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Local Banks At Risk Of Insolvency Under IFRS 9 – Study | Banking/Finance

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Banking Consultant Dr. Richmond Atuahene has warned that banks operating in the country could face insolvency if the International Financial Reporting Standard (IFRS) 9 is applied strictly, following their participation in the Domestic Debt Exchange Programme (DDEP).

Already, there are indications that foreign-owned banks, including South Africa-based Standard Bank and First Rand Bank, are looking to recapitalising their Ghanaian arms, with the former being reported to have set aside 1.5 billion South African Rand (ZAR) – approximately US$81million – to cover potential losses emanating from the DDEP.

According to his analysis, contained in a paper titled ‘Assessing the Domestic Debt Exchange Programme and Fair Value Accounting Impact on Local Banks’ Solvency’, more than 30 percent – nine banks out of 23 – could go bust if the IFRS 9 is not temporarily suspended.

“From the data analyses, only the last six banks – R, S, T, U, V and W – may not experience any capital losses while eight banks may experience mild capital losses. These losses could be due to a combination of coupon or interest rate reduction and maturity extension with below-market coupon rates,” Dr. Atuahene explained in the paper co-authored with a financial consultant, K.B. Frimpong, which assigned letter A to W to correspond with respective banks.

He added that the capacity of the banking sector to absorb losses is low, and that without resorting to recapitalisation from the government or shareholders, local banks will not be able to absorb losses.

“Capital shortfalls are more likely to emerge for a tail of weak banks like A, B, E, D, G, J, K and few others because of their higher share of exposure to government domestic debt relative to their capital,” he said.

The central bank has issued regulatory forbearance on liquidity and solvency and standardised the accounting treatment regarding DDEP. Additionally, it has implemented measures, such as reducing the cash reserve requirement ratio to 12 percent on local currency deposits, reducing the capital conservation buffer to zero percent from 3 percent, slashing the capital adequacy ratio to 10 percent from 13 percent, and suspending dividend payments and other payouts to shareholders.

The Bank of Ghana is also spearheading the establishment of a GH¢15billion Financial Stability Fund, which is intended to serve as an additional layer of support for affected institutions, chief among them being banks.

Despite these measures, Dr. Atuahene warns that they may not be sufficient to prevent Ghana’s banking system from becoming insolvent. “The government and shareholders need to act fast to recapitalise the banks and protect the stability of the entire banking system and the economy. We cannot afford to take any chances”.

The banking consultant highlighted the potential impact of a domestic debt exchange on 23 banks’ balance sheets, as domestic banks hold around 37 percent of government securities.

He explained that any loss in value as a result of government debt exposures would lead to regulatory capital impairment in banking institutions at the time of the restructuring, unless these losses have already been absorbed by loan-loss provisioning and mark-to-market accounting, which were never applied before the restructuring.

Dr. Atuahene’s analysis showed that the reduction in the value of the government debt portfolio could be due to changes to the original contractual value of the debt security, such as coupon reduction from 19.3 percent to a weighted coupon rate of 9 percent, and maturity extension from five years to 15 years.

Using the net present value of GH¢41.32billion losses would negatively impact 23 banks’ solvency, with bank B estimated to become insolvent with NPV estimated losses of GH¢7.4billion from the total shareholders’ equity of GH¢2.85billion.

In light of these risks, the former lecturer at the National Banking College called for quick recapitalisation from the government and shareholders to mitigate the risk, and protect the stability of the entire banking system and the economy.

“If we allow losses to take their course, then the solvency of the banking system is at stake. We can’t afford to have our banking system become insolvent. We need to recapitalise the banks as quickly as possible so that they can continue to play their role in the economy,” he told the B&FT.

The banking consultant’s warning comes as discomfort persists in the industry over the DDEP as vestiges of the financial sector clean-up remain.

As part of reforms at the time, the Bank of Ghana tightened rules for lenders after a series of collapses and bail-outs, including increasing the minimum capital requirement for banks to GH¢400million by the end of 2018, from GH¢120million.

IFRS 9 specifies how an entity should classify and measure financial assets, financial liabilities, and some contracts to buy or sell non-financial items.

It requires an entity to recognise a financial asset or a financial liability in its statement of financial position when it becomes party to the contractual provisions of the instrument. At initial recognition, an entity measures a financial asset or a financial liability at its fair value plus or minus – in the case of a financial asset or a financial liability not at fair value through profit or loss – transaction costs that are directly attributable to the acquisition or issue of the financial asset or the financial liability.

