Ghana: BoG to Embed Business Model Analysis in Bank Supervision Framework

The Bank of Ghana (BoG) has announced plans to formally integrate business model analysis into its routine supervisory assessments, marking a strategic shift toward earlier detection of structural risks within the banking sector.

Governor Johnson Pandit Asiama disclosed the initiative during a post–Monetary Policy Committee engagement with bank chief executives in Accra. He explained that the move follows a thematic review of banks’ funding structures, asset allocation patterns, earnings composition, and governance effectiveness under both baseline and stress scenarios.

Although the review affirmed that Ghana’s banking sector remains viable and profitable, it also highlighted structural features that require closer regulatory monitoring as macroeconomic conditions stabilise.

“Business model analysis will now form an embedded part of supervisory assessment, supporting early identification of emerging risks and enabling timely policy and supervisory interventions,” the Governor stated.

The new approach signals a transition from traditional compliance-based oversight to a more forward-looking supervisory framework. Regulators will now place greater emphasis on how banks generate earnings, manage funding risks, allocate capital, and sustain business strategies under varying macroeconomic conditions.

Supervisory focus will extend to revenue sustainability, concentration risks, governance structures, and balance sheet resilience—particularly in response to shifts in interest rates and sovereign exposure dynamics.

Currently, approximately 68 percent of industry profitability is derived from net interest income, a structure that increases sensitivity to interest rate cycles and sovereign exposures. This concentration has become more pronounced as net interest margins narrowed from 14.2 percent in December 2024 to 11.5 percent by December 2025, following a reduction in the Monetary Policy Rate from 27 percent to 18 percent over the same period.

While return on equity after tax remained elevated at 30.8 percent at year-end, reflecting the high-spread environment earlier in 2025, the compression of margins has intensified concerns around structural dependence on interest income.

Governor Asiama noted that although reliance on interest income is not inherently problematic, earnings resilience will increasingly depend on diversification into fee-based and transactional services as margins moderate.

Financial intermediation remains modest, with loans accounting for less than one-fifth of total industry assets. As of December 2025, total advances stood at GH¢111 billion against total assets of GH¢446.9 billion.

Asset concentration in sovereign and central bank instruments remains elevated, reflecting banks’ preference in recent years for government securities over private sector lending. Nominal private sector credit growth remained subdued for much of mid-2025, while real private sector credit contracted for several consecutive months—bottoming at -7.3 percent in May—before rebounding to 13.1 percent by December as interest rates eased.

Non-performing loans declined from 21.8 percent in December 2024 to 18.9 percent by December 2025, though they remain above benchmark thresholds. The Governor emphasised the importance of maintaining underwriting discipline and strengthening sectoral risk assessment as banks expand exposure to agriculture, manufacturing, SMEs, and other productive sectors.

Encouragingly, the sector’s capital adequacy ratio improved from 14 percent at end-2024 to 17.5 percent by December 2025—even after adjusting for regulatory reliefs—up from 11.3 percent a year earlier. This buffer rebuilding, largely driven by post-Domestic Debt Exchange Programme (DDEP) reforms, provides a stronger foundation for expanded intermediation.

“Stability must now translate into purposeful intermediation,” Governor Asiama stressed.

The supervisory shift comes amid improving macroeconomic fundamentals. Real GDP grew by 6.1 percent across the first three quarters of 2025, supported primarily by services and agriculture. Inflation fell sharply to 3.8 percent in January 2026 from 23.8 percent a year earlier, while exchange rate stability and fiscal consolidation have strengthened market confidence.

With inflation expectations anchored and financial conditions easing, lending rates are declining and real private sector credit growth is recovering. The central bank expects further improvement but remains cautious, seeking to avoid past cycles where rapid credit expansion led to asset quality deterioration.

By embedding business model analysis into supervisory practice, the BoG aims to ensure that banking sector growth is not only profitable but structurally sustainable in a changing macro-financial environment.