While the Bank of Ghana (BoG) has increased the policy rate by 100 basis points to 28 percent, Governor Dr. Johnson P. Asiama is urging commercial banks to sustain credit flow to viable enterprises – especially those in vulnerable sectors – despite a tightening monetary environment.

• Banks must avoid automatic pass-through of rate hikes and maintain credit support to sectors essential for economic recovery.
• Prudence and support are not mutually exclusive, but rather a balance that needs to be struck.
• Stronger credit risk management and underwriting standards are essential for addressing solvency challenges and non-performing loans.

This appeal formed the central message of Dr. Asiama’s address to commercial banks’ chief executives during BoG’s first post-Monetary Policy Committee (MPC) meeting under his leadership. While acknowledging that the policy rate hike could heighten borrowing costs and constrain business activity, Dr. Asiama stressed the importance of striking a balance between prudence and support. The Governor’s remarks were delivered against a backdrop of ongoing reforms in the financial sector, which continues to recover from two major disruptions – the banking sector clean-up and Domestic Debt Exchange Programme (DDEP). A recent report by the Central Bank highlighted that the financial system is robust, with total banking assets growing by 34.05 percent year-on-year and deposits increasing by 27.89 percent as of End-February 2025.

However, risks linger – especially as solvency challenges persist in some domestically controlled and state-owned banks, where recapitalisation efforts remain incomplete. BoG is engaging these institutions to address capital shortfalls, ensure compliance with prudential standards and restore depositor trust. Non-performing loans (NPLs) remain elevated with the gross NPL ratio at 22.57 percent – largely due to legacy exposures. Even after adjusting for fully provisioned loans the NPL ratio remains at 8.93 percent, prompting a call for stronger credit risk management and underwriting standards. “To ensure a sustainable and inclusive economic recovery, banks must deepen their support for trade finance and regional integration – particularly through platforms like the Pan-African Payment and Settlement System (PAPSS),” Dr. Asiama said.

“A balance between prudence and support is essential, not just for the banks, but for the overall economy. We must strike a balance between controlling inflation and supporting growth, between prudence and compassion.”

To keep pace with emerging challenges, BoG is enhancing its supervisory capabilities. A new Resolvability Assessment Framework is in development to improve crisis preparedness. The Governor emphasised a shift from reactive enforcement to forward-looking supervision, with priorities including risk-based analytics, sustainability assessments and enhanced governance. The Bank of Ghana’s outlook that the financial system is robust comes amid signs of recovery highlighted by the most recent data from the Central Bank. As the economy continues to navigate challenging times, Dr. Asiama’s message to commercial banks is clear: to balance prudence with support for the economy, and to prioritize the well-being of the nation.

These terms are critical to the effective management of the financial sector and the economy as a whole. By understanding their significance, stakeholders can better navigate the complex landscape of financial regulation and policy-making. In conclusion, the BoG governor’s call to action is a clear reminder that the banking sector has a critical role to play in supporting the economy. By striking a balance between prudence and support, commercial banks can contribute to a sustainable and inclusive economic recovery. The BoG’s enhanced supervisory capabilities and the development of the Resolvability Assessment Framework are essential steps towards improving crisis preparedness and forward-looking supervision. As the economy continues to evolve, it is crucial that stakeholders remain vigilant and adapt to emerging challenges. Ultimately, the success of the BoG’s strategy will depend on the collective efforts of the banking sector, government, and other stakeholders to work together towards a common goal – a resilient and thriving economy.