Ghana’s banking sector continues to post impressive balance sheet expansion, but a closer look at recent macroeconomic and financial data reveals a quieter squeeze beneath the surface.
While assets, deposits and advances have all trended upward through 2025, profit margins are narrowing, reflecting the lingering effects of policy tightening, elevated costs and cautious lending conditions.
The latest banking sector indicators present a picture of resilience tempered by mounting structural pressures.
Balance Sheets Expand on Renewed Confidence
Total assets of the banking sector rose steadily over the year, climbing from GH¢367.8 billion in December 2024 to approximately GH¢446.9 billion by December 2025. This growth was supported by a recovery in deposits, which increased from GH¢276.2 billion to about GH¢325.3 billion over the same period.
The rebound in deposits signals a gradual return of confidence among households and businesses following the turbulence of recent years.
Credit expansion also resumed, with total advances growing from GH¢95.7 billion at the end of 2024 to GH¢111.0 billion by December 2025. However, the pace of loan growth slowed compared to earlier periods, reflecting tighter credit standards and a more risk-sensitive banking posture. Banks appear to be prioritizing balance sheet strength over aggressive expansion.
Margins Under Pressure Despite Growth
Despite these gains, profitability metrics reveal growing strain. Net interest margins declined steadily through much of 2025, falling from 14.8 percent in January to lows near 11 percent by the final quarter before a modest uptick in December. This compression highlights the narrowing spread between lending rates and funding costs.
High interest rates, while beneficial for asset yields, have also raised deposit costs as banks compete to retain and attract funds. At the same time, subdued credit demand and cautious loan pricing have limited the ability of banks to fully pass higher costs onto borrowers. The result is expanding balance sheets that are generating relatively thinner returns.
Cost Efficiency Remains a Challenge
Operational efficiency continues to weigh on earnings. Total cost to gross income ratios remained elevated, hovering above 74 percent for most of the year, despite slight improvements from earlier peaks. Operational cost to gross income ratios also remained close to 48 percent, underscoring persistent cost pressures from technology investments, regulatory compliance and inflation-driven expenses.
These cost dynamics have constrained profit growth even as revenues recover. For many banks, efficiency gains have not kept pace with balance sheet expansion, reinforcing the squeeze on margins.
Asset Quality Improves, But Risks Linger
On a more positive note, asset quality showed gradual improvement. Non-performing loans declined from 21.8 percent at the end of 2024 to 18.9 percent by December 2025. The reduction reflects better loan recoveries, write-offs and more cautious underwriting practices.
The share of loans excluding the loss category also improved, suggesting that credit risk is becoming more contained. However, the non-performing loan ratio remains elevated by historical standards, continuing to require higher provisioning that weighs on profitability.
Capital adequacy strengthened throughout the year, rising from 14.0 percent in December 2024 to about 17.5 percent by the end of 2025. Even without regulatory reliefs, capital ratios improved markedly, signaling a stronger shock-absorbing capacity within the sector.
This capital rebuilding has been critical in restoring confidence after the domestic debt restructuring period. However, higher capital buffers can also dilute returns on equity if profit growth does not keep pace, contributing further to margin compression.
Liquidity Tightens Before Year-End Relief
Liquidity indicators softened during much of 2025 before improving toward the end of the year. Core liquid assets to total assets declined from 38.7 percent to below 30 percent mid-year, reflecting higher lending activity and tighter liquidity management. A modest recovery in December suggests improved funding conditions, but liquidity levels remain below earlier highs.
The tighter liquidity environment has reinforced conservative balance sheet strategies, limiting risk-taking and restraining profit expansion.
The data underscores a banking sector that has stabilized and grown in size, but now faces the challenge of translating that growth into sustainable profitability. Margin compression, high operating costs and residual credit risks are shaping strategic decisions across the industry.
Going forward, banks will need to focus on improving efficiency, deepening non-interest income streams and deploying capital more productively. As macroeconomic conditions normalize, the ability of banks to rebuild margins without compromising stability will determine the next phase of sector performance.
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