Moody’s sees further loan quality decline among Ghanaian banks

Credit rating agency Moody’s Investors Service is projecting a reversal of the improving trend in Ghanaian banks’ financial metrics, with loan quality to be hit hardest, resulting from the impact of the coronavirus-induced economic disruption.

In its latest 2021 outlook for banks in Africa, Moody’s is anticipating nonperforming loans (NPLs) to potentially double from 2019 levels as payment holidays expire, while increased provisioning needs, reduced business generation, and margin pressure erode profitability.

NPLs, according to central bank data, stood at 15.3 percent of total loans in October compared with 14.3 percent in December 2019. The ratio has fallen from a peak this year of 16.1 percent in July.

“We expect NPLs to continue to increase due to the coronavirus-induced economic disruption, but remain below the 21.6 percent level as of December 2017. While central bank’s support measures help moderate the negative impact on the banks and the broader economy, they are unlikely to fully counter the impact of the pandemic,” Christos Theofilou, a vice president and banking analyst at Moody’s, said in an email interview with Business24.



Moody’s anticipates that rising government arrears will hurt the loan repayment capacity of government contractors and sub-contractors.

Sectors most at risk include loans to small and midsize firms (SMEs), companies exposed to subdued commodity prices and to the broader hospitality sector, and foreign-currency loans to unhedged borrowers.

“Although loan repayment holidays and other support measures by authorities will help support viable companies, they will not eliminate risks, and in some cases, they will simply delay the recognition of problem loans,” the rating agency said.

It added: “Ghanaian banks are nonetheless entering the downturn in a stronger position than a few years ago. Banks’ capital, profitability and efficiency have strengthened, and funding and liquidity concerns had been easing following a clean-up and recapitalisation of the financial sector.”

Source: Business 24