Ratings Agencies Downgrade Ghana’s Biggest Banks

GCB Bank Ghana’s managing director Kofi Adomakoh

Rating agencies Fitch and Moody’s have downgraded Ghana’s biggest banks, GCB Bank Plc and Ecobank Ghana Limited. GCB Bank Plc and Ecobank Ghana Limited are Ghana’s largest and second-largest banks, respectively.

Two other Ghanaian banks with Nigerian affiliation, UBA Ghana and GTBank Ghana, also had their ratings revised from stable to negative due to their “high exposure to the sovereign relative to capital”. UBA Ghana and GTBank Ghana are the Ghanaian subsidiaries of the Nigerian banking giants UBA Nigeria PLC and GTBank Nigeria Plc, respectively.

Fitch Ratings assigned Eco Bank Ghana a Long-Term Issuer Default Rating (IDR) of ‘B-‘ with a Negative Outlookand Viability Rating (VR) of ‘b-‘.
According to the agency, the bank “is unlikely to remain solvent in the event of a sovereign default, due to the concentration of its activities within Ghana, its material reliance on sovereign-derived income and high exposure to the sovereign relative to capital, primarily through government securities (447% of common equity Tier 1 (CET1) capital at end-9M21).”

“The Negative Outlook on EGH’s Long-Term IDR mirrors that on Ghana’s Long-Term IDR,” Fitch Ratings stated.

UBA Ghana’s managing director Chris Ofikulu

On UBA Ghana, another bank affected by the downgrade, Fitch said it considers the bank unlikely to remain solvent in a sovereign default scenerio due to the concentration of the bank’s reliance on sovereign-derived income, and high exposure to the sovereign relative to capital – primarily through local-currency government securities.

“UBA Ghana’s Long-Term IDR is now driven by our assessment of the likelihood of extraordinary support from its Nigeria-based parent, United Bank for Africa Plc (UBA Plc; B/Stable), as expressed by its SSR of ‘b-‘. The Long-Term IDR and SSR are at the same level as Ghana’s Country Ceiling of ‘B-‘. The Stable Outlook on UBA Ghana’s Long-Term IDR reflects that on UBA Plc’s Long-Term IDR. Fitch’s view of support considers UBA Plc’s high propensity to provide support given UBA Ghana’s importance to the group’s pan-African strategy and its substantial contribution to group net income (10% in 1H21). It also considers the 91% ownership, common branding and high level of management and operational integration between UBA Ghana and the wider group. However, UBA Plc’s ability to provide support is conditioned by its standalone creditworthiness, as captured by its Long-Term IDR. We also consider there to be a risk of regulatory restrictions in Nigeria, particularly concerning foreign-currency flows out of the country, which may constrain UBA Plc’s ability to provide timely and sufficient support,” Fitch stated.

GTBank Ghana’s managing director Thomas Attah John

GTBank Ghana, the Ghanaian affiliate of GTBank Nigeria Plc, also had its rating similarly revised from stable to negative for the same reasons as UBA Ghana.
Analysts say Ghana’s alarming debt outlook has created cash-call danger for the country’s Nigerian banks, a number of who presently do not have a high market share in Ghana, which compounds their exposure to government debt.

Similarly, Moody’s downgraded the global long-term deposit ratings of GCB Bank PLC, Ghana’s largest bank, to Caa1 from B3 and lowered its Baseline Credit Assessment (BCA) and Adjusted BCA to caa1 from b3.

The outlook on the bank’s long-term deposit ratings was however changed to stable, from negative.
The action, according to Moody’s follows “the weakening of the Ghanaian government’s credit profile, as captured by Moody’s downgrade of the sovereign rating to Caa1 from B3, with a stable outlook, on 04 February 2022”.

The latest negative assessment of the biggest Ghanaian banks by the global rating agencies, ironically, comes just five years after Bank of Ghana, BoG, the Ghanaian central banker, spent a whopping US$4 billion in an effort to clean-up the country’s banking sector.

The banking sector clean-up exercise, undertaken in 2017, saw the Bank of Ghana revoke licenses of nine (9) Ghanaian banks including: Heritage Bank Limited, Premium Bank Limited, uniBank, Sovereign bank, BEIGE Bank, Royal Bank, Construction bank, UT Bank and Capital Bank.

Over 40 other financial institutions were also affected by the clean-up which included some fund management firms.

Ghana in the last two months has received a series of negative economic assessments by major global financial and credit rating agencies.

Ecobank Ghana’s managing director Mr. Daniel Sackey

In January, a Bloomberg report said Ghana was sinking into debt distres. That was followed by the World Bank’s Global Prospect report for January 2022 which bunched Ghana among a group of African countries the bank said had deteriorating fiscal balances.

Still in January, Fitch Ratings downgraded Ghana’s Long-Term Foreign-Currency Issuer Default Rating (IDR) from ‘B’ to ‘-B’ with a negative outlook. Similarly, in February, Moody’s downgraded both Ghana’s Long-Term Issuer and Senior Unsecured Bond Ratings to Caa1 with a stable outlook from B3. Standard and Poors, however, maintained Ghana’s credit rating at a B – with a stable outlook.

Minister of Finance Ken Ofori-Atta had in the 2022 budget statement indicated the Ghanaian government’s intention to raise US$ 750 million (approximately Ghc5.355 billion; NGN311.862 billion) through borrowing in the international money market as well as anotherGhc27.9 billion (approximately US$4 billion; NGN1.632 trillion) from the domestic financial market, to finance its 2022 budget deficit. But, the latest downgrades and negative assessments may well hamper the government’s ability to raise the projected funds.