About eight banks [names withheld] are strongly exposed to the Government of Ghana securities, mainly bonds and could consequently be impacted severely by the Debt Exchange Programme.
According to the November 2022 Ghana Fixed Income Market report, the banks (four foreign and four local) together controlled about 83.91% of the debt market share.
Despite an impending debt restructuring programme, they traded a sizable amount of bonds and bills in November 2022 on the bond market.
Their liquidity position may be impacted by the Debt Exchange, but it will depend on the size of their balance sheet.
In the worst-case scenario, though, the parent companies of the four foreign banks might be able to save them. Six of the top investment banks are also heavily exposed to Ghanaian government securities. They collectively held 89.13% of the market for debt instruments.
Some Ghanaian banks have recently had their ratings reduced by international rating organisations Fitch and Moody's.
They argued that the downgrade of the banks follows the downgrade of Ghanas Long-Term IDRs as the banks standalone credit profiles are closely linked to that of the sovereign (Ghana) (Ghana).
According to the rating agencies, this is a result of their operations being primarily based in Ghana, their dependence on income derived from the sovereign, and their high capital exposure to the sovereign.
The banks hold a modest amount of Ghanaian sovereign eurobonds, they added, but the exposure to sovereign securities is primarily in local currency.
Increase to 81.9% in bank investments in long-term debt instruments
As of the end of August 2022, securities (long-term debt instruments) continued to make up the largest portion of banks' investment portfolios, according to the Bank of Ghana's October 2022 Monetary Policy Report.
From 70.6% in August 2021, the share of securities increased further to 81.9% in August 2022. On the other hand, as a result of the decline in short-term bills this year, their proportion of total investments fell from 29.1% to 17.8%. During the time under review, the share of equity investments stayed constant at 0.3 percent.
Government to set up 15bn stability fund for banks
The Ghana Financial Stability Fund, with a target size of 15 billion cedis, was announced by the government on December 7, 2022.
Financial institutions that fully participate in the Debt Exchange will have access to liquidity through the Fund, which will be provided by the Government of Ghana and its development partners.
The statement stated, "With effect from the date of completion of the Debt Exchange, all financial institutions (banks, SDIs, pension schemes, collective investment schemes, fund managers, broker/dealers, insurance firms) that fully participate in the Debt Exchange may access the GFSF for enhanced liquidity support.
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