Banks urged to adopt balanced credit strategy

Governor of the Bank of Ghana (BoG), Dr. Johnson P. Asiama, has called on banks to exercise restraint in passing on interest rate hikes to borrowers and maintain credit support for viable businesses—especially those in vulnerable sectors—despite a tightening monetary policy environment.

Speaking to chief executives of commercial banks following the BoG’s latest Monetary Policy Committee (MPC) meeting—his first as Governor—Dr. Asiama emphasized the need for transparent communication and innovative lending strategies that preserve access to credit while safeguarding asset quality.

The central bank recently increased the policy rate by 100 basis points to 28 percent to help accelerate a slow-moving disinflation process. While acknowledging the potential impact on borrowing costs and business activity, Dr. Asiama urged banks to balance monetary discipline with continued financial support to the economy.

Dr. Asiama’s appeal comes at a time when banks have already adopted a more measured approach to lending, with the Ghana Reference Rate for April 2025 at 23.99 percent. Private sector credit also showed a strong rebound, growing by 26.9 percent year-on-year in February 2025, compared to 5.1 percent the year before. In real terms, credit growth turned positive at 3.1 percent, following a 14.7 percent contraction in the same period last year.

Addressing the broader context, the Governor acknowledged the challenges posed by recent reforms in the financial sector—most notably the banking sector clean-up and the Domestic Debt Exchange Programme (DDEP). While praising banks for their resilience, he admitted that aspects of these interventions might have benefited from better planning and stakeholder engagement.

Recent data from the BoG suggests recovery is underway. As of the end of February 2025, total assets in the banking sector had grown by 34.05 percent year-on-year, with deposits increasing by 27.89 percent. The Capital Adequacy Ratio (CAR) stood at 14.35 percent—well above the required 10 percent minimum.

However, risks remain. Solvency issues persist among some state-owned and locally controlled banks due to incomplete recapitalisation efforts. The BoG is working with these institutions to address capital shortfalls and uphold prudential standards.

The issue of non-performing loans (NPLs) also remains a concern. The gross NPL ratio is currently at 22.57 percent, mainly due to legacy loans. Even after adjustments for fully provisioned accounts, the figure stands at 8.93 percent. Dr. Asiama stressed the need for better credit risk management and underwriting practices.

He further encouraged traditional banks to embrace innovation and agility, while committing the BoG to ensuring a regulatory environment that fosters innovation without compromising consumer protection. He warned, however, that the risks associated with digital banking—particularly cyber threats and fraud—are increasing. A recent BoG report noted a 5 percent rise in fraud cases and a 13 percent jump in potential losses.

Dr. Asiama also highlighted the importance of compliance with anti-money laundering (AML) and counter-terrorist financing regulations. He cautioned that failure to meet these standards could damage Ghana’s financial reputation and limit access to international markets.

To keep pace with evolving risks, BoG is upgrading its supervisory systems. A new Resolvability Assessment Framework is being developed to enhance crisis preparedness, and supervisors are being trained in emerging areas like AI, climate risk, and geopolitical threats.

The Governor outlined a shift toward proactive, risk-based supervision, including sustainability-focused evaluations and stronger governance. He hinted that Basel III and IV training may soon become mandatory for bank board members.

Dr. Asiama also encouraged banks to expand support for trade finance and regional economic integration, particularly through the Pan-African Payment and Settlement System (PAPSS), which could streamline cross-border transactions and enhance Ghana’s trade competitiveness under the African Continental Free Trade Area (AfCFTA).