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Moody's Downgrades GCB Rating

July 4, 2014

Masahudu Kunateh

MOODY'S Investors Service, the leading provider of credit ratings, research, and risk analysis has downgraded Ghana Commercial Bank's (GCB's) global local-currency long-term deposit ratings.

The downgrading from B1 to B2 indicates the outlook is negative.

Similarly, the global ratings agency lowered the bank's foreign-currency deposit ratings from B2 to B3.

Concurrently, it said the E+ standalone Ghana Commercial Bank financial strength rating, which is equivalent to a B2 baseline credit assessment, was affirmed with a stable outlook.

Moody's noted that the extensive links between GCB Bank's balance sheet and sovereign credit risk, owing to the banks' high direct exposures to government securities, drove the negative rating outlook.

According to the bank's audited financial statements and Moody's estimates, the bank's exposure to government credit risk, including investments in government securities, central bank balances and public-sector loans, stood at around 60 percent of total assets at year-end 2013 or five times its Tier 1 capital.

These high exposures to government securities link the bank's credit profile to the sovereign creditworthiness, and render the bank vulnerable to potential event risk at the sovereign level, Moody's said.

The rating follows the downgrade of Ghana's government bond ratings from B1 to B2, with a negative outlook a week ago.

The sovereign rating action reflects Ghana's deteriorating fiscal strength, as reflected in the rising debt level and worsening debt affordability amid persistently high fiscal deficits; and the increase in Ghana's vulnerability to shocks given its large debt-refinancing needs and wide external imbalances.

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Source: AllAfrica

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