A recent forecast by global rating agency Fitch predicts that Ghanaian banks may experience a decline in profitability in the near future.
This projection comes in response to the Bank of Ghana’s recent decision to align cash reserve ratio (CRR) requirements with loans/deposit ratios (LDRs).
The decision to tie CRR requirements to LDRs is viewed as a strategic move by the BoG in light of the current economic situation in Ghana. Fitch suggests that banks in the country may opt to incur the opportunity cost of not investing liquidity in high-yielding treasury bills rather than risk potential loan impairment charges by extending credit under the current economic circumstances.
Fitch further predicts that the banking sector’s Loan-to-Deposit Ratio (LDR) is likely to remain below 55% in 2024, resulting in a higher Cash Reserve Requirement (CRR) for the majority of banks operating in Ghana.
The new CRR regime was officially introduced by the Bank of Ghana on 25th March and directly links CRR requirements to LDRs on a tiered basis. Under the new system, banks with LDRs below 40% will face a 25% CRR requirement, while those with LDRs between 40% and 55% will be subject to a 20% CRR. Banks with LDRs above 55% will have to adhere to a 15% CRR. This marks a significant increase compared to the current CRR requirement of 15% for banks in Ghana.
Fitch Ratings anticipates that banks will likely comply with the higher CRR requirements rather than substantially increase lending activities, given the challenging macroeconomic conditions in Ghana. The new policy is expected to be implemented by the end of April, with potential implications for the operations and profitability of Ghanaian banks in the foreseeable future.
