Key findings by the 2023 Ghana Banking Survey by PwC has revealed that banks in Ghana were unprepared or ill-prepared for the Domestic Debt Exchange Programme (DDEP).

According to the report, the banks seem to have missed critical signs that should have given them a hint that their investments in government securities were at risk.

For instance, in 2022, ahead of the announcement/ launch of the DDEP by the Ministry of Finance in December, Fitch Ratings had downgraded Ghana’s issuer default rating (IDR) for its long-term local currency (LTLC) and long-term foreign currency (LTFC) debt instruments four times.

When asked what they could (or should) have done differently before the implementation of the DDEP, now that they have the benefit of hindsight, an overwhelming majority (94%) of respondent banks answered that “they could/ should have taken a less significant position in government securities’’.

An analysis of banks’ published financial statements indicate that at the end of 2022, banks’ holdings of government securities averaged 32.7% of total assets.  At the end of 2021, this was 46.2%.

These statistics, the report, said, confirm the banking industry’s direct and significant exposure to government’s fiscal policy and performance, and the crowding out effect on the private sector.

In response to the same question, more than a third of the respondent banks (37.5%) admitted, in each case that, they could/ should have consumed or used more robust economic policy and market research, undertaken scenario-planning, scenario-testing and/or stress-tests more regularly and implemented a more robust risk assessment and management system.

“These additional responses by banks further reinforce the notion that the industry was not prepared for the shock the DDEP introduced to their business”.

Only 29% banks take less significant positions in government securities

For local banks that participated in the online survey, it was not clear if they would have done anything remarkably different: only 29% of these banks said they would have taken less significant positions in government securities.

Another 29% stated that they would pay more attention to reviewing robust economic policy and market intelligence as part of managing their business.

An even lower proportion of 14% of participating local banks suggested that they would strengthen their risk assessment and management system, or conduct stress tests/ scenario testing more regularly.

100% regional banks to take softer positions in government securities

100% of the regional banks that participated were absolutely sure that they would take softer positions in government securities.

50% said they would implement more robust risk assessment and management systems, while a third of these banks would consider more robust economic research as a management tool

Two-thirds of international banks (67%) also pointed out that they would take a less significant position in government securities.

33% of this class of banks stated that they would implement a more robust risk assessment and management system, or undertake stress-tests and/ or scenario-testing more regularly.

100% of banks with insignificant or no government shareholding that participated in the survey said that they would take smaller positions in government securities.

50% each noted that they would implement more robust risk assessment and management systems and utilise more robust economic policy and market research in business decisions.

For each quartile category, the dominant position of banks is that they would reduce their investments in government securities.

Furthermore, the banks indicated that they would focus on implementing more robust risk assessment and management systems, followed by increasing their use of professionally researched economic and market reports.