Ratings agency, Fitch, has stated that the capital positions of Nigeria’s five largest banking groups will not be materially affected by the impact of Ghana’s sovereign debt restructuring on the groups’ Ghanaian subsidiaries.
The banks are Zenith, UBA, Access, Guaranty Trust and FBN.
“Although the debt restructuring will significantly weaken the subsidiaries’ capitalisation, this will not translate into a meaningful capital impact at the group level given the subsidiaries’ small size and the groups’ strong pre-impairment operating profit”, it said in a statement.
Nevertheless, Fitch, said, the debt restructuring adds to the capital pressure that the groups face from increasing domestic impaired loans, and further pressure could come from a potential devaluation of the Nigerian naira.
The Ministry of Finance announced on February 14, 2023 that the local-currency (LC) debt exchange, launched on 5 December 2022, had closed, after several delays and modifications.
According to the Ministry, creditors representing about 85% of eligible bonds took part, exchanging eligible government bonds for new bonds with lower coupons and longer tenors.
Although the debt exchange was formally voluntary, Fitch, said Ghanaian banks were highly incentivised to participate as the risk-weighting of the old bonds will be increased to 100% from 0% and non-participating banks are not eligible for liquidity support from the newly created Ghana Financial Stability Fund.
“Nigeria’s big five banking groups – Access Bank, Zenith Bank, FBN Holdings (FBNH), United Bank for Africa (UBA) and Guaranty Trust Holding Company (GTCO) – operate subsidiaries in Ghana and therefore the LC sovereign debt exchange will affect their capitalization”, it further said.
“As a means of deploying excess US dollar liquidity, some of the groups also have small Eurobond exposures through their Ghanaian and other subsidiaries. Ghana’s Ministry of Finance has suspended payments on Eurobonds pending a restructuring, which will add to the capital pressure on these groups”, it added.
