The Bank of Ghana will begin implementation of a comprehensive Credit Risk Management Directive for all Banks, Savings and Loans, Finance Houses and Financial Holding Firms from July 1, 2027, in a decisive move to strengthen the resilience of the country’s financial sector and prevent a repeat of the systemic failures that have historically destabilised the industry.
The directive, which was announced by BoG Governor Dr. Johnson Pandit Asiama during a post-Monetary Policy Committee engagement with bank heads on October 6, 2026, and formally unveiled on October 11, sets out a stringent governance, risk management and credit assessment framework that Regulated Financial Institutions (RFIs) will be required to implement in full. Regulated institutions have until June 30, 2027, to align their governance arrangements, policies and processes with the directive before it takes effect.
Broad Objectives: Enhancing Resilience and Sound Credit Culture
The broad objective of the directive is to enhance the resilience of RFIs by ensuring that they establish and fully implement adequate and effective credit risk management systems that are commensurate with their risk-taking activities and capital strength. The specific objectives are to ensure that RFIs develop an appropriate framework for the management of their credit risk by establishing an appropriate credit risk environment, among others.
The directive requires RFIs to establish strict policies to avoid association with individuals involved in fraudulent activities or other serious financial crimes or misconduct. Institutions must employ robust due diligence measures, including obtaining references from known parties, accessing credit reference bureaus, and becoming familiar with individuals responsible for managing a company, including checks on their integrity, experience and financial condition.
Crucially, the directive mandates that collateral shall not be used as a substitute for a comprehensive assessment of repayment capacity. Lenders will be required to verify borrowers’ income and cash flows, assess repayment history and expenses, and determine their ability to service loans under adverse economic conditions, including rising interest rates and reduced income. For businesses, assessments must cover historical financial performance, projected cash flows, management expertise, industry conditions, equity contributions and capacity to share risk. Lenders may use alternative data and analytical tools, provided they are reliable, explainable and proportionate.
Governance: Board Accountability at the Highest Level
Under the governance framework, the Board of each RFI shall bear the ultimate responsibility for the credit risk assumed by the institution and for ensuring the existence and ongoing effectiveness of the credit risk management framework. The Board must review and approve the RFI’s credit risk appetite, credit risk management strategy, credit policies, procedures, controls and management information system at least annually or whenever there are material changes, to ensure continued adequacy, relevance and effectiveness.
Senior Management will be responsible for implementing the Board-approved credit risk management strategy and for establishing, maintaining and enforcing appropriate policies and processes for identifying, measuring, monitoring, reporting and controlling or mitigating credit risk. These policies must cover all credit-related activities and apply at both the individual exposure and portfolio levels. Responsibilities for credit origination, assessment, approval, monitoring and review must be clearly defined, properly assigned and supported by appropriate segregation of duties.
Portfolio Diversification and Proportionality
RFIs are required to diversify their loan portfolios across sectors, geographical locations, borrower types and credit risk mitigants within the constraints of local market structures. In assessing the quality of RFIs’ credit risk management, the Bank of Ghana will apply the principle of proportionality, ensuring that processes and tools are commensurate with the institution’s profile, systemic importance, market and macroeconomic conditions, and the scale and complexity of its activities.
Historical Context: Lessons from Global and Domestic Crises
The directive is rooted in the hard lessons of financial history. Over the past two decades, global financial developments have underscored the critical importance of robust credit risk management frameworks in safeguarding the stability of the financial system. The 2008–2009 global financial crisis exposed how weak credit underwriting standards, excessive leverage and inadequate risk governance can rapidly translate into widespread loan defaults and systemic distress. The crisis revealed that too many financial institutions had outsourced their risk management to rating agencies, that stress tests were not extreme enough, and that risk models failed to capture the inherent risks in off-balance-sheet activities.
