Nigerian banks have suffered significant losses on their investments in Ghanaian Bonds in the wake of the bond defaults in Ghana. Ecobank, GTCo, UBA, Zenith Bank, and Access disclosed in their 2022 financial statements that they had experienced an impairment loss of approximately N284 billion in 2022 as a result of Ghana’s debt restructuring. While First Bank and Fidelity Bank are yet to release the results of their audited financials.
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Ghana has been facing a debt crisis propelled by the decrease in commodity prices, which has led to a reduction in the country’s fiscal revenue buffers. The current economic crisis in the country has led to a rise in inflation, higher discount rates, and a rapid devaluation of the exchange rate.
In seeking solutions to the debt crisis, the Ghanaian government sought economic assistance from the IMF which came with a couple of conditions. One of these conditions was the restructuring of Ghanaian debts. As a result of the local debt restructuring process, coupon payments for Ghana loans were suspended, which compelled bondholders to take a haircut, resulting in a loss of bond value.
For the year 2022, Zenith Bank, Nigeria’s largest bank in terms of profitability and gross earnings, reported a net impairment loss of N58.7 billion from its Ghanaian operations.
UBA Group incurred about N17.2 billion in losses, with UBA Ghana accounting for N14.2 billion of the losses. According to a statement, the bank clarified that its involvement in the Ghana debt market was through the investment endeavors of UBA Ghana, UBA UK, and the New York Branch. At present, UBA Ghana has investments in both the Ghana Domestic and Eurobond market, whereas UBA UK and the New York Branch of the Bank were primarily invested in the Ghana Eurobond segment.
Ecobank International has also disclosed losses resulting from its investment in Ghana’s sovereign bonds. As per the Pan-African Bank, the losses amounted to as much as $162 million (equivalent to N69.2 billion based on its stated exchange rate).
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GTCO also experienced impairments related to Ghana’s debt restructuring. According to information gathered from the bank’s 2022 financial statements, the group had a total investment portfolio exposure of about N167 billion but incurred a loss of around N35.6 billion from Ghanaian Bonds. These losses were linked to exposure to Treasury Bills, Local bonds, and Ghana-issued Eurobonds.
Access Bank recorded the highest loss of any bank of Nigerian origin. The bank in its financials showed an impairment loss of approximately N103 billion on bonds related to Ghana.
Aftermath on Ghana and Other Emerging Market Economies
Bloomberg reported that in response to the impairment, GTCO intends to slow lending and bond trading in Ghana. The report highlighted that Segun Agbaje, the CEO of GTCO Plc, stated that the bank would instead concentrate on home and other high-yielding African markets to increase lending by around 15% this year.
Segun Agbaje noted during an investors conference call in Lagos, “You’re talking about a country that has defaulted on its sovereigns and has not even yet given complete clarity as to how it’s going to handle all the default scenarios.
“If you’re running high inflation, it’s going to be very difficult for businesses to make money and pay back loans,” he added further.
The views expressed by the GTCO CEO about Ghana are shared by various investors, particularly foreign ones who invested in Ghana’s debt markets. However, not only Ghana is affected. Investors could face challenges in the future with other emerging market economies that depend heavily on commodity exports. Nigeria, for instance, has not defaulted on its debt obligations, but it is grappling with a mounting debt burden while attempting to boost revenue amid declining oil revenues.
Also Read: A Note on Access Bank’s Rapid Growth and the Valuation of Nigerian Banks
Essentially, investors considering future investments in Ghana and other emerging markets should conduct a thorough evaluation of the risks involved. This assessment should include the macroeconomic and political climate, as well as the issuing country’s creditworthiness and debt sustainability.
