Fitch Solutions has revealed that the majority of banks in Ghana are expected to continue facing challenges with poor loan quality throughout 2024.
This situation diminishes their motivation to expand lending and maintains their Loan to Deposit Ratios (LDRs) at low levels.
As of April 2024, the industry’s Non-Performing Loan (NPL) ratio was 25.7%, showing a slight decrease from the previous month’s record high of 26.7%, indicating significant lending risks.
According to the London-based firm, this trend is particularly impacting sectors such as Agriculture, Forestry, and Fishing, which reported an NPL ratio of 67.0% in February 2024, and Transport, Storage, and Communications, where the NPL ratio stood at 48.0% during the same period.
“While we expect the robust performance of the agriculture sector to help reduce its NPL ratio, banks will remain hesitant to increase exposure to this and other sectors with high NPL ratios. We anticipate that loan quality will remain poor in H2 [second-half] 2024 and 2025, although we believe that the NPL ratio will peak soon, if it has not already”, it mentioned.
“Therefore, the overall impact on loan growth will be muted in 2024.”, it added.
On one hand, it was noted that loan growth will be bolstered by a more robust economic outlook and certain banks increasing lending in response to heightened demand and improved supply.
However, the significant issue of poor loan quality will hinder credit expansion, leading some banks to disregard the new regime and make minimal adjustments to their Loan to Deposit Ratios (LDRs).
Deposit growth to record 25.5% growth
Additionally, it is expected that deposit growth will remain strong throughout 2024, registering a year-on-year increase of 25.5% as of February 2024, bolstered by improving economic conditions.
However, the deceleration in loan growth coupled with robust deposit expansion will pose challenges for banks aiming to achieve the required Loan to Deposit Ratio (LDR) of 55.0% to benefit from the lower Cash Reserve Ratio requirement.
As of December 2023, the industry’s average LDR stands at 39.5%, marking the second-lowest ratio among the largest markets in Sub-Saharan Africa (SSA), just above Mauritius at 33.0%.