More pains for Nigerian banks as costs of Ghana’s debt restructuring bites

Ghana’s move to restructure most of its public debt, estimated at $49 billion is weighing on Nigerian banks as Zenith Bank and United Bank of Africa (UBA) booked combined impairment costs of N140.6 billion, BusinessDay’s findings showed.

On December 5, 2022, the Government of Ghana launched first Ghana’s Domestic Debt Exchange programme (DDEP), in response to the Government defaulting in servicing its debts when it suspended payments on most of its external debts including Eurobonds, to ensure debt sustainability aimed at securing a $3 billion IMF economic support.

As a result of the above development, Nigeria’s Zenith Bank said it set aside N123.6 billion naira ($267 million) in part to account for its holdings of bonds in Ghana.

“On 14 February 2023, the Group exchanged N123.6bln of its existing Government of Ghana bonds for a series of new bonds with maturity dates commencing from 2027 to 2038 under the Ghana Domestic Debt Exchange Programme,” the lender said in its latest financial statement.

The bank added, “The new bonds were successfully settled on the 21st of February 2023 and have been allotted on the Central Securities Depository. The effect of the exchange on impairment of the existing bonds on 31 December 2022 was duly recognised in the consolidated financial statements.”

Zenith Bank’s net deferred tax assets grew from N1.8 billion to N18.3 billion in 2022.

“The group’s deferred tax asset is largely attributable to Zenith bank Ghana, which suffered a loss in the current year. The deferred tax asset principally arose from Expected Credit Losses (ECL) allowance on financial instruments,” Zenith Bank said.

Apart from Zenith Bank, United Bank for Africa (UBA), a tier-one Nigerian lender has also booked an N17.280 billion impairment loss attributable to the Group’s exposure to the Ghanaian market.

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“The Group’s exposure in Ghana debt market was through the investment activities of UBA Ghana, UBA UK and our New York branch. While UBA Ghana currently maintains investments in the Ghana domestic and Eurobond market, UBA UK and New York branch of the Bank were primarily in Ghana Eurobond segment,” UBA said.

Findings showed the total bond portfolio by UBA Ghana eligible for the exchange is N38.576 billion.

“The present value of the new bond using the weighted average rate on the existing bonds is N24.338 billion, resulting in a derecognition/impairment loss of N14.238 billion,” UBA said.

Consequently, the subsidiary recorded a decline in FY2022 PBT from N18.071 billion to N3.833 billion.

UBA noted that the bank’s recent Stress Test conducted indicated that the bank’s Capital Adequacy Ratio will close above the prudential requirement of 13 percent even after taking losses from the debt restructuring.

“The Liquidity ratio also remains healthy and above the Industry average of 35.30 percent after considering the impact of the debt restructure,” UBA said.

“The successful participation of the Domestic Debt Exchange Programme will have minimal impact on the earning capacity of UBA Ghana,” the bank added.

A report from the global credit rating agency, Fitch Ratings showed a restructuring of Ghana’s debt would have some impact on some Nigerian banks operating in the neighbouring country.

“Asset quality of the largest five banking groups will also be influenced by rising sovereign debt sustainability risks across the continent through their Sub-Sahara Africa subsidiaries. A restructuring of Ghana’s debt would have some impact [on] some banks’ asset quality as they have large operations in the country,” it said.

Nigerian banks operating in Ghana are Access Bank, Ecobank, Fidelity Bank, Guaranty Trust Bank, United Bank of Africa and Zenith Bank.