Ghana experienced its own painful reckoning. The banking sector clean-up exercise of 2017–2019 saw the Bank of Ghana revoke the licences of 420 financial institutions, including nine universal banks, 23 savings and loans and finance houses, 347 microfinance companies, and other institutions. The total fiscal cost of the interventions was estimated at GH¢11.2 billion (3.7 per cent of GDP) for the bank clean-up alone, with the government spending GH¢18.99 billion (5.49 per cent of GDP) to fund the repayment of deposits of affected depositors and establish Consolidated Bank Ghana Limited.
The clean-up revealed longstanding governance failures, regulatory forbearance and political interference that had allowed weak underwriting standards, related-party practices and risk management deficiencies to fester. As the Bank of Ghana itself acknowledged, the exercise highlighted significant deterioration in asset quality and consequent pressure on capital and liquidity resulting from weaknesses in underwriting standards, risk management, governance and related-party practices. Conversely, RFIs that had established and adhered to sound credit risk management practices demonstrated stronger financial resilience.
Context: Rapid Credit Growth and Elevated NPLs
The directive comes at a critical juncture. Private-sector credit has surged by 35.5 per cent in August 2026, compared with 13.3 per cent a year earlier, while the average lending rate fell to 15.9 per cent from 24.2 per cent in August 2025. Governor Asiama has cautioned that this rapid expansion must be supported by sound underwriting standards and effective risk-management frameworks.
Non-performing loans remain a significant concern. The banking industry’s NPL ratio stood at 16.1 per cent at end-June 2026, down from over 23 per cent a year earlier but still well above the BoG’s regulatory expectation of 10 per cent by December 2026. The savings and loans sub-sector has fared worse, with its NPL ratio deteriorating from 15.35 per cent in June 2025 to 19.44 per cent in June 2026.
The Bank of Ghana has already introduced a non-performing loans notice and has directed commercial banks to reduce their NPL ratios to below 10 per cent by the end of 2026. From January 2027, banks and regulated financial institutions with NPL ratios above 10 per cent will be barred from paying dividends to shareholders and bonuses to staff, with institutions at 15 per cent or higher facing immediate restrictions on dividend payments, staff incentives and loan portfolio expansion. For microfinance institutions, a stricter threshold of 5 per cent has been set.
Part of a Broader Regulatory Reform Agenda
The Credit Risk Management Directive forms part of a wider package of regulatory reforms. The Bank of Ghana is also introducing a Liquidity Coverage Ratio Directive, which will establish the first prudential benchmark for banks’ liquidity and require them to maintain adequate high-quality liquid assets to withstand significant liquidity stress over a 30-day period. The BoG is also reforming the savings and loans and microfinance sub-sectors, replacing the former Tier 1 to Tier 4 classification with four new categories: Microfinance Banks, Community Banks, Credit Unions, and Last Mile Providers. Existing savings and loans companies may transition into Microfinance Banks, with a December 31, 2026 deadline for institutions seeking to do so.
Additionally, the Bank of Ghana is developing a directive to regulate the use of artificial intelligence in the financial sector, seeking to promote innovation while addressing emerging risks relating to data quality, model risk, cybersecurity and consumer protection.
The Road Ahead
The Credit Risk Management Directive represents a fundamental recalibration of how Ghana’s financial institutions must approach lending. By placing ultimate responsibility on boards, mandating rigorous repayment capacity assessments over collateral reliance, requiring portfolio diversification and embedding proportionality in supervision, the Bank of Ghana is seeking to build a banking system that can withstand shocks without recourse to the costly taxpayer-funded bailouts of the past.
The draft directive invites stakeholder comments by November 30, 2026, ahead of the July 1, 2027 implementation date. With the memory of the 2017–2019 clean-up still fresh and the banking sector now well-capitalised with total assets of GH¢500.2 billion as of August 2026, the Bank of Ghana is determined to ensure that the lessons of history are not forgotten. The message to boards and senior management is unmistakable: sound credit risk management is not a compliance exercise — it is the foundation upon which the safety and soundness of Ghana’s financial system rests.
