Ghana banks’ impairment costs surge despite fall in bad-loan ratio

Ghana’s banks increased provisions for depreciation, bad debts and impairment losses on financial assets by 38.2% in the first half of 2026, placing renewed attention on the risks within their loan books.

The rise was a sharp reversal from June 2025, when such provisions contracted by 14.8%, according to the Bank of Ghana’s July 2026 Monetary Policy Report.

But it does not mean banks lost 38.2% of their loans or that Ghana is facing another banking crisis.

In fact, the central bank’s other indicators point in the opposite direction: the banking industry’s non-performing loan ratio fell from 23.1% in June 2025 to 16.1% in June 2026, while the value of non-performing loans declined from GH¢20.7 billion to GH¢19.9 billion.

The apparently conflicting figures tell a more complicated story. Banks are setting aside more money to absorb potential losses, but the overall quality of their loan portfolios has improved.

That suggests the rise in provisions may reflect a mixture of prudence, changes in the size and composition of banks’ assets and the continued recognition of risks that have not completely disappeared.

What is an impairment provision?

When a bank lends GH¢100,000 to a business, it does not necessarily wait until that business defaults before recognising that some of the money may not be recovered.

Under the expected-credit-loss approach in IFRS 9, financial institutions estimate possible future shortfalls using available information about borrowers, economic conditions and expected developments. Changes in those estimates are recognised as impairment gains or losses in the bank’s accounts.

An impairment provision is therefore money charged against current earnings to cover an estimated risk of future loss. It is an accounting safeguard, not necessarily confirmation that the borrower has stopped paying or that the money has been permanently lost.

A default occurs when a borrower fails to meet the terms of a credit agreement. A non-performing loan is a facility whose repayment has deteriorated sufficiently to be classified as impaired under regulatory rules.

A write-off comes later, when a bank removes all or part of a loan from its balance sheet because recovery is considered unlikely. A write-off does not always end recovery efforts, and a provision does not automatically lead to a write-off.

These distinctions matter because impairment provisions are forward-looking, while defaults, non-performing loans and write-offs describe different stages in the deterioration or treatment of credit.

Why the 38.2% increase needs perspective

The Bank of Ghana report does not provide a detailed breakdown of the 38.2% increase or identify how much came from loans, investments, depreciation or other financial assets. It also does not state the total cedi value of the provisions.

That means the increase cannot, on the available evidence, be attributed entirely to worsening loan repayments.

The increase should also be considered against the rapid expansion of banks’ loan books. Gross loans and advances rose by 39.4% year on year to GH¢124.3 billion at the end of June 2026. Credit to private businesses and households increased by 39.6% to GH¢119.1 billion.

When a bank issues substantially more credit, its expected-loss calculations may also rise because there is a larger pool of loans carrying some degree of risk even when the proportion classified as non-performing is falling.

The simultaneous growth in lending and provisions therefore supports a cautious interpretation: the rise may partly reflect a bigger credit portfolio and prudent recognition of potential losses, rather than a broad deterioration in loan quality. This is an inference from the reported data, not an explanation explicitly given by the Bank of Ghana.

Bad loans are falling but remain high

The decline in the non-performing loan ratio from 23.1% to 16.1% is significant. The adjusted ratio, which excludes loans already classified as losses and fully provided for, fell from 8.5% to 4.6%.

The stock of non-performing loans also declined by GH¢800 million to GH¢19.9 billion, suggesting that the improvement was not caused solely by rapid growth in total credit diluting the ratio.

The central bank attributed the improvement to stronger loan-recovery efforts and credit-risk management. But it also warned that asset-quality risks remained elevated.

The pressure is not evenly distributed across the economy.

Agriculture, forestry and fishing was the only broad sector in which the non-performing loan ratio deteriorated, rising from 59.1% in June 2025 to 65.1% a year later. Other sectors recorded improvements.

This makes agriculture the clearest area of concern in the available sectoral data. It does not, however, prove that agriculture was the main cause of the increase in impairment costs, because the central bank did not publish a sector-by-sector breakdown of those charges.

