Credit rating agency, Fitch Ratings, has opined that banks in the country will continue to exhibit weak asset quality despite reforms undertaken by the Central Bank which has seen improved capitalization and liquidity ratios of banks.
According to Fitch, weak asset quality of banks in the country will be due to economic challenges and growing energy sector debt.
Fitch estimates the current stock of the country’s energy sector debt to be between $3 billion to $4 billion (2% to 3% of 2021 GDP).
“Recent consolidation in Ghana’s banking sector has led to fewer contingent liabilities to the sovereign. We estimate that the government has realised a total cost of GHS19 billion (5% of 2020 GDP) over 2018 to 2020 as part of a BOG-led financial sector clean-up, which has also improved banks’ capitalisation and liquidity ratios. However, Ghanaian banks will continue to exhibit weak asset quality owing to economic challenges and remaining energy sector debt,” stated Fitch in its recent rating action of Ghana’s Long-Term Foreign-Currency Issuer Default Rating (IDR).
According to Fitch, non-performing loans as at March 2021, stood at 15.5 percent of total loans up from 13.6 percent at the beginning of 2020.
Banks in the country, according to the Bank of Ghana (BoG), restructured loans worth Ghs 4.65 billion at the end of the first quarter of this year.
The restructured loans executed by banks to cushion customers severely impacted by the pandemic, the Central bank notes in its May 2021 Summary of Economic and Financial Data, represents 9.8 percent of the industry’s total loan portfolio.
Additionally, loan loss provisions increased by 29.4 percent within Q1 2021, compared with the 7.1 percent recorded in loan loss provisions same period last year on account of continued elevated credit risks.
Increased loan loss provisions, the BoG further notes resulted in increment of Non-Performing Loans (NPL) ratio to 15.5 percent in April 2021 arising partly from the general pandemic-induced repayment challenges as well as some bank specific loan recovery challenges.
But generally, the banking sector, according to the Central Bank, maintained its resilient performance through to end-April 2021, with strong growth in total assets, deposits and investments.
Total assets increased by 16.4 percent to GH¢155.7 billion reflecting strong growth in investments in government securities by 34.9 percent to GH¢73.3 billion, mainly funded by deposits and loan repayments.
Also, total deposits recorded an annual growth of 24.2 percent to GH¢104.9 billion on the back of the strong liquidity flows from the fiscal stimulus and payments to contractors, and to depositors and clients of defunct SDIs and SEC-licensed fund managers respectively.