The Bank of Ghana (BoG) has taken a firm stance against bad loans in the country’s banking sector. In a recent directive, the central bank has ordered all regulated financial institutions (RFIs) to reduce their Non-Performing Loans (NPLs) to 10% or less by December 2026. This move aims to address the growing concern of bad loans, which have been plaguing the sector’s stability and profitability.
Key Highlights of the Directive
– NPL Ratio Limit: RFIs are required to maintain an NPL ratio of 10% or less by December 2026. Microfinance institutions, however, are expected to comply with a stricter limit of 5%.
– Recovery Plans: Institutions breaching the limit must submit a Board-approved recovery plan within 30 days, outlining steps to return to full compliance within one year.
– Dedicated Work-out Units: RFIs are expected to establish dedicated work-out and arrears support units to focus on loan recoveries and management of distressed accounts.
– Sanctions: Failure to comply with the directive will attract severe sanctions, including potential restrictions on lending and dividend payments.
Impact on the Banking Sector
The BoG’s directive is expected to have a significant impact on the banking sector, particularly in the following areas ²:
– Credit Risk Management: Banks will need to strengthen their credit risk management frameworks to minimize the risk of default.
– Loan Recovery: Institutions will be required to prioritize loan recovery and establish effective mechanisms for managing distressed accounts.
– Regulatory Compliance: Banks will need to ensure compliance with the new regulations, which may require significant changes to their lending practices and risk management processes.
Consequences for Wilful Defaulters
The BoG’s directive also outlines strict sanctions for wilful defaulters, including ²:
– Public Naming and Shaming: Names and details of wilful defaulters will be published in national newspapers and on the institution’s website.
– Lockout from New Loans: Defaulters will be banned from accessing new loan facilities for a specified period.
– Blacklisting: Defaulters will be blacklisted across the banking sector, making it difficult for them to access credit in the future.