Fear of regulatory backlash keeps banks silent on debt restructuring programme – Prof Gatsi

In a recent discussion on NorvanReports’ Twitter Space Conversation, the Dean of the Business School at the University of Cape Coast (UCC), Professor John Gatsi, revealed that banks in Ghana are reluctant to voice concerns over the domestic debt restructuring programme.

According to Prof Gatsi, this reticence stems from fears of facing regulatory challenges that could arise from opposing the government’s initiatives.

“Banks are unwilling to talk against the domestic debt restructuring and more recently the restructuring of the cocoa bills because of the strong arm of the regulator which can come against them (sic),” he quipped speaking on the NorvanReports’ Twitter Space Conversation dubbed “DDEP 2 and Its Impact on the Cocoa Industry – How do we fund the Bills” on Sunday, July 9, 2023.

Speaking further on the topic, Prof Gatsi noted that, the success of the first phase of the DDEP has emboldened the Government to undertake a second phase of the DDEP, this time around targeting cocoa bills and local US dollar bonds.

The Government, in collaboration with certain banks in the country, recently reached an agreement to restructure cocoa bills worth GHS 8.1 billion. As part of this effort, the existing yield of 32% on the bills will be reduced to a new yield of 12% on bonds maturing between 2025 and 2029.

This restructuring forms a vital component of the government’s broader strategy to address the nation’s remaining total domestic debt amounting to GHS 123 billion. The debt includes cocoa bills, local dollar bonds, pension funds, and amounts owed to the Central Bank.

The second phase of the domestic debt restructuring program (DDEP) aims to put the country on track to access the second tranche of $600 million from the $3 billion balance of payment support pledged by the International Monetary Fund (IMF) under Ghana’s new bailout program.

Meanwhile, recent reports indicate that local banks are exerting pressure on the government to secure more favorable terms for the restructuring of their cocoa debt holdings. The government is currently offering a 12% interest rate on five new bonds replacing existing cocoa bills with an average yield of 30%.

Banks view this reduction as excessively sharp, potentially eroding up to 40% of the face value of the bonds. Instead, they seek terms similar to those granted during the domestic debt exchange in February, where lenders suffered a maximum interest rate reduction of 10.7 percentage points.

While negotiations between banks and the government continue, the prevailing regulatory climate appears to be inhibiting banks from openly opposing the domestic debt restructuring program. The power wielded by the regulator has created an atmosphere of caution, prompting banks to tread carefully to avoid potential repercussions.

Source: Norvanreports