The government must act swiftly and develop a structured repayment plan to tackle its indebtedness to the banks in the country to save Ghana’s distressed financial sector; this is a recommendation by financial analyst, Dr. Richmond Atuahene.
This proposal comes on the back of the latest Fitch Solutions’ report on the financial health of economies in Sub-Saharan Africa.
Fitch’s report, titled “US Tariffs Increase Risks for SSA Banks,” revealed a staggering NPL ratio of 21.8% for Ghana, coupled with a Capital Adequacy Ratio (CAR) of just 14.0%, one of the weakest in the region.
The Capital Adequacy Ratio (CAR) measures a bank’s financial strength. It tells us whether a bank has enough capital to absorb losses and still operate safely. A low CAR means a bank is at risk of collapse if loans go bad.
On the other hand, Non-Performing Loans (NPLs) are loans that borrowers are no longer repaying on time. High levels of NPLs suggest that banks are not getting back the money they lend, hurting profits, restricting new loans, and putting depositors’ funds at risk.
Ghana’s current financial sector predicament as reported by Fitch, Dr. Atuahene says is rooted in years of unchecked public contract awards and delayed payments, which have left banks burdened with bad loans.
“It happened in 2010, and with the assistance of the IMF, they were able to have a repayment plan for the banks. That supported the banks and brought non-performing loans down to 11 percent by 2014,” he said.
However, he says the gains made then were short-lived
“Ever since, contracts have been awarded here and there without thinking about the impact on the non-performing of the banks,” he lamented.
He further revealed that due to unchecked actions, the government owes an estimated GH¢35 billion in the road sector, according to the IMF, and an additional GH¢2.3 billion in energy sector arrears, as per the World Bank.
“If you add them all, I think it’s close to GH¢70 billion,” Dr. Atuahene noted, emphasizing that the debt overhang is suffocating local banks.
Dr. Atuahene is urging the government to sit with key stakeholders, specifically the Ministers for Roads and Energy, and heads of banking institutions, to map out a repayment schedule spanning one to two years.
“A structured payment to the banks will reduce the non-performing loans and improve liquidity and solvency.”
He adds that unless such coordinated efforts are made, both private and state-owned banks, particularly those owned by Ghanaians, will continue to suffer.
Many economists and analysts agree that Ghana’s economy cannot stabilize without a healthy banking sector. It is therefore imperative for the government to prioritize the repayment of its indebtedness to strengthen the financial sector, restore confidence, and unlock credit to the private sector, which can provide a firm foundation for sustainable growth.
