Delayed Contractor Payments Heightening Credit Risks for Banks

Delayed government payments to road contractors are emerging as a growing threat to the banking sector’s improving asset quality, market analysts have warned.

Despite recent gains reflected in Bank of Ghana data, concerns are rising that mounting arrears owed to contractors—many of whom depend heavily on bank financing—could soon reverse the progress made in reducing loan defaults.

According to the latest figures, the sector’s Non-Performing Loans (NPL) ratio fell to 19.5% in November, down from 20.4% in September, marking the lowest level recorded in 2024. The NPL ratio has dropped significantly from its peak of 23.6% in April, signalling stronger loan repayment behaviour and more stable credit conditions.

When loss-category loans are excluded, the underlying NPL ratio held steady at 6.8% for the third month in a row, indicating sustained improvements in the quality of banks’ loan portfolios.

However, analysts caution that the ongoing delays in settling contractor certificates could undermine these improvements. Many contractors take out substantial loans to pre-finance government infrastructure projects; delays in payment often push them into default, thereby weakening banks’ balance sheets.

Speaking to Business News, Nelson Cudjoe Kuagbedzi, Head of Finance and Accounts at Merban Capital, stressed the urgency of addressing the situation.

“Once the delay in payments to contractors continues, what we technically expect is that non-performing loans will rise,” he warned.
“Government must periodically honour its obligations so contractors can also pay back the banks.”

Kuagbedzi also recommended that banks adopt stricter and more proactive recovery measures. Among his suggestions was the publication of the names of wilful loan defaulters in newspapers — a tactic he believes would compel borrowers to meet their repayment obligations.

“Nobody wants to be embarrassed. Once the banks start publishing the names of defaulters, everyone will sit up,” he added.

Analysts say that without prompt government action, the banking sector risks losing the hard-won gains made in stabilising asset quality, potentially exposing banks to fresh rounds of credit distress.