-As NPLs Surge to 24.1%
The banking sector faces heightened risks as non-performing loans (NPLs) surged to 24.1% in June 2024, up from 18.7% a year earlier, according to Dr. Ernest Addison, Governor of the Bank of Ghana (BoG).
Addressing the 41st Annual General Meeting (AGM) of the Ghana Association of Banks (GAB), Dr. Addison sounded the alarm over credit risks within the sector, calling on banks to enforce stricter credit underwriting standards to curb the rise in bad loans.
“The increase in non-performing loans is a significant concern, and banks must act swiftly to address credit risks,” Addison stated, emphasizing the need for robust risk management practices. The rising NPL ratio underscores vulnerabilities within the sector despite a broader recovery following the Domestic Debt Exchange Programme (DDEP).
Despite the credit challenges, the Governor noted the banking sector’s resilience. By June 2024, total assets had grown by 33.3% to GH¢323.1 billion, while other key performance indicators—such as profitability, liquidity, and efficiency—showed marked improvements.
The Capital Adequacy Ratio (CAR), adjusted for regulatory reliefs, stood at 14.3%, reflecting a cautious recovery from the shocks of the DDEP and other global economic pressures.
Dr. Addison also pointed to the country’s banking sector cleanup between 2017 and 2019, which resulted in the closure of over 420 financial institutions. The reform effort, aimed at restoring confidence in the system, introduced more than 15 key directives, including the Corporate Governance, Capital Requirement, and Risk Management Directives, to strengthen the sector’s governance and stability.
Fraud within the banking sector was another focal point of the Governor’s address. While the total number of fraud incidents fell by 17% in 2023, the monetary value of losses surged by 21% to GH¢63 million, with internal fraud rising sharply. “The involvement of bank staff in fraud cases increased by 46%, reflecting serious gaps in internal controls and staff vetting processes,” Dr. Addison said.
He urged banks to tighten internal controls, enhance employee screening, and focus on professional conduct to mitigate these risks. Fraudulent withdrawals alone led to GH¢8.4 million in losses, while forgery-related fraud, though down by 78%, still resulted in GH¢6.9 million in losses.
Looking ahead, Dr. Addison reiterated BoG’s commitment to strengthening the regulatory environment. He announced plans for new directives, including those on Large Exposure, Concentration Risk, and Bancassurance, to be rolled out by 2025. These efforts, he said, will ensure that the sector is better positioned to weather future shocks.
He noted that Ghana’s banking sector is benefiting from the country’s membership in the Basel Consultative Group (BCG), which reflects its commitment to international best practices.
“The BoG remains committed to building a strong and stable financial system,” Dr. Addison emphasized while acknowledging the essential role GAB played in shaping the ongoing regulatory reforms.
The event also marked the launch of the 4th edition of the GH Bankers’ Voice Magazine, underscoring the importance of sustained collaboration between the BoG and the banking community to maintain sectoral growth and stability.
