Ghana Banking Sector Review — Asset Quality Behind the Earnings Recovery

The headline story in Ghanaian banking since 2023 has been recovery. After the domestic debt exchange forced substantial losses onto bank balance sheets, the listed sector has reported a return to profitability that has been, by any measure, rapid.

The question this review addresses is what produced it. That matters because the two candidate explanations — a recovering lending business, or an exceptional contribution from holding high-yielding government paper — have opposite implications for what happens next as the policy rate falls.

Where the earnings came from#

A bank earns interest income from two broad sources: lending to customers, and holding securities. In a high-rate environment where the government is paying substantially for short-dated paper, the second can become extraordinarily profitable — and requires no credit underwriting, no branch network and no risk appetite.

The disaggregated income statements of the listed Ghanaian banks show that the securities contribution has risen materially since 2022 as a share of total interest income. This is a rational response to the environment. It is also, by construction, temporary: it depends on the rate the government pays.

What easing does to this#

Policy rate falls

Securities yields fall with it

Securities income

Compresses, with a short lag as holdings mature

Loan income

Can grow, but requires credit demand and risk appetite

Deposit costs

Fall slowly — a partial offset, in the banks' favour

The slow downward adjustment of deposit rates is worth dwelling on, because it cuts both ways. For savers it is a cost. For banks it is a margin cushion: funding costs fall faster than they otherwise would while asset yields decline. This is one reason sector profitability is likely to decline rather than collapse.

Asset quality is the unresolved question#

Non-performing loan ratios across the sector remain elevated relative to pre-2022 levels. More importantly for anyone comparing institutions, provisioning coverage against those loans varies widely.

Two banks can report similar profits while holding materially different views about how much of their loan book will be repaid. The one with thinner provisioning reports higher earnings now and carries more risk of a charge later. Published financial statements permit this comparison to be made, and it is the first thing FlowWealth examines in any Ghanaian bank.

Weak credit growth limits the offset#

If banks were lending aggressively, falling securities income would matter less — loan growth would replace it. Loan-to-deposit ratios across the sector remain below historical norms, which tells us balance sheet repair has been prioritised over growth. That was prudent. It also means the offset available when securities income declines is currently small.

For equity investors, the relevant analytical work is disaggregating reported earnings by source and assessing provisioning adequacy institution by institution. Sector-level profitability trends are not a useful guide to which banks are attractively priced.

For depositors, the asymmetry in rate pass-through is the practical point: expect deposit rates to fall more slowly than the policy rate, and compare the result against Treasury alternatives.

For fixed income investors holding bank paper, capital adequacy and asset quality dispersion are the variables that matter, not sector aggregates.

The Ghanaian banking recovery is real but its composition makes it partly cyclical. Income earned from holding government securities at high yields does not survive an easing cycle, and credit growth has not yet developed to replace it.

We expect sector profitability to decline from current levels without threatening solvency, and we expect the gap between the best and worst institutions to widen as it does. For anyone analysing these banks, the useful work is not at the sector level at all — it is in the provisioning notes.