Managing Director of First Bank Ghana, Victor Yaw Asante, has shared insights into how the bank successfully navigated the challenges posed by Ghana’s Domestic Debt Exchange Programme (DDEP).
While many financial institutions faced significant financial setbacks due to their exposure to government bonds, First Bank Ghana managed to avoid major losses by adhering to a disciplined risk strategy.
Speaking on the bank’s financial resilience, Asante explained that strategic decisions and strict risk management principles helped shield First Bank Ghana from excessive exposure. He emphasized the importance of sticking to the bank’s risk guidelines, which played a crucial role in ensuring financial stability.
“We stuck to our risk portfolio, our risk guidelines and so on. So when you do that, when there’s a problem in any particular area, you still are capped.”
Victor Yaw Asante
Unlike other banks that suffered severe liquidity constraints due to their heavy investment in government bonds, First Bank Ghana took a more cautious approach. Asante acknowledged that the temptation to buy into government securities was strong, especially during periods when they appeared to be a safer investment option.
However, the bank deliberately avoided over-reliance on such assets. “Even though it became easier to, for example, buy government bonds and so on, we didn’t. We didn’t go for that temptation at all,” he revealed.
Impact of DDEP on the Financial Sector
The introduction of the DDEP placed enormous pressure on Ghana’s financial sector, forcing banks to reassess their portfolios and risk exposures. Many financial institutions found themselves in distress, with some taking drastic measures to mitigate their losses.
Asante highlighted how the initial implementation of the debt exchange program created uncertainty, causing some banks to struggle significantly.
“In the last two or three years, when it started, we had the least exposure. We and a few other banks, quite a number of banks, did have some significant exposure.”
Victor Yaw Asante
He further noted that while the first year of the program was particularly challenging, banks had to develop strategies to recover from the shocks. Some institutions wrote back previously withheld assets, which led to an apparent improvement in their financial statements.
“The first year of the free implementation was tough, but what they did was to now just make sure they went beyond just the reprobations and worked hard at trying to see what they could recover.”
Victor Yaw Asante
However, Asante cautioned against interpreting these recoveries as indicators of true financial strength. He explained that while some banks may have reported strong performances, much of it was due to writing back assets that had been withheld rather than organic growth.
“I think after last year, some of them were able to write back some of the things they initially withheld. I mean, it depends on how the performance goes. So that happened, and then you could see that banks were now giving very strong performances. But quite a bit of the performance was also because people were writing back what they had initially withheld, because we didn’t know what the immediate future held.”
Victor Yaw Asante
Prudent Financial Management
According to Asante, one of the key lessons from the DDEP crisis is the importance of prudent financial management. He stressed that banks must focus on their core financial strength rather than relying on temporary recoveries from extraordinary write-offs. “If you strip off extraordinary items, and you go to the core performance of the year, then you can start talking,” he stated.
“So it could have been worse, and we are grateful that it didn’t. It was as bad as that. But what you see is also a measure of the fact that people are putting back something they didn’t recognize and as a bank, you have to do that.”
Victor Yaw Asante
First Bank Ghana’s ability to withstand the shocks of the DDEP demonstrates the effectiveness of a well-structured risk strategy. By resisting the urge to heavily invest in government bonds and maintaining a diversified portfolio, the bank was able to protect its financial health.
The experience also highlights the critical role of strategic decision-making in navigating economic uncertainties. As financial institutions continue to recover from the impacts of the debt restructuring, Asante’s insights serve as a valuable lesson in risk management.
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