BoG orders banks to cut bad loans to 10% by year-end as Asiama pushes for stronger lending discipline

The Bank of Ghana (BoG) has instructed all regulated financial institutions to reduce their non-performing loan (NPL) ratios to no more than 10% by the end of December 2026, signalling a tougher supervisory approach aimed at restoring credit growth and strengthening the banking sector’s role in Ghana’s economic recovery.

The directive marks one of the clearest regulatory targets set by the central bank since the banking sector clean-up, reflecting growing concern that elevated bad loans continue to constrain lending despite significant improvements in banks’ capital positions.

Speaking at the Chartered Institute of Restructuring and Insolvency Practitioners (CIRIP) Ghana–Bank of Ghana Forum in Accra, Bank of Ghana Governor Dr Johnson Pandit Asiama said the sector had made measurable progress but remained short of the standards required to support sustained economic expansion.

“The industry’s non-performing loans ratio declined to 16.1% as at end-June this year, compared to over 23% a year ago, while the Capital Adequacy Ratio stood at 20.4%. Capital of that order is what gives a bank the room to take considered risks,” he said.

The figures point to a banking industry that is substantially healthier than it was a year ago. Lower bad loans and stronger capital buffers suggest banks are better positioned to absorb losses and expand lending. However, the persistence of double-digit NPLs indicates that a sizeable share of banking assets remains impaired, limiting institutions’ willingness and ability to extend fresh credit.

Dr Asiama cautioned that recent gains should not be mistaken for the completion of the sector’s recovery.

“That is progress and not sufficiency, and 16.1% remains too high, even if it is fully provisioned. Our regulatory measures require each regulated institution to reduce its ratio to no more than 10% by the end of December this year.”

The Governor said banks would be expected to meet the target through a combination of stronger credit appraisal standards, board-approved NPL reduction strategies, more aggressive loan recovery efforts and the write-off of fully provisioned loans that have no realistic prospect of recovery.

The emphasis on governance is significant. By requiring board-level ownership of bad loan reduction plans, the central bank is signalling that asset quality is no longer merely an operational issue but a strategic responsibility for bank leadership.

For investors and businesses, the directive could have far-reaching implications. A sustained decline in NPLs would free up regulatory capital currently tied to impaired assets, potentially enabling banks to expand lending to productive sectors of the economy. Improved balance sheets could also reduce provisioning costs, strengthen profitability and enhance confidence in Ghana’s financial system.

Dr Asiama argued that reducing bad loans should be viewed as a national economic priority rather than simply a regulatory requirement.

“High non-performing loans tie up capital. They raise recovery costs and restrict new credit, more severely for smaller and higher-risk borrowers. So reducing them is therefore not merely a supervisory concern. It is part of Ghana’s development agenda.”

His remarks highlight a long-standing structural challenge within Ghana’s banking industry. While banks have maintained relatively strong capital buffers in recent years, credit growth to the private sector has remained subdued as institutions adopt increasingly cautious lending practices in response to elevated credit risk.

The Governor also linked the banking sector’s future lending capacity to the implementation of Ghana’s Corporate Insolvency and Restructuring Act (Act 1015), which seeks to preserve viable businesses through restructuring rather than liquidation.

According to him, the legislation offers banks an opportunity to recover value from distressed but economically viable firms, provided restructuring is conducted within a disciplined regulatory framework.

He warned, however, that restructuring finance should never become a mechanism for masking losses or delaying the recognition of impaired assets.

“Post-commencement financing must reinforce that discipline, not work around it.”

To improve confidence in the restructuring regime, Dr Asiama called for a predictable framework that clearly defines the responsibilities and protections of banks, borrowers, insolvency practitioners and creditors.

“Ghana needs a predictable framework, not case-by-case improvisation. Banks, insolvency practitioners, borrowers and existing creditors need clarity on the evidence required, the controls that must be in place, the treatment of new and legacy exposures, and the consequences if a rescue fails.”

He disclosed that the Bank of Ghana is collaborating with CIRIP Ghana, the Ghana Association of Bankers, the Institute of Chartered Accountants Ghana and other industry stakeholders to develop a practical, risk-sensitive framework that supports corporate restructuring while safeguarding financial stability.

The new regulatory target underscores the Bank of Ghana’s broader strategy of shifting attention from rebuilding bank capital towards improving asset quality and restoring the flow of credit to the real economy. If achieved, the reduction of NPLs to single-digit levels would represent a major milestone in Ghana’s post-banking sector reform agenda and could provide a stronger foundation for private sector investment and long-term economic growth.