Ghanaian banks’ prospects lifted by government’s debt restructuring

Ghanaian banks have brighter prospects as solvency recovers from the sovereign default and operating environment pressures reduce, Fitch Ratings has said.

 These factors come as the sovereign external debt restructuring nears completion and the economy begins to stabilise, according to a new special report by the global credit rating agency. ”These themes underpin our improving outlook for the Ghanaian banking sector in 2025.”

It said the sector’s strong profits in 2023 and 2024 were a result of high yields on treasury bills. 

Fitch said: “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. 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’. We expect macroeconomic volatility to reduce in 2025, with real GDP growth projected to increase, inflation forecast to decline and the exchange rate expected to stabilise. These improvements to the operating environment will reduce risks to the banking sector’s capital.

“Solvency pressures stemming from Ghana’s 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. Foreign-currency liquidity coverage is expected to remain high, but local-currency liquidity remains reliant on treasury bills.”