The Bank of Ghana (BoG) is seeking to address persistently high borrowing costs through a proposed Credit Risk Management Directive that would require regulated financial institutions to strengthen their assessment of borrowers’ repayment capacity and improve the management of credit risks.
The draft directive, which is open to comments from the banking industry and the public until November 30, seeks to establish common standards for credit underwriting, portfolio monitoring, early identification of troubled loans and adequate provisioning.
It covers regulated financial institutions, including commercial banks, savings and loans companies and community banks.
Under the proposed framework, lenders would be required to place greater emphasis on borrowers’ income and cash flows when assessing loan applications, rather than relying excessively on collateral. The approach could help businesses with viable operations but limited assets demonstrate their ability to repay loans.
The central bank said the directive would strengthen credit discipline, protect the financial system from a build-up of non-performing exposures and support timely supervisory intervention.
“This Directive will provide a consistent baseline for prudent credit underwriting, ongoing credit portfolio monitoring, early identification of problem exposures, and adequate provisioning and reserves,” it stated.
The initiative comes as the central bank seeks to reduce commercial banks’ non-performing loan (NPL) ratios to no more than 10 percent by the end of 2026.
High credit risk remains a major factor influencing lending rates, particularly for small and medium-sized enterprises (SMEs), many of which lack substantial collateral, audited accounts and reliable financial records.
Although benchmark interest rates have declined, borrowing costs remain elevated for some businesses, with lending rates on certain SME facilities exceeding 30 percent.
Average commercial bank lending rates fell from 20.58 percent at the beginning of 2026 to 15.94 percent by mid-October. Over the same period, the Ghana Reference Rate (GRR) declined from 15.68 percent to 10.04 percent, while the Monetary Policy Rate (MPR) fell from 15.50 percent to 14 percent.
However, the reduction in benchmark rates has not translated uniformly into cheaper credit, as banks continue to account for default risks, funding expenses, operational costs, capital requirements and liquidity conditions when pricing loans.
The BoG has acknowledged that weak borrower information, limited formal financial records and difficulties enforcing collateral constrain the transmission of monetary policy to lending rates.
It expects sustained macroeconomic stability, stronger credit information systems and improved collateral enforcement to help reduce these constraints over time.
The proposed directive is therefore intended to improve how lenders assess and manage credit risk while maintaining prudent lending standards.
Its effectiveness in reducing borrowing costs will depend partly on whether better risk assessment enables banks to distinguish viable businesses from high-risk borrowers more accurately and translate those assessments into more competitive loan pricing.
For businesses, particularly SMEs, the potential benefit is a greater opportunity to secure financing based on demonstrated repayment capacity rather than the value of assets they can pledge as security.
By: Toma Imirhe / businesspostonline
