The Ghana Association of Banks (GAB) has declared that its member banks will refrain from participating in any further rounds of the Domestic Debt Exchange Programme (DDEP) until they receive official communication from the government confirming the end of the program.
John Awuah, the Chief Executive Officer of the GAB, emphasized that imposing additional burdens on the banks could lead to the collapse of many banking operations.
The government had previously entered into an agreement with banks to restructure ¢15 billion of locally issued U.S. dollar bonds and cocoa bills, a key condition for the International Monetary Fund (IMF) deal. However, there are indications that another round of the program is imminent.
John Awuah expressed that the banks have no appetite for another round of the DDEP.
“I’m not sure as a country there’s any kind of appetite for any round of domestic debt. The local bondholders have taken a lot of hits, even the central bank…in terms of what they did to make sure the process moved forward and the resulting media and public outcry…so the appetite at this stage, I am not sure there is any kind of space to accommodate another round,” he said on JoyNews’ PM Express.
He further mentioned that the Association is eagerly awaiting official communication from the government to confirm the conclusion of the DDEP, which is essential for maintaining investor confidence in the local market.
“We have not had any formal communication but of course, those were the outstanding issues on the table.
“The market moved on and we need some certainty within the financial markets it is important that very concrete messaging is sent out and market participants are aware that this is where we are and from now we can only look at the upside of our engagement in the marketplace.
“So as banks, we are not looking forward to whatever name you have for it, but we’re not looking forward to any exchange or debt operations or other technical language you have for it.
“The point is the industry has taken too much hit and when the industry takes a hit, the long-term effect is that it is the economy that takes a hit because you need a strong financial system to anchor any kind of recovery,” he said.
Minister of State at the Finance Ministry, Dr. Mohammed Amin Adam, is, however, encouraging the banks to engage in the forthcoming exchange.
“I want to encourage them to participate when we open because they will face challenges with their liquidity to pay and then also tradability of their bonds is going to be a problem for them. Eventually, their bonds will lose value. And so when we open it is in their interest to participate,” he said.
Meanwhile, John Awuah, the CEO of GAB, stated that commercial banks have been compelled by the current economic environment to strengthen their precautionary measures when extending loans to customers.
“The way the banks have managed to weather the storm during these difficult periods where we’ve had to take on some significant losses, it should tell you that the banks had built up the required capital buffers.
“Of course, there are one or two or three banks that would need some capital top-ups in order to operate within the regulatory confines. But we have some time through the regulatory reliefs that the Bank of Ghana gave to the industry to work our way back into the right capital levels.
“But as I say, if you’re a bank if the regulator says three years, it’s in your own interest that you kind of upfront manage your capital requirements to make sure that if it is three years you’re working within a shorter period to bring in capital.
“We have to also take cognizance of the fact that Ghana is not particularly an attractive destination for capital at the moment given all the market fundamentals that we have moving against us. But we are coming out. I read the IMF that said we’re gradually working our way out,” he said.