Finance and banking consultant, Dr. Richmond Atuahene, has cautioned that efforts to restructure Ghana’s Lenders and Borrowers Act could achieve little success unless the country first reduces non-performing loans (NPLs) from the current 18% range to the acceptable level of 10%.
Dr. Atuahene argues that addressing the underlying causes of loan defaults must take priority over changing the legal framework governing lending. The banking expert warns that high NPLs will continue to undermine credit delivery, keep interest rates elevated, and constrain private-sector growth.
The immediate priority, according to Dr. Atuahene, should be to clear outstanding government debts to contractors and service providers, whose unpaid invoices may be contributing to the accumulation of bad loans.
“The acceptable level is 10. We are 18 point something. So we are 8% even above. How do we get it done before we even talk about the Lenders Act? We need to pay those who we owe,” he emphasized.
For him, reducing the NPL ratio to 10% is a necessary foundation for meaningful reforms that would make lending more resilient and responsive to the needs of businesses.
Pay Contractors Before Changing the Law
Dr. Atuahene believes government must make a deliberate effort to settle outstanding payments to contractors and service providers, particularly those whose inability to recover money owed to them may affect their capacity to repay bank loans.
He expressed hope that the government would make provision in its November budget to settle some of these outstanding obligations. He argued that introducing stronger lending rules without first addressing these payment-related challenges could undermine the effectiveness of the reforms.
“Let us get this clean slate first,” he said, insisting that the country must first establish a sound foundation by bringing NPLs down to 10% before considering how to restructure the Lenders and Borrowers Act.
Why High NPLs Keep Interest Rates Elevated
Dr. Atuahene also explained that high NPLs have implications for borrowing costs because banks factor the risks associated with unpaid loans into the interest rates they charge borrowers.
When many borrowers default, banks face greater risks and may charge higher interest rates to customers who are able to repay, helping them compensate for losses arising from bad loans.
“The reason why interest rates are very high, let me tell you, banks cannot drop the interest rate,” he argued, explaining that NPLs are factored into lending rates.
He therefore cautioned against treating bad loans as an isolated banking-sector problem, arguing that their effects extend to depositors, businesses and the wider economy.
For Dr. Atuahene, the sequence matters for addressing the problem. He believes that the authorities must clear outstanding government obligations, reduce NPLs to 10%, and then pursue legal reforms that can sustainably expand credit to the private sector and support economic growth.
