Despite impressive asset growth and improved capital buffers, concerns remain about the true state of Ghana’s banking sector. While total bank assets surged by 34.0% at the end of February 2025, up from 12.1% growth a year earlier, and the Capital Adequacy Ratio (CAR) increased to 14.4%, compared to 13.6 percent in the same period last year. economist and senior lecturer at the Ghana Institute of Management and Public Administration (GIMPA), Dr. Raziel Obeng-Okon warns that these numbers may not tell the full story.
Speaking to The High Street Journal (THSJ), Dr. Obeng-Okon maintained that the country’s Class A banks—major commercial banks—are showing strong performance, but smaller financial institutions such as savings and loans companies, finance houses, and microfinance institutions are still struggling. Liquidity issues and capital adequacy challenges persist, raising questions about the sustainability of the sector’s recovery.
“If you generalize and look only at the big banks, you can argue that the sector is improving,” he said. “But once you break it down, you’ll see that many smaller financial institutions are still facing liquidity pressures.”
High Non-Performing Loans Still a Major Threat
One of the biggest concerns remains Ghana’s Non-Performing Loan (NPL) ratio, which, although declining, is still alarmingly high at 22.6% in February 2025, down from 24.6% in February 2024. Even when fully provisioned loss-category loans are excluded, the NPL ratio stands at 8.9%, reflecting continued risks in loan recoveries.
Dr. Obeng-Okon argues that such high levels of bad loans indicate deep structural issues. “If 22% of your loans are bad, that’s no business at all,” he stated. “It raises two key questions—are businesses struggling to pay back loans because the economy isn’t strong enough, or are banks not conducting proper credit appraisals before lending?”
The Real Cost of Lending: Is It Worth the Risk?
The persistence of bad loans is making banks more cautious in lending, forcing businesses to look elsewhere for capital. This, in turn, pushes many investors towards safer options like government Treasury bills rather than risking loans to businesses.
“Even if Treasury bill rates drop to 15%, investors will still buy them because they provide guaranteed returns,” Dr. Obeng-Okon explained. “For banks, lending becomes less attractive when there’s a high chance of default and a slow legal process for debt recovery.”
Addressing the Underlying Issues
To create a more sustainable banking system, Dr. Obeng-Okon suggests a multi-pronged approach:
- Improved credit risk assessment: Banks must strengthen their appraisal processes to prevent high loan defaults.
- Legal and institutional reforms: The slow judicial process makes debt recovery difficult, discouraging banks from lending. Faster adjudication of loan disputes is crucial.
- Balancing interest rates and inflation: Ghana’s inflation rate is outpacing lending rates, creating an unstable environment for both banks and borrowers. A more stable macroeconomic framework is needed.
Ghana’s banking sector appears to be on a recovery path, however industry experts like Dr Obeng-Okon caution against celebrating too soon.
In his view, until the structural weaknesses—high non-performing loans, struggling microfinance institutions, and unfavorable credit conditions—are addressed, the sector’s growth will remain fragile.
