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Ghana’s Bond Crisis and Nigerian Banks

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Ghana currency

CEM REPORT, FINANCE | Nigerian Banks with investment in Ghana’s Eurobond holdings recorded impairment charges on the bond, varying from 10 per cent to 59 per cent of the outstanding value of their respective investments.

The Industry booked a cumulated impairment charge of about N280 billion ($604 million) on Ghana bonds, which eroded an estimated 19.7% of the Industry’s pre-impaired operating profit.

This is according to a report released by Agusto &Co which exposed the extent of Nigerian banks’ exposure to the Ghanaian economic and fiscal crisis through subsidiaries operating in the country and investments in Ghana bonds.


The report titled, “Ghana Debt Crisis and the Impact on Nigerian Banks,” noted that the banks affected had direct and indirect investments, which are reflected on their balance sheet presently.

“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% to 59% of the outstanding value of their respective investments.”

According to the report Nigerian banks with subsidiaries across Africa had direct and indirect Ghana Eurobond holdings of about N800 billion ($1.7 billion) at the close of 2022.

This accounted for an estimated 4 per cent of the Industry’s total investment securities.

The report noted that 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.”

Agusto &Co stated that the Ghanaian subsidiary of top Nigerian banking institutions would remain pressure points to performance, asset quality and capitalisation, adding that the capital position and performance of the top Nigerian most impacted would remain acceptable.

“The capital position and performance of the top Nigerian banks namely Access Bank Plc, Zenith Bank Plc, United Bank for Africa Plc, and Guaranty Trust Bank Plc 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.”

It added: “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 USD, interest rate rises and inflation remains high.

“In addition to the above, we believe the default by Ghana would elicit relatively higher impairment charges on sovereign bonds of many Sub-Saharan African countries as the yields on these emerging market bonds trend upward at the International Capital Market. While there was already a dwindling appetite for Sub-Saharan African bonds by Nigerian banks, we expect this development to increase apathy for these treasury instruments further, ”it stated.

Ghana’s Finance Ministry announced the suspension of debt service payments on the majority of Ghana’s external debt, including commercial and some bilateral loans on December 19, 2022.

This implied that Ghana would default on the payment of the $148.8 million principal payments due on the $1 billion 2023 Eurobond by August 7, 2023, as well as the $580 million cumulative interest payment due on numerous Eurobonds in 2023.

While Ghana negotiates a debt restructure with China and the Paris Club, the IMF also granted a $3 billion bailout for Ghana under an Extended Credit Facility on May 17, 2023. Ghana is focused on restructuring its approximately $30 billion external debt after the DDEP and is aiming for a $10.5 billion debt service relief.

Although, Ghana recorded an 85 per cent eligible bond participation rate from local bond investors as of 10 February 2023 when the timeline for the DDEP elapsed.

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