The Bank of Ghana (BOG) has committed to tackling the rise in loan under-recoveries – a development that threatens financial stability and credit availability.
The central bank highlights its ongoing collaboration with key stakeholders, including commercial banks, non-bank financial institutions, and regulatory bodies, to develop effective strategies to mitigate the impact of rising non-performing loans (NPLs).
Second Deputy Governor of the Bank of Ghana, Elsie Addo Awadzi stresses that despite the existence of the Borrowers and Lenders Act of 2020 to effectively enforce collateral requirements, there are still attendant inefficiencies.
At a stakeholders forum on collateral enforcement, Madam Awadzi challenged players to apply stricter collateral enforcement among borrowers to ensure resilient and sustainable lending practices.
“Since enactment of the new Act in 2020 and following several stakeholder sensitisation programmes, we have seen a significant increase in the number of Memorandum of No Objections obtained by banks and specialised depository institutions. This situation is unsustainable for the banking industry. The costs of non-payment are ultimately borne by depositors whose funds are used to provide these loans”, she said.
Loan under-recoveries, driven by economic pressures and elevated default rates, have significantly impacted the banking sector’s profitability and asset quality.
Between 2010 and 2023 a total of 4,640 certificates were issued to facilitate loan recovery efforts according to data from Ghana’s collateral registry.
However, a significant number of these cases still end up in court, prolonging the recovery process and creating bottlenecks for lenders.
“In the end, we are all on one side. Our collective goal is to promote a stable and efficient credit system. The Bank of Ghana, as a regulator, remains committed to working with all stakeholder groups to make this mission a reality,” the second deputy Governor added.
In addition to procedural delays, the banking sector is grappling with a sharp increase in non-performing loans (NPLs).
The NPL ratio rose from 18% in September 2023 to 22.8% by September 2024, signaliing heightened credit risks in the economy.
This rise in NPLs has compelled banks to write off bad loans totaling GH¢163.5 million over the past year, significantly affecting their balance sheets and limiting their capacity to extend new credit.
Industry stakeholders recommend enhanced recovery mechanisms and legal reforms to expedite the loan recovery process, while financial institutions strengthen their credit risk management frameworks to mitigate future losses.
“This is the reality we have to deal with. Despite critical interventions such as establishing the collateral registry and legislative amendments, we continue to experience significant difficulty in debt recovery. When you put in these provisions where do they end? ” Chief Justice, Gertrude Torkornoo who also spoke at the event added.
