Ghana’s banking sector vulnerable with high NPLs, low CAR

Ghana’s banking sector is particularly vulnerable, with a High Non-Performing Loan (NPL) ratio of 21.8 per cent and a Capital Adequacy Ratio (CAR) of 14.0 per cent.

According to Fitch Solutions, this is a result of the domestic debt exchange programme (DDEP) and high interest rates.

In its paper titled “US Tariffs Increase Risks for SSA Banks”, Ghana has the highest NPLs among the 10 top Sub-Saharan Africa countries, whilst its CAR is the third weakest.

Despite upcoming challenges, it however said SSA banks were generally well-positioned, supported by robust capital adequacy ratios (CAR) and decent loan quality.

“We anticipate improvements in most sectors’ capital, driven by regulatory enhancements in markets such as Nigeria and Kenya, alongside improving economic conditions in most markets.”

“Our core view remains that interest rates will fall in 2025 for most markets, which will help improve loan quality. Very high profits following steep interest rate hikes in recent years will also provide banks a sufficient reserve for 2025,” it mentioned.

It said that US tariffs would impact SSA banks in relation to monetary policy, and thus expect banks to face increased uncertainty as policy expectations shift.

“If interest rates remain elevated for longer than we currently expect, this could adversely impact loan quality and growth, potentially deterring credit extension if consumers and businesses remain uncertain about interest rates,” the report said.

It said while higher interest margins which currently exceed 50 per cent in all the largest SSA banking sectors aside from Nigeria– could bolster profits, this effect, it said, might be offset by weaker loan growth and increased provisioning for higher NPLs.

Conversely, a quicker-than-expected decline in interest rates, following economic growth concerns, would reverse these effects.

Fitch Solutions added that his uncertainty complicates strategic planning for banks in the region, affecting loan quality risks, lending activity, income from interest and fees and commissions.