Ghana’s banking sector continues struggling with deteriorating loan portfolios more than two years after the country’s sovereign debt restructuring, highlighting the persistent challenges facing the financial system.
Non-performing loans reached 21.8 percent of total bank lending by December 2024, reflecting ongoing stress from the government’s 2022 debt crisis. The situation has worsened significantly from pre-default levels, when bad loans stood at approximately 15 percent of gross lending.
The crisis began when Ghana restructured roughly half its domestic debt in 2022, forcing banks to exchange GH¢17.5 billion in government bonds for longer-term securities with reduced yields. This immediate impact on bank balance sheets was compounded by aggressive monetary tightening as the central bank raised interest rates above 30 percent to combat inflation.
The combination of fiscal stress and tight monetary policy created what analysts describe as a “sovereign-bank nexus,” where government financial troubles directly damage the banking system. Higher borrowing costs made it increasingly difficult for businesses and individuals to service existing loans.
Agriculture and transport sectors have been particularly affected, with default rates exceeding 50 percent in these industries. The elevated interest rate environment has squeezed borrowers across multiple sectors, leading to widespread payment difficulties.
Credit growth has decelerated sharply as banks become more cautious about new lending despite reporting profits on paper. This reluctance to extend fresh credit reflects concerns about borrower quality in the current economic environment.
Bank of Ghana Governor Johnson Asiama has directed that non-performing loan ratios must fall to 10 percent by December 2026. This target represents a significant reduction from current levels and will require substantial effort from both banks and regulators.
The central bank has implemented several measures to address the crisis, including tighter loan classification rules, faster write-off requirements, and higher reserve requirements for weaker institutions. These regulatory changes aim to force banks to deal more aggressively with problem loans.
However, the stock of bad loans continues growing in absolute terms, topping GH¢21 billion by early 2025. This represents a substantial portion of the banking sector’s total loan portfolio and constrains new lending capacity.
International observers have noted Ghana’s experience as a cautionary example of how sovereign debt problems can amplify banking sector vulnerabilities. The African Development Bank has cited the country as illustrating the complex interactions between fiscal policy and financial stability.
Banks face the difficult task of rebuilding their balance sheets while supporting economic recovery. The conflicting pressures of maintaining profitability, meeting regulatory requirements, and providing credit to support growth create challenging operational dynamics.
The regulatory target of 10 percent NPL ratio by end-2026 appears ambitious given current trends. Success will likely require improved economic conditions, continued monetary policy normalization, and effective bank management of existing problem assets.
Some analysts question whether banks can achieve the regulatory target without significant external support or more favorable economic conditions. The path forward depends heavily on Ghana’s broader economic recovery and the effectiveness of ongoing policy measures.
The banking sector’s health remains crucial for Ghana’s economic prospects, as financial intermediation plays a vital role in supporting business activity and investment. Continued stress in the banking system could constrain economic growth even as other indicators improve.
Source: newsghana.com.gh
