Fitch predicts Ghanaian banks' profitability to decline due to new BoG policy

Ghanaian

Fitch, a renowned global rating agency, has foreseen a decline in the profitability of Ghanaian banks in the near future due to the recent decision by the Bank of Ghana (BoG) to link cash reserve ratio (CRR) requirements with loans/deposit ratios (LDRs).

This strategic move by the BoG is viewed as a response to the prevailing economic conditions in Ghana.


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Fitch suggests that banks in the country might opt to bear the opportunity cost of not investing liquidity in high-yielding treasury bills rather than risking significant loan impairment charges by extending credit in the current economic climate.

Projections indicate that the Loan-to-Deposit Ratio (LDR) in the banking sector will likely remain below 55% throughout 2024, leading to higher Cash Reserve Requirements (CRR) for most banks.

The BoG introduced this new CRR regime on March 25th, directly tying CRR requirements to LDRs on a tiered basis.

Under this framework, banks with LDRs below 40% will face a CRR of 25% of deposits, while those with LDRs between 40% and 55% will encounter a 20% CRR. Conversely, banks exceeding an LDR of 55% will contend with a 15% CRR.

This policy change represents a significant increase for banks with low LDRs, considering that the current requirement stands at 15%.

Fitch Ratings anticipates that banks will tolerate the elevated CRR requirements rather than substantially escalating lending activities, given the challenging macroeconomic conditions prevailing in Ghana. The new policy is slated to take effect by the end of April.