The Bank of Ghana (BoG) has announced plans to strengthen oversight of the banking sector, focusing on addressing elevated levels of Non-Performing Loans (NPLs) and reducing credit risk.
The BoG’s 2024 Financial Stability Review outlines key measures to improve the resilience of the sector following challenges posed by Ghana’s recent debt restructuring, which has increased credit risk across the industry.
BoG plans to conduct periodic thematic reviews of bank loan books to facilitate early recognition and accounting of potential losses. The Central Bank also says it will intensify onsite supervision at commercial banks, focusing on compliance with credit risk management standards.
The central bank is working closely with banks to improve the credit reporting and collateral registry systems, ensuring that lending decisions are based on accurate borrower data. Strengthened reporting systems are expected to enhance transparency and reduce the likelihood of NPL accumulation.
Also BoG noted that the debt restructuring has weakened banks’ ability to manage credit risk, making these measures essential to stabilize the sector. Enhanced supervision and risk management protocols will support banks in adapting to the increased credit risk environment and build resilience.
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.
Following an extreme but reasonable decline in loan assets’ quality, the credit risk stress test estimates the sector’s solvency position. The loan migration model is used to estimate the impact of the decline in credit quality on solvency. According to June 2024 statistics, non-performing loans (NPLs) in the banking industry average 24.1%, a sharp increase from 18.7% reported last year.
