Key Highlights
GT Holding Company said it will slow down on credit and bond trading in Ghana is due to the $77 million impairment and focus on Nigeria and other high-yielding African countries.
Segun Agbaje said if you’re running high inflation, it’s going to be very difficult for businesses to make money and pay back loans.
He said that Guaranty Trust Holding Company does not plan to expand credit by more than 5% in Ghana and will limit itself to treasury bills when it considers securities investments.
Top Nigerian bank group, Guaranty Trust Holding Company Plc, has announced plans to slow down on lending and bond trading in Ghana following a $77 million (N35.6 billion) impairment in its West African subsidiary.
The banking group said that it will instead focus its activities on Nigeria and other high-yielding African markets to boost lending by about 15% in 2023.
According to Bloomberg, this was made known by the Group Chief Executive Officer of Guaranty Trust Holding Co, Segun Agbaje, at an investor conference call in Lagos, where he noted that the decision will help the financial institution increase its 2022 profit before tax of N214.2 billion by 31%.
Ghana’s debt crisis puts pressure on Nigerian banks
The move by the Ghanaian to restructure most of its public debt, estimated at $49 billion (576 billion cedis) is putting a lot of pressure on GTB and other Nigerian banks as an analysis of their 2022 full-year financial statements showed that they incurred impairment losses running into billions of naira in 2022.
This debt restructuring has added to several pressure points on these Nigerian banks, alongside the impacts of the devaluation of the Nigerian Naira, rising domestic impaired loans, and rapid credit and balance sheet growth.
The Ghanaian debt crisis highlights the challenges facing emerging market economies, particularly those reliant on commodity exports. It underscores the importance of sound fiscal management and debt sustainability to avoid potential contagion effects on neighbouring countries and their financial systems.
The West African nation exchanged 87.8 billion cedis of notes that paid an average of 19%, with bonds returning as little as 8.35% — resulting in losses for financial institutions. Ghanaian authorities are still negotiating with many overseas creditors.
What the GT Holding Co CEO is saying
Segun Agbaje, while referring to Ghana’s 45% inflation rate said,
“You’re talking about a country that has defaulted on its sovereigns and has not even yet given complete clarity as to how it’s going to handle all the default scenarios. If you’re running high inflation, it’s going to be very difficult for businesses to make money and pay back loans.’’
He said that Guaranty Trust Holding Company does not plan to expand credit by more than 5% in Ghana and will limit itself to treasury bills when it considers securities investments.
He added, “If you go out to book loans aggressively you are just going to make non-performing loans. Obviously, any country that defaulted, in terms of sovereigns means you have a harsh operating environment.”
Separately, Guaranty Trust predicts Nigeria’s next government will devalue the naira and work on converging multiple exchange rates in a bid to stimulate economic activities, according to Agbaje.
What you should know
In a related development, Zenith Bank reported it incurred a net impairment loss of N58.7 billion from its Ghanaian operations for the year 2022.
It stated that on February 14, 2023, the Group exchanged N123.6 billion (GHS2,675,754,659) of its existing Government of Ghana bonds for a series of new bonds with maturity dates commencing from 2027 to 2038 under the Ghana Domestic Debt Exchange Program.
UBA also reported impairment losses from its investments in Ghana. The bank said it has lost about N17.2 billion from the restructuring of the Ghanaian bonds. UBA Ghana specifically incurred about N14.2 billion of the losses.
Guaranty Trust had 167.6 billion naira of debt securities in Ghana.
Guaranty Trust Holding Company Plc in its Audited Consolidated and Separate Financial Statements for the year ended December 31, 2022, reported a profit before tax of ₦214.2billion, representing a 3.3% dip from ₦221.5billion posted in the corresponding year ended December 2021 on the back of ₦35.6bn impairment recognised on Ghanaian sovereign securities.
The Group’s loan book (net) increased by 4.6% from ₦1.80trillion as of December 2021 to ₦1.89trillion in December 2022, while deposit liabilities grew by 11.6% from ₦4.13trillion to ₦4.61trillion during the same period.
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