Liberia cannot solve its bad-loan problem by creating a no-loan economy. As regulators, bankers, businesses and development partners confront the stubborn problem of non-performing loans, their greatest challenge is not simply recovering yesterday's money. It is figuring out how Liberia can lend tomorrow's money more intelligently, more widely and more productively.
That is why we welcome the National Non-Performing Loans Resolution Conference and the candor with which World Bank Country Manager Georgia Wallen has framed the problem.
"Resolving NPLs is not only a matter of financial stability: it is central to Liberia's growth and employment agenda," Wallen declared.
The numbers justify the urgency. NPLs represented about 19 percent of total loans at the end of 2024. Their subsequent decline to 12.5 percent resulted mainly from restructuring and write-offs rather than sustained cash recoveries. Private-sector credit stands at only about 15 percent of GDP, while the loan-to-deposit ratio hovers around 35 percent. Nearly 40 percent of surveyed Liberian businesses identify access to finance as their single biggest obstacle.
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Taken together, these figures reveal an uncomfortable contradiction: Liberia has a bad-loan problem and a not-enough-good-loans problem at the same time.
The Central Bank of Liberia cannot ignore the first problem. Neither should commercial banks. The CBL's prudential regulation requires banks to monitor their portfolios, classify deteriorating loans, make provisions against potential losses and maintain appropriate security. Loans move through classifications including performing, substandard, doubtful and loss as their condition deteriorates.
These safeguards matter. Banks lend other people's money. Borrowers must repay their obligations, maintain honest records and use borrowed funds responsibly. Deliberate default, diversion of loan proceeds and poor financial management ultimately make credit more expensive and less available to everybody.
But there is another side of the counter.
There is a reason some Liberians have come to describe commercial banks, perhaps unfairly, as sophisticated pawn shops. A prospective entrepreneur may own a valuable parcel of land in Monrovia but hesitate to mortgage it to finance a business in an economy where borrowing costs are high and tomorrow's revenues are uncertain.
If the business fails, the borrower does not simply lose the business. A family may lose an appreciating asset accumulated over many years.
The rational response may therefore be to leave the land idle and abandon the investment altogether.
That outcome serves nobody. The bank makes no productive loan. The property generates little economic activity. The entrepreneur does not expand. No new jobs are created. And Liberia continues complaining simultaneously about limited lending, insufficient investment and unemployment.
The answer cannot be to ask banks to abandon prudent lending standards. Nor should the answer be to place every risk of Liberia's difficult business environment upon the borrower.
The challenge is to measure, price, reduce and share risk more intelligently.
That means exploring cash-flow-based lending, stronger credit reporting, movable collateral, appropriately structured credit guarantees, longer tenors where justified, repayment schedules that reflect actual business cycles and better mechanisms for restructuring viable businesses before distress becomes default. Agriculture, for example, cannot always be financed as though a farmer's cash flow behaves like that of a supermarket.
The CBL's own regulation recognizes restructured and rolled-over loans while requiring their continued monitoring and reporting. AMENDED REGULATION CONCERNING ASSET CLASSIFICATION 2022.pdf The recently enhanced Collateral Registry also creates possibilities for moving beyond excessive dependence on land and buildings.
Perhaps the most intriguing evidence presented at this conference is Wallen's disclosure that the World Bank-financed LIFT Project's US$6 million Line of Credit has reached 253 MSMEs with zero non-performing loans.
That should not merely be an applause line. Study it.
What was different? How were borrowers selected? What interest rates and tenors applied? What collateral was required? What technical assistance accompanied the financing? How was risk shared? How closely were businesses monitored? And which elements of that experience can Liberia's commercial banking system reproduce at scale?
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The conference should answer such questions with intention and innovation, rather than approaching NPLs only from the considerable leverage of regulators, lenders and institutions.
Wallen offered perhaps the most important standard by which the outcome should be judged: "The test of reform is not only whether the NPL ratio falls, but whether viable micro, small and medium enterprises...gain access to financing on workable terms."
Exactly.
Liberia could achieve a beautiful NPL ratio simply by making fewer loans. That would be a statistical victory and an economic failure.
The real achievement will be fewer bad loans and many more good ones--credit flowing responsibly into farms, factories, technology, housing, trade and growing Liberian businesses capable of creating jobs and repaying what they borrow.
That is the banking reform Liberia needs.
