Major Banks in Ghana Record Losses in 2022 Due to Debt Restructuring: Analysis and Insights from Experts

Ghana’s banking sector is experiencing a significant downturn, with major banks posting losses for the first time in years. The restructuring of Ghana’s local currency and overseas debt has resulted in impairments for banks, with Guaranty Trust Holding Co. even vowing to reduce lending and bond trading in the country.

The losses could have been much higher if the banks had signed onto the original Domestic Debt Exchange Programme announced by the Finance Minister in December 2021, according to Professor Godfred Bokpin of the University of Ghana Business School. The programme risk-weighted old bonds at 100 percent, rendering them essentially useless and causing impairments for banks. For instance, GCB Bank took a charge of 1.83 billion cedis after impairing its debt securities, while Standard Chartered Bank Ghana impaired 173 million cedis.

In 2022, GCB Bank reported a net loss of 593.4 million cedis ($50.5 million), its first since 1993, while Standard Chartered Bank Ghana reported a loss of 297.8 million cedis. Ghana’s lenders have taken a hit of about $1.4 billion as the country restructures most of its public debt, estimated at 576 billion cedis.

The impairments have caused significant concerns for the health of Ghana’s banking sector, with experts such as Vice President of Imani Africa, Bright Simons, calling attention to the negative cash flows from investment activities, which nearly hit a billion GHS. Nonetheless, deposits are surging due to news insensitivity, which is positive for the banks.

For the most part, recent banking interventions in Ghana have recorded poor results, with the banking cleanup of 2018/2019 set to achieve less than 10% recovery. In contrast, past interventions have recorded more success, such as in 1989, when 41% of all bank loans went bad.

The government stepped in and issued bonds to buy the bad loans, and the Non-Performing Assets Recovery Trust was set up to recover the funds. By 1991, the recovery rate was an impressive 72%. Nonetheless, the banking sector has continued to face challenges, with the recent restructuring of Ghana’s debt causing significant impairments for banks. In a nutshell, there is a need for more sustainable banking interventions in Ghana to avoid such significant losses in the future.