Rating agency, Fitch, is predicting a favorable outlook for banks operating in Ghana in 2024.
This follows the successful conclusion of the domestic debt exchange which most banks were negatively impacted.
According to the UK based firm, the external debt restructuring will have little impact on the Ghanaian banking sector, but warns of elevated loan quality risk.
The Director of Europe, Middle East and Africa Banks Ratings at Fitch Ratings, Tim Slater, stated at a Sub-Saharan Africa Sovereign programme that the conditions in the Ghanaian banking sector will improve this year.
“To Ghana where we have an improving outlook for the sector, this shows that conditions will improve relative to a particularly bad 2023 which saw the sudden default of both foreign and local currency debt. The domestic debt exchange programme which was launched in December 2022 inflicted large losses in the banking sector, having significant impact on its capital”.
“The banking sector actually took most of these losses in 2022 given the initial terms of the restructuring were proposed in the December of that year. We still believe the accounting treatment of the exchange and regulatory forbearance will continue to mask the real effect on the banking sector capital”, he explained.
Mr. Slater continued that the ongoing sovereign external debt restructuring poses less risk to the banking sector due to its small exposure to sovereign Eurobonds.
“The banking sector’s NPL ratio increased quite sharply last year as a result of its sovereign default and macroeconomic implications, and we expect this risk will remain as conditions remain challenging. But these risks will again diminish by the small size of the banking sector”; he added.
The banking sector delivered very strong profitability in 2023 with extremely high yields on treasury bills.
Mr. Slater said yields have declined but remain very high, and are expected to support strong profitability this year contributing to the revenue of the banking sector capital.
According to the November 2023 Monetary Policy Report of the Bank of Ghana, total assets of the banking sector grew by 3.2% year-on-year to GH¢257.9 billion as at October 2023, compared with 43.7% growth in October 2022.
Investments constituted the largest component of total assets and was up by 22.0% year-on-year to GH¢103.7 billion in October 2023, compared to 1.9% in October 2022.