A report co-written by Dr. Richmond Atuahene and Isaac Kofi Agyei calls for urgent action from the Bank of Ghana and commercial banks to lower the current Non-Performing Loan (NPL) ratio from 24% to approximately 10% to strengthen the resilience of the banking sector.
Titled ‘Thirsty Banks: 2023 Ghana’s Dilemma with High Cash Reserve Ratios,’ the report argues that any developing or emerging economy facing an NPL ratio surpassing 20% is considered to be in crisis.
“The Bank of Ghana and commercial banks need to exert significant effort to reduce the current Non-Performing Loan (NPL) ratio from 24% to around 10% to fortify the banking sector’s resilience. A resilient banking sector encompasses more than just profitability; high NPLs can lead to poor capitalization among banks, liquidity challenges, and even insolvency for some institutions.
“The Bank of Ghana’s MPC report in March 2024 affirmed these concerns, indicating a mixed outlook on key financial soundness indicators,” the report recommended in part.
The report also recommended that the “Bank of Ghana should reconsider reducing the mammoth cash reserve ratios by taking into account the GHS50.6 billion of customers’ deposits used to purchase restructured government bonds with an extended maturity period until 2031.”