- BoG Targets NPL Ratio Below 10% by December as Banks Face Tougher Credit Discipline
The Bank of Ghana has directed regulated financial institutions to reduce their non-performing loan ratios to no more than 10.00% by the end of December 2026, intensifying pressure on banks to improve credit appraisal, recovery and write-offs even as the industry’s overall NPL ratio falls sharply.
Governor Dr Johnson Pandit Asiama said the banking sector’s NPL ratio declined to 16.10% in June 2026 from 23.10% a year earlier, while the Capital Adequacy Ratio stood at 20.40%, reflecting a stronger financial system but one still carrying a level of impaired loans the central bank considers excessive.
Speaking at a Bank of Ghana and Chartered Institute of Restructuring and Insolvency Practitioners Ghana forum on non-performing loans and post-commencement financing, Dr Asiama said the improvement in asset quality should not be interpreted as sufficient progress.
“But that is progress, not sufficiency, and 16.10% remains too high,” he said.
The central bank’s regulatory measures require each institution to pursue board-approved NPL reduction plans, strengthen credit appraisal and recovery functions and write off fully provisioned exposures where there is no realistic prospect of recovery.
The remarks come as Ghana seeks to build a workable financing framework for distressed but commercially viable companies under the Corporate Insolvency and Restructuring Act, 2020, Act 1015.
The law provides a mechanism through which businesses facing distress can be restructured rather than automatically liquidated and gives post-commencement financing statutory priority.
But Asiama warned that legal priority alone should not be mistaken for financial viability.
“The priority that Act 1015 confers on post-commencement financing materially improves the position of a lender advancing funds after administration begins,” he said. “But legal priority alone does not make a transaction prudent or bankable. It does not make the cash flows appear, and it does not guarantee repayment.”
The distinction is important for banks considering whether to provide fresh working capital to companies already under administration.
The Governor said a distressed company may still possess productive assets, customers and viable orders but require liquidity to purchase inputs, retain employees and complete contracts while restructuring takes place.
However, the existence of funding needs is not sufficient evidence that the business deserves additional credit.
“The first question is whether new money can reasonably restore the business to sustainable operations,” Asiama said.
A credible assessment, he added, must rely on reliable information, realistic assumptions, capable management, transparent governance and a clear path back to sustainable cash generation. Banks must also examine what caused the original distress, how creditors will be treated and what shareholders and management are contributing to the rescue effort.
The central bank’s position effectively seeks to prevent business-rescue financing from becoming a mechanism for evergreening bad loans.
Asiama was explicit that providing a new facility does not erase losses already embedded in an existing impaired exposure.
“The existing impaired facility must remain properly recognised, classified and provided for,” he said.
“Calling an exposure post-commencement financing cannot convert a weak loan into a good one. There can be no blanket exemption from IFRS 9 or from prudential requirements, and no automatic favourable classification simply because a facility was granted after administration commenced.”
That warning addresses a critical supervisory risk.
Banks under pressure to reduce NPLs could theoretically have incentives to restructure or reclassify distressed exposures in ways that make balance sheets appear healthier without actually resolving the underlying credit weakness.
The Bank of Ghana is signalling that any new rescue-financing framework must maintain full recognition of legacy losses while separately assessing new lending on its own commercial merits.
Asiama said any fresh financing may need to be ring-fenced for specific operating requirements, paid directly to approved suppliers or administered through controlled accounts.
Lenders could also require security, measurable restructuring milestones, regular reporting and exit triggers where a recovery plan deviates materially from agreed targets.
The approach reflects the central bank’s broader concern that high NPLs constrain the ability of financial institutions to extend new credit.
“High non-performing loans tie up capital, raise recovery costs and restrict new credit, most severely for smaller and higher-risk borrowers,” Asiama said.
“Reducing them is therefore not merely a supervisory concern; it is part of Ghana’s development agenda.”
The Governor argued that Ghana does not need to choose between liquidating every distressed company and weakening prudential standards to keep struggling businesses alive.
Instead, he said a disciplined restructuring system should preserve genuinely viable businesses while ensuring losses are recognised and financial stability protected.
The Bank is consequently working with CIRIP Ghana, the Ghana Association of Banks, the Institute of Chartered Accountants Ghana and other institutions to develop a more predictable framework governing post-commencement financing.
The framework is expected to clarify how commercial viability should be assessed, how new financing should be structured and monitored, how legacy and fresh exposures should be treated under IFRS 9 and prudential rules, and how risks should be allocated among lenders, shareholders, insolvency practitioners, management and existing creditors.
Asiama said the ultimate objective is not to remove risk from lending but to ensure banks understand, price and manage it appropriately.
“Business rescue and financial stability are compatible objectives,” he said, “but rescue must rest on commercial viability, transparency and accountability, and never on concealed losses or regulatory forbearance.”
