Although the Bank of Ghana’s (BoG) new measures on addressing the rising Non-Performing Loans (NPLs) plaguing the financing sector have been hailed, it is not without downsides.
The public policy think tank, IMANI Africa, maintains that the new monetary measures of the Central Bank are bittersweet.
As part of the efforts, the Central Bank has ordered financial institutions to cut their non-performing loans (NPLs) to no more than 10 percent of gross loans by December 2026, or face tough restrictions from 2027.
The directive, hailed as a bold step to protect depositors and restore confidence, has also drawn cautionary notes from IMANI.
The Sweet Side: Discipline, Stability, and Growth
In its criticality analysis of the new directive cited by The High Street Journal, IMANI says the BoG’s move is a push to clean up balance sheets weighed down by bad debts. High levels of loan defaults have long eroded banks’ profitability, weakened their ability to lend, and put ordinary depositors’ funds at risk.
By forcing banks to write off irrecoverable loans, strengthen credit risk systems, and name and shame wilful defaulters, the regulator hopes to instill greater discipline in both lenders and borrowers.
The think tank says a sounder, more resilient financial sector will serve both businesses and households far better than one weighed down by bad debts and hidden vulnerabilities. The long-term goal is clear: a banking sector that allocates credit more prudently, strengthens deposit safety, and fuels sustainable economic growth.
“These sacrifices are necessary to restore discipline, protect depositors, and create a banking system that supports sustainable economic growth. In the long run, a sounder, more resilient financial sector will serve both businesses and households far better than one weighed down by bad debts and hidden vulnerabilities,” parts of the analysis read.
The Bitter Side: Stricter Lending, Higher Costs, and Limited Access
But the road to that healthier system won’t be without sacrifices. IMANI cautions that stricter enforcement will likely lead banks to tighten their lending criteria, approving fewer loans and charging higher interest rates for borrowers deemed risky.
For small and medium enterprises (SMEs), especially those without formal credit histories, accessing finance may become even more difficult.
This means to save the banking system, some borrowers will have to endure tougher conditions in the short term.
Entrepreneurs who rely on bank loans to expand their businesses may struggle to get approvals or may pay more for credit. Ordinary households could also feel the pinch, as consumer lending becomes more cautious.
Striking the Balance
Many analysts agree that the reforms are in line with international best practice. But they also stress the importance of distinguishing between borrowers who deliberately default and those caught up in wider economic challenges.
Without that balance, the risk is that productive businesses could be choked off just when the economy needs growth and jobs. IMANI accepts that some pain is unavoidable, but it insists the payoff will be worth it if managed carefully.
