The Ghana Association of Banks (GAB) has stated that banks in the country are in good standing with their financial position despite losses incurred by the lenders due to the Domestic Debt Exchange Programme (DDEP).
A recent assessment of financial statements of banks by Dr. Richmond Atuahene and K B Frimpong revealed that banks will lose additional ¢6 billion due to reduced coupon rate and the extension of the maturity period from five to 15 years.
But speaking on the Super Morning Show today [April 27, 2023], the President of the GAB, John Awuah said the capital position of banks are strong, while there is enough liquidity in the banking system.
He stated that even though banks appear to have been negatively impacted, the situation was anticipated, hence adequate measures were put in place to protect banks in the country
As we speak, there is strong liquidity in the environment. I have not heard that anybody has gone to a bank and cannot get their money. The banking system has enough liquidity in the system”, he stressed.
Awuah suggested that the strong liquidity in the financial system could be partly attributed to the decision by the Bank of Ghana to recently hike the policy rate again to mop up excess funds to help control inflation.
He also pointed out that the Bank of Ghana has put in several measures to cushion commercial banks from shocks as a result of the debt exchange programme.
The central bank has put in measures to help banks to weather the storms where there are difficulties. The Bank of Ghana has given us time to rebuild our capital”, he said.
He stated that the numerous measures in addition to the financial sector stability fund will help banks support the economic growth agenda by lending to businesses.
An analysis of the DDEP indicated that the 23 banks operating in in Ghana will lose additional ¢6.1 billion, due to reduced coupon rate and the extension of the maturity period from five to 15 years.
According to the liquidity gap analysis by Dr. Richmond Atuahene and K B Frimpong, the 23 banks would have generated positive cash flow of about ¢10.1 billion over the period, from the original coupon rate of 19.3% per annum.
But following the implementation of Domestic Debt Exchange Programme (DDEP), the extension of maturity period and reduction of coupon rate will impact heavily on their earnings from investments in Government of Ghana Bonds.
This liquidity gap is a result of the drop in the average bond rate of 19.3% to weighted average rate of 9% per annum, thus leading to nominal negative liquidity gap of 10.3%. The liquidity gap is expected to get worse if the average customer deposit rate was around 10% per annum, but later declined to weighted average rate of 9% per annum”.
“For example, Bank A with the bond value of ¢9,I06,452,000 and average coupon rate of 19.3% would have had cash flow of ¢1,821,290,000, but with the Domestic Debt Exchange Programme, the effective rate of 9% per annum will cause a drop in cash flow to ¢720,927,000, thus leading to liquidity gap of ¢1,100,363,000”, it added.