In December 2022 the Ghanaian government implemented the Domestic Debt Exchange Programme (DDEP), a voluntary initiative under which eligible bondholders swapped bonds for new securities with differing rates and maturities. Later that month Ghana struck a deal with the IMF for a three-year, $3bn loan to help alleviate the country’s debt. Upon closing in February 2023, 85% of a total GHS97.7bn ($8.9bn) in domestic bonds eligible under the DDEP had been tendered and accepted.
The government has also been negotiating with the country’s pension funds, and in July 2023 the Ministry of Finance invited such entities to exchange GHS31bn ($2.8bn) worth of bonds with an average coupon rate of 18.5% for new ones with an average rate of 8.4%. The pension funds are expected to end up with a better average rate of return, preventing pensioners from losing money while also alleviating the government’s cash constraints. In May 2023 the IMF Executive Board approved the $3bn extended credit facility to which both parties agreed in December 2022, with $600m being made available immediately.
Alleviating Debt
In February 2023, shortly after the domestic debt swap, Ghana missed a $40.6m coupon payment for a $1bn eurobond maturing in 2026. Following discussions with bondholders about relieving debt, in October 2023 Ken Ofori-Atta, then minister of finance, announced a proposal for bondholders to accept a cut of as much as 40%, leading to Ghana’s eurobond maturing in April 2025 falling 2.1 cents on the dollar to 37.46. Other Ghanaian securities were some of the worst performers among emerging market bonds after the announcement, although some analysts expect the terms offered by the government to improve. In October 2023 Eurobonds accounted for $13bn of Ghana’s $50bn public debt, and the country hopes to reach an agreement with bilateral lenders.
This exposure combined with downgrades to Ghana’s credit rating following its December 2022 default and global macroeconomic conditions resulted in the industry’s asset base eroding by GHS15.7bn ($1.4bn). The industry had an average impairment charge of 19%, ranging from 6% at First Bank of Nigeria, which was relatively unexposed, to 29% at CalBank. At the end of 2022 the Bank of Ghana enacted several measures to mitigate the impact of the DDEP on banks. The minimum capital adequacy ratio (CAR) was reduced from 13% to 10% of risk-weighted assets. The central bank also reduced the cash reserve ratio from 14% to 12%, although it reversed this decision in April 2023 to mitigate concerns about excess liquidity.
Exposure
Banks operating in Ghana may be particularly wary of being overly exposed to government securities. At the end of 2021 banks’ holdings of government assets represented 46.2% of total assets, but this figure was 32.7% a year later. The 2023 PwC “Ghana Banking Survey” conducted after the introduction of the DDEP revealed that 92% of banks in which the government had little or no equity investment lacked sufficient research, and 92% of banks said that the unavailability of data was the main reason they were unprepared for the DDEP. Around 38% of respondents said they ought to have had in place more robust risk-assessment and management systems, suggesting that banks are looking to invest more in research and adopt a more risk-averse stance.
Though the direct impact of the DDEP was to devalue banks’ portfolios of government assets, it also negatively impacted their loan portfolios, as customers increasingly struggled to meet loan obligations due to cash flow-related difficulties. However, loans seemed healthy at the end of 2022 shortly after the DDEP was announced, although the percentage of non-performing loans was up to 20.3% as of August 2023 from 14.8% in December 2022. While loans written off surpassed GHS1bn ($91m) in 2021, this figure fell to GHS620m ($56.2m) the following year.
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