Accra: The Bank of Ghana (BoG) has issued a directive for regulated financial institutions to reduce their non-performing loan (NPL) ratios to no more than 10% by the end of December 2026. This initiative aims to decrease the banking industry's stock of impaired loans by an estimated GHS7.6 billion, potentially enabling banks to extend more credit to businesses and households.
According to Ghana Web, the directive follows a reduction in the banking sector's NPL ratio to 16.1% in June 2026, down from 23.1% a year earlier. Despite this improvement, the central bank believes a faster pace is necessary to restore banks' lending capacity. Dr. Johnson Pandit Asiama, Governor of the Bank of Ghana, stated that although the banking sector's total assets have increased significantly, an NPL ratio of 16.1% remains high, tying up capital and increasing recovery costs. Speaking at the Bank of Ghana and CIRIP Ghana Forum on Non-Performing Loans and Post-Commencement Financing in Accra, the Governor emphasized the need for each regulated institution to reduce its ratio to no more than 10% by the 2026 deadline.
The potential impact of this clean-up is substantial when compared to the industry's current loan book. Data from the Bank of Ghana reveals that total advances reached GHS124.3 billion in June 2026, up from GHS89.7 billion in June 2025, marking an annual growth of 38.6%. During the same period, the NPL ratio fell from 23.1% to 16.1%. If the loan portfolio remains at GHS124.3 billion and the NPL ratio is reduced to 10% by December, impaired loans could decrease to around GHS12.43 billion, indicating a potential reduction of approximately GHS7.58 billion.
This GHS7.6 billion estimate is based on the June loan portfolio and is not necessarily an amount that would automatically be available for new lending. The actual stock of NPLs at December will depend on changes in banks' loan books, repayments, recoveries, restructurings, and write-offs during the period. A sustained reduction in bad loans would bolster banks' balance sheets by freeing capital tied up in bad assets, reducing provisioning costs, and increasing capacity to finance businesses and households.
Dr. Asiama highlighted that high NPLs restrict the flow of new credit, especially to smaller businesses and higher-risk borrowers. He noted that reducing bad loans is part of Ghana's broader development agenda, as healthier bank balance sheets are crucial for supporting sustainable economic growth. The BoG's recent push coincides with a strong recovery in lending, with private sector credit reaching GHS119.6 billion in June 2026, up from GHS84.8 billion a year earlier. Nominal credit growth accelerated to 41.2%, while real credit growth reached 34.1%, indicating an expansion in lending as balance sheets improve.
Financing conditions have also seen improvement. The average lending rate fell to 15.64% in June 2026 from 27.0% a year earlier, while the Ghana Reference Rate declined to 10.02% from 23.8% over the same period, creating more favorable borrowing conditions for businesses. Banks remain well-capitalized, with the industry's Capital Adequacy Ratio at 20.4% in June 2026, providing stronger capital buffers to absorb risks and support additional lending as asset quality improves.
In addition to the headline target, the Bank of Ghana has instructed regulated institutions to enhance credit appraisal processes, implement Board-approved NPL reduction plans, improve loan recovery functions, and write off fully provisioned exposures with no realistic prospect of recovery. Achieving the 10% NPL target would be a significant step in restoring the banking sector's ability to efficiently intermediate credit.
By reducing bad loans, banks would alleviate pressure on their balance sheets, improve risk appetite, and create greater opportunities to finance productive sectors of the economy while maintaining financial stability. With total advances already growing at nearly 39% annually, the challenge for banks will be to meet the central bank's December target without compromising underwriting standards, ensuring that stronger credit growth is supported by healthier loan portfolios rather than a new accumulation of problem assets.