Fitch, a global rating agency, has projected a potential decline in the profitability of Ghanaian banks in the near future, following the recent decision by the Bank of Ghana (BoG) to link cash reserve ratio (CRR) requirements to loans/deposit ratios (LDRs).
This adjustment is viewed as a response to the current economic climate in Ghana. According to Fitch, banks in the country may opt to absorb the opportunity cost of not investing liquidity into high-yielding treasury bills rather than face significant loan impairment charges by extending credit amidst prevailing economic challenges.
It is anticipated that the banking sector’s Loan-to-Deposit Ratio (LDR) will persist below 55% in 2024, resulting in a higher Cash Reserve Requirement (CRR) for the majority of banks.
The BoG implemented the new CRR framework on March 25, directly correlating CRR requirements with LDRs on a tiered basis. Under this arrangement, banks with LDRs below 40% will face a 25% CRR of deposits, while those with LDRs between 40% and 55% will encounter a 20% CRR. Banks with LDRs exceeding 55% will be subject to a 15% CRR, representing a significant increase for banks with low LDRs, as the current requirement stands at 15%.
Fitch Ratings anticipates that banks will accommodate the elevated CRR requirements rather than substantially augment lending, given Ghana’s challenging macroeconomic environment. The new policy is slated to come into effect by the end of April.
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