The bank’s long-term foreign currency deposit ratings were also downgraded from Ca to Caa2, as were its long-term Counterparty Risk Ratings (CRRs), long-term Counterparty Risk Assessment (CR Assessment), baseline credit assessment (BCA), and adjusted credit assessment (BCA). All of these ratings were also downgraded from Ca to Caa2.
The rating comes as a result of Moody’s decision to lower Ghana’s long-term issuer and senior unsecured debt ratings from Ca to Caa2 on December 2, 2022, and to put those ratings under review for a downgrade on November 29, 2022.
The recent macroeconomic downturn is reflected in the reduction of the sovereign ratings, which has worsened the government’s liquidity and debt sustainability issues and raised the default risk.
The government and the International Monetary Fund (IMF) are currently negotiating a funding arrangement that may include a requirement for debt restructuring to maintain debt sustainability, which is what sparked the start of the review for downgrade.
According to a statement on Moody’s website “The downgrading of the sovereign ratings and the lowering of the Macro Profile score to “Very Weak-” from “Very Weak” reflect the deteriorating macroeconomic situation and the growing operating environment uncertainty for Ghanaian banks.
“From ratings under review, the outlook on the Caa3 long-term local currency deposit rating has been altered to negative. From ratings under review to stable, the outlook for the Ca long-term foreign currency deposit rating has been revised. The review for downgrade that was started on 4 October 2022 is now complete “It was ad.
The liquidity of the banking system would also be weakened by a restructuring of sovereign debt securities, particularly if maturities were extended. This is because banks would have to hold on to their government exposure for a longer period of time, which would restrict their capacity to lend to the real economy.
The bank deposit ratings take into account the anticipated losses that depositors would experience as a result of the restructuring of the national debt. A notch higher than the bank’s Ca long-term foreign currency deposit rating, GCB Bank’s long-term local currency deposit rating was reduced from Caa2 to Caa3, or Caa3.
This distinction shows Moody’s view that possible losses for depositors of local currency will be lower than for depositors of foreign currency.
It showed that, despite monetary tightening, the macroeconomic climate in Ghana has been worse as the inflation rate has been rising steadily since the year’s beginning.
Along with the swift currency depreciation, the inflation rate surged, reaching 40% in October 2022 from 13% at year’s end 2021.