Unlocking Value: Why Ghana Needs a Secondary Market for Distressed Debt

In Ghana, the resolution of non-performing loans (NPLs) remains largely institution-driven, reliant on enforcement, collateral realisation, litigation, and restructuring. These mechanisms are familiar, but they are also slow, capital-intensive, and often value-destructive.

More importantly, they do not solve the underlying problem: balance sheet congestion. Assets remain trapped on bank balance sheets, tying up capital, constraining new lending, and diverting management focus. Even where enforcement is successful, statutory banking law requirements to dispose of foreclosed assets within defined timeframes can force sales at depressed values. 

The result is a system that resolves distress, but not efficiently, and not always optimally. A market-based complement is needed. A secondary market for distressed debt offers a practical and proven solution. Under such a model, banks would transfer impaired assets to specialised investors and funds and asset managers equipped with the expertise, risk appetite, and operational capacity to manage recovery. This approach is well established in jurisdictions such as the United Kingdom and across the European Union, where legal regimes support debt assignment and portfolio sales.

Ghana will not be starting from scratch. The country has previously utilised structured sale based mechanisms, such as the Non-Performing Assets Recovery Trust (NPART), to address systemic NPL challenges. NPART, established under statute, acquired non-performing assets from banks during 1990s financial sector reforms and pursued recovery over a defined life. Even outside formal state-led measures, aspects of a secondary market already exist in practice. Certain Ghanaian banks currently engage in the sale and transfer of distressed loan exposures, albeit on a limited and largely bilateral basis. The question is whether the legal, regulatory and commercial framework can evolve to support a deeper, more transparent, more ready and more liquid market for such assets.

The legal foundation exists. The assignment of debt is recognised under Ghanaian law, and security interests can, subject to their terms, be transferred alongside the underlying obligation. The Bank of Ghana’s recent NPL reduction measures to reduce NPL ratios expressly recognise the sale of distressed assets as a legitimate resolution tool alongside recovery and restructuring.

The issue, therefore, is not legal feasibility. It is market readiness. Several constraints must be addressed for such a market to function effectively. Loan documentation may restrict assignment or require borrower consent or notification. Confidentiality and data protection obligations may limit the flow of and access to borrower information. Pricing distressed assets remains complex, particularly where collateral values are uncertain. Tax treatment, including stamp duties and the handling of write-offs and recoveries, may discourage transactions. In addition, slow judicial processes and risks related to documentation quality and enforcement further complicate execution.

These, in our view, will require deliberate legal reform. A credible secondary market will depend on focussed legal and institutional adjustments: clear frameworks for information disclosure, standardised loan documentation, tax neutrality in asset transfers, and regulatory clarity on the treatment of debt purchasers and foreign currency payments. Improvements in judicial efficiency and valuation transparency will also be critical in raising investor confidence.

A functioning distressed debt market would allow banks to offload non-performing assets, resulting in strengthening liquidity and protecting capital adequacy ratios. More importantly, it would shift the system from a reactive, institution-bound model to a more dynamic, market-oriented approach to resolution. Until that happens, value may continue to sit idle and locked in non-performing assets, rather than redeployed into productive economic activity. The recent regulatory developments reinforce the need for a shift.

Finally, this is not only a Ghanaian issue. Across Africa, banking systems carry significant distressed assets resulting in economies facing constrained access to credit. A distressed debt market has the potential to become an important part of the continent’s financial architecture which would serve to improve capital allocation, strengthen financial sector efficiency, liquidity and resilience and support economic growth.

Read prior Local Insights from Ghana: 

• Ghana offers a stable and attractive environment for business

• Reforming Ghana’s Investment Regime

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