NPLs End as Bad Loans Hike to 18.7%

By Praisebell Rosemond Larbi

Ghana’s banking sector has recorded a reversal in its recent gains in asset quality, as the Non-Performing Loans (NPL) ratio climbed to 18.7% in February 2026, ending an eight-month streak of steady declines and raising fresh concerns about credit conditions in the economy.

Data from the Bank of Ghana, published in its latest Summary of Economic and Financial Data on March 17, 2026, showed that the upward movement represents the first increase in bad loans since mid-2025.

The development comes after what industry observers had described as a sustained clean-up exercise by banks aimed at reducing impaired assets and strengthening balance sheets.

From Recovery to Reversal

The banking sector had, over much of 2025, made significant progress in addressing elevated NPL levels. After peaking at 23.6% in May and June 2025, the ratio of bad loans began a gradual but consistent decline.

This downward trajectory continued through the second half of the year and into early 2026, reaching a low of 17.9% in January, fueling optimism about improved financial sector stability.

However, the latest figures indicate a reversal of this trend, with the NPL ratio rising by 0.8 percentage points to 18.7% in February. The increase suggests that nearly one in every five loans within the banking system is now non-performing, highlighting renewed stress within segments of the credit market.

Implications for Credit and Business Activity

Although the increase may appear marginal, analysts warn that even small upward movements in NPLs can have significant implications for lending behaviour and business financing.

Rising default rates typically prompt banks to adopt a more cautious approach to credit risk, often resulting in tighter lending conditions. This appears to be reflected in the slight contraction in total industry advances, which declined from GH¢111.0 billion in December 2025 to GH¢108.2 billion in February 2026.

For businesses—particularly small and medium-sized enterprises (SMEs)—this could translate into reduced access to credit at a time when many firms are seeking capital to expand operations and consolidate post-crisis recovery gains.

Pressure on Lending Rates

The development also poses potential risks to the trajectory of lending rates. While the average lending rate has been easing in recent months falling to 19.17% in February 2026, the resurgence in bad loans could slow or even reverse this trend.

Banks may be compelled to maintain relatively high interest margins to cushion against potential loan losses, thereby delaying expectations of significantly cheaper credit.

Operational Efficiency Concerns

In addition to credit tightening, the rise in NPLs is often associated with increased operational costs for banks, as more resources are allocated toward loan recovery and risk management.

This is already evident in the industry’s Cost-to-Income ratio, which rose from 71.2% in January to 73.8% in February. The increase suggests declining efficiency, with banks spending more of their income on operations, leaving less room to offer competitive lending terms.

Outlook: Temporary Blip or Emerging Trend?

Despite the setback, broader business sentiment remains relatively strong. The Business Confidence Index rose to 110.1 in February, reflecting improved optimism among firms about economic conditions.

However, analysts caution that this optimism could be tested if the upward trend in NPLs persists in the coming months.

Should March and April data confirm a sustained increase in bad loans, banks may be forced to further tighten credit conditions, potentially constraining private sector growth and slowing economic recovery.

For now, stakeholders across the financial sector will be closely monitoring developments to determine whether February’s increase represents a temporary disruption or the beginning of a renewed cycle of asset quality deterioration.