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Home Business Banking & Finance

Banks in Ghana well-positioned to absorb higher asset quality risks, says Fitch Ratings

4 years ago
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International credit rating agency, Fitch Ratings, has said Ghanaian banks are in a good position to absorb increased risks to asset quality occasioned by weakened loan repayment capacity of borrowers.

Banks ability to absorb increased asset quality risks, Fitch Ratings says, is as a result of reforms implemented by the Bank of Ghana (BoG) prior to the outbreak of the pandemic in the country.

The reforms which addressed energy sector asset quality issues and raised minimum capital requirements of banks has provided the banks the sound footing to absorb these risks.

Adverse impact on asset quality of Ghanaian banks, Fitch notes has been limited with the introduction of debt-relief measures for customers, causing the banking sector’s non-performing loans (NPL) to increase moderately to 14.8 per cent end-2020 from 14.3 per cent end-2019.

Fitch however, added that its expects NPLs to further increase moderately as banks in the country unwind debt-relief measures this year.

In its assessment of asset quality risks facing Ghanaian banks, Fitch further notes that the ability of Ghanaians to cover loan defaults – especially by loss-making state-owned energy companies and bulk oil distribution companies that suffered from currency depreciation and delays in government subsidy payments – induced by the pandemic, will be due to strong pre-impairment operating profitability.

Profitability of Ghanaian banks underpinned by wide net interest margins and strong pre-impairment operating profits, has been resilient despite operating in a weakened environment.

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Fitch noted that it expects high interest rates to continue supporting the profitability of banks in the country.

“The sector’s annualised pre-impairment operating profit was 17% of average gross loans in 8M20, providing a large buffer to absorb an increase in loan impairment charges as debt relief measures expire. We expect high interest rates to continue supporting strong profitability despite increased loan impairment charges,” said Fitch.

Source: norvanreports
Via: Snr Fuaad Dodoo
Tags: Bank of Ghana (BoG)COVID-19 pandemicincreased risks to asset qualitynon-performing loans (NPL)profitability of banks
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