An economist and senior lecturer at the University of Ghana Business School, Professor Patrick Asuming, has argued that a falling monetary policy rate will achieve little for businesses unless the problem of elevated credit risk associated with the high non-performing loans (NPL) is tackled at the root.
NPLs ratio in the banking sector dropped to 18.9 percent in December 2025, with bad loans valued at over GH¢21billion.
In an exclusive interview in Accra, the renowned economist noted the high NPL ratio in the banking sector is a sign of elevated risk and continues to prevent rapid transmission of the policy rate easing.
“If NPLs are not coming down sufficiently, you shouldn’t expect banks to be reckless and start giving loans at sufficiently low rates,” he said.
His remarks come on the back of the Bank of Ghana’s (BoG) directive issued in August 2025, directing banks to cut their NPL ratios to below 15 percent by 31st December 2026 and further to 10 percent by 2027 or forfeit the payment of dividend and bonuses. Microfinance institutions are expected to comply with a stricter 5 percent NPL ceiling.
Prof. Asuming however said the high NPLs canker in the system, perhaps, is beyond the control of the individual banks. When people borrow and pay, the banks are profitable,” he stated.
He argued that the high NPL ratio could be as a result of high lending rates, dishonesty or the prevailing macroeconomic environment. “There are genuine businesses who borrow and because the economy is not doing well, they can’t repay. You would expect that as the economy is improving, repayment will improve,” he noted.
He therefore warned that demanding banks reduce the NPL ratios drastically without tackling the root causes could undermine a gradual, organic improvement in the country’s credit market, as banks would be mandated to write-off unprovisioned loans.
The professor advised that BoG should rather exact strengthened credit evaluation systems and other targetted reforms from banks to help reduce the high NPLs organically. “They have the power to say, “Let’s strengthen this component”. Otherwise, they should trust that the economy’s improvement and fact interest rates are coming down should help repayment behaviour,” he said.
Prof. Asuming noted that the banking sector’s NPL ratio is gradually responding to the improving macroeconomic environment. “We’ve already seen NPLs coming down as things are improving,” he said.
However, some economists argue that the directive could occasion a credit crunch as banks will become wary of lending to businesses.
There has been growing frustration within the business community, owing to the fact that despite the falling Ghana Reference Rate (GRR) borrowing cost has yet to respond accordingly. Despite BoG’s aggressive monetary easing – from 28 percent in July, 2025 to 14 percent in March this year – pushing the GRR to 10.5 percent in May, average lending rates still hover around 20 percent.
Prof. Asuming therefore suggested a two-pronged solution to solve the high NPLs problem. He advised banks to improve their credit screening and employ credit scoring systems to help weed out borrowers who have “no intention of repaying”, while allowing trustworthy businesses to access affordable credit.
He also admonished borrowers they must always stick to their repayment plans. “Businesses should also encourage their colleagues to ensure they are paying on time. All of that will help bring down the NPLs,” he added.
