Nigerian Banks Book Heavy Losses on Ghana’s Debt Securities

Nigerian big balance sheet deposit money banks with subsidiaries operations in Ghana lost more than N224 billion to Ghana’s debt exchange programme launched late in 2022, their separate audited financial statement show.

Excluding FBN Holdings which is yet to release its audited report, other banks in the tier-1 capital category said they took a total of N224 billion loss on their cumulative investment securities issued by Ghana.

Amidst its debt policy-induced financial crisis, authority announced the suspension of all debt service payments on its external debt, a move that was made to restore macroeconomic stability, amid the country’s economic and financial challenges.

Recall that government of Ghana launched a voluntary domestic debt exchange programme as a prerequisite for obtaining support as the debt load weighed on the country’s economic condition.

The debt programme was the first step of Ghana’s debt restructuring exercise, which was a pre-condition for the International Monetary Fund’s $3 billion bailout. MarketForces Africa reported that Ghana sought funding support from the International Monetary Fund (IMF) to manage its financial crisis triggered its very high public debt profit.

Total public debt stood at over 100% of Ghana’s gross domestic product (GDP), and debt service costs absorbing 70%- 100% of the country’s revenues.

The debt exchange, according to Nigerian banks, was seen as an invitation to the voluntary exchange of approximately US $15.99 billion of existing domestic debts held by various local investors.

As part of an effort to restructure its debt, the government packaged new bonds with extended payout dates and reduced coupon rates. The programme also comes with certain incentives for participating corporate entities.

Due to the debt burden and pressure from external markets, Ghanaian economic conditions became worsened to the extent that government seeks a lifeline from multilateral lenders. As part of a deal with the IMF, Ghana was asked to restructure its debt, and both local and external investors were affected following its first instance default.

Through their respective investment in the government of Ghana Securities, Nigerian lenders with subsidiaries operations in the country were asked to allow some losses by writing down the value of the investment Securities in the income statement.

Banks that were out rightly affected include Access Bank, followed by Zenith Bank, GTCO, UBA and FBN Holding, though the oldest Nigerian bank has yet to release its final audited statement.

GTCO:

Guaranty Trust Holding Company Plc is exposed to Ghana’s Sovereign Debt Restructuring, as a result of its investment in GTBank Ghana, which is a direct subsidiary of GTBank Nigeria Ltd -98% ownership.

In its audited statement, GTCO said its exposure was valued at N167.557 billion, and it booked N35.551 billion as an impairment charge on the investment securities.

Noted to be a key audit matter, GTCO Plc.’s auditor however said the determination of the adequacy of the allowance for expected credit losses for loans and advances and investment securities is highly subjective and judgmental.

As a means of deploying US dollar liquidity, the Group also has exposures to Eurobonds issued by the Government of Ghana, through GTBank Nigeria Limited, GTBank Sierra Leone, GTBank Liberia and GTBank Rwanda.

“The government’s effective default on debt payments and debt restructuring plan resulted in each of the entities with exposures to the Ghanaian government taking an Impairment loss, in line with the requirement of IFRS 9 Financial Instruments”, the management said.

Access Bank Plc

Access Bank Corporation Plc took an impairment of ₦103.10 billion in recognition of the economic loss impact of Ghana’s sovereign debt crisis, its audited statement show. It hints that the sum book relates to only local debt, as the Ghanaian government has not yet presented restructuring terms for the Eurobonds.

“Though restructuring parameters are subject to a lot of uncertainty, the possibility of further material impairment charge for this event is considered remote”, Nigeria’s largest bank said.

The fair value for Ghana’s sovereign debts in the books of the Group amounted to ₦348.15 billion, according to the audited report for 2022.  In April, Ecobank attributed a decline in profit available to shareholders in the first quarter of 2023 to its exposure.

The group mentioned the net impact of $26 million on Ghana’s domestic debt financial securities following the exchange of old bonds with new ones under the Government of Ghana’s domestic debt exchange programme.

Zenith Bank

Zenith exchanged N123.6 billion, an equivalent of 2,675,754,659 Ghana cedis of its existing government bonds for a series of new bonds with maturity dates commencing from 2027 to 2038 under the programme.

The group said the new bonds were successfully settled on the 21st of February 2023 and have been allotted to the Central Securities Depository.

“The effect of the exchange on impairment of the existing bonds at 31 December 2022 was duly recognised in the consolidated financial statements”, it disclosed in its audited statement.

Its audited report explained that the gross balance of the Ghana government-issued debt instruments held by the group as of Dec 2022 was N202.4 billion. The associated impairment allowance on the debt was N58.8 billion.

UBA

UBA group included in the N17.979 billion impairment charge on investment securities was N17.280 billion impairment loss attributable to Group’s exposure in the Ghana investment market, which significantly lost its value due to the debt exchange launched last year.

The Group’s exposure to Ghana’s debt market was through the investment activities of UBA Ghana, UBA UK and our New York branch, detail from the audited report show.

UBA subsidiary maintained investments in the domestic and Eurobond market, UBA UK and New York branches of the Bank were primarily in Ghana’s Eurobond segment.

Impact on UBA Ghana:

The total bond portfolio by UBA Ghana eligible for the exchange was stated at N38.576 billion, resulting in an impairment loss of N14.238 billion.

UBA Ghana subsidiary pretax profit slumped from N18.071 billion in 2021 to N3.833 billion in the financial year 2022, audited report shows.

To help manage the potential impact and preserve financial stability, the Bank of Ghana provides regulatory reliefs for banks that fully participate in the debt programme in an effort to fight the financial crisis in the country.