Fitch Ratings has affirmed Guaranty Trust Bank (Ghana) Limited's Long-Term Issuer Default Rating (IDR) at 'B-' with a Stable Outlook and Viability Rating (VR) at 'ccc'.

According to the UK based-frim, GTB Ghana's Long-Term IDR is driven by potential support from its Nigeria-based parent Guaranty Trust Bank Limited (GTB; B-/Positive), as expressed by its Shareholder Support Rating (SSR) of 'b-'.

GTB Ghana's Long-Term IDR is at the same level as Ghana's Country Ceiling of 'B-', which captures Fitch's view of transfer and convertibility (T&C) risk within Ghana.

“GTB Ghana's VR of 'ccc' reflects our view that failure remains a real possibility due to high exposure to the Ghanaian sovereign (Restricted Default; RD) through securities. This bank incurred losses in the sovereign domestic debt exchange programme (DDEP) and some risks remain from the ongoing external debt restructuring and impending loan-quality issues. Nevertheless, the losses are tolerable due to adequate capital buffers. The VR is one notch below the implied VR of 'ccc+' due to the following constraint: operating environment/sovereign rating”.

It continued that Fitch believes GTB has a high propensity to provide support, if required, despite the sovereign default, in order to preserve its Ghanaian operations due to the attractiveness and contribution of the Ghanaian market to its cross-border strategy, and the reputational implications of a subsidiary default.

However, GTB Ghana's ability to use support is conditioned by T&C risk.

Challenging Operating Environment

Fitch said the Domestic Debt Exchange Programme (DDEP) imposed large losses on the banking sector, whose metrics continue to benefit from regulatory capital forbearance.

It added that operating conditions remain challenging due to high inflation (July 2024: 20.9%) and interest rates, and cedi depreciation, which had driven the banking sector's non-performing loans ratio up to 24.1% at end-June 2024.

Moderate Franchise

GTB Ghana represented 4.2% of domestic banking sector assets at end-June 2024, but its franchise benefits from being a subsidiary of GTB.

High Sovereign Exposure

Sovereign exposure through fixed-income securities is high including new bonds received in the DDEP (rated 'CCC') and Treasury bills not subject to the restructuring.

It also includes large holdings of recently restructured US dollar local bonds and Eurobonds, for which the restructuring is yet to conclude.

Moderate Impaired Loans

GTB Ghana's impaired loans (Stage 3 loans under IFRS 9) ratio increased to 4.7% at end-June 2024 (end-2023: 4%) as a result of challenging macroeconomic conditions.

The importance of loan-quality risks for asset quality assessment is diminished by a small loan book, with broader asset quality more closely aligned with the sovereign's creditworthiness.

High Yields Support Profitability

Fitch said operating returns on risk-weighted assets increased to 23.7% in 2023 driven by high yields on Treasury bills and lower impairment charges in respect of sovereign exposure.

Adequate Capital Buffers

Fitch explained thatcapital buffers remain adequate to tolerate the restructuring of sovereign Eurobonds and higher problem loans.

Fitch estimates GTB Ghana would comply with capital requirements in the absence of regulatory forbearance and even if it used a higher discount rate to recognise the new bonds received in the DDEP.