Ghana’s central bank is engaged in discussions with local lenders to address a rise in non-performing loans, significantly impacted by a government debt renegotiation. One lender’s bad loan ratio reaches 81%, while the industry average is at 21.8%, up from 14.8% in December 2022. Governor Johnson Asiama highlighted the need for collaboration to stabilize the banking sector and lower lending rates amidst high inflation and currency depreciation.
Ghana’s central bank is actively engaging with local lenders to address a significant rise in non-performing loans, exacerbated by a government debt renegotiation. One lender is reported to have a staggering 81% bad loan ratio, contrasting with the industry average of 21.8% at the end of 2024. This average has risen sharply from 14.8% reported in December 2022, marking the month Ghana defaulted on much of its external debt, according to data from the Bank of Ghana.
Governor Johnson Asiama addressed this pressing issue during a recent conference on economic recovery, emphasizing that high non-performing loan levels are a significant concern. He noted that the banks are not solely to blame, as the complications stem in part from a domestic debt exchange initiated by the government. The central bank is focused on collaborating with local banks, particularly state-owned institutions, to devise strategies to lower their non-performing loan ratios.
The domestic banking sector has been crucial in providing lending to the government, which sought a $3 billion bailout from the International Monetary Fund in 2022 due to unsustainable debt obligations consuming over half of state revenues. Ghana’s economy faces additional challenges, such as the depreciation of its currency, with the cedi declining nearly 18% against the dollar in the past year. Consequently, inflation remains high at approximately 23%, prompting the central bank to maintain the policy rate at 27%, which stifles access to credit for businesses and households.
Despite these challenges, Fitch Ratings indicated signs of recovery in the financial sector. The rating agency noted that solvency issues related to Ghana’s default have not led to significant liquidity pressures within the banking system. Governor Asiama expressed optimism, stating that reducing non-performing loan ratios and stabilizing fiscal conditions should lead to lower lending rates soon.
In conclusion, Ghana’s central bank is proactively working with local lenders to combat the alarming rise in non-performing loans, which emerged partly from government debt restructuring. Although the banking sector faces significant challenges due to high inflation and currency devaluation, there are indications of potential recovery. The central bank aims to lower loan ratios to facilitate improved access to credit, which is vital for economic stability. This cooperative effort emphasizes the interconnectedness of government debt management and banking health, highlighting the central bank’s role in fostering a conducive environment for lending in Ghana’s economy.
Original Source: www.livemint.com
