Adnan Adams Mohammed
Fitch Ratings is optimistic of Ghana’s economy developing strong resistance against external shocks this year with real GDP growth projected to increase.
The cedi’s exchange rate is expected to stabilise within the year and inflation also expected to decline.
These improvements in the key macroeconomic performance indicators and the operating environment are predicted to absorb any further shocks to the banking sector’s capital base, following the deterioration inflicted by the domestic debt exchange programme and the surge in the non-performing loans ratio.
“Solvency pressures stemming from Ghana’s (public debt) default have not translated into heightened liquidity pressures. This is primarily due to the sector’s funding structure, which is dominated by domestic deposits, and therefore includes limited market and external debt”, explained the latest Fitch report on Ghana, published last week.
“Foreign-currency liquidity coverage is expected to remain high, but local-currency liquidity remains reliant on treasury bills.”
The report added, “The Eurobond exchange, completed in October 2024, has improved Ghana’s access to international finance and lowered local-currency liquidity pressures, which resulted in Fitch upgrading Ghana’s Long-Term Local-Currency Issuer Default Rating to CCC+ from ‘CCC’.”
Meanwhile, the Ghanaian banking sector is projected to have brighter prospects as solvency recovers from the sovereign default and operating environment pressures reduce.
These factors come as the sovereign external debt restructuring nears completion and the economy begins to stabilise, says Fitch Ratings in its new special report.
“These themes underpin our improving outlook for the Ghanaian banking sector in 2025. The sector’s strong profits in 2023 and 2024 were a result of high yields on treasury bills. High profits are driving a recovery in capital after the Domestic Debt Exchange Programme (DDEP) imposed large losses on the sector after its launch in December 2022. The full capital impact continues to be disguised by regulatory forbearance and accounting treatment, but we believe strong profits will support a further capital recovery in 2025, ensuring the vast majority of banks are capital-compliant by end-2025 when regulatory forbearance expires.”
Ghana’s DDEP concluded in 2023 and Fitch expects the external debt restructuring to be completed in early 2025.
While the sector shows signs of strength, challenges persist. The non-performing loan (NPL) ratio climbed to 22.7% in October 2024 from 18.3% a year earlier, the Bank of Ghana (BoG) reported in its November 2024 Monetary Policy Committee (MPC) statement.
Fitch projects that high yields on government securities will continue to strengthen banks’ capital positions in 2025, setting the stage for sustained recovery. However, adherence to strict credit standards and effective recapitalisation will be critical to addressing lingering vulnerabilities.
