The Bank of Ghana has urged financial institutions to maintain a Robust Credit Risk Management Framework to help reduce Non-Performing Loans (NPLs).

In a notice to banks, Specialised Deposit-Taking Institutions, non-banking financial institutions and the public, the central bank said a Regulated Financial Institutions (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. In addition, an RFI shall, amongst others, have in place”, 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.