Ghana Eurobond Exposure Costs Banks N280bn Impairment

With N1.7 billion exposure to the Government of Ghana (GoG) Eurobond by the Nigerian banking industry, has resulted in impairment charge of over N280 billion in the banking industry

Banks exposed to the Ghana Eurobond had recorded higher impairments in their 2022 financials as they made provision for the loss of investments in their books. This had also spurred some of them to decide on cutting back on lending as earlier reported by LEADERSHIP.

GoG is restructuring most of its public debt, estimated at 576 billion cedis or $49 billion. The West African nation exchanged 87.8 billion cedis of notes that paid an average of 19 per cent, with bonds returning as little as 8.35 per cent resulting in losses for financial institutions.

Guaranty Trust Holding Company as well as Access Holdings are the hardest hit as the total exposure accounted for an estimated four per cent of the industry’s total investment securities.

GTCOs Ghana bond exposure to total investment securities as at the end of last year stood at 9.3 per cent, the highest in the industry. The bank had reported a 3.1 per cent decline in earnings per share to N5.95 triggered by higher impairment charges on financial assets which rose from N760.8 million in 2021 to N35.94 billion at the end of 2022 financial year.

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Access Bank also had an 8.4 per cent exposure to the GoG compared to its total investment securities while Zenith and United Bank for Africa were 4.8 per cent and 1.2 per cent respectively.  Agusto & Co in a report noted that overall, the industry booked a cumulative impairment charge of about N280 billion on Ghana bonds which eroded an estimated 19.7 per cent of the industry’s pre-impaired operating profit.

The rating agency noted that the suspension of interest and principal payment on these bonds by the Ghanaian central government constituted a default in substance and this resulted in bondholders taking haircuts on its value, particularly the investments classified in the amortised cost category.

“Consequently, the affected Nigerian banks recorded impairment charges on the bond, varying from 10 per cent to 59 per cent of the outstanding value of their respective investments.

While the impact of the Ghana exposure is mostly concentrated amongst the tier 1 commercial banks in Nigeria with a few tier 2 and 3 commercial banks, the write down in the value of these bonds had a prominent impact on the Industry’s profitability, given the size of the exposed banks.

“Also, the impairment charges negatively affected the industry’s ability to enhance capital from operations as profit retained was suppressed. Notwithstanding the spike in impairment which adversely impacted profitability, we believe the capital position and performance of the top Nigerian banks which were the most impacted would remain acceptable, at least in the near term, while the average capital adequacy ratio of these banks should be comfortably higher than the 15 per cent regulatory minimum for international banks.

“Nonetheless, the Ghanaian subsidiary of these top Nigerian banking institutions would remain pressure points to performance, asset quality and capitalisation. It is noteworthy that the Ghana subsidiaries of these banks, in addition to being exposed to the government securities, are impacted by the prevailing economic turmoil that has weakened their asset quality and earning power as the Ghanaian cedi depreciates against the dollar, interest rate rises and inflation remains high.”