The banking sector is being pushed out of its long-standing reliance on government securities as sharply lower Treasury yields erode the risk-free returns that once dominated bank balance sheets.

The shift helped revive private sector credit growth toward end-2025, while lending momentum remains below levels seen at start of the year as concerns over prevailing risk remain.

This adjustment follows an aggressive easing cycle by the Bank of Ghana (BoG), which cut the monetary policy rate by a cumulative 900 basis points (bps) in the past year, including a 250bps reduction to 15.5 percent at its January 2026 meeting.

The easing came against a backdrop of rapidly declining inflation, a stronger cedi and reduced fiscal pressures – giving the central bank room to lower rates without alarming markets.

Money market yields have responded accordingly, with the 91-day Treasury bill rate falling to approximately 11 percent in December 2025 from nearly 28 percent a year earlier, compressing returns on government paper and flattening the yield curve.

Consequently, the once-lucrative carry trade that encouraged banks to park liquidity in sovereign securities during the crisis years has largely disappeared.

With that cushion gone, banks have begun to rebalance toward lending. Banking sector credit to the private sector closed 2025 with growth of 16 percent, according to the BoG’s Summary of Economic and Financial Data.

Total advances reached GH¢111billion by December, recovering from a mid-year slowdown when credit growth rate slipped into single digits. The sector’s rate of total advances stood at 7.5 percent in May; 6.1 percent in June; and 6 percent in July 2025.

However, the late-year rebound still trails the pace recorded at the beginning of 2025 when credit expansion stood at 27.1 percent in January. This divergence reflects the lag between policy easing, lending rates and risk appetite as banks remain cautious after years of elevated credit stress.

Inflation trends and monetary policy adjustments shaped credit conditions throughout the year. Inflation fell from 23.5 percent in January to June (13.7 percent), July (12.1 percent), August (11.5 percent) and reached single digits in September (9.4 percent).

During the year’s first half, the Monetary Policy Rate (MPR) started at 27 percent in January and was increased by 100 basis points (bps) to 28 percent in March. Despite the rapid moderation in price pressures, the MPC maintained a cautious stance – cutting the rate to 25 percent in July and keeping it there until September when it fell to 21.5 percent and a further 350 bps reduction to 18 percent in November 2025.

In line with central bank actions, the Ghana Reference Rate (GRR) – the benchmark for commercial lending – also declined after beginning the year at 29.72 percent. Despite the fall in inflation, the GRR did not drop under 20 percent until August (19.67 percent) and closed the year at 15.9 percent as caution persisted.

Deposit growth supported liquidity, even as momentum slowed. Total deposits rose to GH¢325.3billion by December 2025 from GH¢276.2billion a year earlier, though annual growth moderated to 17.8 percent.

The liquid-assets-to-total-assets ratio stood at 30.9 percent, leaving banks well positioned to meet a potential rise in loan demand during 2026.

Balance-sheet quality improved alongside the macro stabilisation. The non-performing loan ratio eased to 18.9 percent in December from 23.6 percent in May, while capital adequacy strengthened to 17.5 percent. Profitability remained robust, with return on equity at 30.8 percent even as net interest margins narrowed due to lower yields and increased competition.

Fiscal consolidation reinforced the monetary shift. The fiscal deficit narrowed, public debt fell to about 45.5 percent of Gross Domestic Product (GDP) and domestic financing needs declined following debt restructuring… reducing pressure on banks to absorb government issuance.

External stability also improved, supported by strong gold exports and reserves of US$13.8billion – helping the cedi appreciate more than 40 percent in 2025.

Governor Dr Johnson Asiama said the policy pivot reflects restored macroeconomic stability rather than a relaxation of discipline.

“Macroeconomic conditions have improved significantly, supported by the tight monetary policy stance, fiscal consolidation and a significant build-up of reserves,” he said after the Monetary Policy Committee meeting.

“With stability largely achieved, the focus of policy is gradually shifting toward consolidating these gains and supporting stronger real sector recovery, job creation and improved financial intermediation,” he added.

He expressed optimism that the convergence of lower inflation, improved asset quality and a policy rate of 15.5 percent will support stronger credit growth to households and businesses in 2026.