The Bank of Ghana has cautioned commercial banks that excessive dependence on sovereign securities and interest income could erode profitability as interest rates continue to decline, despite improving macroeconomic conditions.

Governor Johnson Pandit Asiama delivered the warning to bank chief executives after the 128th Monetary Policy Committee meeting, stating that while economic stability has largely been restored, the banking sector must now undertake structural adjustments to sustain growth.

Last month, the central bank reduced its benchmark policy rate by 250 basis points to 15.5 percent, pointing to faster-than-expected disinflation and well-anchored inflation expectations. Inflation has dropped sharply from 23.8 percent in December 2024 to 3.8 percent in January 2026 — the lowest level since Ghana adopted inflation targeting. Real GDP grew by 6.1 percent in the first three quarters of 2025, supported by strong performance in the services and agriculture sectors.

The lower policy rate has led to a marked decline in money market yields. Treasury bill rates have compressed for three consecutive weeks, with the 91-day bill falling 136 basis points to 8.61 percent, the 182-day to 10.68 percent, and the 364-day to 11.06 percent. At the start of 2026, the same instruments were trading at 11.12 percent, 12.55 percent and 12.93 percent, respectively.

While the decline in yields has reduced government borrowing costs, it has also intensified concerns about bank earnings in a lower-rate environment.

A thematic review by the central bank revealed that loans constitute less than 20 percent of total industry assets, with significant asset concentration in sovereign and central bank instruments. Net interest income accounts for roughly 68 percent of industry profitability.

“There is nothing inherently problematic about net interest income,” Dr Asiama said. “However, a high dependence on it increases sensitivity to interest rate cycles and sovereign exposure dynamics.”

He urged banks to broaden their revenue base by strengthening transactional banking, trade services, payments, treasury operations and other fee-based income streams that are less dependent on balance sheet size.

Although non-performing loans have declined, the governor noted they remain above acceptable benchmarks. As credit growth picks up, he stressed the need for disciplined underwriting and thorough sectoral risk assessments to avoid a renewed buildup of asset quality challenges.

“Stability must now translate into purposeful intermediation,” he said, encouraging banks to expand lending to agriculture, manufacturing and small and medium-sized enterprises while maintaining prudent risk standards.

The central bank indicated that business model analysis will become an integral part of its supervisory framework to detect vulnerabilities early and allow timely intervention. It also highlighted operational risks, noting that while 87 percent of banks maintain 24-hour monitoring at their security operations centres, some institutions still face gaps in log reporting and coverage.

Beyond balance sheet reforms, Dr Asiama pointed to broader institutional changes. Parliament has passed the Bank of Ghana Amendment Act 2025 to strengthen the central bank’s operational independence and accountability. The Virtual Asset Service Providers Act has also been enacted to bring digital asset activities under formal regulatory oversight.

“We are not creating a parallel financial system. All we are doing is extending the perimeter of the existing one,” the governor said, explaining that banks will engage virtual asset providers through settlement accounts and compliance frameworks.

Additionally, the central bank has formed a steering committee with regulators and market institutions to promote more bank listings on the Ghana Stock Exchange, aimed at broadening ownership and enhancing governance standards.

With inflation easing, foreign reserves strengthening and fiscal consolidation underway, Ghana’s macroeconomic outlook has improved. However, the Bank of Ghana emphasised that sustaining the recovery will depend on how swiftly banks transition from sovereign-driven income models to diversified, productive financial intermediation.

According to Dr Asiama, the sector’s next phase will be defined by a shift from resilience to structural reform.