Losses from DDEP scaled down to GHS 7.3bn from GHS 41.3bn over 16-18% discount rate
“Using the 16% discount rate for the NPV for government bonds calculation resulted in DDEP losses of 22 banks stood at GHS 7.3 billion with the foreign banks, private domestic banks and state-owned banks accounting for losses. The Banking sector held about GHS 50.6 billion out of GHS 87 billion restructured from Treasury bonds, ESLA and Daakye bonds excluding pension funds”
Losses recorded by banks in the aftermath of the Domestic Debt Exchange Programme (DDEP) have seen a notable decline. Originally anticipated at GHS 41.3 billion, losses by the banks in the nation are now pegged at GHS 7.3 billion, a stark reduction of GHS 34 billion credited to a harmonized 16%-18% discount rate agreement among government and banks.
According to a report authored by Dr. Richmond Atuahene, K.B Frimpong, and Isaac Kofi Agyei, the consensus on the discount rate translated into an average 14% Net Present Value (NPV) reduction for government bondholders. This collaborative effort involved 22 universal banks, individual bank auditors, the Bank of Ghana, and the Ministry of Finance.
“Using the 16% discount rate for the NPV for government bonds calculation resulted in DDEP losses of 22 banks stood at GHS 7.3 billion with the foreign banks, private domestic banks and state-owned banks accounting for losses. The Banking sector held about GHS 50.6 billion out of GHS 87 billion restructured from Treasury bonds, ESLA and Daakye bonds excluding pension funds”, it stated.
Breaking down the revised losses, foreign-owned banks bore GHS 2.995 billion, state-owned banks GHS 2.377 billion, and private domestic banks GHS 1.911 billion. These recalibrated figures, while marginally impacting solvency and liquidity, notably elevated non-performing assets from 15% in 2022 to 20% in 2023.
The restructuring of bonds under the DDEP played a pivotal role, with the coupon rate dropping to 9.1% from 19.1%, and the maturity period curtailed from 13.8 years to 8.3 years. The report underscores the consequential impact of the International Financial Reporting Standards (IFRS) 9 accounting standard, particularly the introduction of expected loss provisioning, contributing to the GHS 7.3 billion impairment losses.
Despite the challenges, the report suggests that the revised DDEP has served as a mitigating factor, tempering the impact on the solvency and liquidity of Ghana’s banking sector. This financial recalibration, coupled with a shift in the maturity period, resulted in a marked improvement in NPV losses, dropping from 30% in 2022 to a revised 14% in 2023.
