Ghana’s central bank engages in discussions with lenders to mitigate rising bad loans, particularly influenced by government debt restructuring. One bank reports an alarming 81% bad loan ratio. Overall, the non-performing loans in the sector have risen to 21.8%, prompting collaborative measures to improve lending conditions and stabilize fiscal policies amidst economic challenges.
Ghana’s central bank has initiated discussions with local lenders to address the surge in bad loans, significantly impacted by a government debt restructuring. One lender reportedly has an astonishing 81% of its total credit as non-performing loans. While this lender is an exception, the overall non-performing loans ratio for the banking sector was 21.8% by the end of 2024, up from 14.8% in December 2022, the month Ghana defaulted on its external debts, according to Bank of Ghana data.
Governor Johnson Asiama highlighted the pressing issue of non-performing loans during a recent conference aimed at tackling the nation’s economic challenges. He emphasized that the banks should not bear full blame for this situation, attributing much of it to the government’s debt exchange strategies — actions that were beyond the banks’ control.
The Bank of Ghana is actively collaborating with various domestic lenders, particularly state-owned banks, to devise strategies to reduce their non-performing loan ratios. This initiative comes as domestic banks have been significant sources of funding for the government, which had to secure a $3 billion bailout from the International Monetary Fund in 2022 due to unsustainable debt that consumed over half of its revenue.
Additionally, Ghana’s economy is grappling with currency depreciation, with the cedi declining nearly 18% against the dollar over the past year. This depreciation has led to persistent inflation at around 23%, forcing the central bank to maintain a high policy rate of 27% since September, making credit access costly for businesses and households.
Despite these challenges, Fitch Ratings reported signs of recovery within the financial sector. The report noted that solvency pressures from Ghana’s default have not resulted in liquidity strains. Asiama concluded with optimism, suggesting that by lowering non-performing loan ratios and stabilizing fiscal policies, lending rates are likely to decrease swiftly.
Ghana’s central bank is actively addressing the high incidence of non-performing loans among local lenders, particularly in light of government debt restructuring. While one lender suffers from exceptionally high bad loans, the overall sector is also facing increasing default rates. Efforts are underway to collaborate with banks to stabilize the financial environment, improve lending conditions, and mitigate the effects of macroeconomic challenges like currency depreciation and inflation.
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