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IMF Highlights Progress in Ghana’s Bank Recapitalisation Despite Rising Credit Risks
The International Monetary Fund (IMF) has noted significant progress in the recapitalisation of Ghana’s banking sector but flagged rising credit risks as a concern.
In its latest assessment, the IMF highlighted improvements in the sector’s overall capital adequacy indicators between December 2023 and June 2024. It revealed that approximately two-thirds of banks now meet prudential capital adequacy standards without reliefs, driven by higher profits and capital injections from the Ghana Financial Stability Fund (GFSF) and private stakeholders. The GFSF contributed GH¢4.9 billion to the recapitalisation efforts.
Rising Non-Performing Loans
Despite these gains, the IMF pointed to an alarming rise in non-performing loans (NPLs), which have outpaced nominal credit growth. The NPL ratio surged to 24.1% at the end of June 2024, up from 18.8% in June 2023.
The IMF attributed the rising NPLs to the economic downturn in 2022, exchange rate volatility, and findings from the Bank of Ghana’s (BoG) review of asset quality across banks.
“While NPLs are heterogeneously distributed across banks, the underlying trends reflect lingering economic challenges,” the IMF observed.
BoG’s Perspective on Sector Performance
The Bank of Ghana, in its October 2024 Monetary Policy Report, acknowledged the elevated NPL levels but maintained that the banking sector remains sound, well-capitalized, and liquid.
The report noted that the sector’s total assets grew significantly by 42.4% to GH¢367.2 billion by the end of October 2024, compared to a marginal 3.2% growth during the same period in 2023. Solvency indicators also showed marked improvement, with the capital adequacy ratio (including reliefs) increasing to 11.1% (14.2% without reliefs), up from 7.3% (13.4%) in October 2023.
However, credit risks remained elevated, as evidenced by an increase in the NPL ratio to 22.7% from 18.3% during the review period.
Outlook
The recapitalisation drive, supported by targeted interventions like the GFSF, is bolstering the banking sector’s resilience. However, sustained efforts will be required to address credit risks and reduce the burden of non-performing loans on the industry’s profitability and stability.
Both the IMF and BoG agree that while the banking sector shows signs of recovery and growth, heightened vigilance and strategic interventions are essential to navigate the ongoing challenges with elevated NPL levels.
