Ghanaian Banks to Incur Billions of Losses Due to Domestic Debt Restructuring

The recently released analysis of the Domestic Debt Restructuring in Ghana reveals that the country’s 23 banks will incur substantial losses due to a reduced coupon rate and an extension of the maturity period from five to 15 years. The banks are collectively set to lose an additional ¢6.1 billion due to these changes, on top of an initial loss of GHS 10bn in liquidity in 2022 alone. The original coupon rate of 19.3% per annum would have generated a positive cash flow of approximately ¢10.1 billion over the period, but the extension of the maturity period and the reduction of the coupon rate will result in a liquidity gap of approximately 10.3%.

According to Dr. Richmond Atuahene and K B Frimpong, who compiled the report, the liquidity gap is expected to worsen if the average customer deposit rate declines from 10% per annum to a weighted average rate of 9% per annum. This revelation has highlighted the need for the immediate establishment and operationalisation of the Financial Stability Support Fund of ¢15 billion to mitigate and address the expected liquidity challenges for some of the 23 banks that signed onto the Domestic Debt Exchange Programme.

The report projects that banks will lose a total of about ¢41.3 billion from the DDEP between 2023 and 2028. The losses can be computed by analysing the Net Present Value of the 23 local banks, and it is projected that the losses could amount to ¢41.315 billion. The losses incurred will have a significant impact on the banks’ operations and financial stability, and there is a need to ensure that the banks survive these challenging times.

The successful implementation of the financial stability fund is critical to the survival of the affected banks, and the Bank of Ghana must implement the Basel III regulatory framework. The framework seeks to reduce excessive maturity mismatches and ensure that banks hold enough liquid assets to survive during a short stress period. The implementation of this framework will be a crucial step in the regulation of banks.

All in all, the Domestic Debt Exchange Programme’s impact on Ghana’s 23 banks is significant, and the projected losses amounting to billions of Ghanaian cedis are concerning. The establishment and operationalisation of the Financial Stability Support Fund of ¢15 billion, coupled with the full implementation of the Basel III regulatory framework, are necessary steps to ensure the survival of these banks during these challenging times. The Bank of Ghana must take immediate action to address these issues and work towards mitigating the losses incurred by the banks.