According to Info-Prod Research, Moody’s has placed the D-bank financial strength rating (BFSR) and Ba3 long-term local currency deposit rating of GCB on review for possible downgrading, however, the bank’s B3/Not-Prime foreign currency deposit ratings are unaffected by the review.
Moody’s said the review is as a result of the weakening of the GCB’s financial fundamentals as evidenced by the deterioration in asset quality metrics, with non-performing loans, (defined as impaired loans and all loans overdue by more than 90 days), increasing significantly to 19% of total loans as at end of 2009, from 2% at end of 2008.
According to Moody’s the deterioration, that has affected the bank’s profitability for the first half of 2010, is a consequence of both the slowdown in Ghana’s economic growth, with GDP growth slowing to around 4.5% in 2009 (2008:7.3%), and the weakened financial condition of client companies, particularly in the downstream oil sector. GCB was threatened by a huge debt owed it by the country’s only oil refinery, the Tema Oil Refinery (TOR). TOR owed Ghana Commercial Bank $600 million, but eh government has recently settled $310 million of that amount.
Moody’s indicated that delays in settling this debt have had a material impact on the bank’s financial strength, in terms of asset quality. As part of the review process, Moody’s will also assess the country’s capacity to support its banking system, should solvency support be required.
Moody’s expressed belief that the government’s willingness to support both GCB and TOR remains high, as recently evidenced by the partial settlement of TOR’s debt to GCB.
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By Emmanuel K. Dogbevi