Ghana's banking sector improved its asset quality by reducing its Non-Performing Loan (NPL) ratio to 18.9% by December 2025. This figure represents a notable decrease from 23.6% recorded in April 2025. However, Small and Medium-sized Enterprises (SMEs) remain central to the challenge, constituting over 93% of all distressed credit within the financial system.
The elevated NPL levels among SMEs pose risks to financial stability and credit expansion critical for economic growth. Sectors such as agriculture, transportation, and construction consistently show the highest default rates among these businesses. This indicates systemic issues beyond simple access to funding, requiring a more complete approach to managing credit risk.
This trend occurs within Ghana's broader economic narrative of tightening financial regulations and easing borrowing costs. The Bank of Ghana has set a prudential NPL limit of 10% for banks, with full enforcement anticipated by 2027. Banks failing to meet this threshold must submit robust NPL reduction strategies. Additionally, the Ghana Reference Rate dropped significantly from 29.72% in 2025 to 10.06% by April 2026, which should reduce the cost of borrowing for businesses. Ghanaian banks wrote off approximately GHS 1.39 billion in bad loans during 2025 alone, demonstrating proactive measures to clean up their balance sheets.
Hamza Mumuni, Manager of Stanbic Incubator for Business and Commercial Banking at Stanbic Bank Ghana, highlights the structural weakness of many SMEs. He notes that poor record-keeping, weak governance, limited financial planning, and inconsistent cash flows undermine their ability to repay loans. These internal issues, rather than external shocks alone, contribute significantly to defaults. This perspective underscores the need for initiatives that prepare SMEs not just to secure finance, but to manage it effectively.
The persistent high NPLs require an integrated approach involving regulators, financial institutions, and business support organizations. Business incubators are gaining recognition as essential platforms to address these risks by enhancing SME financial capabilities before and after they receive funding. For instance, incubators offer structured training in bookkeeping and cash flow management, making SMEs more creditworthy. They also help businesses prepare 'bankable plans,' which are necessary for engaging with lenders. By supporting market access and building stable income streams, incubators ultimately reduce the likelihood of loan defaults. Collaborations between incubators and banks can also provide post-financing support, identifying early signs of distress and preventing loans from becoming impaired. This ecosystem approach, where incubators act as a conduit between SMEs and the financial system, is considered crucial for long-term stability.