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Fitch, a global rating agency, has forecasted that the profitability of Ghanaian banks is expected to weaken in the coming weeks following the Bank of Ghana’s (BoG) recent decision to tie cash reserve ratio (CRR) requirements to loans/deposit ratios (LDRs).
This move is seen as a response to the current economic climate in Ghana.
According to Fitch, banks in the country may choose to bear the opportunity cost of not being able to deploy liquidity into high-yielding treasury bills rather than risk large loan impairment charges by extending credit in the current economic situation.
The banking sector’s Loan-to-Deposit Ratio (LDR) is expected to remain below 55% in 2024, resulting in a higher Cash Reserve Requirement (CRR) for the majority of banks.
The BoG introduced the new CRR regime on 25th March, directly linking CRR requirements to LDRs on a tiered basis.
Banks with LDRs below 40% will be subject to a CRR of 25% of deposits, those with LDRs between 40% and 55% will face a 20% CRR, while those with LDRs above 55% will be subject to a 15% CRR.
This marks a significant increase for banks with low LDRs, as the current requirement is 15%.
Fitch Ratings anticipates that banks will tolerate the higher CRR requirements rather than significantly increase lending, given Ghana’s challenging macroeconomic conditions with the new policy set to take effect by the end of April.
