Friday, February 23, 2024

Top Nigerian banks groan under unfavourable business environment in Ghana

  • Access, GTCO, UBA, Zenith declare N209bn impairment loss

Nigerian banks operating in Ghana are having a fair share of the economic challenges facing the West African country as huge provisions for impairment on financial exposures to government debt instruments which they invested in impacted negatively on their bottom-line in the financial period ended December 31, 2022. FESTUS OKOROMADU reports.

Leading tier-one banks of Nigerian origin -Zenith Bank Plc, GTCO Plc and United Bank for Nigeria Plc, operating in the shores of Ghana, a country in the west of Africa, battling its worst economic crisis in decades, reported a total impairment loss of about N209 billion at the end of the 2022 financial year. The loss emanated from the banks’ investment in the government of Ghana’s debt instruments which has been badly affected by inflation. Ghana’s inflation rose above 50 percent in March, the highest in 21 years. It however declined to 45 percent in April.

The most recent data released by the Bank of Ghana, the nation’s central bank, put the country’s debt load at $48.9 billion as of September 2022, representing 76 percent of GDP.

A report by Aljazeera, recently published, showed that Ghana recorded a significant drop in revenue in 2020 coupled with a rise in government expenditures. They were mainly COVID-related as the government adopted a populist approach, provided free water and electricity to citizens and fed 470,000 households during a three-week lockdown that cost the nation $9.4 million.

“In August 2021 Akufo-Addo, President of Ghana, began what he later admitted was “an overly ambitious” construction project of 111 hospitals with an estimated price tag of more than $1 billion. Pressure kept mounting on his government to fulfill a plethora of other electoral promises, such as the construction of roads, schools and markets, forcing the government to keep borrowing and leaving an economy dogged by high public debt,” Aljazeera disclosed.

Meanwhile, Access Bank recorded the biggest impairment loss at over N103 billion while Zenith Bank stood at N56.18 billion, GTCO Plc recorded an impairment loss of N35.55 billion and UBA Plc, N14.24 billion.

GTCO disclosed in its 2022 audited financial account it was exposed to Ghana’s debt, which resulted in an impairment charge of N35.55 billion on its holdings of government of Ghana (GoG) debt instruments.

Expatiating on the deals, the lender said its total exposure to government investment securities amounted to N167.56 billion at the end of the period, inclusive of GoG Eurobonds held by its subsidiaries in Nigeria, Sierra Leone, Liberia and Rwanda.

“Applying the impairment taken by the group in the year, the affected investment securities were revalued to N132.01 billion as of 2022FY,” the bank stated in its audited account.

Similarly, the management of Zenith Bank blamed the significant growth in impairment charges recorded during the period on the higher impairment expense for its Ghana subsidiary, following the debt restructuring programme in Ghana.

According to the bank, impairment charges for its Ghana subsidiary grew to N56.18 billion in the 2022 financial year from N1.95 billion in 2021.

“The moderation in 2022FY earnings was triggered by higher impairment charges (+105.7% y/y) induced by the debt restructuring programme in Ghana – the group took an impairment allowance of N58.80 billion on N202.40 billion worth of instruments issued by the Government of Ghana,” Zenith Bank said.

“In August 2021 Akufo-Addo, President of Ghana, began what he later admitted was “an overly ambitious” construction project of 111 hospitals with an estimated price tag of more than $1 billion”

The UBA Group was also not spared of the bitter experience as it recorded higher impairment charges on loans and other financial assets to the tune of 226.3 percent y/y, primarily due to the domestic debt exchange programme (DDE) in Ghana.

In the programme, UBA Ghana exchanged N38.58 billion worth of eligible bonds for N24.34 billion new bonds, implying an impairment loss of N14.24 billion. Consequently, the group’s subsidiary in Ghana recorded a 74.1 percent decline in profit after tax to N2.58 billion compared with N9.97 billion recorded in 2021.

The implication of the provision for impairment on the return on investment of GTCO was that earnings per share (EPS) dropped by 3.1 percent to N5.95 from N6.14 in 2021. It translates to a smaller dividend for shareholders.

According to the bank, the moderation in EPS was triggered by higher impairment charges on financial assets in 2022 to N35.94 billion compared to N760.80 million in 2021, attributed to the group’s exposure to the Government of Ghana (GoG) debt. However, the board proposed a final dividend of N2.80 per ordinary share of 50kobo each up from N2.70 per share distributed in the 2021 financial year.


