Banks in Ghana, according to research agency, Fitch Solutions, will suffer considerably this year in areas of loan growth and quality as well as profitability.
In a recent report on the Ghanaian economy with emphasis on the country’s banking sector, Fitch Solutions noted that banks’ client loan growth will ease from 30.2% year on year in 2022 to 18.0% in 2023.
This, as stated by Fitch, is as a result of the weak macro backdrop and fallout from the domestic debt restructuring and base effects.
Fitch in its analysis also disclosed that banks will be more selective with the sectors they lend to especially as loan quality is expected to deteriorate amid the challenging economic backdrop.
The domestic debt restructuring programme, the research arm of Fitch Ratings noted, will significantly weaken capital levels and weigh on banks’ profitability in 2023.
“Whilst our nominal client loans growth forecast will still be in double digits in 2023, skewed by still elevated inflation, our real client loan growth forecast will be much weaker at -7.7% by year-end. On top of inflation, further interest rate hikes, a weakening currency and a slowdown in economic momentum will continue to act as headwinds to loans growth in 2023.”
Fitch Solutions
On the liabilities side, Fitch in its projections revealed that deposit growth will drop down marginally from 30.5% in 2022 to 30.0% year on year in 2023.
“A key driver of this strong growth is the expected depreciation of the cedi in 2023 which will inflate the value of deposits in foreign currency, which accounted for 28.4% of total deposits, as of December 2022.
“Another factor is higher interest rates. The Bank of Ghana (BoG) has hiked the policy rate by a cumulative 1,450 basis points (bps) since late 2021. However, growth in deposits will be held back by the worsening economic environment, as locals will likely have to tap into their savings to compensate for the loss in income.”
Fitch Solutions
DDEP To Weigh Massively On Banks, CAR Falling Closer To Minimum Requirement
According to Fitch, the domestic debt exchange programme (DDEP) will affect the banking sector by first causing a significant weakening banks’ capital level, with expected capital shortfalls at some banks, warning that: “The debt restructuring and fall in capital could lead to higher funding costs for banks if they become less creditworthy, and could significantly impact the banking sector’s solvency and stability.”
“Banks are entering this phase with a mixed capital picture, with some banks very close to the minimum regulatory capital level of 13.0%. Looking at an industry level, capital buffers have fell considerably in 2022, despite a sudden rise in December.
“The fall was largely driven by mark-to-market losses on investments and increases in risk weighted assets of banks, due to the depreciation of the cedi and growth in loans and advances. However, capital levels narrowly avoided falling below the minimum requirement in December, likely as a result of banks retaining more of their earnings, in preparation for expected losses in profits and capital in 2023.”
Fitch Solutions
Fitch further indicated that banking sector profits will be hit in 2023.
Fitch after its analysis has appealed to the Central Bank of Ghana and the government to implement regulatory forbearance to mitigate some of the impacts to creditors.
“We also expect the authorities to allow some form of flexibility with accounting treatments to minimize losses and ensure banks remain compliant. The Ghana Financial Stability Fund worth GHS15.0bn will also provide liquidity to any participants that need it.”
Fitch Solutions
Read also: BoG Instructs Banks with Less than 10% CAR to Recapitalize
