The Bank of Ghana has issued a directive to all Regulated Financial Institutions (RFIs) engaged in cross-border lending and foreign currency exposure to tighten their risk management frameworks. The move aims to prevent defaults or credit quality deterioration linked to country-specific economic or political problems abroad. The directive applies to banks, savings and loans companies, finance houses, and financial holding firms.
The Central Bank’s Credit Risk Management Directive requires RFIs to implement detailed policies and procedures for identifying, assessing, measuring, monitoring, and controlling country risk and transfer risk. These risks arise from macroeconomic, fiscal, political, or financial sector conditions in foreign counterparties’ countries. The directive explicitly warns against launching new products, market entries, or delivery channels without prior regulatory approval.
The directive sets a deadline for enforcement starting 1 July 2027. From that date, Ghanaian RFIs must have systems that match their risk exposure and capital capacity. The Bank of Ghana said the directive’s broad objective is to “enhance the resilience” of regulated financial institutions by ensuring they maintain effective credit risk management.
Credit appraisal will require more rigorous standards. RFIs must establish clear credit-granting criteria that specify eligible borrowers, credit types, amounts, tenors, and terms. Each credit application must undergo a proportionate assessment based on the nature, type, and size of the exposure. Where borrower information is scarce, institutions must apply experienced credit judgment using a flexible, scalable process.
Institutions are instructed to diversify loan portfolios across sectors, locations, borrower types, and risk mitigants. This diversification must respect local market structures but aims to reduce concentration risk. The directive also emphasises strict policies to avoid relationships with individuals involved in fraud, financial crimes, or misconduct.
Due diligence will include obtaining references from known parties, accessing credit reference bureaus, and evaluating the integrity, experience, and financial condition of individuals managing companies. For exposures to individuals, credit assessments must consider the exposure’s purpose, structure, and repayment sources. Verification of income or cash flows is required, and the borrower’s risk profile, including aggregate indebtedness and sensitivity to market changes, must be reviewed.
The Bank of Ghana’s announcement comes amid growing concerns about the risks associated with foreign currency lending and cross-border credit in emerging markets. Currency fluctuations and political instability can quickly erode credit quality and trigger defaults, posing systemic risks to Ghana’s financial sector. The directive attempts to pre-empt these dangers by mandating stronger controls and oversight.
The Bank of Ghana has not disclosed whether it will conduct on-site inspections or impose penalties for non-compliance. However, the directive’s detailed requirements suggest increased regulatory scrutiny and expectations for governance improvements.
The July 2027 implementation deadline gives RFIs time to adjust. But the directive signals a shift toward more conservative credit risk management in Ghana’s financial industry, particularly concerning international exposures.
Whether these measures will prevent future shocks depends on how rigorously financial institutions apply them. The directive’s focus on borrower integrity and portfolio diversification echoes global best practices but challenges remain in enforcing standards across diverse market participants.
The Bank of Ghana’s policy update arrives at a moment when many emerging markets face tightening global financial conditions and volatile capital flows. Ghanaian RFIs will now need to adapt their risk frameworks accordingly, balancing growth ambitions with caution on cross-border credit and foreign currency exposure.
According to Joy Online.
