Bank of Ghana reports high credit risks hinder lending to SMEs

The Bank of Ghana (BoG) has identified persistent credit risks as a primary factor restricting commercial bank lending to small and medium-sized enterprises (SMEs). Despite a downward trend in inflation and improving macroeconomic indicators, the central bank’s Monetary Policy Committee (MPC) observed that financial institutions remain cautious. This hesitancy is largely driven by concerns over asset quality and the capacity of borrowers to meet repayment obligations in an evolving economic environment. The MPC noted that while the economy shows signs of recovery, the transition to increased private-sector credit remains slow.

According to the MPC, several structural and operational issues continue to impede SMEs from accessing affordable credit. Many of these businesses struggle with weak financial record-keeping and a lack of sufficient collateral, which heightens the perceived risk of default for lenders. Banks are particularly wary of extending credit to sectors considered high-risk, including agriculture, transport, and construction, even as overall lending rates have begun to see some reduction. The BoG indicated that the gap between policy rate adjustments and actual commercial lending behavior is partly due to these ingrained risks within the SME sector.

To bridge the funding gap and support business expansion, the BoG emphasized the necessity of strengthening credit information systems and improving collateral enforcement mechanisms. Such measures are intended to provide banks with greater certainty and reduce the likelihood of non-performing loans. While the central bank anticipates a gradual recovery in private-sector credit growth as the broader economy stabilizes, it maintains that lending decisions will continue to be heavily influenced by these underlying credit risks. Addressing these systemic barriers is considered vital for the growth of SMEs, which remain the backbone of employment and economic activity in Ghana.