Banking and financial consultant, Dr. Richmond Atuahene, has cast doubt over the Bank of Ghana Governor’s recent call for lower lending rates, warning that without clearing mounting government arrears owed to contractors and Independent Power Producers (IPPs), such a vision risks becoming a mere wishlist.
His caution follows recent remarks by BoG Governor, Dr. Johnson Asiama, who declared the era of high lending rates over and urged financial institutions to reduce borrowing costs for businesses and individuals.
But Atuahene believes this optimism overlooks a deeper structural crisis festering beneath the surface.
In a research work on the subject copied to The High Street Journal, Dr. Atuahene questioned the feasibility of the governor’s vision amid high Non-Performing Loans (NPLs), partly occasioned by non-payment of contractors’ debt.
He clarifies that a significant portion of the banks’ assets are locked in NPLs which the government has significantly contributed to through the debts it owes road contractors and the energy sector contractors.
“There is a significant negative correlation between the government arrears, estimated at GHS35 billion to road contractors and US$1.6 billion to IPP, and the higher non-performing assets in the banking sector,” Atuahene explained.
NPLs: The Silent Killer of Credit
In an insightful analysis, he emphasized that the slowdown in credit growth is most severe in sectors beyond cocoa and gold, the very industries that form the backbone of local banks’ loan books.
As contractors and service providers go unpaid, they default on their loan obligations, inflating the nation’s Non-Performing Loans (NPLs) and dragging down bank profitability.
He continued that Ghana’s banking sector has battled persistently high NPLs for over a decade. He notes that these toxic assets cripple banks’ ability to generate income, erode their capital, and force them to hike lending rates to cover risks, creating a vicious cycle that ultimately punishes the private sector.
He insists that the inability of the government to make timely payments has created NPLs across the banking system. “This undermines the entire financial architecture,” he noted.
He adds that high fiscal deficits over the years have compounded the problem, weakening the creditworthiness of entire sectors dependent on public contracts. This results in the banks having little choice but to price loans higher to offset the increased risk, regardless of central bank directives.
Governor’s Intentions, Government’s Obligations
While recognizing the vision of the BoG Governor, Dr. Atuahene stressed that moral persuasion alone will not fix the lending environment.
He believes that the government must rather prioritize payment of arrears or risk sabotaging its own monetary policy ambitions.
For Dr. Atuahene, policy signals must align with fiscal realities. He said, until we tackle the arrears crisis, calls for lower lending rates will be seen by banks as naïve or dangerous.
“The accumulation of new arrears could compound the NPL problem and weaken banks. The government has continued to accumulate payables over the years….. The inability of the government to make payments to contractors and other service providers on time this in turn, created NPLs across the banking system,” he observed.
The Bottomline
For Dr. Atuahene, the Governor’s vision of lower lending rates will remain a mirage if urgent steps are not taken by the government to clear the arrears owed to contractors, which in turn will reduce the NPLs for the banks.
Without this and other measures, there will be no room for the banks to lend at lower rates, given the risks posed by the high NPLs.
The banking consultant is further urging transparency in the government’s arrears management strategy, recommending the establishment of a dedicated arrears clearance framework backed by legally binding timelines.
