Ghanaian banks, according to Bloomberg, are holding out for better terms in the domestic debt exchange programme (DDEP) aimed at easing government’s debt-service burden, and to unlock financial assistance from the International Monetary Fund (IMF).

Bloomberg, in its interactions with two people familiar with the ongoing talks between the government and lenders, disclosed that no bank in Ghana will make a profit in 2023 if they accept the new bonds offered under the exchange. “Some banks may tend to collapse,” they stated.

According to the people involved in Blomberg’s interaction, Ghana was restructuring most of its public debt estimated at ¢467 billion ($39.2 billion) as at the end of September, 2022 to qualify for a $3 billion bailout from the International Monetary Fund.

“Local bondholders have been asked to voluntarily exchange ¢137.3 billion of debt for new bonds that will pay zero interest in 2023, and less than existing securities in ensuing years.
“The repayment of principal for the new bonds won’t start until 2027 and ends in 2038, under current terms. Banks are negotiating for principal repayments to start by 2026 and end around 2033.”
The people

In their financial market data analysis, the people mentioned to Bloomberg that banks, which owns about a third of the existing securities will make losses on the difference between the net present value of their current holdings and the new bonds. “They will have to make provisions for the losses in their books to satisfy accounting standards,” they said.

“While the Bank of Ghana set the risk-weight of new bonds at zero percent for capital adequacy ratio calculations, auditors have disagreed, calling for full provision. There has been estimates net-present-value losses for bondholders of as much as 77% in 2023.”
The People

That notwithstanding, the Finance Minister, Mr. Ken Ofori-Atta in an interview communicated his high optimism in banks accepting the initiative upon the deadline on the last day of January.

“Ghana is ‘confident’ it will reach an agreement with banks and close its debt exchange offer on the 31st of January. The zero-coupon in 2023 is being reconsidered. The government is targeting 80% participation in the domestic debt swap program.
“Ghana is also engaging with bilateral creditors through the Paris Club to reach a restructuring deal by the end of February, and she is in separate talks with holders of external debt to restructure Eurobonds. Over the next month, We aim to make enough progress to go to the IMF Executive Board in March to secure a final approval for the program”
Mr. Ken Ofori Atta

Bloomberg finally revealed that since the launch of Ghana’s exchange program on December 4, 2022, there has been a pushback from several investor groups, resulting in three deadline extensions so far. The government has set up a 15 billion cedi fund to support the banking sector, it indicated.

Collapse Of The Financial Sector

In line with Bloomberg’s disclosure of DDEP’s impact on banks, Dr. Kwabena Duffour, Former Finance Minister, has advised government to manage the debt exchange programme properly to avoid the collapse of the financial sector.

The current approach adopted by the government, according to Dr. Duffour, has the potential of weakening the financial sector.

“If you don’t manage the domestic debt exchange properly, the financial sector will be weakened in such a way that it won’t be able to perform the role that the sector is supposed to perform. We should be very careful.
“The bonds government intended to claim was huge and could completely destroy the lives of Ghanaians.”
Dr. Kwabena Duffour

He explained that the government’s decision to include insurance claims might cause problems for financial institutions, since they would have to look elsewhere for monies to pay their clients.

“The bond of 1.7 billion is huge, if you look at the insurance company, for example, the premiums they collect are now in the government bonds. Same applies to banks whose majority of customers have invested in bonds.”
Dr. Kwabena Duffour