According to research conducted by Dr. Richmond Atuahene and K.B. Frimpong, approximately 16 banks are expected to experience additional losses this year due to the Domestic Debt Exchange Programme.
These uncaptured losses amount to around 17.1 billion and could have a negative impact on the 2023 Audited Financial Statements of these banks, as they failed to account for the full extent of the losses in 2022.
Out of the total of 22 banks, only six (Absa, Stanbic, Standard Chartered Bank, FNB, Zenith) successfully accounted for all impairment losses in 2022.
The remaining banks will need to include the outstanding losses in their 2023 Audited Financial Statements to comply with the International Monetary Fund Country Report on Ghana, which has requested banks to recapitalize.
This inclusion of the remaining impairment losses, approximately 17.1 billion, in the financial statements could negatively affect the Capital Adequacy Ratio and profitability indicators (Return on Equity and Return on Assets) of the 16 banks.
In 2022, the banks collectively reported impairment losses of ¢19.4 billion due to the Domestic Debt Exchange Programme, leading to a decline in their profitability.
Furthermore, the report highlights that eight banks now have a Capital Adequacy Ratio below 13%.
This ratio measures a bank’s accessible capital as a percentage of its risk-weighted assets and liabilities.
The DDEP impairment losses have affected these banks’ Capital Adequacy Ratio, which could subsequently impact their ability to lend and hinder credit availability for the private sector and overall economic activity.
The report also emphasizes that the 2022 Audited Financial Statements of the 22 banks only partially reflected the impact of the Domestic Debt Exchange Programme losses and the challenging operating environment prevailing in that year.
Many banks reported significant losses due to mark-to-market valuation losses on their holdings in Government of Ghana bonds following the implementation of the DDEP.
To address these challenges, the report urges the Bank of Ghana to regularly monitor the anticipated capital shortfalls and ensure the implementation of plans to rebuild capital buffers.
It suggests that incentives for banks to expedite this process could include the prohibition of dividend distribution, restrictions on risk exposures, enhanced monitoring for banks failing to meet the minimum Capital Adequacy Ratio, and support for early recapitalization from the Ghana Financial Stability Fund.
In 2022, the banks collectively reported a loss of 6.6 billion, compared to a profit of 4.8 billion in 2021. Only six banks (GT Bank, Societe Generale, FBN, UBA, First Atlantic, and Bank of Africa) recorded profits during that period.
The report estimates that the total losses incurred by the 22 banks due to the Domestic Debt Exchange Programme amount to ¢37.7 billion, using a Net Present Value of 16%.
However, only ¢19.2 billion has been written off so far, leaving outstanding losses of ¢17.5 billion that will need to be accounted for in the 2023 financial year.