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Ghana to enjoy 5G internet services from September – Communications Minister

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Minister for Communications and Digitalisation, Ursula Owusu-Ekuful has confirmed that 5G network service will be active in Ghana starting September 2024.

Appearing as a guest on Peace FM’s Kokrokoo morning show on Wednesday, March 20, 2024, the minister was emphatic in her response when the host, Kwame Sefa Kayi questioned her on when the 5th generation of mobile network service will be available for consumers in Ghana.

“Ghana will get a 5G internet connectivity in September 2024,” she stressed.

5G succeeds previous generations of 1G, 2G, 3G and 4G. It represents the latest advancement in wireless technology, offering significantly faster data speeds, lower latency, and increased capacity compared to its predecessors.

Ghana currently runs on 4G which is considered slow and outdated in the face of current technological advancement.

The minister’s confirmation comes on the back of a recent cut in internet services in Ghana and some other West African states.

The incident according to the National Communications Authority (NCA) is a result of some seismic activities which led to a cut in undersea fibre optic cables delivering internet to West Africa.

According to the NCA, the issue will take not less than five weeks to fix. Meanwhile, service providers such as telecommunication networks have switched to alternate sources to give their customers more stable network.

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We need to eat locally produced commodities – Chrysantus Akem –

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Programme Coordinator of Technology for African Agricultural Transformation (TAAT), Chrysantus Akem, has said it is about time Africa consumes food commodities that are locally manufactured.

According to him, towing this path will cut the huge sum of money that goes into the importation of foodstuffs, including rice and poultry, among others.

Speaking at the launch of TAAT Phase II in Accra on Wednesday, March 20, 2024, Mr Akem noted that about US$35 billion is spent every year on the importation of food.

“Eat what you produce and produce what you eat because right now, it is estimated that we are spending about US$35 billion every year importing foods. This has to stop. We have to make sure that these amounts are diverted to other sections of the economy instead of importing food like rice that we can grow,” he said.

Citing Ghana as an example, Chrysantus Akem stated that the government can focus on soybeans as oil can be extracted from this essential commodity for both local use and exportation.

He further pointed out that the TAAT Phase II focuses on five commodities including maize, soybeans, vegetables, and fish.

“Maize is a commodity we know is consumed across the country. The key thing that we’re bringing are high-yielding varieties that can yield 5 to 6 tonnes per hectare compared to the 1 to 2 tonnes per hectare that the varieties are yielding. In addition to that, we also want to encourage the consumption of pro-vitamin A meals so that we can move from food security to nutrition security. That’s the first commodity,” the TAAT Coordinator stated.

He added that, “the next one that we’re bringing in is soybean. Ghana grows a lot of soybeans. We want to focus on soybean to extract oil… The other commodity is vegetables. Vegetables are the new ones we are bringing in… and fish.”

The launch of the Phase II of the Technology for African Agricultural Transformation programme gives researchers, policymakers, farmers, donor partners, and all stakeholders in the agricultural value chain the opportunity to move closer towards achieving greater agricultural productivity and food security in the sub-region.

The initiative aims at supporting countries in the region to improve crop, livestock, and fish productivity.

TAAT Phase II is expected to expand access to adaptive and proven technologies to more than 40 million smallholder farmers across Africa by 2025, as well as, generate an additional 120 million tonnes of food.

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Government committed to paying GH¢6.5bn DACF arrears – Osei-Asare assures

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Outgoing Deputy Finance Minister, Abena Osei-Asare, has acknowledged that the government currently owed arrears due to be paid into the District Assemblies Common Fund (DACF).

She pledged that the government’s commitment to resolving the outstanding debt.

Benjamin Kpodo, Ho Central Member of Parliament, raised the issue of non-payment of statutory allocations into the fund, alleging that a total amount of GH¢6.5 billion was yet to be transmitted.

The MP, who is also the Deputy Ranking Member of the Local Government Committee of Parliament, highlighted that the Ministry of Finance’s delay in releasing funds, in violation of constitutional mandates for quarterly disbursements, has left the Common Fund significantly underfunded.

Speaking in Parliament during discussions on the proposed DACF distribution formula for 2024, Mr Kpodo stressed the urgent need for the government to fulfil its financial obligations to local authorities.

“The Ministry of Finance has been violating the Constitution. Article 252(2) clearly states that the disbursement should be done on a quarterly basis, which they were not doing. As we speak now, the Common Fund is being owed some GH¢3.5 billion over the past two years”, Mr Kpodo said.

“For 2023, the debt has again risen by another GH¢3 billion. So, I don’t know where the Ministry of Finance is keeping the money meant for the District Assemblies Common Fund,” he added.

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