16 Banks to record further impairment losses in 2nd round of DDEP
A recent study conducted by esteemed researchers, Dr. Richmond Atuahene and K.B. Frimpong, has revealed that Ghana’s banking sector is set to face another wave of losses this year due to the unresolved repercussions of the Domestic Debt Exchange Programme (DDEP).
The study highlights that 16 banks failed to fully account for their impairment losses in 2022, leaving approximately ¢17.1 billion ($3 billion) in uncaptured losses that could significantly impact their 2023 Audited Financial Statements.
Of the 22 banks examined, only a handful, including Absa, Stanbic, Standard Chartered Bank, FNB, and Zenith, managed to effectively capture their impairment losses in 2022.
However, the remaining institutions are now compelled to include the outstanding losses in their 2023 financial reports, which could have adverse effects on their Capital Adequacy Ratio and key profitability indicators such as Return on Equity and Return on Assets.
The cumulative impairment losses suffered by Ghanaian banks as a result of the DDEP reached approximately ¢19.4 billion in 2022, significantly impacting their profitability.
Alarmingly, the Capital Adequacy Ratio of eight banks has fallen below the critical threshold of 13%, a crucial measure of accessible capital relative to risk-weighted assets and liabilities.
Furthermore, the study reveals that the DDEP-induced impairment losses have deleterious consequences beyond banks’ financial health. They also undermine these institutions’ lending capacity, potentially dampening credit availability to the private sector and impeding overall economic activity in the country.
The 2022 Audited Financial Statements of the surveyed banks only partially reflected the impact of the Domestic DDEP losses and the challenging operating environment that prevailed throughout the year.
The implementation of the DDEP led to substantial mark-to-market valuation losses on government bonds held by several banks, exacerbating their financial woes.
To address these pressing concerns, the report urgently calls upon the Bank of Ghana to vigilantly monitor anticipated capital shortfalls and ensure the prompt implementation of strategies to rebuild banks’ capital buffers.
Proposed measures include prohibiting dividend distribution, imposing risk exposure restrictions, enhancing monitoring mechanisms for banks failing to meet minimum Capital Adequacy Ratio requirements, and providing early recapitalization support from the Ghana Financial Stability Fund.
In 2022, Ghana’s banks collectively suffered a loss of ¢6.6 billion, a notable downturn from the ¢4.8 billion profit recorded in 2021. Among the 22 banks analyzed, only six managed to remain profitable, including GT Bank, Societe Generale, FBN, UBA, First Atlantic, and Bank of Africa.
Taking into account a Net Present Value of 16%, the study estimates that the total losses incurred by the 22 banks due to the DDEP amount to approximately ¢37.7 billion.
Despite ¢19.2 billion having been written off to date, a significant outstanding sum of ¢17.5 billion remains unresolved and must be addressed in the upcoming 2023 financial year.
As Ghana’s banking sector grapples with the enduring impact of the Domestic Debt Exchange Programme, close attention and swift action from regulatory authorities are imperative to safeguard the stability and resilience of the nation’s financial institutions.
