Banks plan for R7,8bn of losses, as Ghana restructures public debt
Four of Africa’s biggest lenders — Standard Bank Group, FirstRand, Absa Group, and Nedbank Group — collectively set aside R4,87 billion to account for the losses, impairing as much as 57 percent of local and onshore dollar-denominated debt holdings.
Meanwhile, Standard Chartered Plc set aside US$160 million.
A rare move to restructure local debt — bondholders exchanged 87,8 billion cedis (US$7,1 billion) of notes that paid an average of 19 percent, with bonds returning as little as 8,35 percent — has resulted in losses for financial institutions.
Ghana is restructuring most of its public debt, estimated at 576 billion cedis, to finalise a US$3 billion bailout from the International Monetary Fund.
“We dealt with the risk, because as we see it, while there’s a potential for a better outcome, there’s also potential for a worse outcome,” Absa Chief Financial Officer Jason Quinn said in an interview.
“So that’s why we took a position to impair those extensively.” Absa’s unit in Ghana, its third-largest lender by assets, booked R2.7 billion as impairment, including R2.2 billion for sovereign bonds, and another R500 million rand to cater for other government-related exposures. The lender maintains that its unit remains well capitalised.
Standard Bank, which runs the fourth-biggest lender in Ghana by assets, said it’s ready to re-capitalise the business should they need to, even though the Ghanaian unit’s balance sheet is a “fortress.” The lender holds as much as R2,6 billion in Ghanaian bonds.
“It is unfortunate where they find themselves,” FirstRand CEO Alan Pullinger said in an interview earlier this month. “The debt sustainability just wasn’t there and when you are over-geared, you eventually run out of cash and you have to call a default.”
President Nana Akufo-Addo’s government plans to start “substantive” discussions with international bondholders and their advisers in coming weeks, Finance Minister Ken Ofori-Atta said on February 16. The nation targets cutting its liabilities from an estimated 105 percent of gross domestic product in 2022 to 55 percent by 2028. The costs to local lenders will only be known later given the stock exchange allowed them to delay releasing financials. – Bloomberg