Further analysis of the Domestic Debt Restructuring indicate that the 23 banks operating in this country will lose additional ¢6.1 billion, due to reduced coupon rate and the extension of the maturity period from five to 15 years.

According to the liquidity gap analysis by Dr. Richmond Atuahene and K B Frimpong, the 23 banks would have generated positive cash flow of about ¢10.1 billion over the period, from the original coupon rate of 19.3% per annum.

But following the implementation of Domestic Debt Exchange Programme (DDEP), the extension of maturity period and reduction of coupon rate will impact heavily on their earnings 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 weighted average rate of 9% per annum, thus leading to 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 weighted average rate of 9% per annum”.

“For example, Bank A with the bond value of ¢9,I06,452,000 and average coupon rate of 19.3% would have had cash flow of ¢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 ¢720,927,000, thus leading to liquidity gap of ¢1,100,363,000”, it added.

An earlier report revealed that banks will lose a total of about ¢41.3 billion from the DDEP, between 2023 and 2028 .

It indicated that by computing the Net Present Value of the 23 local banks, the losses could amount to ¢41.315 billion.

Immediate implementation of Financial Stability Fund critical to banks survival

The report therefore recommended the immediate establishment and operationalisation of the Financial Stability Support Fund of ¢15 billion to mitigate and address the expected liquidity challenges for some of the 23 banks that signed onto the Domestic Debt Exchange Programme.

Secondly, it urged the Bank of Ghana to implement full y the Basel III regulatory framework, which represents a huge step forward in the inter-national regulation of banks.

It added that “at the micro-prudential level, new liquidity requirements are going to be gradually imposed, reducing excessive maturity mismatches and ensuring that banks hold enough liquid assets to survive during a short stress period”.