International ratings agency Fitch, has said banks in Ghana are projected to suffer a Net Present Value (NPV) loss of under 50 percent due to the just-concluded Domestic Debt Exchange Programme of government.

The agency in a statement explained that the potential loss can be attributed to banks holding large amounts of local currency government bonds. As a result of this, it said the debt restructuring exercise will significantly weaken banks’ capitalisation.

Fitch said this could, however, culminate in capital shortfalls for some banks operating in Ghana.

“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%”, Fitch said in a statement.

Government on February 14, 2023 announced the closure of the DDEP which was earlier launched on December 5, 2023.

Despite lukewarm participation by some bondholders, the Ministry of Finance said about 85 percent of eligible bondholders signed unto the programme.

In the wake of this, Fitch believes that despite the action being voluntary, “Ghanaian banks remained highly incentivised to participate as the risk-weighting of the old bonds will be increased to 100% from 0% and non-participating banks were not eligible for liquidity support from the newly created Ghana Financial Stability Fund.”

Meanwhile, treasury bills which is a key component of government and banks’ securities were excluded from the debt restructuring exercise.

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MA/FNOQ