Further analysis of the Domestic Debt Restructuring indicates that the 23 banks operating in the country will lose additional GH¢6.1 billion due to reduced coupon rate and the extension of the maturity period from five to 15 years.
According to a liquidity gap analysis conducted by Dr Richmond Atuahene and K. B Frimpong, the 23 banks would have generated positive cash flow of about GH¢10.1 billion over the period, from the original coupon rate of 19.3 per cent per annum.
But following the implementation of Domestic Debt Exchange Programme (DDEP), the extension of maturity period and reduction of coupon rate will impact heavily their earnings from investments in Government of Ghana Bonds.
“This liquidity gap is a result of the drop in the average bond rate of 19.3 per cent to weighted average rate of 9% per annum, thus leading to nominal negative liquidity gap of 10.3 per cent. The liquidity gap is expected to get worse if the average customer deposit rate is around 10 per cent per annum, but later declined to weighted average rate of 9 per cent per annum.”
“For example, Bank A with the bond value of GH¢9, I06, 452,000 and average coupon rate of 19.3 per cent would have had cash flow of GH ¢1,821,290,000, but with the Domestic Debt Exchange Programme, the effective rate of 9 per cent per annum will cause a drop in cash flow to GH¢720,927,000, thus leading to liquidity gap of GH¢1,100,363,000,” it added.
An earlier report revealed that banks would lose a total of about GH¢41.3 billion from the DDEP, between 2023 and 2028.
It indicated that by computing the Net Present Value of the 23 local banks, the losses could amount to GH¢41.315 billion.
Immediate implementation of Financial Stability Fund critical to banks survival
The report therefore recommended the immediate establishment and operationalisation of the Financial Stability Support Fund of GH¢15 billion to mitigate and address the expected liquidity challenges for some of the 23 banks that signed onto the Domestic Debt Exchange Programme.
Secondly, it urged the Bank of Ghana to implement fuly the Basel III regulatory framework, which represents a huge step forward in the inter-national regulation of banks.
It added that, “at the micro-prudential level, new liquidity requirements are going to be gradually imposed, reducing excessive maturity mismatches and ensuring that banks hold enough liquid assets to survive during a short stress period”.