Ghana's banking sector registered 18.9% in non-performing loans (NPLs) in December 2025. These bad loans represent a total value exceeding GHS 21 billion. This high level of NPLs prevents businesses from fully benefiting from falling monetary policy rates.
The elevated NPL ratio indicates significant credit risk within the financial system. This risk makes banks hesitant to lower their lending rates, even as the Bank of Ghana (BoG) reduces its policy rate. Professor Patrick Asuming, an economist at the University of Ghana Business School, identified this as a key issue. He noted that banks cannot afford to be reckless by offering loans at very low rates when NPLs remain high.
This situation directly impacts the broader Ghanaian economy. Businesses face higher borrowing costs, stifling investment and growth despite the central bank's efforts to stimulate the economy. The BoG has aggressively eased its monetary policy rate, dropping it from 28% in July 2025 to 14% by March of this year. This pushed the Ghana Reference Rate (GRR) down to 10.5% in May. However, average lending rates still hover around 20%, showing a disconnect.
Professor Asuming stated, “If NPLs are not coming down sufficiently, you shouldn’t expect banks to be reckless and start giving loans at sufficiently low rates.” His comments followed a BoG directive from August 2025. This directive mandated commercial banks to reduce their NPL ratios below 15% by December 31, 2026, and to 10% by 2027. Failure to meet these targets could result in forfeiting dividend payments and bonuses. Microfinance institutions face an even stricter 5% NPL ceiling.
The high NPLs pose significant implications for Ghana's credit market. Professor Asuming cautioned against demanding drastic NPL reductions without addressing underlying causes. He suggested this approach could undermine organic improvement in the credit market. Banks might resort to writing off unprovisioned loans, potentially leading to a credit crunch. Some economists argue such directives could make banks wary of lending, worsening access to credit for businesses.
Professor Asuming advised the BoG to focus on strengthening credit evaluation systems and implementing targeted reforms. These measures would encourage banks to reduce NPLs organically. He also pointed to the improving macroeconomic environment, which has already seen a gradual reduction in NPLs. Moving forward, a two-pronged solution is necessary. Banks must enhance credit screening and use credit scoring systems to identify borrowers who intend to repay. Furthermore, borrowers must commit to their repayment plans to collectively reduce NPLs across the sector.