Commercial banks face profit pressure despite cedi stability

Ghana's banking sector confronts a margin squeeze that won't ease soon. The Bank of Ghana held its policy rate at 27% for the third consecutive meeting, citing improved cedi stability after last year's 30% depreciation. But commercial banks including GCB Bank, Ecobank Ghana, and Stanbic Bank Ghana are reporting tighter lending margins - a sign that the central bank's inflation fight is working exactly as intended.

The math is brutal for lenders. With the policy rate at 27% and inflation at 23.1% in January, real rates have turned positive for the first time in months. Banks that loaded up on government securities during the debt restructuring now face reinvestment risk as yields compress. Meanwhile, loan demand stays weak because few businesses can service debt at current rates.

Extended high-rate cycle locks in banking sector pain

The BoG projects it will take longer for inflation to return within the 6%-10% target range, according to Reuters. Translation: banks should prepare for an extended period of compressed net interest margins. Governor Ernest Addison's committee is prioritizing currency stability over banking sector profitability - a necessary trade-off given Ghana's $3 billion IMF program requirements.

This creates a two-tier banking system. Large banks with diversified revenue streams can weather the margin compression through fee income and trade finance. Smaller regional banks that rely heavily on interest income face genuine stress. The persistent inflation profile driven by food price movements remains a constraint, meaning rate cuts are months away, not weeks.

Currency stability masks underlying banking vulnerabilities

The cedi's recent stabilization after 2024's sharp decline masks deeper structural issues in Ghana's banking sector. High real interest rates are doing their job - they're choking off credit demand and forcing banks to compete aggressively for deposits. But this creates a dangerous feedback loop where banks bid up deposit rates to maintain funding, further compressing margins.

Expect consolidation pressure to build. Banks with weak capital buffers or concentrated loan books will struggle to maintain profitability at current rate levels. The extended time horizon needed to achieve price stability targets means this isn't a short-term adjustment - it's the new operating environment for Ghana's banking sector.

The real test comes when the IMF program ends in 2025. Until then, the BoG will prioritize external stability over domestic banking sector health. Investors should focus on banks with strong fee income, diversified revenue streams, and strong capital positions. Net interest margins will compress by an estimated 200-300 basis points over the next 12 months if rates hold at current levels.