High Inflation and Rising NPLs Threaten Banking Sector Stability – GAB CEO
The Chief Executive Officer of the Ghana Association of Banks, John Awuah, has called on the incoming administration to prioritize tackling the country’s high inflation rate, emphasizing its detrimental impact on the banking sector.
Speaking on PM Express on Thursday, December 19, Mr. Awuah described inflation as a “cancer that eats everything away,” urging the government to take decisive action to curb inflationary pressures in the economy.
Inflation’s Impact on Banking Operations
Mr. Awuah highlighted how inflation erodes the profitability and stability of banks, creating challenges in managing operational costs. Despite a reduction in inflation from its peak of 54% to 23% in November 2024, the figure remains unsustainably high for the banking industry.
“As banks, every time we’re talking about inflation and cost of production, we forget that banks are also impacted. Inflation may have come down, but it’s still at a level that does not help to sustain manageable cost constraints. This needs urgent attention,” Mr. Awuah said.
Recent Inflation Trends
The Ghana Statistical Service (GSS) reports that headline inflation rose to 23.0% in November, up from 22.1% in October, marking the third consecutive monthly increase after a five-month decline.
The Government Statistician, Prof. Samuel Kobina Anim, attributed the rise to a surge in food inflation, which jumped from 22.8% to 25.9% within a month.
High Non-Performing Loans (NPLs) a Concern
Another critical issue affecting the banking sector is the persistently high level of non-performing loans (NPLs). The average NPL ratio currently stands at 24%, far above the norm in the sub-region.
“The default rate of 24% is not sustainable. For every GHS 100 lent, losing GHS 24 is a significant risk. Ghana’s NPL ratio is an outlier compared to other African countries. This hinders the ability of banks to lend effectively, as the fear of defaults looms large,” Mr. Awuah explained.
Strengthening Credit Systems
To address the NPL challenge, Mr. Awuah advocated for systemic improvements in credit reporting and regulatory oversight. He suggested enhancing business registration processes, strengthening the credit culture, and leveraging state institutions to foster a seamless lending environment.
“Key stakeholders must collaborate to develop a credit ecosystem that is fluid and seamless, enabling businesses to approach banks confidently for funding,” he added.
Call to Action
Mr. Awuah concluded by urging the government to adopt a robust policy framework to reduce inflation and address the structural issues contributing to the high NPL ratio. These efforts, he noted, are crucial for ensuring the long-term stability of Ghana’s banking sector and supporting broader economic growth.
