The year 2024 brought a mixed bag for Ghana‘s banking sector. While there were signs of recovery and resilience, the issue of non-performing loans (NPLs) remained a significant challenge, casting a shadow over the sector’s progress.
For the average Ghanaian, NPLs can be likened to lending your neighbor GH₵ 1,000 to start a business, only to find out they’re unable to pay you back, and neither are their other neighbors. On a national scale, this is what NPLs represent: loans that banks cannot recover. It’s a situation that strains the banking system and slows down credit availability for businesses and individuals alike.
At the close of 2023, NPLs were already high at 20.6%. But by February 2024, things got worse, with NPLs spiking to a staggering 26.7%. This sharp rise in defaults highlighted the economic and financial pressures borrowers were facing during the early months of the year.
Fortunately, there was some relief as the year progressed. By December 2024, the NPL ratio dropped to 21.8%. However, while this reduction is a step in the right direction, an NPL ratio above 20% is still troubling and reflects deep-seated issues within the credit market.
Amid these challenges, banks maintained resilience, as seen in the Capital Adequacy Radio (CAR), which measures a bank’s ability to withstand financial shocks. The CAR stayed relatively stable, fluctuating between 13.0% and 14.4% throughout the year. While this indicates that banks have adequate capital buffers to weather risks, the strain caused by high NPL levels is undeniable.
While Ghana’s banking sector has shown resilience, the lingering issue of non-performing loans remains a critical area that requires urgent attention.
Credit: High Street Journal