Editorial: High NPLs will face regulatory sanctions

As of January 2027, banks and regulated financial institutions with non-performing loan (NPL) ratios above 10% will be barred from paying dividends to shareholders and bonuses to staff.

This is a new directive from the Bank of Ghana. Lenders with NPLs between 10% and 15% will be given a two-year window to clean up their loan books before sanctions take effect, according to BoG.

Institutions with NPLs at 15% or higher will however face immediate restrictions covering dividend payments, staff incentives and expansion of loan portfolios.

On the other hand, for microfinance institutions a stricter threshold of 5% has been set.  The measure is to enforce stronger credit risk management, protect depositors and improve asset quality in the financial sector.

These new rules mean shareholders of weaker banks should not expect dividend distributions, while staff bonuses will be curtailed if bad loans remain elevated. Customers may also face tighter credit access as lenders act to avoid breaching the threshold.

Consequently, banks and other financial institutions have a limited window to restructure bad assets or risk losing the ability to reward investors and employees.

Meanwhile, the Ghana Association of Banks said the Ghana Reference Rate decline to 19.67% in August from 29.72% in January – alongside the Bank of Ghana policy rate cut to 25 – should support credit growth while reducing non-performing loans, currently at 22%.

Chief Executive Officer-Ghana Association of Banks, John Awuah, is convinced that cheaper credit and stronger oversight could help improve asset quality – but urged regulators and other stakeholders to closely monitor risks in the credit market.

“We hold the view that higher lending rates also contribute to higher default rates because the facility becomes unaffordable. If the rate comes down and lending follows in tandem, then the propensity to perform on loans will be enhanced,” he added.

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