While Ghana’s economy is showing signs of a steady recovery, an assessment by the International Monetary Fund (IMF) has warned that the nation’s banks are walking on a financial tightrope.
The IMF explains in its latest country report on Ghana that beneath the surface of rising reserves and falling inflation lies a dangerous “sovereign-bank nexus.” This refers to a situation where the fate of local banks is tied far too closely to the health of the government.
The fund warns that this ‘nexus’, combined with heavy exposure to gold price swings and a mountain of unpaid loans, remains a major vulnerability that could shake the foundations of the country’s financial stability.
The Sovereign-Bank Nexus
In simple terms, the sovereign-bank nexus means that Ghana’s banks have put a massive portion of their money into government bonds and sovereign exposures. Instead of lending to local businesses to help them grow, many banks have shown a continued preference for lending to the state.
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The danger here, the IMF reveals, is a double-edged sword. If the government faces financial trouble, the banks’ balance sheets are immediately at risk
The IMF notes that this heavy reliance on government debt amplifies risks, especially as the country faces large rollover needs in 2027 and 2028 when many of these debts come due.
The Risk: Gold Exposure
The Bretton Woods institution adds a new layer of complexity, which is Ghana’s recent gold boom. While high gold prices have saved the national budget, they have created a new kind of vulnerability for the financial sector.
The Country report on Ghana noted that the IMF and the Bank of Ghana recently conducted “stress tests” to see what would happen if the global gold market suddenly cooled down.
The results of the test are a wake-up call to the country, as a large gold price correction could rapidly propagate through bank balance sheets, potentially forcing the government to step in with expensive recapitalization to keep banks from failing.
Essentially, the banks are now so tied to the gold-driven economy that a price crash could trigger a banking crisis.
The Red Flag of Non-Performing Loans
Even without a gold crash, the banking sector is struggling with elevated Non-Performing Loans (NPLs). Currently, about 18.1 percent, nearly one out of every five loans, is not being paid back on time.
This high rate of bad debt is particularly concentrated in state-owned banks and is a major reason why regular Ghanaians are finding it so hard to get credit. The IMF points out a frustrating paradox: even as banks become more solvent and profitable on paper, they are too risk-averse to lend to the private sector.
A Sector Under Pressure
The vulnerabilities aren’t just limited to the big commercial banks. The IMF reports that nearly half of Ghana’s Specialized Deposit-Taking Institutions (SDIs), the smaller lenders that many ordinary Ghanaians rely on, are currently insolvent.
To fix this, the IMF is demanding decisive corrective measures and sustained supervisory action. The government has already committed to a massive clean-up, including a GHS 78 billion plan to fix the Bank of Ghana’s own “negative equity” and recapitalize weak banks by 2032.
For the average Ghanaian, while the economy is healing, the IMF maintains that the banking system is still brittle, caught between the lure of gold and the heavy weight of government debt.
The fund is calling for the removal of this nexus and repairing the banks’ balance sheets now.
