8 banks engaged in government business may be hard hit by debt exchange program – Report

Reports have noted that some eight banks may be hardest hit by the country’s debt exchange programme.

The banks whose names have been withheld have a chunk of their investments in the government of Ghana securities, particularly bonds.

If the debt exchange programme targeting about GH¢137 billion worth of bonds successfully goes through, these banks may suffer some losses, myjoyonline.com reports.

Even though the extent of the loss cannot be quantified yet, the programme may affect its liquidity position depending on the size of its balance sheet.

The November 2022 Ghana Fixed Income Market report, showed that the banks (four foreign and four local) controlled about 83.91% of the debt market share.

The myjoyonline.com report also said despite the knowledge of a possible debt restructuring, the banks traded a significant volume of bonds and bills on the bond market in the month of November 2022.

The report also stated that these banks, if push comes to shove, could be cushioned by their parent companies.

Meanwhile, rating agencies have downgraded four Ghanaian banks this year. The downgrades came after Ghana’s creditworthiness status was downgraded consistently throughout 2022.

“The downgrade of the banks follows the downgrade of Ghana’s Long-Term IDRs as the banks’ standalone credit profiles are closely linked to that of the sovereign (Ghana),” one of the rating agencies said.

Also, six leading investment banks that control about 89.13% of the debt instrument market may be affected by a restructuring.

During the announcement of the debt program by the finance minister on December 5, 2022, he stated that a financial Stability Fund would be created to offer liquidity support to banks during the exchange program.

According to him, the fund will provide liquidity support to banks, pension funds, insurance companies, fund managers, and collective investment schemes to ensure that they can meet their obligations to their clients.

Speaking at a press conference to launch Ghana’s debt restructuring, the finance minister said the Governor of the Bank of Ghana will follow suit with details of the necessary assistance in due course.

“We have also dialogued extensively with regulators across the financial sector, including the Securities and Exchange Commission (SEC), National Insurance Commission (NIC), and National Pensions Regulatory Authority (NPRA) to agree that regulatory forbearance will be provided to all entities whose financial position is adversely affected by virtue of participating in this exchange,” Ken Ofori-Atta explained.