Banking sector resilient a year after domestic debt exchange programme, says Professor Boadi
Professor Isaac Boadi argues that the banking sector has been able to withstand the shocks brought about by the exchange programme
Ghana’s banking sector is picking up pace and is on the path to recovery and growth one year after the government’s domestic debt exchange programme (DDEP), says Professor Isaac Boadi.
Appearing on Atinka TV’s The Agenda Show on Thursday (11 July 2024), Professor Boadi held that the banking sector has been able to withstand the shocks brought about by the debt exchange programme.
“A year after the DDEP, we can say that the banking sector is resilient. Growth in the sector has picked up and [the banks] are getting back to normalcy,” he said.
“The balance sheets of the banks are strong as they have been able to increase their assets. The financial soundness of the banks is positive. And all these give one indication: the sector is growing and getting stronger,” Boadi said.
Banks’ reserves rising from GHC212 million in 2022 to GHC270 million in 2023, Boadi added, was another indicator of a resilient banking sector. All the other parameters point in the same direction, showing that the banking sector is getting stronger.
“Return on equity … has gone up drastically high as it has moved from negative to positive growth,” he said.
Although the DDEP was a bitter pill to swallow, said Boadi, the dean of accounting and finance at the University of Professional Studies, Accra (UPSA), it was unavoidable and has yielded the anticipated fruit.
Debt swap
In 2022 the then finance minister, Ken Ofori-Atta, announced that the government would undertake a debt operation programme.
The broad contours of a debt sustainability analysis had been concluded and various details of the programme were announced.
Under the DDEP, domestic bondholders were asked to exchange their instruments for new ones. Existing domestic bonds as of 1 December 2022 would be exchanged for a set of four new bonds, maturing in 2027, 2029, 2032 and 2037.
The annual coupon on all of these new bonds was set at 0% in 2023, 5% in 2024 and 10% from 2025 until maturity. Coupon payments would be semi-annual.
The government’s commitment to Ghanaians and the investor community, in keeping with Ghana’s negotiations with the International Monetary Fund, was to restore macroeconomic stability in the shortest possible time and enable investors to realise the benefits of the domestic debt exchange.
In this regard, among other measures:
• Treasury bills were being completely exempted and all holders would be paid the full value of their investments on maturity.
• There would be NO haircut on the principal for bonds.
The government recognised that financial institutions held a substantial proportion of these bonds. As such, the potential impact of the exchange on the financial sector had been assessed by the respective regulators.
Appropriate measures and safeguards were put in place to minimise the potential impact on the financial sector and to ensure that financial stability was preserved.
A year after the launch of the programme, Professor Boadi says, the numbers show that the banking sector is resilient.
Reporting by Wilberforce Asare in Accra
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