By January 2027, banks and authorized financial entities having non-performing loan (NPL) rates exceeding 10% will face restrictions on distributing profits to investors and offering employee incentives.
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This marks a fresh instruction issued by the Bank of Ghana. Financial institutions having non-performing loans ranging from 10% to 15% will receive a two-year period to address issues within their loan portfolios prior to facing penalties, as stated by the BoG.
Financial institutions having non-performing loans above 15% will nonetheless encounter instant limitations regarding dividend distributions, employee bonuses, and growth in lending activities.
In contrast, microfinance organizations have established a more stringent cutoff of 5%. This regulation aims to strengthen credit risk control, safeguard deposits, and enhance the overall quality of assets within the financial system.
This updated policy implies that investors in less stable banks can no longer anticipate receiving dividends, whereas employee incentives might be reduced if non-performing loans stay high. Borrowers could also experience more restricted access to credit as financial institutions take steps to prevent exceeding limits.
As a result, banks and other financial organizations have a narrow timeframe to reorganize poor assets or face the possibility of being unable to provide returns to shareholders and staff.
In the meantime, the Ghana Association of Banks noted that the Ghana Reference Rate fell to 19.67% in August compared to 29.72% in January—along with the Bank of Ghana’s reduction in its policy rate to 25—should encourage loan expansion while lowering bad debts, which stand at 22% today.
The Chief Executive Officer of the Ghana Association of Banks, John Awuah, believes that more affordable lending and enhanced supervision can enhance the standard of assets—however, he called on regulatory bodies and relevant parties to carefully track potential dangers within the loan sector.
“We believe that increased loan interest rates can lead to higher defaults since the borrowing option becomes too costly. If the rate decreases and lending adjusts accordingly, this should improve borrowers’ ability to meet their obligations,” he further stated.
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