Profits feel the effect

Setting aside more money for potential losses reduces the profit a bank can report for the period, even before the anticipated losses are confirmed.

Ghana’s banking industry remained profitable in the first half of 2026, but profit after tax slipped by 1.3% to GH¢7.1 billion, from GH¢7.2 billion in the same period of 2025.

Profit before tax fell by 1.5%, while Return on Equity dropped from 32.2% to 22.9%. Return on Assets declined from 5.6% to 4.4%.

Impairment costs were not the only source of pressure. Net interest income contracted by 3.1% as lower interest rates squeezed banks’ principal income stream. The industry’s interest spread narrowed from 6.0% to 4.4%.

Fees and commissions grew by 18.2%, providing some support, but the figures indicate that banks had less room to absorb rising provisions without affecting their bottom line.

For shareholders, sustained pressure on profits could eventually limit dividend growth or the amount available for reinvestment. The industry-wide report does not establish that any bank has reduced or plans to reduce its dividend because of impairment charges.

Are depositors at risk?

The available data do not indicate an immediate industry-wide threat to deposits.

The Capital Adequacy Ratio, the buffer banks hold relative to their risk-weighted assets increased from 18.2% in June 2025 to 20.4% in June 2026.

That was above the 13% regulatory minimum cited in the report.

Liquidity indicators also suggested that the industry retained adequate funding capacity. The Bank of Ghana described the sector as “sound and resilient”, with improved capital, liquidity and asset quality.

The IMF offered a more qualified assessment in May. It welcomed progress in recapitalising banks but said continued vigilance was needed to reduce high non-performing loans and address weaker institutions, including some state-owned banks and specialised deposit-taking institutions.

Both assessments can be true: the industry’s overall defences have strengthened, while vulnerabilities remain at particular institutions and in sections of the loan market.

Aggregate figures cannot show whether impairment costs are concentrated within a few banks. Depositors and investors would need institution-level financial statements and regulatory disclosures to make that assessment.

What it means for borrowers

Higher provisions can make banks more selective because risky loans consume profit and capital. A small company with irregular cash flow, weak records or insufficient collateral could therefore face closer scrutiny.

But the Bank of Ghana’s June credit survey does not show a general withdrawal from lending.

Banks reported easier credit conditions for most corporate borrowers and households, although lending standards for small and medium-sized enterprises remained tight. Banks also expected household lending conditions to ease further, while demand for mortgages and consumer credit was increasing.

The immediate picture is therefore mixed. Credit is expanding rapidly, but customers judged to be riskier particularly SMEs may not benefit equally.

Banks could respond to continued impairment pressure by demanding better financial records, stronger collateral or clearer evidence of repayment capacity.

There is not yet sufficient evidence to say the 38.2% increase has caused a broad tightening of credit or higher loan prices.

A warning signal, but also a protective measure

Rising impairment costs are uncomfortable for bank profits, but recognising risks early can make the financial system safer.

Adequate provisions prevent a bank from overstating the value of its assets and profits. They also create a buffer if anticipated repayments fail to arrive.

The concern would become more serious if provisions continued rising alongside an increase in the value of non-performing loans, falling capital ratios, weak liquidity and tighter credit conditions. That combination could indicate a more widespread deterioration in borrowers’ ability to repay.

The June 2026 data show something different: provisions rose, but non-performing loans fell, capital strengthened and lending expanded.

For now, the strongest conclusion is that Ghana’s banks are carrying a higher charge for potential losses while operating from a stronger overall financial position. Whether this reflects temporary caution or the early recognition of deeper risks will depend on subsequent impairment figures, loan performance and bank-level disclosures.

Sources:

• Bank of Ghana, Monetary Policy Report – July 2026, published August 2026.

• Bank of Ghana, May 2026 Monetary Policy Committee press release, 20 May 2026.

• International Monetary Fund, Ghana 2026 Article IV and ECF mission statement, 15 May 2026.

• IFRS Foundation, IFRS 9 Financial Instruments.