The Bank of Ghana (BoG) has issued a stern advisory to Regulated Financial Institutions (RFIs) engaged in cross-border lending, investments, trade finance, or foreign currency exposures, urging them to implement robust policies and procedures for identifying, assessing, measuring, evaluating, monitoring, reporting and controlling or mitigating country risk and transfer risk on a timely basis.
The directive, captured in the Credit Risk Management Directive for all Banks, Savings and Loans, Finance Houses and Financial Holding Firms, aims to avert the potential default or deterioration in credit quality of foreign counterparties arising from country-specific macroeconomic, fiscal, political or financial sector conditions. The BoG further instructed RFIs not to introduce or implement such products, market entries, or delivery channels unless the required regulatory approvals have been obtained.
The directive will begin implementation on July 1, 2027, following its announcement by BoG Governor Dr. Johnson Pandit Asiama during a post-Monetary Policy Committee engagement with bank heads in Accra on October 6, 2026.
A Directive Rooted in History
The new framework is the latest in a series of regulatory measures designed to shore up Ghana’s banking sector, which has undergone significant turbulence over the past decade. The 2017–2019 banking sector clean-up, triggered by governance failures, poor underwriting standards and excessive risk-taking, saw the collapse of nine universal banks and the revocation of licenses of over 400 financial institutions. The clean-up exposed the devastating consequences of weak credit risk management and underscored the urgent need for stronger regulatory oversight.
Since then, the BoG has introduced several reforms, including the Corporate Governance Directive in 2018 and the Fit and Proper Persons Directive in 2019, to strengthen governance and entrench sound practices within RFIs. The Credit Risk Management Directive builds on these foundations.
Context of Rapid Credit Growth
The new directive comes amid a significant rebound in private-sector credit. According to BoG data, credit to the private sector grew by 35.5 percent in August 2026, compared with 13.3 percent in the same period a year earlier. In real terms, credit growth reached 29 percent, up from just 1.7 percent a year earlier. The average lending rate fell sharply to 15.9 percent in August 2026 from 24.2 percent the previous year, driven by lower inflation and an easing in banks’ credit stance.
Governor Asiama has cautioned that this rapid expansion must be matched with sound underwriting standards. “As private sector credit expands rapidly, this growth must be supported by sound underwriting standards and effective risk-management frameworks,” he stated.
Persistent NPL Challenges
Despite improvements, non-performing loans (NPLs) remain a significant concern. The banking industry’s NPL ratio stood at 16.1 percent at the end of June 2026, down from over 23 percent a year earlier, but still well above the BoG’s regulatory expectation of 10 percent by the end of December 2026. The savings and loans sub-sector has fared worse, with its NPL ratio deteriorating from 15.35 percent in June 2025 to 19.44 percent in June 2026.
The decomposition of NPLs shows that the private sector accounts for approximately 98 percent of non-performing loans, underscoring the importance of robust credit assessment in private lending.
Key Provisions of the Directive
The directive outlines stringent requirements across several areas:
· Governance and Board Responsibility: The Board of each RFI bears ultimate responsibility for the credit risk assumed by the institution and must review and approve the credit risk appetite, strategy, policies, and management information systems at least annually.
· Senior Management Accountability: Senior Management must implement the Board-approved strategy and establish policies for identifying, measuring, monitoring, reporting and controlling credit risk at both individual exposure and portfolio levels.
· Credit Risk Management Process: RFIs must establish strict policies to avoid association with individuals involved in fraudulent activities or serious financial crimes, and employ robust due diligence measures, including obtaining references and accessing credit reference bureaus.
· Credit Appraisal and Approval: Institutions must establish sound, well-defined credit-granting criteria specifying eligible borrowers, types, amounts, and tenors of credit, and undertake comprehensive risk assessments proportionate to the exposure.
· Portfolio Diversification: RFIs are required to diversify their loan portfolios across sectors, geographical locations, borrower types and credit risk mitigants within local market constraints.
· Exposures to Individuals: Credit assessments for individuals must consider the purpose and structure of the exposure, sources of repayment with reasonable income verification, the borrower’s current risk profile, and sensitivity to economic and market developments.
Broader Regulatory Reforms
The directive is part of a wider package of reforms. The BoG is also introducing a Liquidity Coverage Ratio Directive, establishing the first prudential benchmark for banks’ liquidity and requiring them to maintain adequate high-quality liquid assets to withstand significant liquidity stress over a 30-day period. Additionally, from January 2027, banks and RFIs with NPL ratios above 10 percent will be barred from paying dividends to shareholders and bonuses to staff.
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.
Proportionality and Implementation
In assessing the quality of RFIs’ credit risk management, the BoG 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.
The broad objective of the directive, according to the BoG, is to enhance the resilience of RFIs by ensuring they establish and fully implement adequate and effective credit risk management systems that commensurate with their risk-taking activities and capital strength.
Global Lessons, Local Application
The BoG’s emphasis on robust credit risk management echoes lessons from global financial crises. The 2008–2009 global financial crisis demonstrated how weak credit underwriting standards, excessive leverage and inadequate risk governance can rapidly translate into widespread loan defaults and systemic distress. Ghana’s own experience during the 2017–2019 clean-up served as a stark reminder of these risks, while institutions that adhered to sound credit risk management practices demonstrated stronger financial resilience.
Governor Asiama, who was sworn into office on February 25, 2025, brings over 23 years of experience at the Bank of Ghana to his role, having previously served as Second Deputy Governor between 2016 and 2017.
As Ghana’s financial sector navigates a period of rapid credit expansion and evolving global risks, the Credit Risk Management Directive represents a decisive step toward building a more resilient and prudently managed banking system.
