Ghana’s central bank is collaborating with local lenders to tackle an alarming rise in bad loans, highlighted by one lender facing an 81% non-performing loans ratio. The industry average stands at 21.8%, elevated from 14.8% in December 2022. Governor Jhonsn Asiama noted that many issues are rooted in government debt restructuring. Despite ongoing economic challenges, signs of financial recovery are emerging, with hopes to reduce lending rates if non-performing loans can be managed effectively.
The central bank of Ghana is actively engaging with local lenders to address the concerning rise in bad loans, specifically highlighted by one lender experiencing a non-performing loans ratio of 81%. This figure starkly contrasts with the overall industry average of 21.8% at the end of 2024, which is significantly higher than the 14.8% reported in December 2022, shortly after Ghana defaulted on a majority of its external debt.
At a recent conference, Governor Johnson Asiama emphasized the urgent need to tackle non-performing loans, stating, “An elephant in the room has to do with the high levels of non-performing loans.” He noted that the banks are not solely at fault, as many difficulties stem from the government’s debt restructuring initiatives.
The central bank’s outreach specifically targets domestic and state-owned banks, recognizing their pivotal role in lending to the government. This lending was crucial as the government sought a $3 billion bailout from the International Monetary Fund in 2022 due to overwhelming debt obligations that consumed over half of its revenue.
Moreover, Ghana’s economy is facing challenges with currency depreciation, as the cedi has dropped nearly 18% versus the dollar over the past year. This devaluation has caused inflation to remain stubbornly high at around 23%, prompting the central bank to maintain a policy rate of 27%, which hampers credit access for businesses and households.
Despite these obstacles, a recent report from Fitch Ratings indicates that the financial sector is beginning to show signs of recovery. The report suggests that while solvency challenges exist due to Ghana’s default, liquidity pressures have not worsened significantly. Governor Asiama opined, “If we are able to lower the NPL ratios of banks… we should see lending rates trending down quickly.”
In summary, Ghana’s central bank is proactively addressing the alarming rise in bad loans among local lenders, particularly focusing on non-performing loans which have surged due to government debt restructuring. With steady inflation rates and challenges in currency valuation, the central bank aims to stabilize the financial sector while fostering an environment conducive to lowering lending rates. The engagement with local lenders is a strategic effort to mitigate the adverse effects on the economy and facilitate recovery.
Original Source: www.livemint.com
