Delayed payments to road contractors by the government are emerging as a major threat to the banking sector’s improving asset quality.
Market watchers are therefore warning that the arrears are driving contractors into deeper debt and adding pressure to banks’ loan books.
The caution comes despite data from the Bank of Ghana showing a steady improvement in the Non-Performing Loans (NPL) ratio, which dropped to 19.5% in November, down from 20.4% in September the lowest level recorded this year.
The ratio has fallen sharply from its peak of 23.6% in April, signalling firmer loan repayments and stabilising credit conditions.
When loss-making loans are excluded, the underlying NPL ratio remained unchanged at 6.8% for the third consecutive month, reflecting sustained improvements in banks’ asset quality.
But the market observers say these gains risk being reversed if the government continues to delay payments to contractors, many of whom rely on bank financing to execute public projects.
Speaking to Citi Business News, Nelson Cudjoe Kuagbedzi, Head of Finance and Accounts at Merban Capital, stressed that timely payment is crucial to preventing further loan distress.
“Once the delay in payments to contractors continues, what we technically expect is that non-performing loans will rise,” he warned.
“Government must periodically honour its obligations so contractors can also pay back the banks.”
Kuagbedzi further urged banks to adopt more aggressive loan recovery strategies, including the publication of the names of wilful loan defaulters in daily newspapers — a move he believes could deter borrowers from neglecting their obligations.
“Nobody wants to be embarrassed. Once the banks start publishing the names of defaulters, everyone will sit up,” he said.