In response to the high Non-Performing Loans (NPLs) in the banking industry, the Bank of Ghana (BoG) has reviewed its policy on problem assets to address the increasing risks to the industry’s profitability, liquidity and solvency as well as the threat to the stability of the financial system.

In its notice on regulatory measures to reduce NPLs, it said all Regulatory Financial Institutions (RFIs) must maintain a robust credit risk management framework.

“An RFI shall, on a continuous basis, enhance its credit risk management function and processes in compliance with BoG’s credit risk management requirements and shall demonstrate the robustness of such processes to BOG. 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 pointed out.

In addition, the Central Bank said an RFI shall, amongst others, have in place: well-defined Board-approved credit-granting criteria; adequately resourced and properly managed credit-granting function; appropriate systems for monitoring the performance of credits individually or collectively based on similar credit risk characteristics and a system of independent, ongoing assessment of the credit risk management processes.

Observing Prudential Limit on NPLs

The Central Bank also said the RFIs shall ensure that the level of NPLs to gross loans (NPL ratio) does not exceed 10%, or such other levels as may be prescribed by the BoG from time to time.

In addition, the RFIs shall comply with the above limit by the end of December 2026. Thereafter, RFIs in breach of this limit shall notify the BoG of the violation within 10 working days and submit a Board-approved plan to reduce their NPLs to 10% or below.

Write-Off Fully Provisional Loans

The notice also said RFIs, with prior written approval from the BOG, shall immediately write off NPLs in the loss category, as per the BoG prudential loan classification and provisioning norms, as well as those in the substandard and doubtful categories where there is no reasonable expectation of recovering contractual cashflows in a timely manner.

Hence, all loans to be written off shall be fully provisioned per IFRS 9 impairment and BOG provisioning norms.

Nonetheless, it stressed that a write-off shall not mean that the RFI has forfeited the legal right to recover the debt.

Therefore, RFIs shall continue to take the necessary steps to collect, sell or transfer the credit to another entity.

Restructure NPLs to Qualifying Borrowers

The Bank of Ghana pointed out that RFIs may initiate the restructuring of a loan facility and 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.

The notice re-emphasised existing prudential guidance and highlights additional measures in line with international best practices for managing credit risks.

The Regulatory Measures underlisted are issued pursuant to Section 92 of the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930) as well as Non-Bank Financial Institution (NBFI) Act, 2008 (Act 774) and shall apply to all Banks, Specialised Deposit-Taking Institutions (SDIs), and Non-Bank Financial Institutions (NBFIs).