The Bank of Ghana has raised fresh concerns about the state of asset quality within the country’s banking sector, even as headline indicators suggest some level of improvement.
According to the central bank’s latest data for February 2026, the proportion of non-performing loans remains heavily skewed toward the private sector, reinforcing persistent vulnerabilities in credit risk management.
Although banks have made progress in reducing their Non-Performing Loans (NPL) ratio, the underlying risks tied to loan defaults continue to pose a significant challenge. The data highlights a critical issue within Ghana’s financial system, where private sector borrowers account for the overwhelming majority of distressed loans.
NPL Ratio Shows Improvement
The industry’s NPL ratio declined to 18.4 percent in February 2026, marking a notable improvement from the 22.6 percent recorded in February 2025. This reduction signals a degree of recovery in loan performance and suggests that banks are strengthening their credit monitoring and recovery strategies.
Similarly, when adjusted for fully provisioned loan loss categories, the NPL ratio fell sharply from 8.9 percent to 5.4 percent over the same period. This adjusted measure provides a clearer picture of the actual risk exposure faced by banks, indicating that some of the most problematic loans have already been adequately provisioned for.
In addition, the stock of non-performing loans contracted by 5.8 percent to GH¢19.9 billion in February 2026. This contrasts with a significant growth of 14.9 percent recorded a year earlier, reflecting improved loan recovery efforts and tighter credit risk controls within the banking industry.
Private Sector Bears the Brunt
Despite these improvements, the composition of bad loans reveals a troubling trend. The private sector continues to dominate the NPL landscape, accounting for 98.1 percent of total non-performing loans in February 2026. This represents an increase from 96.2 percent recorded in February 2025.
The dominance of the private sector in NPLs aligns with its substantial share of total credit in the economy. Businesses and individuals remain the primary recipients of bank lending, making them the most exposed to economic shocks, high borrowing costs, and operational challenges.
In contrast, the public sector’s share of non-performing loans declined significantly to 1.9 percent from 3.8 percent over the same period. This suggests relatively better loan performance among government-related entities, although their overall share of credit remains smaller compared to the private sector.
Sectoral Performance Mixed
A deeper analysis of sectoral performance shows that asset quality improved across most sectors of the economy during the review period. However, one sector stood out for the wrong reasons.
The agriculture, forestry and fishing sector recorded a deterioration in loan performance, with its NPL ratio increasing from 51.6 percent to 54.7 percent. This rise highlights structural challenges within the sector, including exposure to climate risks, limited access to modern farming techniques, and fluctuating commodity prices.
The worsening performance in agriculture contrasts with gains recorded in other sectors, where borrowers demonstrated improved repayment capacity. This broad-based improvement contributed to the overall decline in the industry’s NPL ratio.
Implications for Banks
The persistent concentration of bad loans within the private sector has important implications for banks’ risk management strategies. Financial institutions may need to reassess their lending frameworks, particularly in high-risk segments, to prevent further deterioration in asset quality.
Stricter credit appraisal processes, enhanced monitoring of loan performance, and targeted recovery strategies could become essential tools for managing risk. Banks may also need to diversify their loan portfolios to reduce overexposure to vulnerable sectors.
Furthermore, the elevated risk levels suggest that the decline in the NPL ratio should not be interpreted as a complete resolution of asset quality concerns. Instead, it reflects a gradual improvement that still requires sustained policy attention and prudent banking practices.
Broader Economic Context
The trends observed in Ghana’s banking sector are closely linked to broader economic conditions. High inflation, elevated interest rates, and currency pressures in recent years have affected the ability of borrowers to service their debts.
Private sector businesses, particularly small and medium-sized enterprises, remain sensitive to these macroeconomic challenges. Limited access to affordable financing and rising operational costs continue to strain their financial health, increasing the likelihood of loan defaults.
As economic conditions stabilize, there is cautious optimism that loan performance will improve further. However, the concentration of NPLs within the private sector underscores the need for targeted interventions to support businesses and enhance their resilience.
Outlook for the Banking Sector
In the interim, the banking sector is expected to maintain a cautious approach to lending while focusing on strengthening asset quality. The progress recorded in reducing NPL ratios is encouraging, but the elevated risks highlighted by the central bank call for continued vigilance.
The Bank of Ghana is likely to sustain its regulatory oversight to ensure that banks adhere to prudent risk management standards. This includes enforcing provisioning requirements and promoting sound corporate governance practices within financial institutions.
Ultimately, addressing the root causes of high non-performing loans in the private sector will be key to achieving long-term stability in Ghana’s banking system. Strengthening credit risk frameworks and supporting economic growth will play a crucial role in shaping the sector’s future trajectory.
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