In response to the excessive Non-Performing Loans (NPLs) within the banking business, the Financial institution of Ghana (BoG) has reviewed its coverage on drawback property to handle the growing dangers to the business’s profitability, liquidity and solvency in addition to the menace to the soundness of the monetary system.
In its discover on regulatory measures to scale back NPLs, it stated all Regulatory Monetary Establishments (RFIs) should preserve a sturdy credit score threat administration framework.
“An RFI shall, on a steady foundation, improve its credit score threat administration perform and processes in compliance with BoG’s credit score threat administration necessities and shall display the robustness of such processes to BOG. The Board of an RFI shall have total duty for approving and periodically (at the very least yearly) reviewing the credit score threat administration technique and insurance policies of the RFI”, it identified.
As well as, the Central Financial institution stated an RFI shall, amongst others, have in place: well-defined Board-approved credit-granting standards; adequately resourced and correctly managed credit-granting perform; acceptable techniques for monitoring the efficiency of credit individually or collectively based mostly on comparable credit score threat traits and a system of unbiased, ongoing evaluation of the credit score threat administration processes.
Observing Prudential Restrict on NPLs
The Central Financial institution additionally stated the RFIs shall be sure that the extent of NPLs to gross loans (NPL ratio) doesn’t exceed 10%, or such different ranges as could also be prescribed by the BoG infrequently.
As well as, the RFIs shall adjust to the above restrict by the top of December 2026. Thereafter, RFIs in breach of this restrict shall notify the BoG of the violation inside 10 working days and submit a Board-approved plan to scale back their NPLs to 10% or beneath.
Write-Off Totally Provisional Loans
The discover additionally stated RFIs, with prior written approval from the BOG, shall instantly write off NPLs within the loss class, as per the BoG prudential mortgage classification and provisioning norms, in addition to these within the substandard and uncertain classes the place there isn’t any cheap expectation of recovering contractual cashflows in a well timed method.
Therefore, all loans to be written off shall be totally provisioned per IFRS 9 impairment and BOG provisioning norms.
Nonetheless, it harassed {that a} write-off shall not imply that the RFI has forfeited the authorized proper to get better the debt.
Subsequently, RFIs shall proceed to take the required steps to gather, promote or switch the credit score to a different entity.
Restructure NPLs to Qualifying Debtors
The Financial institution of Ghana identified that RFIs could provoke the restructuring of a mortgage facility and focus on sustainable fee choices with debtors or restructure a mortgage on the borrower’s request to boost the affordability and sustainability of mortgage compensation by qualifying debtors.
This goals to minimise the potential losses to the RFI because of default or deterioration in debtors’ creditworthiness.
The discover re-emphasised current prudential steering and highlights extra measures in step with worldwide greatest practices for managing credit score dangers.
The Regulatory Measures underlisted are issued pursuant to Part 92 of the Banks and Specialised Deposit-Taking Establishments Act, 2016 (Act 930) in addition to Non-Financial institution Monetary Establishment (NBFI) Act, 2008 (Act 774) and shall apply to all Banks, Specialised Deposit-Taking Establishments (SDIs), and Non-Financial institution Monetary Establishments (NBFIs).
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