail to repay a loan despite having the capacity to do so, divert loan funds for other purposes, or secure a loan through falsified collateral or fraudulent documentation.

    Credit Access Restrictions

    The directives bar regulated financial institutions from granting fresh loans to defaulters from the date the BoG approves a loan write-off.

    The prohibition period will be twice the length of time between the write-off approval and the full settlement of the debt.

    Borrowers listed as wilful defaulters on two or more occasions within ten years will face a mandatory five-year ban, or longer if the calculated prohibition period exceeds that duration.

    The restrictions also target directors of companies found to have engaged in fund diversion, misrepresentation, falsified accounts, or fraudulent transactions.

    Path to Credit Eligibility

    A wilful defaulter may regain access to credit upon fully repaying all written-off loans and fees, and if the lender is satisfied with the borrower’s ability and willingness to meet future repayment obligations.

    By Adnan Adams Mohammed

  • Rising NPLS: Real estate players share causes antidotes 

    Rising NPLS: Real estate players share causes antidotes 

    Adnan Adams Mohammed

    Players in the real estate sector has shared their concerns leading to the rising Non-Performing Loans (NPLs) in the construction sector attributing the phenomenon to the lack of attractive mortgages in the country.

    Bank of Ghana recent data has revealed that, a total of GHC2.086 billion was written off as bad debt by banks operating in Ghana. Of this, the construction sector performed worst, with NPLs for the sector increasing by 13.6 percentage points to 35 percent during the review period.

    The inability to pay back loans by borrowers within the period of review was attributed with COVID-19. The NPL ratio in the banking sector increasing from 15.5 percent in August 2020 to 17.3 percent in August 2021. This was disclosed by the central bank’s Domestic Money Bank’s Income Statement.

    “When we build the houses, we use loans and other types of finances. We invest in acquiring land banks, and yet we can’t sell the houses, and this is what causes the issue of unpaid loans in our sector”, Patrick Ebo Bonful, President of the Ghana Real Estate Developers’ Association (GREDA) shared. “So the issue has to do with the lack of a mortgage, a mortgage that can serve the purpose. The tenures of the mortgages given here in this country are too short.”

    “We are hoping to get mortgages with tenures as high as 15 years, 20 years, and 25 years. When the tenures are long, it means the monthly payments will be bearable and affordable for most people. So we need to have a serious conversation on the way forward with mortgages once and for all,” he added.