Adnan Adams Mohammed
Bank of Ghana’s 2024 Financial Stability Review has indicated a marginal impact of Ghana’s Domestic Debt Exchange Programme (DDEP) on the financial sector.
This is in turn affected various investment portfolios which in the short-term likely to impact on disposable incomes and inflation.
Limited effect was recorded in the banking sector. This was attributed to lower levels of debt holdings among banks and more favourable restructuring terms, with several impairments having already been booked in 2022. Banks also showed a strong recovery in financial performance for 2023.
Meanwhile, insurance firms in Ghana have trimmed their investments in Government of Ghana (GOG) and Bank of Ghana (BoG) bonds reflecting the income pressure from the recent Domestic Debt Exchange Programme (DDEP), the Review report captured.
The non-life insurance sub-sector reported a 13% reduction in GOG and BoG securities, which now account for 27% of its total investment portfolio, down from 38% in 2022.
The sub-sector’s portfolio shows a shift toward fixed deposits at 23%, with listed securities and investment properties at 27% and 19%, respectively.
The life insurance sector also reduced its holdings in GOG and BoG securities, with a 9% decline bringing its allocation down to 40% from 49% the previous year.
This adjustment suggests a cautious pivot by insurers, responding to the DDEP’s financial impact.
The report highlighted that in August 2023, the Ghanaian government restructured bond holdings of pension funds totalling GHS30.01 billion in a separate arrangement.
Consequently, the review cautioned that ongoing external debt restructuring, especially concerning Eurobonds, could lead to additional impairments for banks and other participating financial institutions.
“The regulatory reliefs implemented by financial sector regulators, alongside recapitalisation plans and the establishment of the Ghana Financial Stability Fund, will help cushion the financial sector from the impacts of the government debt operation,” the report noted.
Furthermore, the Financial Sector Strengthening Strategy (FSSS), introduced in 2023, coordinates regulatory interventions to promptly address risks in the financial system.
While the domestic debt restructuring has created fiscal space and lowered the debt-to-GDP ratio, further adjustments loom.
On July 14, 2023, Ghana launched the second phase of its DDEP, which included the restructuring of GH¢8.1 billion in Cocoa Bills and $808.99 million in locally issued U.S. dollar-denominated bonds.
Life insurance firms have slightly increased investments in real estate, now at 23%, and fixed deposits, which rose by 8 percentage points to 21% in 2023.
The report underscores that these reallocations reveal a shift in insurers’ investment strategies, emphasising the importance of diversification in the face of changing economic conditions.
“Achieving optimal returns while managing operational costs is essential for maintaining profitability. The industry’s adaptability to economic shifts highlights the importance of strategic investment decision-making for sustained growth and resilience,” the report noted.
The National Insurance Commission (NIC) remains optimistic about the sector’s future, attributing this confidence to the industry’s demonstrated resilience and forward-looking strategies.
While the adoption of IFRS 17 accounting standards could challenge the industry’s Capital
Adequacy Ratio (CAR), the NIC has implemented strategies to address potential impacts.
The NIC emphasised that its commitment to strategic planning, regular reviews, and regulatory compliance will safeguard the sector’s financial health and stability.
