Bank stocks are poised for strong performance, according to the latest projections from Databank Research in its Ghana Market Outlook 2025 report released in January.The improved outlook is attributed to increased profits, which have enabled banks to pay higher dividends, sparking renewed interest from investors.

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This positive development follows a challenging period that began with the introduction of the Domestic Debt Exchange Programme (DDEP) in December 2022. The program involved swapping old domestic bonds valued at GHS 137.3 billion (US$14.3 billion) for new bonds with longer repayment terms and lower interest rates.

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Banks holding government bonds incurred significant impairment losses due to the exchange, resulting in a drop in the value of their bond holdings and adversely impacting their balance sheets. Local banks alone recorded losses of GHS 19.9 billion, while foreign-owned banks suffered GHS 17.8 billion in losses. Some local banks even became technically insolvent, requiring additional capital to recover.

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Investor confidence plummeted during this period, as the DDEP undermined the perception of government bonds as risk-free investments. Lower interest rates on the new bonds further heightened investor caution, leading to declining stock prices.By mid-2024, however, improved economic conditions and regulatory reforms began to restore confidence.

Financial Stock Index recorded gains of 15% by the end of

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Q3 2024, reflecting the resurgence of investor interest in banking stocks.The Databank Research report notes that banking stocks are expected to continue their upward trajectory, supported by strong earnings prospects and the resumption of dividend payouts. “These factors are likely to attract income-focused investors, further boosting the sector's appeal,” the report stated.

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Additionally, the report highlights regulatory changes, including the introduction of a new cash reserve ratio requirement, as a key driver of growth in the banking sector. These reforms are anticipated to enhance asset quality and expand loan portfolios, ultimately boosting profitability.

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“We expect banks' profitability to benefit significantly from loan book expansion and improved asset quality following the regulator’s new cash reserve ratio requirement,” the report added.As the banking sector rebounds, the renewed optimism among investors underscores the importance of sound economic policies and regulatory measures in driving market recovery and growth.

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The outlook for 2025 reflects not only the resilience of Ghana’s banking sector but also the potential for continued economic recovery, presenting a promising opportunity for investors.

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