Ghana’s banking sector is poised for a significant shift as new regulations from the Bank of Ghana (BoG) compel financial institutions to reduce their non-performing loan (NPL) ratios by the end of 2026.
According to Fitch Ratings, the anticipated improvement will be driven primarily by accelerated loan write-offs and a more favorable operating environment.
The BoG’s revised prudential guidelines, announced in August 2025, mandate that all regulated financial institutions maintain NPL ratios below 10%. Institutions exceeding 15% will face immediate restrictions on dividend and bonus payments, while those with ratios between 10% and 15% will be penalized if they fail to comply within two consecutive years.
Fitch Ratings Findings
Fitch Ratings revealed that, as of mid-2025, only four out of 23 banks had NPL ratios below the 10% threshold. More than half of the banks reported ratios above 15%, underscoring the scale of the challenge. Nonetheless, Fitch believes that most banks will be able to bring their NPL ratios below 15% by the end of 2026, largely through strategic write-offs.
However, the ratings agency cautioned that six banks may struggle to meet capital adequacy requirements once regulatory forbearance related to losses on cedi-denominated government bonds expires at the end of 2025. These institutions, burdened by high levels of problem loans and limited capital buffers, are expected to face the greatest difficulty in achieving compliance.
Ghanaian banks have grappled with weak asset quality for over a decade, a situation exacerbated by the sovereign debt restructuring initiated in December 2022. The sector’s NPL ratio surged to 26.7% by the end of Q1 2024, up from 14.8% at the close of 2022, driven by macroeconomic instability, payment delays to government contractors, and sluggish credit growth. By mid-2025, the ratio had only modestly declined to 23.1%.
“Most Ghanaian banks have not paid dividends in recent years due to the sovereign default and their reliance on related regulatory forbearance,” Fitch noted. The agency added that the expiration of forbearance at the end of 2025, coupled with the threat of dividend restrictions, would serve as a strong incentive for banks to reduce their NPL ratios.
Write-offs Can be Executed Without Triggering Additional Provisions
- Encouragingly, the sector’s NPL ratio, excluding fully provisioned loans, stood at just 8.5% at the end of H1 2025. This suggests that substantial write-offs can be executed without triggering additional provisions.
- Moreover, strong pre-impairment operating profits, bolstered by large holdings of high-yielding sovereign securities, offer a cushion to absorb new provisions without eroding capital.
- Notably, net loans accounted for only 19% of total banking assets as of April 2025, indicating that write-offs will be the primary mechanism for achieving compliance.
Improving Macroeconomic Conditions
Fitch also highlighted improving macroeconomic conditions in 2025. The agency upgraded Ghana’s Long-Term Issuer Default Rating to ‘B-’ with a Stable outlook in June, following the country’s successful normalization of relations with most external creditors. The Ghanaian cedi has appreciated significantly, and inflation is projected to decline sharply, creating a more stable environment for banks.
“Improved operating conditions should help attenuate problem loan generation and support stronger loan growth,” Fitch stated. However, the agency warned that risks remain, particularly due to persistent payment arrears to government contractors.
Despite these improvements, Fitch noted that foreclosures and restructurings are unlikely to materially reduce NPL ratios before the new prudential limits take effect. Legal proceedings remain slow, and restructured loans typically require lengthy cure periods before they can be reclassified as performing.
What You Should Know
- Last month, Fitch Ratings disclosed that while most Nigerian banks are expected to exit the regulatory forbearance regime by December 2025, a select few will continue operating under forbearance beyond the period.
- Though no specific bank was mentioned, the credit rating agency added that this will be subject to stringent penalties, including a prohibition on dividend payments.
- This development comes amid broader efforts by the Central Bank of Nigeria (CBN) to reinforce financial stability and ensure banks enter 2026 with stronger capital buffers and cleaner balance sheets.