GTCO financials

Overall, GTCO’s profitability was pressured by the impairment loss arising from the bad debt of Ghana. Hence, profit before tax slowed by 3.3 percent y-o-y to N214.15 billion. Likewise, profit after tax moderated by 3.2 percent y-o-y to N169.17 billion, despite the 3.6 percent y-o-y decline in the income tax expense.

GTCO posted interest income of N325.40 billion representing 21.9 percent growth year-on-year, supported by the income generated from loans and advances to customers which rose by 13.2 percent y-o-y to N219.93 billion, investment securities 26.7 percent y-o-y to N85.81 billion, cash and balances with banks by 256.4 percent y-o-y to N14.87 billion, and loans and advances to banks by 538.9 percent y-o-y to N4.79 billion.

Similarly, interest expense increased by 42.8 percent y-o-y to N66.10 billion, driven by the higher costs incurred on deposit from customers which rose by 43.7 percent y-o-y to N59.75 billion and borrowings by 62.2 percent y-o-y to N4.46 billion.

Non-interest income declined by 4.0 percent y-o-y to N164.74 billion, driven by the impairment charged on investment securities at N35.94 billion in 2022.

Operating expenses increased by 22.0 percent y-o-y to N197.90 billion, with the most pressure exerted by regulatory charges – deposit insurance premium rose by 17.6 percent y-o-y to N14.40 billion and AMCON levy increased by 6.4 percent y-o-y to N23.29 billion.

Zenith Bank

On its part, the huge impairment provision affected return on investment on Zenith Bank equity as earnings per share declined by 8.2 percent y-o-y to N7.14 as against N7.78 posted in 2021.

Impairment charges resulting from Ghana’s debt restructuring rose by 105.7 percent y-o-y, taking its toll on gross earnings. The Zenith Bank group took an impairment allowance of N58.80 billion on N202.40 billion worth of instruments issued by the Government of Ghana.

The group’s interest income grew by 26.3 percent y-o-y to N540.17 billion, occasioned by the expansion in risky assets which grew by 19.6 percent to N4.23 trillion and an effective repricing of its interest-earning assets during the period.

Non-interest income (NII) grew by 23.3 percent y-o-y to N380.97 billion in the period. The growth recorded was supported by expansions in net fees & commissions income rising by 27.7 percent y-o-y to N132.80 billion and gains on investment securities up by 27.0 percent y-o-y to N212.68 billion.

Operating expenses expanded by 17.3 percent y-o-y to N336.69 billion, while the balance sheet expansion assets grew by 30.0 percent to N12.29 trillion leading to the higher non-discretionary regulatory expenses. Overall, profit-before-tax settled marginally higher by 1.5 percent y-o-y to N284.65 billion compared with N280.37 billion in 2021. However, the 69.6 percent increase in income tax expenses put further pressure on profit after tax as it declined by 8.4 percent y-o-y to N223.91 billion.

United Bank for Africa Plc

Unlike her peers, the UBA Group supported by a strong income generation offset the impact of the higher impairment charges and as well grew RoI for shareholders.

The bank’s audited full-year results reported a solid earnings growth in 2022 leading to a 42.8 percent y-o-y growth in EPS to N4.84, up from N3.39 in 2021.

UBA group’s interest income grew by 17.5 percent y-o-y to N557.15 billion in 2022 buoyed by all contributory lines.

However, impairment charges on loans and other financial assets grew by 226.3 percent y-o-y, primarily due to the domestic debt exchange programme in Ghana.

Nevertheless, the group reported an impressive non-interest income as it grew by 66.7 percent y-o-y to N213.74 billion owing to the higher income generated from FX trading which rose by 104.9 percent y-o-y, while net fees and commission appreciated 27.1 percent y-o-y, and investment securities trading increased 9.1 percent y-o-y during the period.

On a balancing note, profit-before-tax grew by 31.2 percent y-o-y to N200.88 billion which was further supported by the lower income tax expense declining 11.0 percent y-o-y to N30.60 billion. As a result, profit-after-tax grew by 43.5 percent y-o-y to N170.28 billion.

Access Bank

Access Bank’s audited 2022 financial year results showed a 3.1 percent y/y decline in EPS to N4.44 as against N4.58 in 2021, despite its top-line crossing the N1.00 trillion mark.

