According to information released by the International Monetary Fund, Ghana’s banking system stability has been maintained in spite of the Domestic Debt Exchange Programme (DDEP).
On the other hand, as non-performing loans have increased, credit growth has slowed.
“Despite facing capital shortfalls due to the implementation of the domestic debt exchange (DDE), bank balance sheets improved quickly in 2023, benefiting from high profitability and capital injections. The government of Ghana has begun the recapitalization of state-owned banks, injecting GHS4.6 billion via the Ghana Financial Stability Fund (GFSF) through April 2024”, it disclosed in its Second Review of Ghana’s Extended Credit Facility Programme.
According to the Fund, banks reported strong earnings last year as a result of their significant holdings of T-bills and open-market operations bills, which contributed to their quick deposit growth (43% nominal year-over-year at the end of 2023) and better interest margins.
However, the nominal growth rate in private sector credit was well below inflation, at 11.0% in 2023. In addition, the nonperforming loans (NPLs) ratio further increased to 20.6% from 14.8% in December 2022.
Ghana remains in debt distress
The Fund went on to state that Ghana was still in financial difficulties and that its debt was deemed unsustainable. It is noted that the accompanying Debt Sustainability Analysis (DSA) continues to demonstrate significant and prolonged violations to the standard standards, pending the conclusion of the debt restructuring.
“Following the debt service suspension announced in December 2022 and while discussions with creditors are ongoing, the government has accumulated arrears to official bilateral and private external creditors. The authorities have remained current on the newly exchanged domestic debt and multilateral debt”.
It was determined that the government would have to issue a significant quantity of T-bills in order to meet its domestic funding needs for 2023, given the effect of the DDEP on the market for medium- and long-term government securities. Nominal interest rates that were just over inflation were used for this.