Further examination of the Domestic Debt Restructuring reveals that 23 banks operating in the country are projected to suffer an additional loss of GH¢6.1 billion.
This loss is due to the reduction in coupon rate and an extension of the maturity period from five to 15 years, a report by Banking Consultant, Dr. Richmond Atuahene and Financial Consultant, K.B. Frimpong indicated.
The analysis of the liquidity gap shows that the 23 banks would have had a positive cash flow of around GH¢10.1 billion if the original coupon rate of 19.3% per annum had been maintained.
However, as a result of the implementation of the Domestic Debt Exchange Programme (DDEP), the reduction in coupon rate and the extension of maturity period will have a significant impact on their returns from investments in Government of Ghana Bonds.
“This liquidity gap is a result of the drop in the average bond rate of 19.3% to a weighted average rate of 9% per annum, thus leading to a nominal negative liquidity gap of 10.3%. The liquidity gap is expected to get worse if the average customer deposit rate was around 10% per annum, but later declined to a weighted average rate of 9% per annum”.
“For example, Bank A with a bond value of GH¢9,I06,452,000 and an average coupon rate of 19.3% would have had cash flow of GH¢1,821,290,000, but with the Domestic Debt Exchange Programme, the effective rate of 9% per annum will cause a drop in cash flow to GH¢720,927,000, thus leading to liquidity gap of GH¢1,100,363,000”, the banking specialists added in their report.
To address the anticipated liquidity difficulties for some of the 23 banks that signed onto the Domestic Debt Exchange Programme, the report proposes two recommendations.
Firstly, it suggests the immediate establishment and operationalization of the Financial Stability Support Fund of ¢15 billion.
They also urged the Bank of Ghana to implement fully the Basel III regulatory framework, which is a significant development in the international regulation of banks.