The decline in the group’s earnings has been attributed to the higher impairment charges of 137.7 percent y/y in the period, primarily driven by its exposure to the Government of Ghana’s (GoG) debt. While the GoG is yet to present restructuring terms for its Eurobonds, the group took an impairment of NGN103.10 billion on its GoG debt holdings (Domestic debt and Eurobonds holdings). On that note, the fair value for Ghana’s sovereign debts in the group’s books amounts to N348.15 billion.

All in, profitability was pressured as the group’s profit before tax declined by 5.1 percent y/y to N167.68 billion. Likewise, PAT settled 4.6 percent y/y lower to N152.90 billion, despite the lower income tax expense (-10.4% y/y) in the period.

Notwithstanding, the board proposed a final dividend of N1.30 per share as against 70kobo per share in 2021.

The Holdco recorded a 55.8 percent y/y increase in interest expense to N467.84 billion, triggered by higher costs incurred on deposit from banks (+83.6% y/y to N118.53 billion), deposits from customers (+63.4% y/y to N273.06 billion), interest-bearing liabilities (+14.0% y/y to N52.01 billion) and debt securities (+5.0% y/y to N22.82 billion).

Ghana’s inflation soars as IMF deal drags on

The West African nation is facing one of its worst economic crises in decades. Soaring inflation is compounding the sufferings of many Ghanaians who now have to dig deeper into their pockets to afford essential goods.

Dela Omar, who works as an IT specialist in Ghana’s capital, Accra, used to live very comfortably with his family of five. But in recent months, he has struggled to cope with Ghana’s worsening economic crisis.

Omar said he cannot cope with the constant price increment of essential commodities. Moreover, he pointed out that caring for his family is even more challenging now than a year ago.

“Looking at the situation, you need to work extra hard, do other things to add up to your business to be able to make money to take care of the family,” Omar said.

The inflation rate for February stood at 52.8% according to the Ghana statistical service. That means prices of items have more than doubled compared to last year.

Runaway prices of food items and other commodities mean families like Omar’s are in constant distress.

“I have a problem that has become chronic. Almost every day, I have a headache because of the pressure on me,” Omar said.

According to Omar, paying for a higher rent, children’s school fees, and at the same time providing food at home comes with constant challenges amid a worsening economic crisis.

“I am living in a rented apartment, and I have to pay rent, my children’s school fees, so putting all those things together gives me a headache. I need to do extra things to make money,” he said.

Small businesses struggling

But consumers like Omar are not the only ones battling with the issue of runaway commodity prices.

Traders like Sampana Osei, who imports spare car parts in Accra, also feel the pinch.

The prices for his goods are constantly changing, making it difficult for him to reap profits from the capital he invested into his business. Osei blamed the unstable nature of the local currency, the cedi, which keeps losing value against major currencies.

“Because the economy is in bad shape, we cannot import much of the items we sell. Eighty percent of our business has collapsed because of unstable prices. The poor performance of the cedi means once we bring in the goods, we have to sell at higher prices,” Osei said.

Commodity prices have been increasing for months in Ghana, gnawing away people’s purchasing power.

There has been some slight stability in fuel prices, but they still are high compared to early last year.

Little progress in IMF bailout deal

Not much progress has occurred since Ghana announced it was returning to the International Monetary Fund to secure a bailout and restore some level of confidence in the economy.

Financial analyst, Professor John Gatsi, said that Ghana was facing its worst run of poor economic conditions in decades.

“We are in a high inflation regime right now and this affects food items and imported items all together,” he said.

According to Gatsi, Ghana’s over-dependency on imported goods also increases prices. He added that there is no way around the inflation crisis.

“The food items under the inflation basket are primarily items that we could produce ourselves, so it is important for us to awaken and commit our resources and energy to ensuring that we get into the production arena.”

The Ghanaian economist also blamed the current high inflation figures on poor economic decisions by managers of Ghana’s economy.

Excessive lending to the central government by the Bank of Ghana to finance government activities was a key reason for the crisis, Gatsi stressed.

Impact of war in Ukraine, Covid pandemic

Ghana’s government has consistently argued that the COVID-19 pandemic and Russia’s invasion of Ukraine negatively affected the economy and triggered higher inflation. However, Gatsi disagrees.

