The Ghanaian economy is basking in what many would call “good times.” Interest rates are down. The cedi has found a rare moment of calm. Fiscal discipline, at least for now, appears intact.

In the glow of this relative stability, banks and other lending institutions are also reaping windfalls. Consider this: average deposit rates have dropped from 25 percent in January to about 10 percent in September. For a deposit portfolio of GHS 1 billion, that’s a cool GHS 150 million in savings on interest expenses.

That’s not just loose change. That’s an enormous sum sitting on banks’ balance sheets, demanding to be put to work.

And here lies the problem.

When the Tide Is High

Warren Buffett once said: “Only when the tide goes out do you discover who’s been swimming naked.” Right now, the tide is very high. And that is precisely when the risks pile up.

Government securities, once the darling of bankers seeking safe returns, now yield between 10 and 14 percent, hardly enticing. The more profitable option? Lending to businesses and households.

But in the rush to deploy this excess liquidity, banks face the temptation to loosen their standards. Due diligence corners get cut. Documentation grows weaker. Riskier loans get approved because, after all, the money must go somewhere.

On the surface, it looks rosy: loan portfolios grow while deposit costs shrink. In reality, the seeds of tomorrow’s non-performing loans are quietly being sown.

Appetite and Risk

Low interest rates create what might be called a “low-return world.” Safe investments promise paltry yields, yet banks’ appetite for higher returns rarely diminishes. This gap pushes them out along the risk curve, not because they want to, but because they feel they have to.

Economists call this phenomenon “reaching for yield.” I prefer the more evocative term: handcuff volunteers. Banks move into riskier territory, constrained not by regulators, but by the allure of returns they fear missing out on.

As more institutions chase the same riskier assets, prices rise, standards fall, and discipline weakens. The history of financial crises, Ghana included, is littered with examples of “easy money” fueling questionable lending.

Easy Come, Easy Go

Daniel Asiedu of OmniBisc put it plainly on the Money Mystery Podcast: banks are sitting on piles of liquidity, but the pressing question is, where are the viable sectors to lend to?

Liquidity without discipline is like fuel without brakes: powerful, but dangerous. Easy money, as the saying goes, often leaves just as easily.

A Word of Caution

The worst loans, it turns out, are often made in the best of times. Capital is abundant, standards are relaxed, and the hunger for returns overrides caution.

The warning is straightforward. Banks must resist the temptation to let appetite dictate strategy. Liquidity should not mean complacency. Lending standards must remain firm, even in times of plenty.

Because when the tide eventually goes out, as it always does, the difference between a prudent bank and a reckless one will be plain for all to see. And no institution wants to be caught swimming naked.

About the Author

Irving Anaba is a Business Development Officer at DCI Microfinance. With a background in development finance, he is passionate about creating practical finance solutions that help families thrive and drive sustainable growth, especially by supporting women as key agents of economic change. He believes finance should serve people first, building stronger communities in the process.