The Bank of Ghana (BoG) has directed regulated financial institutions to cut their non-performing loan ratios to no more than 10% by the end of December 2026, a move that could shrink the banking industry’s stock of impaired loans by an estimated GH¢7.6 billion and free up banks to extend more credit to businesses and households.

The directive comes after the banking sector reduced its NPL ratio to 16.1 percent in June 2026 from 23.1 percent a year earlier, but the central bank believes the pace of improvement must accelerate to restore banks’ lending capacity.

Governor of the Bank of Ghana, Dr Johnson Pandit Asiama, said although the improvement in the banking sector’s total assets is high, an NPL ratio of 16.1% remains too high and continues to tie up capital, increase recovery cost and restrict the flow of new credit.

“Our regulatory measures require each regulated institution to reduce its ratio to no more than 10 percent by the end of December 2026,” the Governor said at the Bank of Ghana and CIRIP Ghana Forum on Non-Performing Loans and Post-Commencement Financing in Accra.

The scale of the potential clean-up is significant when measured against the industry’s current loan book.

Bank of Ghana data show that total advances stood at GH¢124.3 billion in June 2026, up from GH¢89.7 billion in June 2025, representing annual growth of 38.6%. Over the same period, the NPL ratio dropped from 23.1% to 16.1%.

Based on its loan portfolio as at June, the banking sector is estimated to be carrying about GH¢20.0 billion in non-performing loans.

If the industry’s loan portfolio remained broadly unchanged at GH¢124.3 billion and the NPL ratio was reduced to 10 percent by December, impaired loans would fall to about GH¢12.43 billion.

That would represent a potential reduction of approximately GH¢7.58 billion, or GH¢7.6 billion, in the value of loans classified as non-performing.

The GH¢7.6 billion is an illustrative estimate based on the June loan portfolio and should not be interpreted as an amount that would automatically become available for new lending.

The actual stock of NPLs at December will depend on movements in banks’ loan books as well as repayments, recoveries, restructurings and write-offs during the period.

A sustained reduction in bad loans would strengthen banks’ balance sheets by freeing capital tied up in bad assets, lowering provisioning costs and creating greater capacity to finance businesses and households.

Dr Asiama said high NPLs tie up capital, raise recovery costs and restrict the flow of new credit, particularly to smaller businesses and higher-risk borrowers.

He said reducing bad loans is not merely a supervisory objective but part of Ghana’s broader development agenda, as healthier bank balance sheets are essential to supporting sustainable economic growth.

The BoG’s latest push comes as lending continues to recover strongly. Private sector credit reached GH¢119.6 billion in June 2026, up from GH¢84.8 billion a year earlier. Nominal credit growth accelerated to 41.2%, while real credit growth reached 34.1%, indicating that banks are already expanding lending as balance sheets improve.

Financing conditions have also improved. The average lending rate fell to 15.64 percent in June 2026 from 27.0% a year earlier, while the Ghana Reference Rate declined to 10.02% from 23.8% over the same period, making borrowing conditions more supportive for businesses.

Banks also remain well capitalized. The industry’s Capital Adequacy Ratio stood at 20.4% t in June 2026, providing lenders with stronger capital buffers to absorb risks and support additional lending as asset quality continues to improve.

Beyond the headline target, the Bank of Ghana has directed regulated institutions to strengthen credit appraisal processes, implement Board-approved NPL reduction plans, enhance loan recovery functions and write off fully provisioned exposures with no realistic prospect of recovery as part of efforts to improve the quality of banks’ loan portfolios.

Achieving the 10 percent NPL target would mark another significant step in restoring the banking sector’s ability to intermediate credit more efficiently.

Lower bad loans would ease pressure on banks’ balance sheets, improve their risk appetite and create greater scope to finance productive sectors of the economy while preserving financial stability.

With total advances already growing at nearly 39 percent annually, the challenge for banks over the remainder of the year will be to meet the central bank’s December target without compromising underwriting standards, ensuring that stronger credit growth is supported by healthier loan portfolios rather than a new build-up of problem assets.