Ghana: Banks resilient in face of more debt restructuring

According to reports from Reuters, a total of ¢15bn ($1.36bn) in cocoa bills and locally issued dollar denominated bonds – 5% of Ghana’s total domestic debt – is being targeted in recent restructure plans, allegedly finalised in June.

Around $809m in dollar bonds will be replaced by four and five-year bonds with interest rates of 2.75% and 3.25% respectively, the news outlet reported.

“Some local banks may need to submit recapitalisation plans, but for others that can leverage support at the group level – from banks in Nigeria and beyond – impairments may be taken at the higher level,” says one Ghanaian banker based in London.

“Ultimately, many of them are able to get an equity injection to overcome some of these issues,” they say.

Zenith Bank, Access Bank, Fidelity Bank and others belong to parent banks based in Nigeria, while Standard Chartered Ghana, Stanbic Bank and Ecobank belong to financial institutions in the UK, South Africa and Togo, respectively.

Jerome Kusseh, a financial analyst at Accra-based CediTalk, says “banks will need additional capital from both domestic and foreign shareholders. That will allow them to absorb the capital losses and the associated loss of interest revenue”.

Some banks entered into FX repos (repurchase agreements or short term securities used by banks to finance trading and lending activities) with the central bank.  “If banks were to take a haircut on FX repos, for example, this would actually be felt on the Bank of Ghana side, not on the commercial banks’ side,” says the Ghanaian banker.

“After speaking to some of the Ghanaian banks, we found that there were other distinctive securities that, if restructured, wouldn’t have as much impact as we initially thought.”

Moreover, regulatory forbearance issues allow banks to spread financial losses over a period of four years, and new bonds issued by local banks have a zero-risk weighting for calculating capital adequacy.

“Yes, some banks are feeling the pressure, and once this latest round of restructuring is accounted for, they will need additional support [for] their balance,” says the banker.

“But importantly, the support is already there.”

Additional pressure

Reeling from the Domestic Debt Exchange Programme (DDEP) that closed in February, Ghana’s local banks are already facing myriad issues around their balance sheet and capitalisation plans.

“Losses as a result of DDEP – of nearly ¢17.1bn [$1.5bn] – may be carried over to 2023 statements and impact profitability and capital adequacy, affecting around 16 banks,” says Richmond Atuahene, a banking consultant based in Accra.

If more local debt is targeted for restructure, banks will suffer additional financial pressure, says Atuahene. “Affected banks will incur extra losses and this will worsen their financial position,” he says.

The 2022 audited accounts of Ghana’s banks revealed severe impairments largely due to the initial round of the domestic debt exchange programme. In Ghana, 15 out of 22 banks recorded losses.

• GCB Bank, Ghana’s largest lender by assets for instance posted a ¢593.4m ($52m) net loss
• Standard Chartered Bank Ghana, the country’s biggest bank by market value, incurred a loss of ¢297.8m ($26m)
• Consolidated Bank recorded the highest loss of ¢1.5bn ($131m) at the end of 2022.

The Bank of Ghana has called on banks at risk of going below the 10% capital adequacy ratio to prepare time-bound recapitalisation plans, the implementation of which will be monitored by the central bank.

The plan is due in September, the same time the government’s GH¢15bn financial stability fund – a fund intended to help provide liquidity to banks that have taken part in the DDEP – is expected to come on stream.

“The financial stability fund is required to resolve the insolvency threat,” says Atuahene.

However, as James Dzansi, Ghana economist at the International Growth Center, says, the fund is not enough to support struggling financial institutions and proposes regulatory changes from the Bank of Ghana.

“I believe if the Bank of Ghana reduces the minimum capital requirement. That is what will bring some relief.”