Although Ghana has been able to heave a sigh of relief following the International Monetary Fund’s approval of its $3bn loan request, the financial books of some Nigerian banks took a hit due to the country’s debt restructuring. While the impact is reflected in the loan provisions of the affected lenders, stakeholders believe all is not gloomy, Oluwakemi Abimbola reports
For the Chief Executive Officer of Guaranty Trust Holding Company Plc, Segun Agbaje, “Any country that defaulted, in terms of sovereigns, means it has a harsh operating environment.” This he said during an investors’ call in Lagos in April, as he touched on the impact of the Ghana public debt restructuring on the lender.
In its 2022 financial reports, GTCO revealed that it was exposed to Ghana’s Sovereign Debt Restructuring, as a result of its investment in GTBank Ghana, which is a direct subsidiary of GTBank Nigeria Ltd and also exposed to Eurobonds issued by the Government of Ghana, through GTBank Nigeria Limited, GTBank Sierra Leone, GTBank Liberia and GTBank Rwanda.
The group’s total exposure as of the end of 2022 was N167.55bn, its impairment stood at N35.55bn and its net position was N132.00bn.
Agbaje went on to say that the bank would focus on Nigeria and on other high-yielding African markets to boost lending by about 15 per cent this year.
Amid economic and financial hurdles, the Ghanaian government declared a suspension of its external debt service payments in December 2022, aiming to revive the country’s macroeconomic steadiness. It also set up a voluntary Domestic Debt Exchange Programme; an invitation for the voluntary exchange of approximately US $15.99bn of existing domestic notes/bonds held by various local investors, for a package of new bonds with extended payout dates and reduced coupon rates.
Due to Ghana’s debt restructuring, quite some Nigerian lenders with operations in the country have made provisions worth over N200bn.
The impairment charge of Zenith Bank ballooned by 106 per cent to N123.252bn from N59.932bn recorded in 2021. For GTCO, its loan impairment for 2022 worsened by 41 per cent to N11.986bn from N8.531bn in 2021. Access Holdings reported N197.790bn impairment charges for 2022 compared to N83.213bn, representing a 137.69 per cent hike. However, the impairment charges of FBN Holdings, which just released its results, dropped by 25.2 per cent from N91.70bn in 2021 to N68.60bn in 2022.
Consequently, the profits of the banks grew at a slower pace last year. While GTCO profits grew by only three per cent in 2022, its profits rose by 13 per cent in 2021. The profit of Zenith Bank was down by eight per cent in 2022 but grew by six per cent in 2021. FBN Holdings’ profit grew by 10 per cent in 2022, a significant dip from the 99.9 per cent growth it recorded in the previous year. For Access Holdings, its profits depreciated by five per cent against the 51 per cent increase it had in 2021.
In December, Ghana secured a staff-level agreement with the IMF for a $3bn loan, but the IMF’s conditions include a successful restructuring program of domestic and external debt.
Domestic debt, which accounts for a third of the country’s total debt ($19bn), was dealt with through a successful Domestic Debt Exchange Programme initiated by the Ministry of Finance. The government managed to swap $8.2bn of domestic bonds, despite the exemption of pension funds after labour unions threatened a general strike.
The remaining external debt, which amounts to approximately $36bn involves three types of creditors: private lenders (international bondholders and commercial banks), bilateral lenders (China and Paris club countries), and multilateral lenders (World Bank, IMF).
The IMF recently approved the $3bn loan for Ghana with a $600m immediate payout.
In a video posted on Twitter, the IMF Managing Director, Kristalina Georgieva congratulated Ghana on getting the approval of the IMF executive board for the $3bn loan.
She tweeted, “We stand with Ghana as it implements reforms to address the current economic and financial crisis and help build a better future for all Ghanaians.”
Apart from the impact on Nigerian banks, some South African banks also took a hit via Ghana’s debt restructuring. The Standard Bank Group, Nedbank Group, Absa Group and First Rand set aside R4.87bn ($267m) to account for the losses incurred in the West African country.
As Ghana finds a way out of the tight economic spot, Nigerian lenders and entities deal with the effects on their businesses and operations.
While some analysts feel that the impact on the Nigerian market was less than expected. It was also opined that the Ghanaian government didn’t have much of an option but to seek help in this way.
