Editorial: High NPL ratio slows policy rate easing

Professor Patrick Asuming, a senior lecturer at the University of Ghana Business School and an economist, posits that the falling monetary policy rate will achieve little for businesses unless the problem of elevated credit risk associated with high non-performing loans (NPLs) is tackled.

The banking sector’s NPL ratio dropped to 18.9 percent in December 2025, with bad loans valued at over GH¢21billion.

The Non-Performing Loan (NPL) ratio declined to 18.0 percent in April, 2026 from 23.6 percent in the same period last year.

The economist notes a high NPL ratio in the banking sector signals elevated risk and continues to prevent rapid transmission of the policy rate easing.

“If NPLs are not coming down sufficiently, you wouldn’t expect banks to be reckless and start giving loans at low rates.”

This comes on the back a Bank of Ghana (BoG) directive issued in August 2025 directing banks to cut their NPL ratios to below 15 percent by 31st December 2026. They are also expected to further cut it to 10 percent by 2027 or forfeit the payment of dividend and bonuses.

Microfinance institutions are expected to comply with a stricter 5 percent NPL ceiling. Prof. Asuming argued that the high NPL ratio could be a result of high lending rates, dishonesty, or the prevailing macroeconomic environment.

He therefore warned that demanding banks reduce the NPL ratios drastically without tackling the root causes could undermine a gradual, organic improvement in the country’s credit market as banks would be mandated to write-off provisioned loans.

Prof. Asuming advised BoG to rather exact strengthened credit evaluation systems and other targetted reforms from banks to help reduce the high NPLs organically. He however noted that the banking sector’s NPL ratio is gradually responding to the improving macroeconomic environment.

“We’ve already seen NPLs coming down as things are improving.”

Some economists even argue that the directive could occasion a credit crunch as banks will become wary of lending to businesses.

Despite BoG’s aggressive monetary easing – from 28 percent in July 2025 to 14 percent in March this year – pushing the GRR to 10.5 percent in May, average lending rates still hover around 20 percent.

The UGBS senior lecturer suggested a two-pronged solution to solve the high NPLs problem. Firstly, banks must improve their credit screening and employ credit scoring systems to help weed out borrowers who have “no intention of repaying” while allowing trustworthy businesses to access affordable credit.

Secondly, borrowers must always stick to their repayment plans.

The post Editorial: High NPL ratio slows policy rate easing appeared first on The Business & Financial Times.

Read Full Story