Most Ghanaian Banks to Be Capital-Compliant When Forbearance Ends –Fitch
The vast majority of Ghanaian banks are on track to be capital-compliant once regulatory forbearance relating to the treatment of Ghana’s domestic default expires at the end of 2025, Fitch Ratings says.
This is due to strong profits, low risk-weighted asset growth and, in some cases, capital injections. Ghana’s domestic debt exchange programme (DDEP), which was launched in December 2022 and concluded in 2023, imposed large losses on the banking sector.
This had a significant impact on banks’ capitalisation given their high exposure to sovereign fixed-income securities. In response, the Bank of Ghana eliminated the capital conservation buffer of 3%, which reduced the minimum total capital adequacy ratio requirement to 10% from 13%.
It also allowed banks to phase in losses relating to cedi government bonds into their regulatory capital evenly over four years, starting from end-2022. Cedi-denominated government bonds accounted for the bulk of the debt subject to the DDEP.
The favourable treatment of losses on cedi government bonds has enabled the vast majority of Ghanaian banks to remain capital-compliant and helped preserve confidence in the banking sector.
No forbearance was granted in respect of losses on other bonds subject to the DDEP, or Ghana’s Eurobonds, which were restructured in October 2024, given banks’ relatively low exposure to these instruments.
The banking sector’s capitalisation has recovered considerably since the DDEP. Fitch estimates that the sector’s tangible common equity/tangible assets ratio improved to 10.3% at end-1Q25 from 7.4% at end-2022.
The recovery has been driven by strong profitability due to high interest rates, and therefore high yields on treasury bills, which were excluded from the DDEP.
It has also been influenced by low credit growth and the more than 40% appreciation of the Ghanaian cedi against the US dollar since end-2024, which has deflated foreign-currency-denominated assets in cedi terms and therefore boosted solvency metrics.
Some government-owned banks have received capital injections, but private banks have generally not needed capital support from their shareholders.
The banking sector’s capital adequacy ratio excluding the benefit of forbearance was first disclosed by the Bank of Ghana at end-February 2024, as 8.7%.
It increased to 18.2% at end-1H25, indicating that the vast majority of banks will be comfortably compliant when the remaining 25% of the losses incurred on cedi government bonds is phased into regulatory capital at the end of 2025.
Fitch estimates that six banks are unlikely to achieve capital compliance through internal capital generation alone. They will need to seek capital injections, merge with or be acquired by better-capitalised banks, or be granted extended forbearance to allow time to retain sufficient earnings to comply. Two of the banks that remain undercapitalised are government-owned and have already received a capital injection from the authorities.
“We expect them to receive further capital support to achieve capital compliance, although this may not materialise before at the end of 2025”. #Most Ghanaian Banks to Be Capital-Compliant When Forbearance Ends –Fitch#
