Bank of Ghana intensifies efforts to curb Non-Performing Loans and strengthen credit risk resilience
The Bank of Ghana (BoG) has reaffirmed its commitment to reducing Non-Performing Loans (NPLs) and addressing credit risk within the banking sector through enhanced regulatory measures. In its 2024 Financial Stability Review, the BoG detailed several strategies, including tighter collaboration with commercial banks to refine credit reporting, improve the collateral registry, and increase onsite supervision.
To strengthen resilience against credit risk, the BoG plans periodic thematic reviews of banks’ loan portfolios to detect and account for potential losses promptly. This proactive approach has become crucial following the recent debt restructuring, which, according to the BoG, has weakened the industry’s ability to manage rising credit risks.
“Non-performing loans remain elevated due to lingering effects of the COVID-19 pandemic and recent economic challenges. If macroeconomic recovery remains slow, a slight decline in credit quality could further lower the Capital Adequacy Ratio (CAR) within a year,” the report noted, cautioning that CAR could dip below 10% if economic conditions deteriorate significantly.
To address these risks, the BoG mandates banks to maintain sound credit risk management, comply with the dividend suspension directive, and prioritize recapitalization efforts.
A recent credit risk stress test revealed that under adverse economic conditions, a marked decline in loan quality could further strain the sector’s solvency, using a loan migration model to estimate the impact. NPLs in the banking sector averaged 24.1% as of June 2024, up from 18.7% in the same period last year, highlighting the sector’s increased vulnerability to credit risk.
These initiatives underscore the BoG’s commitment to fortifying the banking industry’s stability in the face of economic and credit challenges.
