The Bank of Ghana (BoG) has issued a fresh warning to financial institutions engaged in cross-border lending and foreign currency transactions, cautioning that inadequate credit risk controls could expose lenders to defaults and deteriorating loan quality linked to economic and political conditions in other countries.
The warning forms part of the central bank’s Credit Risk Management Directive, which introduces stricter expectations for banks, savings and loans companies, finance houses and financial holding firms. The directive is designed to strengthen credit risk management systems and ensure that regulated financial institutions operate within the limits of their risk-taking activities and capital strength.
With Ghana’s financial sector continuing to engage in lending, investments and trade finance activities that may expose institutions to international markets, the BoG is pushing lenders to pay closer attention to risks that extend beyond their immediate borrowers.
The directive is scheduled to begin implementation on July 1, 2027, giving affected institutions time to prepare for the new requirements.
BoG Flags Hidden Dangers in Cross-Border Lending
The central bank has advised Regulated Financial Institutions (RFIs) involved in cross-border lending, investments, trade finance or foreign currency exposures to establish adequate policies for identifying, measuring, assessing, monitoring and controlling country risk and transfer risk.
These risks can emerge when a borrower or counterparty faces financial difficulties because of conditions in its home country. Economic instability, fiscal pressures, political developments and weaknesses in the financial sector can undermine repayment capacity, even when a lending arrangement initially appears sound.
Country risk can affect the ability of foreign borrowers to meet their obligations, while transfer risk arises when funds cannot be transferred across borders to settle debts, including because of restrictions or other country-specific constraints.
Such exposures can create complications for financial institutions that depend on repayments from international counterparties. A deterioration in a foreign market could affect the quality of a bank’s assets, increase provisions for expected credit losses and place additional pressure on its financial position.
The BoG’s directive therefore requires institutions to develop systems capable of identifying emerging threats early and responding before they become serious financial problems.
The central bank has also cautioned financial institutions against introducing new products, entering markets or deploying delivery channels without obtaining the necessary regulatory approvals where applicable.
Tougher Scrutiny of Borrowers and Business Partners
Beyond international exposures, the directive places considerable emphasis on how financial institutions select borrowers and assess the people and businesses seeking credit.
The BoG has instructed RFIs to establish and enforce strict policies to avoid associations with individuals involved in fraud, serious financial crimes or other forms of misconduct.
Institutions are also expected to strengthen due diligence by obtaining references from known parties, consulting credit reference bureaus and investigating the backgrounds of individuals responsible for managing companies.
These checks should cover the integrity, experience and financial condition of key individuals, helping lenders establish whether prospective borrowers and business partners can be trusted.
The requirements come at a time when poor credit decisions can have consequences that extend beyond individual transactions. Weak screening procedures may allow institutions to accumulate risky exposures, particularly when they rely on incomplete information or fail to investigate warning signs.
By demanding more rigorous background checks, the BoG is seeking to make credit decisions more informed and reduce the likelihood of financial institutions becoming exposed to borrowers with questionable records or limited repayment capacity.
New Standards for Credit Approval and Loan Assessment
The directive also requires financial institutions to establish clearly defined criteria governing the approval of loans and other credit facilities.
According to the BoG, “The criteria shall specify eligible borrowers, the types, amounts, and tenors of credit the RFI is willing to provide, and the terms and conditions under which credits may be granted”.
This requirement means lenders must clearly determine who qualifies for credit, the facilities they are prepared to offer and the conditions borrowers must satisfy before funds are released.
The central bank further requires comprehensive credit risk assessments that reflect the nature, type and size of each exposure.
Credit officers are expected to apply experienced judgement and use flexible assessment methods, particularly when information about a borrower is limited. Institutions must also diversify their loan portfolios across sectors, geographical locations, borrower categories and credit risk mitigants, taking local market conditions into account.
Portfolio diversification is important because excessive concentration in one industry, region or borrower group can leave a financial institution vulnerable when conditions deteriorate in that particular segment.
A lender with concentrated exposures may experience a sharp increase in defaults if an economic shock affects its main borrowers simultaneously. Diversification can help reduce this vulnerability, although it cannot eliminate credit risk entirely.
Individuals Face Closer Credit Checks
The BoG is also demanding more comprehensive assessments of individuals seeking credit.
Under the directive, institutions must consider the purpose and structure of an exposure, the sources of repayment and reasonable verification of income or cash flows using formal or alternative documentation, where relevant.
Lenders must also examine a borrower’s current risk profile, including total indebtedness and sensitivity to economic and market developments.
These requirements are intended to encourage financial institutions to look beyond the immediate loan application and assess whether borrowers can realistically meet their repayment obligations.
A borrower’s existing debts, income stability and exposure to changing economic conditions can significantly influence the likelihood of default. More detailed assessments could therefore help institutions avoid lending decisions that underestimate repayment risks.
July 2027 Deadline Puts Banks on Notice
The Credit Risk Management Directive will take effect on July 1, 2027, marking an important deadline for institutions covered by the new requirements.
The BoG’s broad objective is to strengthen the resilience of regulated financial institutions by ensuring they establish and fully implement adequate and effective credit risk management systems that are commensurate with their risk-taking activities and capital strength.
The coming months will be important as banks and other affected institutions review their lending policies, internal controls, borrower screening procedures and monitoring systems.
The challenge will be to translate the directive’s requirements into everyday lending practices without unnecessarily restricting access to credit for viable businesses and individuals.
Ultimately, stronger risk management could help financial institutions identify troubled exposures earlier, improve lending discipline and protect their balance sheets against avoidable losses.
As the implementation deadline approaches, the BoG’s warning signals a stronger regulatory focus on how financial institutions manage both domestic lending decisions and the risks associated with operating across borders.
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