Ghana’s move to restructure its local-currency and overseas debt is weighing on banks from Africa to the United Kingdom.
Four of Africa’s biggest lenders — Standard Bank Group Ltd., FirstRand Ltd., Absa Group Ltd., and Nedbank Group Ltd. — collectively set aside 4.87 billion rand (US$267 million) to account for the losses, impairing as much as 57% 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 GHC87.8 billion (US$7.1 billion) of notes that paid an average of 19%, with bonds returning as little as 8.35% — have resulted in losses for financial institutions. Ghana is restructuring most of its public debt, estimated at GHC576 billion, to finalize a US$3 billion bailout from the International Monetary Fund (IMF).
“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: 2.7 billion rand
Standard Bank: 1.5 billion rand
FirstRand: 496 million rand
Standard Chartered: US$160 million
Absa’s unit in Ghana, its third-largest lender by assets, booked 2.7 billion rand as impairment, including 2.2 billion rand for sovereign bonds, and another 500 million rand to cater for other government-related exposures. The lender maintains that its unit remains well capitalized.
Standard Bank, which runs the fourth-biggest lender in Ghana by assets, said it’s ready to re-capitalize the business should they need to, even though the Ghanaian unit’s balance sheet is a “fortress.” The lender holds as much as 2.6 billion rand 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.”
The costs to local lenders will only be known later given the stock exchange allowed them to delay releasing financials.