The Bank of Ghana from 1^st July 2027 will begin the implementation of the Credit Risk Management Directive for all Banks, Savings and Loans, Finance Houses and Financial Holding Firms.

The broad objective of the directive is to enhance the resilience of Regulated Financial Institutions (RFIs) by ensuring that they establish and fully implement adequate and effective credit risk management systems that commensurate with their risk-taking activities and capital strength.

The specific objectives are to ensure that RFIs develop an appropriate framework for the management of their credit risk by establishing an appropriate credit risk environment, among others.

According to the Central Bank, the RFIs shall align their credit risk management practices with the requirements of this Directive. However, in assessing the quality of RFIs’ their risk management of credit risk, the BOG will take into account the principle of proportionality.

In particular, the assessment will be aimed at ensuring that RFIs’ credit risk management processes and tools are commensurate with profile, systemic importance, market and macroeconomic conditions as well as the scale and complexity of their activities, among others.

Governance and Risk Management Framework

The Bank of Ghana said the Board of RFIs shall bear the ultimate responsibility for the credit risk assumed by the RFI and for ensuring the existence and ongoing effectiveness of the credit risk management framework.

Similarly, the Board shall review and approve the RFI’s credit risk appetite, credit risk management strategy, as well as credit policies, procedures, controls and management information system (MIS) at least annually or whenever there are material changes, to ensure continued adequacy, relevance and effectiveness.

Roles and Responsibilities of the Senior Management

The Central Bank said the Senior Management of an RFI shall be responsible for implementing the Board-approved credit risk management strategy and for establishing, maintaining, and enforcing appropriate policies and processes for identifying, measuring, monitoring, reporting, and controlling or mitigating credit risk. Such policies and processes shall cover all credit related activities of the RFI and apply at both the individual exposure and portfolio levels.

The Senior Management’s responsibility for implementing the credit risk management strategy and operationalising the RFI’s credit risk policies includes ensuring that credit origination, credit assessment, approval, monitoring, and review responsibilities are clearly defined, properly assigned, and supported by appropriate segregation of duties.

According to the Bank of Ghana, the effective management of credit risk within a comprehensive risk management framework is fundamental to the safety and soundness of banks, finance houses, savings and loans companies or financial holding companies regulated under the Bank and Specialised Deposit-Taking Institutions Act, 2016 (Act 930), hereinafter referred to as RFIs.

Over the past two decades, global financial developments have underscored the critical importance of robust credit risk management frameworks in safeguarding the stability of the financial system. Events such as the 2008-2009 global financial crisis revealed how weak credit underwriting standards, excessive leverage, and inadequate risk governance can rapidly translate into widespread loan defaults and systemic distress.

The Ghanaian banking sector clean-up exercise in 2017-2019 also highlighted significant deterioration in asset quality and, consequently, pressure on capital and liquidity resulting from weaknesses in underwriting standards, risk management, governance, and related-party practices. Conversely, RFIs that established and adhered to sound credit risk management practices demonstrated stronger financial resilience.