Adnan Adams Mohammed
A Financial data analysis firm, Bloomberg, has estimated that banks operating in Ghana have been hit by about US$1.4 billion impairment due the debt restructuring.
Aside this loss, some financial analysts have predicted that banks should expect extended tough times as they foresee additional impairment losses of about ¢6.1 billion due to factors imported by the Domestic Debt Exchange Programme (DDEP).
Despite this historical loss positions reported by banks operating West Africa’s second largest economy, the Ghana Association of Banks (GAB) has reechoed that banks in the country are in good standing with their financial position. The President of the GAB, in an interview last week said, the capital position of banks are strong, while there is enough liquidity in the banking system.
“Even though banks appear to have been negatively impacted, the situation was anticipated, hence adequate measures were put in place to protect banks in the country”, John Awuah retorted. “As we speak, there is strong liquidity in the environment. I have not heard that anybody has gone to a bank and cannot get their money. The banking system has enough liquidity in the system.”
Mr. Awuah noted that the strong liquidity in the financial system could be partly attributed to the decision by the Bank of Ghana’s monetary control management that hiked the policy rate fortnight ago to mop up excess funds in an effort to control inflation.
He also pointed out that the Bank of Ghana has put in several measures to cushion commercial banks from shocks as a result of the debt exchange programme.
“The central bank has put in measures to help banks to weather the storms where there are difficulties. The Bank of Ghana has given us time to rebuild our capital”, he said.
He stated that the numerous measures in addition to the financial sector stability fund will help banks support the economic growth agenda by lending to businesses.
Meanwhile, a recent assessment of financial statements of banks by Dr. Richmond Atuahene and K B Frimpong revealed that banks will lose additional ¢6 billion due to reduced coupon rate and the extension of the maturity period from five to 15 years.
According to the liquidity gap analysis, the 23 banks would have generated positive cash flow of about ¢10.1 billion over the period, from the original coupon rate of 19.3% per annum.
But following the implementation of Domestic Debt Exchange Programme (DDEP), the extension of maturity period and reduction of coupon rate will impact heavily on their earnings from investments in Government of Ghana Bonds.
“This liquidity gap is a result of the drop in the average bond rate of 19.3% to weighted average rate of 9% per annum, thus leading to nominal negative liquidity gap of 10.3%. The liquidity gap is expected to get worse if the average customer deposit rate was around 10% per annum, but later declined to weighted average rate of 9% per annum”.
“For example, Bank A with the bond value of ¢9,I06,452,000 and average coupon rate of 19.3% would have had cash flow of ¢1,821,290,000, but with the Domestic Debt Exchange Programme, the effective rate of 9% per annum will cause a drop in cash flow to ¢720,927,000, thus leading to liquidity gap of ¢1,100,363,000”, it added.
To qualify for a $3.0 billion Balance of Payment support facility from the International Monetary Fund, Ghana had to restructure its local-currency and overseas debt to bring down the Debt-to-GDP ratio to below 70 percent. The public debt is estimated at GHC576 billion.
The country has finished with the first of debt restructuring which was the DDEP. The DDEP contributed to some top banks recording their first loss.
GCB Bank Plc, the country’s largest lender by assets, posted a GHC593.4 million ($50.5 million) net loss for the year to end-December, its first since 1993 when Bloomberg started maintaining data.
Also, Standard Chartered Bank Ghana Ltd., the biggest by market value, reported a loss of 297.8 million cedis.
The impairments prompted Guaranty Trust Holding Co., Nigeria’s largest bank by market value, to vow to slow lending and bond trading in Ghana.
GCB Bank took a charge of 1.83 billion cedis after impairing its debt securities, while for Standard Chartered Bank Ghana the amount was GHC173 million.
Ghana’s lenders were allowed a month’s extension to release full-year earnings.
The nation’s debt rose after spending pressures from an energy crisis between 2013 and 2015 and a sweeping banking-sector cleanup in 2018 were compounded by shocks from the Covid-19 pandemic and Russia’s invasion of Ukraine.
As part of the revamp, Ghana exchanged GHC87.8 billion of local notes that paid an average of 19%, with bonds returning as little as 8.35% — resulting in losses for financial institutions.
The government has started discussions with international debt holders through the G-20 Common Platform Framework for debt respite as it seeks to finalise the IMF support programme.
The IMF wants Ghana to bring its debt down to 55% of GDP by 2028. Before the government’s interventions, Debt-to-GDP had been projected to reach 109% by close of 2023.
