Bank of Ghana to Intensify Bank Loan Book Reviews and Supervision to Address Elevated NPLs

The Bank of Ghana (BoG) has reiterated its commitment to reducing Non-Performing Loans (NPLs) and mitigating credit risk within the banking sector.

Key measures by the Central Bank include closer collaboration with commercial banks to optimize credit reporting and collateral registry systems and increase onsite supervision, as highlighted in the BoG’s 2024 Financial Stability Review.

According to the BoG, it plans to conduct periodic thematic reviews of bank loan books to ensure early recognition and accounting of potential losses aiming to bolster the sector’s resilience to credit risk, asserting that this has become necessary following the full impact of the recent debt restructuring, which the Central Bank notes has weakened the industry’s ability to manage heightened credit risks.

“Non-performing loans remain elevated, reflecting the lagged effect of the COVID-19 pandemic and recent macroeconomic challenges. The stress test revealed that if macroeconomic recovery is slow-paced, leading to a mild deterioration in credit quality, the Capital Adequacy Ratio (CAR) may reduce further over a one-year horizon,” noted the report.

The report further warns that solvency conditions could decline below 10% if future macro-financial conditions significantly worsen.

To address these risks, the BoG is mandating banks to uphold sound credit risk management practices, adhere to its directive on suspending dividend payments, and prioritize recapitalization.

The credit risk stress test estimates the sector’s solvency position following an extreme but reasonable deterioration in the quality of loan assets. The impact of the decline in credit quality on the solvency position is estimated using the loan migration model.

Currently, the banking industry’s non-performing loans (NPLs) average 24.1% as of June 2024, a stark increase from the 18.7% NPLs recorded same period last year.

Source: Norvanreports