Ghana Eurobond: More Nigerian Banks To Suffer Impairment – Analysts

As banks in Nigeria exposed to the Ghana Eurobond are having their profit margined slashed, analysts are of the view that the last of such hit is yet to be seen with more impairments expected.

Already, Guaranty Trust Holding Company (GTCO) has said, it will be cutting back on lending and bond trading in Ghana, whilst focusing on its business back home following a N35.6 billion impairment.

Aside GTCO, three other major Nigerian banks were affected by the ripple effect of the Ghana Eurobond.

Head, Financial Institutions Ratings at Agusto& Co, Ayokunle Olubunmi, commenting on the effect of the Ghana Eurobond on Nigerian banks said, more impairment is expected in the near term.

To him, “we should note that not all of them took significant impairment. For those who had impairment from a significantly low proportion of their holding of Ghana Eurobond, we expect higher impairment charge in the near term.

“More than that, most banks with subsidiaries in Ghaha will need to reevaluate their asset creation strategy. Given the relatively fragile state of the Ghanaian economy, most banks operating in Ghana invest significantly in Ghana treasury securities.

“With the default on both the domestic and foreign currency government securities, these banks will need to reassess their asset creation strategy. In addition, Eurobond of most African countries will be adversely affected.”

He noted that, investors are now cautious about Eurobonds issued by African countries, thus, ratings of Eurobonds on the continent is expected to be lowered.

“Zambia also defaulted on its Eurobond recently. It is going to be difficult for any African country to issue Eurobond in the near term. There are also discussions about the Aaa rating assigned to all treasury securities issued in the domestic currency.

“Ghana restructured it’s treasury security, which is almost equivalent to a default. So there are concerns about the rating status of these treasury securities,” he pointed out.

Following the restructuring of Ghana’s Eurobond,no fewer than three top Nigerian banks are taking a hit as their profits are constrained with some planning to cut back on lending.

LEADERSHIP sources revealed that, aside the three affected now, more banks who are exposed to Ghana Eurobound, would be known in the next couple of weeks, as they made their 2022 full year financial results public.

On its part, Guaranty Trust Holding Company Plc, having recorded a decline in profit at the end of its 2022 financial year said it plans to slow lending and bond trading in Ghana following a N35.6 billion impairment.

According to the chief executive of the financial holding company, Segun Agbaje, the bank will instead focus at home and on other high-yielding African markets to boost lending by about 15 per cent this year. That, he said will help the firm increase its profit-before-tax growth by 31 per cent from 214.2 billion naira in 2022.

GTCO had reported a 3.1 per cent decline iinearnings 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.

GTCO’s total exposure to government of Ghana (GoG) investment securities amounted to around N167.56 billion at the end of the period, inclusive of GoG Eurobonds held by its subsidiaries in Nigeria, Sierra Leone, Liberia and Rwanda.

Applying the impairment taken by the group in the year, the affected investment securities were revalued to N132.01 billion as of full year 2022.

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.

Banks from across Africa and even the UK have been affected by Ghana’s debt restructuring. That coupled with accelerating inflation and a weaker currency have deterred companies in a nation that once used to lure investors.