Ratings agency, Fitch, has stated that Ghana’s external debt restructuring is expected to be concluded in early 2025.

According to the UK-based firm, this could lead to an upgrade of Ghana's long-term Issuer Default Rating (IDR) and help reduce macroeconomic volatility, thereby reducing risks to banking capitalization.

These expectations, it said underpin its improving outlook for the Ghanaian banking sector in 2025.

In a recent webinar, an Associate Director at Fitch, Elie Maalouf, said the outlook of Ghana’s banking environment will improve, enabling capital ratios to continue recovering.

He pointed out that the vast majority of banks will be capital complaint this year.

“Our expectation is that profitability [banks] will remain strong in 2025 due to continued high Treasury bill yields. This will allow capital ratios to continue recovering and gives us confidence that the vast majority of banks will be comfortably capital-compliant at the end of 2025, when losses relating to the February 2023 DDEP [Domestic Debt Exchange Programme] are fully phased out”.

Solvency Pressures

He added that solvency pressures stemming from the sovereign default have not translated into heightened liquidity risk.

This is primarily due to the banking sector's funding structure, which is dominated by customer deposits and includes limited market and external debt funding, which Fitch considers less stable sources of funding.

“Foreign currency deposits are significant, but non-resident deposits are negligible, which has reduced the banking sector's exposure to capital flight. The sovereign default is less the sum deposits migrating from smaller banks to perceived safer, larger foreign-owned banks, but we are not aware of any bank experiencing a deposit run”, he added.

He continued that foreign currency liquidity coverage is expected to remain robust, with offshore bank placements tending to cover a high percentage of foreign currency deposits and short-term funding.

As a result, he alluded that a high number of Ghanaian banks are subsidiaries of large pan-African banking groups, and “we believe their foreign currency liquidity will continue to benefit from ordinary support from their parents”.

However, he concluded that local currency liquidity will remain tight, with the banking sector reliant on treasury bills and cash for liquidity coverage.