Guaranty Trust Holding Co., Nigeria’s biggest bank by market value, plans to slow lending and bond trading in Ghana following a $77 million impairment in the West African nation.
According to reports, GT Bank will rather be focusing on other high-yielding African markets to boost lending by 15 percent in 2023.
The bank also hopes to increase its profit-before-tax growth by 31 percent from 214.2 billion naira in 2022.
Guaranty Trust operates GTBank in Ghana and the country is currently restructuring most of its public debt, causing losses for financial institutions. As such, the bank is facing a tough time in its second-biggest market, Ghana, due to the country’s restructuring of most of its public debt worth $49 billion.
Ghana exchanged notes worth 87.8 billion cedis that paid an average of 19%, with bonds returning as little as 8.35%, causing losses for financial institutions. Many overseas creditors are still in talks with the authorities regarding the issue.
The bank had 167.6 billion naira of debt securities in Ghana, while rival lender Zenith Bank set aside 123.4 billion naira to account for the restructuring.
Guaranty Trust plans to expand credit by no more than 5% in Ghana and limit itself to treasury bills for securities investments.
Harsh Operating Environment and High Inflation Rate
According to the bank’s Chief Executive Officer (CEO), Segun Agbaje, the harsh operating environment and high inflation rate in Ghana makes it difficult for businesses to make money and pay back loans.
Prior to the Restructuring, Fitch Ratings predicted that Ghanaian banks could face significant pressure on their capitalisation due to the restructuring of local-currency (LC) sovereign debt. Fitch believes banks will suffer large economic losses when they exchange their existing debt for new bonds with lower coupons and longer tenors.
The rating agency Indicated that this could lead to material capital shortfalls at some banks but we expect regulatory forbearance to mitigate the impact, enabling banks to remain compliant with minimum capital requirements. The two Ghanaian banks rated by Fitch have sizeable capital buffers that should help their ratings withstand the LC debt exchange, even disregarding regulatory forbearance.
The LC debt exchange, launched on 5th December, comes alongside Ghana’s efforts to secure IMF support. Fitch views it as a distressed debt exchange and downgraded Ghana’s Long-Term Local-Currency Issuer Default Rating (IDR) to ‘C’ from ‘CC’ as a result.
Though Ghana’s Ministry of Finance stated that the debt exchange is voluntary but the ministry expected banks to participate, particularly as the risk-weighting for the old bonds will be increased to 100% from 0%, and non-participating banks will not be eligible for liquidity support from Ghana’s newly created financial stability fund.
Treasury Bills, which account for about 15% of the banking system’s securities according to Bank of Ghana data, are excluded from the restructuring.
Meanwhile, Ghana’s banking sector has long been a key vulnerability impeding wider economic progress. Many banks are under-capitalised, non-performing loans (NPLs) are high and regulatory oversight has been lacking.
The Bank of Ghana (BoG, the central bank), aided by the IMF, is well aware of the challenges facing the banking sector and has been working towards addressing them. A policy of more than tripling the minimum capital requirement to GH¢400m (US$88m) was announced in September 2017 and was subsequently implemented in 2018. This singular act saw some banks merged and others license seized.
Ghana has a relatively high number of banks as market entry has been made easier by liberal regulation and by the erosion over time of the real value of the existing minimum capital threshold by high inflation.
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