Banks will suffer a net present value loss of just under 50% as a result of the Domestic Debt Exchange Programme (DDEP).

According to ratings agency, Fitch, banks hold large amounts of local currency government bonds, and the restructuring will significantly weaken their capitalisation, leading to material capital shortfalls at some banks.

“Based on the coupon rates and tenors of the new bonds, and assuming a discount rate of 20%, we estimate that Ghanaian banks exchanging bonds will suffer a net present value loss of just under 50%”, it revealed in a statement.

The Ministry of Finance announced on February 14, 2023 that the local-currency (LC) debt exchange, launched on December 5, 2022, had closed, after several delays and modifications.

According to the ministry, creditors representing about 85% of eligible bonds took part, exchanging eligible government bonds for new bonds with lower coupons and longer tenors.

Fitch said although the debt exchange was formally voluntary, Ghanaian banks were highly incentivised to participate as the risk-weighting of the old bonds will be increased to 100% from 0% and non-participating banks are not eligible for liquidity support from the newly created Ghana Financial Stability Fund.

Treasury bills representing 15% of the Ghanaian banking system’s securities were excluded from the exchange.