High Interest Rates, Debt Restructuring Fuel Surge in Loan Distress — Analyst
By: Solomon Nartey Tetteh
Economic Analyst Emmanuel Boateng has attributed the rising levels of loan distress and restructuring in Ghana’s banking sector to a combination of persistently high interest rates and the adverse effects of the Domestic Debt Exchange Program (DDEP).
Speaking on Business Breakfast on Zed 101.9FM, Mr. Boateng noted that loan interest rates have remained elevated for an extended period, significantly increasing both the cost of accessing credit and the burden of servicing loans.
“The cost of getting a loan and servicing it has been very high for a long time,” he said.
The Analyst also explained that high borrowing costs reduce borrowers’ ability to meet repayment obligations on time and under agreed terms.
According to him, the heightened default risk is subsequently factored into banks’ pricing models, resulting in even higher interest rates and stricter lending conditions.
“That is why to even get a loan, you have to pay a lot, and in some cases, it deters people from applying because they know they may not be able to pay,” he explained.
Mr. Boateng stressed that the situation has hit small and medium-sized enterprises (SMEs) and households with variable-rate loans particularly hard. Over the past two years, he said, high interest rates have sharply increased servicing costs, pushing many borrowers into financial distress and making loan repayment increasingly difficult.
Beyond interest rates, the analyst pointed to the Domestic Debt Exchange Program (DDEP) as a major contributing factor.
He explained that the program weakened banks’ balance sheets by reducing their capital assets, compounding existing pressures within the sector, noting that some banks recorded negative equity positions and negative returns on equity during the period.
“The banks have gone through a lot from the banking sector clean-up to external economic shocks and debt restructuring,” he said.
Mr. Boateng added that these challenges constrained banks’ ability to restructure loans early, leading to delayed interventions and, ultimately, higher levels of loan defaults. The combined impact of weakened balance sheets, capital constraints and rising borrower distress, he said, has driven the current surge in loan restructuring across the sector.
He also noted that the challenges facing the banking industry are not the result of a single factor but rather a confluence of high interest rates, economic pressures and debt restructuring, all of which continue to weigh heavily on both lenders and borrowers.
