Akufo-Addo Infects GCB, ECOBANK With Rotten Economic Performance

…as Moody’s, Fitch downgrade three banks

The economic wreak that the Akufo-Addo government has inflicted on the country is spreading like cancer to the country’s banking sector, as international rating agencies, Moody’s and Fitch, downgrades Ecobank, GCB Bank and the United Bank of Africa (UBA).

These are perhaps the two biggest banks in the country and thus the damning verdict by the rating agencies is likely to have a ripple effect on the other banks.

Fitch Ratings assigned Ecobank Ghana a Long-Term Issuer Default Rating (IDR) of ‘B-‘ with a Negative Outlook.

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 Ecobank Long-Term IDR mirrors that of Ghana’s Long-Term IDR says Fitch.

Sovereign default is a fanciful economic jargon for the situation when government fails to pay back money borrowed from a bank.

And so, by the rating, Fitch Ratings is saying that Ecobank may not be able to get back the money it has lent to the government with a knock-on effect that may force the bank to struggle to pay those that it owes.

Fitch Ratings similarly downgraded another Ghanaian bank, Universal Bank of Africa (UBA) Ghana.

“Fitch considers that UBA Ghana is unlikely to remain solvent in a sovereign default scenario, due to the concentration of its operations within Ghana, reliance on sovereign-derived income, and high exposure to the sovereign relative to capital – primarily through local-currency government securities,” the statement from Fitch read.

Moody’s another international rating agency, has also downgraded GCB Bank PLC’s global long-term deposit ratings 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 has however been changed to stable, from negative.

According to Moody’s this „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 reason Ghanaian banks are highly at risk of suffering insolvency is that banks tend to lazily depend heavily on debt instruments from the government.

This is to the extent that the banks sometimes borrow from the government through the Bank of Ghana and use the money they have borrowed from the Bank of Ghana to buy Treasury Bills from the same government they have borrowed from.

And the Akufo-Addo government has been especially incompetent in generating revenue and voracious with borrowing money with its appetite for local loans crowding out the private sector.

Meanwhile, according to Deputy Ranking Member on the Finance Committee of Parliament, Hon. Isaac Adongo, the development is evidence that the supposed banking sector cleanup by the Akufo-Addo government was a useless waste of money and time.

“After spending GH¢22 billion to collapse financial institutions, Fitch downgrades your two biggest banks as very risky for investors to put their monies in them. Our banks face a gloomy prospect of correspondent banks running away,” The Bolgatanga Central MP wrote on Facebook.