Cost of bank restructuring up

Company News from Saturday, January 26, 2019

Source: goldstreetbusiness.com

2019-01-26

While the government plans to use private pension funds to recapitalize five indigenous banks that the Bank of Ghana has described as creditworthy and well-managed, the government faces the possibility of a restructuring of the banking sector that is higher than budgeted.

Until now, the government has issued bonds amounting to 11.303 billion GHc in order to cover the capital deficits of the nine local banks that have been liquidated by the BoG so far, so that they can be absorbed in the context of of a purchase and takeover contract – two of them by GCB Bank and the other seven by the newly created consolidated bank.

In practice, this already exceeds the 11.25 billion GHc of bonds issued by the government on money markets and domestic capital for the first quarter of 2019.

Of this total amount to be mobilized for the first quarter of 2019, 10 149.84 million GHc will be used to refinance the maturing debt, while the additional 1 100.16 million GHc will be a new debt used to finance the operations. of the government.

The new debt will be part of the domestic financing of 4 787.8 million GHc of the projected government budget deficit for 2019, which is expected to reach 4.2% of gross domestic product (GDP) (readjusted). However, new developments indicate that the ongoing restructuring of the banking sector could force the government to record a higher budget deficit than projected in its 2019 budget.

There are two threats in this regard. One of them is the possibility that the private pension funds will not agree to mobilize all of the 2 billion GHc required by the five banks – Agricultural Development Bank, National Bank of India. Investment, Sahel Sahara / Omni Bank, Prudential Bank and Universal Merchant Bank. Given that the first three are mainly held by the government, if Ghana's Amalgamated Trust initiative fails to provide all the necessary money, it would be up to the government to recapitalize its own banks, a situation that 39 it tries to avoid initially by designing the GAT financing solution. .

The other threat is that it may not recover as much as it hoped from non-performing, but nonetheless recoverable badets, from banks for which it issued bonds to ensure their smooth transformation into Consolidated Bank Ghana without loss. the depositor's funds. .

Interestingly, a report released this week by the BoG on the findings of the sequestration of five of the banks indicates that the real value of the badets not used to establish the CBG could be less than half of their previous book value.

This situation is likely to reoccur with the other four banks whose doubtful badets have not been transferred to the acquiring banks under purchase and takeover agreements and are therefore with agents responsible for recovering as much as possible. of value to them.

According to the 2019 budget, the government has raised about 9.9 billion GHC to cover the rescue of the seven bankrupt banks, liquidated in 2018.

About 7.6 billion GHC were issued to cover the badets and liabilities of the five previously consolidated banks, namely Royal Bank, UniBank, Beige Bank, Sovereign Bank and Construction Bank.

The Heritage and Premium banks were then consolidated, about 1.403 billion GHC of bonds having been mobilized to fill the gap.

Previously, the collapse of UT and Capital Banks and their subsequent takeover by GCB Bank had cost the government more than 2 billion GHC to eliminate the combined capital deficit of the two banks and thus ensure the security of the funds. depositors.

The government had budgeted 1.9% of the gross domestic product (before the recast) to finance the closure of bankrupt banks, which amounted to 4 billion GHc, which even required deficit financing. This means that the government has already spent some 7 billion GHc more than expected, which should be recovered through the liquidation of bank accounts with the receivers.

But the government is now faced with the prospect of having to invest even more in the recapitalization of its own banks, even though the expected recoveries of the nine liquidated banks may not be up to expectations, judging from the report. recovery posted by the BoG at the beginning of the week.