Ghana's banks through the shock: Profitability, risk, and policy lessons from 2020-2025

Ghana's banking sector navigated one of its most challenging macro-financial periods between 2020 and 2025, a phase defined by rapid inflation, sharp exchange rate swings, tight fiscal conditions, and elevated interest rates. Despite these pressures, the sector remained functional, resilient, and systemically stable, continuing to provide essential financial intermediation while protecting depositors' funds. Profitability indicators were generally stable in the early years but declined sharply during the height of macroeconomic pressures, particularly when inflation accelerated, cedi weakened significantly together with the huge impairment losses from the domestic debt exchange programme(DDEP), before restoring and stabilizing later in 2023. Credit risk followed an upward trend, with Non-Performing Loans rising as households and firms struggled under increasing costs and reduced real incomes. Capital Adequacy though weakened along the way remained within regulatory requirements and recovered gradually as banks strengthened their balance sheets. Liquidity indicators remained consistently strong throughout, serving as a stable cushion that supported depositor confidence even in the midst of significant macroeconomic volatility. These trends occurred against a backdrop of high inflation, tight monetary policy, elevated interest rates, rapid currency depreciation, domestic debt exchange programme and depleting net international reserves, all of which amplified stress across bank balance sheets. As external reserves improved and inflation moderated from 2024 onwards, overall bankingsector performance strengthened. The experience reinforces a key message: macroeconomic stability is fundamental to banking stability. Banks should continue strengthening creditrisk assessment systems, investing in cost-efficient digital processes, and maintaining strong capitalplanning frameworks that incorporate stress-testing for inflation, interest-rate, and exchange-rate shocks. Policymakers, on their part, must safeguard stability through disciplined fiscal management, credible inflation control, and rebuilding of external buffers to support confidence and reduce systemic risk.