BoG to embed business model analysis in sector supervision

By Ebenezer Chike Adjei NJOKU

The Bank of Ghana (BoG) is set to integrate business model analysis into routine supervisory assessments, as the regulator targets earlier detection of structural risks.

Central bank Governor Dr. Johnson Pandit Asiama said the move follows a thematic review of banks’ funding structures, asset allocation patterns, earnings composition and governance effectiveness under both baseline and stress scenarios.

While the review confirmed that the sector remains viable and profitable, it also identified structural features which warrant closer regulatory attention as macroeconomic conditions normalise. “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,” Dr. Asiama said to bank chief executives at a post–Monetary Policy Committee engagement in Accra.

The approach represents a move from compliance-based oversight toward a more forward-looking assessment of how banks generate earnings, manage funding risks and allocate capital. Supervisors will examine the sustainability of revenue streams, concentration risks, governance structures and resilience of business strategies under varying macroeconomic scenarios.

This means greater scrutiny will be placed on how earnings are generated, how risks are distributed across sectors and how balance sheets respond to shifts in interest rates and sovereign exposure dynamics.

This comes as approximately 68 percent of industry profitability is driven by net interest income, a structure that increases sensitivity to interest rate cycles and sovereign exposure dynamics.

The sector’s net interest margin has already begun to compress, falling from 14.2 percent in December 2024 to 11.5 percent by December 2025 as the Monetary Policy Rate was cut 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 that prevailed for much of 2025, the direction it moved in makes the structural dependence on interest income an increasingly live concern.

While there is “nothing inherently problematic” about such income, Dr. Asiama noted that as margins compress, earnings resilience will increasingly depend on diversification into fee-based and transactional services.

Financial intermediation remains modest, with loans accounting for less than one-fifth of total industry assets. Total advances stood at GH¢111 billion against total assets of GH¢446.9 billion as of December 2025, a fraction of under 25 percent.

Asset concentration in sovereign and central bank instruments is elevated as the industry maintains its preference in recent years for government securities over private sector lending.

That preference is visible in the credit data, with nominal private sector credit growth spending much of mid-2025 in single digits while real private sector credit contracted for several consecutive months – falling as low as -7.3 percent in May before recovering to 13.1 percent real growth by December as interest rates eased.

Dr. Asiama noted that as monetary policy transitions from stabilisation to calibration, following a 250 basis-point reduction in the policy rate to 15.5 percent, the supervisory framework must evolve accordingly.

Although non-performing loans have declined – falling from 21.8 percent in December 2024 to 18.9 percent by December 2025, they remain above benchmark levels.

The Governor stressed that underwriting discipline and stronger sectoral risk assessment will be critical as banks increase exposure to agriculture, manufacturing, small- and medium-sized enterprises and other value-adding sectors. The sector does, however, enter this next phase from a position of strengthened capital.

The capital adequacy ratio rose from 14 percent at end-2024 to 17.5 percent by December 2025 – and to the same level even after stripping out regulatory reliefs – up from just 11.3 percent a year earlier.

That rebuilding of buffers, largely a post-DDEP imperative, now provides the platform for the purposeful intermediation Governor Asiama was calling for when he said: “Stability must now translate into purposeful intermediation”.

The central bank’s decision comes against a strengthened macroeconomic backdrop. Real GDP expanded by 6.1 percent in the first three quarters of 2025, driven largely by services and agriculture. Inflation has declined sharply, falling to 3.8 percent in January 2026 from 23.8 percent a year earlier while exchange rate stability and fiscal consolidation have improved confidence.

With inflation expectations anchored and financial conditions easing, lending rates have begun to decline and real private sector credit growth is recovering. The Bank expects this trend to continue, creating opportunities for deeper intermediation. However, the central bank insists it is keen to avoid a repeat of past cycles in which rapid credit expansion was a causative factor in asset quality deterioration.

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