Speaking on the development, the Managing Director/Chief Executive Officer of APT Securities and Funds Limited, Garba Kurfi, said that the impact was not devastating as expected and Nigerian entities operating in Ghana were able to absorb the impact.
He said, “There is provision made for Ghana by banks with exposure in Ghana, particularly banks like ETI (Ecobank), Zenith Bank, Access Bank, UBA, and Guaranty Trust Bank, who have participated in their sovereign bonds.
“However, the quantum vis-à-vis our activities are very insignificant, so, the effect of it is less. We were expecting huge effects, but it was lesser and we can see that comfortably, most of the banks made the provisions without it affecting their liquidity ratio.
“When you take a look at the different banks, you will see that their liquidity ratio was not much affected by their impairment and this did not change their corporate action. If you remember, GTCO even added 10 Kobo compared to the dividend they paid in 2021. Zenith did the same and Access (Bank) added almost 50 Kobo, which is 50 per cent of the dividend they declared in the previous year. The previous year, they paid N1 (2021). This time, despite making an impairment for the sovereign bond of Ghana, they still paid N1.50. So the impact is less in terms of dividends. In terms of performance, yes we can see but don’t forget that these are provisions and not completely total loss. If the economy of Ghana can recover, they can recover most of the provisions.”
Kurfi also added that Nigeria could be affected by financial shocks in Ghana, showing that the country needed to think beyond its shores and delve into other countries where its entities have footprints.
“It just shows that we are no longer local. Most of our banks go beyond and whatever affects other countries where we have footprints, it affects the Nigerian economy. Just like what happens in the developed market, whatever happens in the frontier or emerging markets, you see that the British and US are concerned and make provisions. It is the same thing with us now.
“Our banks have much exposure outside Nigeria, particularly in Africa. It shows the relationship of the economy of the other countries with ours and it is making us bigger and better. It is bigger in the sense that we are now related politically and financially. Therefore, we matter and our voices must be listened to. Because when you have banks that have entered into another country, the country cannot shut you out; they know that financially, you can affect them and politically too. It keeps the Nigerian strength, whether we are taking advantage of it or not.”
While the outlook might not be dreary, there is a need for caution as revealed by the Group Managing Director of Computer Warehouse Group, Adewale Adeyipo.
Speaking at a Facts Behind the Figures presentation at the Nigerian Exchange Limited, Adeyipo, whose company operates in Ghana, said that it was hedging and limiting exposure as much as possible.
Adeyipo said, “We believe that the situation of Ghana might be around for some time. We also believe that with the way that Ghana has dealt with previous challenges like this, they will always come out stronger.”
For senior research analyst at Rand Merchant Bank, Joshua Odebisi, the banks were all profitable, but “the impairments definitely dragged ROE to varying degrees”.
Speaking on Arise TV, Odebisi said that the degree to which organisations operating in Ghana were impacted was based on their risk management measures.
“It is purely down to individual risk management. It is about how much they were exposed to Ghana’s securities. If a bank has low exposure; at a point, some investors in Ghana were saying that the yields were too good to be true, so some people might have pulled out earlier, which means they would have covered their position and they would be fine. Some would have invested heavily, so there will be a lot on their balance sheet,” he said.
As the continent prepares for the implementation of the African Continental Free Trade Area, the APT Securities boss opined that the Ghana experience should not discourage Nigerian banks from investing in other African countries as Nigeria needs to be positioned to take advantage of the AfCFTA.
Kurfi said, “The banks have also benefited from the performance of the other economies, so it is what is called ‘give and take’. You cannot get it all; this is the consequence of wide diversification. But right now, we will not discourage our banks from diversifying outside Nigeria. They should go.
“Don’t forget that we are going to have the African Free Trade Zone soon. Our positioning now will give us an edge, an advantage with the full implementation of the African Free Trade Zone.
“Remember that recently, Access Holdings said that they have diversified into France. Most of the countries colonised by France, have their currencies backed by France. So, if Access can have a bank in France, it gives it an edge in the African Free Trade Zone. For me, it is a good strategy that our banks have embarked upon and we will be ahead of other African countries.”
Source : Punch
