Ghana’s Central Bank Addresses Rising Bad Loan Ratios Amid Economic Struggles
Ghana’s central bank is addressing a rising number of bad loans, with one lender reporting an alarming 81% NPL ratio. While the industry average is at 21.8%, this shows a significant increase from December 2022. Governor Asiama acknowledged challenges due to the government’s debt restructuring and is engaging with lenders to improve the situation amid ongoing economic difficulties.
The Bank of Ghana has engaged in discussions with local lenders regarding the increasing number of bad loans, partially attributed to the government’s debt renegotiations. One unnamed lender has reported a staggering 81% non-performing loans (NPL) ratio, significantly exceeding the industry average of 21.8% as of the end of 2024, which has risen from 14.8% in December 2022 when Ghana defaulted on external debt obligations.
Governor Johnson Asiama highlighted the necessity to address high NPL levels during a recent conference aimed at tackling the nation’s severe economic crisis. He acknowledged that banks cannot be solely blamed for the situation, noting that the domestic debt exchange, part of the government’s restructuring efforts, plays a significant role.
The central bank has begun collaborating with local lenders, particularly state-owned banks, to explore strategies for reducing their NPL ratios. The government previously sought a $3 billion bailout from the International Monetary Fund in 2022 due to challenges in managing debt payments that have consumed approximately half of the state’s revenue.
Ghana’s economy faces additional challenges, including currency depreciation, with the cedi losing nearly 18% in value against the dollar over the past year. This depreciation has resulted in persistent inflation at around 23%, leading the central bank to maintain a high policy rate of 27% since September, which inhibits access to credit for businesses and households.
Despite these issues, Fitch Ratings reported signs of recovery in Ghana’s financial sector as of January 14. Increased solvency pressures from the default have not led to significant liquidity issues. Governor Asiama expressed optimism, stating, “If we are able to lower the NPL ratios of banks, if we are able to stabilize the fiscal side of things, we should see lending rates trending down quickly.”
In summary, Ghana’s financial sector is grappling with a high ratio of bad loans, compounded by government debt restructuring efforts. The central bank is actively engaging with lenders to develop strategies for reducing non-performing loans, particularly among state-owned banks. While the economic environment remains challenging due to inflation and currency depreciation, there are indications of potential recovery if fiscal stabilization and lending processes improve.
Original Source: www.livemint.com
