The Bank of Ghana (BoG) has issued new regulatory directives aimed at curbing rising non-performing loans (NPLs) as well as reducing risks to the profitability, liquidity, and solvency of the banking sector.
Among the directives are that wilful loan defaulters could face a five-year ban from accessing credit from any regulated financial institution in Ghana. The directive also requires commercial banks and other regulated lenders to publish the names of such defaulters twice a year, on June 30 and December 31, in at least two national daily newspapers and on their websites in a prescribed format.
Also, in a notice to commercial banks, Specialised Deposit-Taking Institutions, non-banking financial institutions and the public, the central bank urged financial institutions to maintain a robust Credit Risk Management Framework to help reduce Non-Performing Loans (NPLs).
It explained, a Regulated Financial Institution (RFI) shall, on a continuous basis, enhance its credit risk management function and processes in compliance with the Bank of Ghana’s credit risk management requirements and shall demonstrate the robustness of such processes to the Bank of Ghana.
“The Board of an RFI shall have overall responsibility for approving and periodically, at least annually, reviewing the credit risk management strategy and policies of the RFI” it added.
In terms of observing the prudential limit on NPLs, the Bank of Ghana said RFIs shall ensure that the level of NPLs to gross loans (NPL ratio) does not exceed 10.0%, or such other levels as may be prescribed by the BOG from time to time.
However, microfinance Institutions are required to comply with their existing prudential NPL ratio limit of 5%.
It added that the Board-approved NPL reduction plan shall be aimed at returning the RFI to full compliance within one year.
It continued that RFIs with NPL ratios exceeding the prudential limit shall, from 1st January 2027, be restricted from the payment of dividends and bonuses, as well as growing their loan portfolio lending to related parties and sectors of the RFI’s credit portfolio with NPL ratios above the prudential limit etc., except for cash-backed facilities.
For restructuring NPLs to qualifying borrowers, it said RFIs may initiate the restructuring of a loan facility and shall discuss sustainable payment options with borrowers or restructure a loan at the borrower’s request to enhance the affordability and sustainability of loan repayment by qualifying borrowers. This aims to minimise the potential losses to the RFI due to default or deterioration in borrowers’ creditworthiness.
To maintain the integrity of RFIs’ financial statements, it urged RFIs to ensure that the restructured loans are appropriately classified and treated in accordance with the requirements of IFRS 9 impairment and BOG’s prudential loan classification and provisioning norms.
Who Is Wilful Loan Defaulter?
Under the new rules, a borrower is deemed a wilful defaulter if they fail to repay a loan despite having the capacity to do so, divert loan funds for other purposes, or secure a loan through falsified collateral or fraudulent documentation.
Credit Access Restrictions
The directives bar regulated financial institutions from granting fresh loans to defaulters from the date the BoG approves a loan write-off.
The prohibition period will be twice the length of time between the write-off approval and the full settlement of the debt.
Borrowers listed as wilful defaulters on two or more occasions within ten years will face a mandatory five-year ban, or longer if the calculated prohibition period exceeds that duration.
The restrictions also target directors of companies found to have engaged in fund diversion, misrepresentation, falsified accounts, or fraudulent transactions.
Path to Credit Eligibility
A wilful defaulter may regain access to credit upon fully repaying all written-off loans and fees, and if the lender is satisfied with the borrower’s ability and willingness to meet future repayment obligations.
By Adnan Adams Mohammed
