Ghanaian banks are bracing for an even sharper squeeze on profitability as the country’s inflation continues to fall and the Bank of Ghana (BoG) cuts its key policy rate. Fitch Ratings had already projected weaker earnings for banks due to declining interest rates, and recent data now suggests that pressure on net interest margins (NIMs) could be deeper than previously anticipated.
According to the latest figures, headline inflation dropped to 6.3% in November 2025, down from 9.4% in September. In response, the BoG’s Monetary Policy Committee reduced the Monetary Policy Rate (MPR) by 350 basis points to 18.0%, the third significant cut this year. These developments follow Fitch’s earlier warning that lower rates would materially compress NIMs, which remain a critical driver of banking profitability.
Adding to the pressure, the Ghana Reference Rate (GRR) has fallen steadily throughout 2025, dropping from a high of 29.72% in January to 15.9% in December, its lowest level in years. The most recent decline, from 17.93% in November to 15.9% in December, further reduces the benchmark for lending rates, intensifying the squeeze on banks’ net interest margins and overall earnings.
Fitch had noted in October that Ghanaian banks’ NIMs had already declined sharply in 2025, falling from 14.8% in January to 11.4% by August, as a result of previous MPR cuts and lower lending rates. With the MPR now at 18%, banks’ variable-rate loans are set to become even cheaper, further reducing the spread between deposit and lending rates and intensifying pressure on earnings.
Despite the challenges, the banking sector retains several strengths highlighted by Fitch. Banks remain well-capitalized, and the relatively low share of net loans, just 19% of total assets at mid-2025, offers scope for increased lending. Lower borrowing costs, coupled with recovering economic activity and a stable cedi, could support loan growth in the near term, partially offsetting margin compression.
However, analysts and market participants note that even with stronger lending, the decline in NIMs is likely to outweigh potential gains, meaning overall profitability will remain under significant strain.
Banks may also face higher loan impairment charges as they accelerate write-offs to comply with new BoG regulations on non-performing loans, which are expected to fall below 15% by end-2026.
The combination of lower inflation, reduced policy rates, and the resulting squeeze on interest margins underscores a challenging environment for Ghanaian banks. While Fitch’s earlier forecasts highlighted these risks, the latest data confirms that the earnings pressure could be deeper and more immediate than initially expected, making careful balance-sheet management and cost control more critical than ever.
