Credit Risk Management Directive: BoG to begin implementation for banks, others from July 1, 2027

The Bank of Ghana will commence the implementation of the Credit Risk Management Directive on July 1, 2027, for banks, savings and loans companies, finance houses, and financial holding firms. The directive aims to bolster the resilience of Regulated Financial Institutions (RFIs) by ensuring they establish and adhere to robust credit risk management systems that match their risk-taking activities and capital strength.

Key objectives include developing an appropriate framework for managing credit risk, establishing a credit risk environment, and aligning practices with the directive's requirements. The Bank of Ghana (BOG) will assess RFIs' credit risk management based on proportionality, considering factors such as profile, systemic importance, market conditions, and the scale and complexity of operations.

The Board of RFIs assumes ultimate responsibility for credit risk and must review and approve the institution's credit risk appetite, strategy, policies, procedures, controls, and management information system (MIS) annually or whenever there are significant changes. Senior Management is tasked with implementing the approved credit risk management strategy and setting up appropriate policies and processes for identifying, measuring, monitoring, reporting, and controlling or mitigating credit risk across all credit-related activities, both at the exposure and portfolio levels.

The Central Bank emphasizes that effective credit risk management is crucial for the safety and soundness of regulated financial institutions, given the lessons learned from global financial crises and the Ghanaian banking sector's clean-up efforts from 2017 to 2019. Institutions that implemented sound credit risk management practices exhibited greater financial resilience.