Ghana’s banking sector has made notable progress in trimming non‑performing loans (NPLs), with the Bank of Ghana reporting a drop from 23.1 % in June 2025 to 16.1 % in June 2026. Still, the industry remains well above the 10 % ceiling set for the end of 2026, underscoring the urgency of further action.
Traditional credit‑risk tools—tight underwriting, enhanced monitoring, early‑warning systems, restructuring and recovery efforts—remain central to managing NPLs. Yet a new line of inquiry is emerging: can environmental, social and governance (ESG) practices help flag potential credit risks before they turn into bad loans?
ESG factors, which cover a company’s environmental stewardship, social relations and governance structures, may reveal operational vulnerabilities that financial statements alone miss. For instance, a manufacturing borrower heavily reliant on water, operating in a flood‑prone area, embroiled in labour disputes or with weak internal controls may appear healthy on paper but could face future cash‑flow shocks that jeopardise loan repayment.
Evidence from Ghana and abroad supports this link. A 2025 study of nine listed Ghanaian banks found higher NPL ratios correlated with weaker financial sustainability, measured by net interest margin and cost efficiency. International research echoes the trend: a 2023 Finance Research Letters paper showed U.S. banks with stronger ESG ratings had lower NPL ratios, while a 2024 European study highlighted a more complex relationship, with governance scores sometimes linked to higher NPLs.
These findings suggest ESG metrics could serve as a complementary early warning tool for Ghanaian lenders, offering a broader view of borrower resilience beyond conventional financial ratios.
Banking regulators and industry stakeholders will need to weigh the potential benefits against the mixed international evidence, but the prospect of integrating ESG into credit‑risk frameworks represents a promising avenue to strengthen the sector’s long‑term health.