“We are importing tomatoes from the Sahel region worth millions of dollars. This was not done by the Ukraine-Russia war,” Gatsi said.

Ghana’s debt levels have been unsustainable for years, and the government had to renegotiate its debts with local creditors in a debt exchange program.

It is yet to restructure its debts with external creditors to secure a $3 billion (€2.7 billion) bailout from the IMF. Much of the anticipated loans over three years are to stabilize the country’s balance of payments.

The government set a timeline in March to finalize a deal, but that goal seems unlikely. In the meantime, citizens are bracing for more economic hardship.

Ghana sits on the Atlantic Ocean and borders Togo, Cote d’Ivoire, and Burkina Faso. Its population is about 29.6 million (2018). In the past two decades, it has taken major strides towards democracy under a multi-party system, with its independent judiciary winning public trust. Ghana consistently ranks in the top three African countries for freedom of speech and press.

President Nana Akufo-Addo’s re-election after the Supreme Court dismissed the opposition’s election petition, gave the governing New Patriotic Party a second term. The success of President Akufo-Addo’s second term will depend on his ability through consensus building with the opposition on major legislation (including revenue-mobilizing bills) towards achieving debt sustainability, and reaching an agreement with external creditors on external debt restructuring in order to conclude the IMF programme under preparation.

Recent economic developments

GDP growth is estimated to have slowed to 3.2% in 2022, down from 5.4% in 2021. The slowdown affected mostly the non-extractive sectors, as the recovery in gold exports supported extractive growth. The agriculture and services sectors experienced slower growth in 2022 than the year before. High inflation and interest rates depressed private consumption and investment.

“Access Bank recorded the biggest impairment loss at over N103 billion while Zenith Bank stood at N56.18 billion, GTCO Plc recorded an impairment loss of N35.55 billion and UBA Plc, N14.24 billion”

Government demand was weakened by lack of access to capital markets and high debt service obligations.

The 2022 fiscal deficit was well above target. The overall fiscal deficit (on a cash basis) reached 9.9% of GDP against a target of 6.7%.

Inflation accelerated throughout the year. In 2022, average CPI inflation was 31.5%, (up from 10% in 2021) and reached 54.1% in December (y-o-y). The Bank of Ghana (BOG) responded by increasing the monetary policy rate from 14.5 to 28 % over the year. However, these efforts were undermined by the government’s extensive use of its overdraft facility with BOG (estimated at 6.7% of GDP in 2022).

Overall, the balance of payments recorded a deficit of 5% of GDP, from a surplus of 1.9% in 2021. As a result, international reserves fell to $5.6 billion (2.5 months of import) in December 2022 from $9.1 billion (4.2 months of import) a year earlier. After remaining stable in 2021, the Cedi lost over 40 % of its value against the US dollar in 2022.

Banking sector vulnerabilities have increased because of the cedi depreciation and the impact of a domestic debt exchange (DDE) concluded in February 2023. Implementation of the DDE will impact Ghana’s financial sector due to the heavy exposure of banks, insurance companies and pension funds to government debt. It is estimated that 42.1% of government domestic debt is held by these entities.

Poverty reduction slowed

The “international poverty” rate is estimated at 20.5% in 2022. Currency depreciation, increased price of electricity and water, and an increase in the VAT have driven up the cost of living, particularly for food. This places considerable strain on household budgets, especially for those who devote more than half of their budget to food. Rural farmers were also affected by increases in the prices of fertilizer and other inputs.


Growth is expected to slow further to 1.6 % in 2023 and remain muted in 2024, before returning toward its potential. Non extractive growth is expected to remain slow, with agriculture affected by high input prices and a disease affecting cocoa trees. Extractives growth is expected to be robust thanks to new gold mines and a recovery in small-scale mining.

International poverty is projected to decline slowly from 20.5 to 19.5% by 2025, consistent with a muted outlook on growth for the country and high inflation. In the shorter term, poverty is expected to increase slightly, due to the cumulative effects of increases in electricity and water tariffs, rising food prices and an increase in VAT. The revised electricity tariffs could be less regressive and reduce poverty if a portion of the increased revenues were targeted to the poor in the form of cash transfers.

Risks and Challenges

The main risks to the outlook are related to delays in reaching an agreement with external creditors on external debt restructuring and delays with concluding the IMF programme under preparation, increased financial sector vulnerabilities, and the realization of contingent energy sector

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