Nigerian banks and Ghana’s sovereign debt crisis

The financial losses incurred by some Nigerian banks due to Ghana’s default in meeting its debt obligations underscores the significance of country risks faced by international lenders and, more importantly, the contributions of our financial institutions to the development of Africa. Many Nigerian banks have subsidiaries across Africa and with that, they have played significant roles in supporting economic growth of these African countries in the last two decades. Some have suffered losses in the course of business and continue to face myriads of challenges as they expand across the continent, but, as it is often said, Africa will have to be developed by Africans.

So, Nigerian banks will continue to expand their footprints on African soil and help to create wealth for Africans. Gone are the days when African governments were looking up to the likes of HSBC for help, or when long-legged ladies from Swiss banks were talking down on our wealthy tycoons who needed advice on how best to improve the value of their treasures. Nigerian banks now dot the landscape of Africa, offering wide range of services, from Cape Town to Cairo. In the absence of a national carrier, our banks have become the most visible brand promoter for the country.

I salute the resilience, tenacity and fortitude of Nigerian-owned banks as they continue to weather the storms supporting businesses across the continent. Last week, GTCO, the holding company of GT Bank, reported an N35.94 billion net impairment charge on its financial assets for FY 2022, up from N760.79 million recorded in the previous year. The steep rise in the loan loss provision is attributed mostly to the group’s exposure to securities issued by the Ghanaian government which suffered substantial losses due to its payment default.

The provision led to a 3.33% dip in GTCO’s PBT to N214.15 billion. Another tier one lender, Access HoldCO, the parent company of Access Bank, is reporting a marginal 5% fall in PBT from N176.6 billion in FY 2021 to N167.7 billion for FY 2022 following a write-down from Ghana’s sovereign debt crisis. Overall, Access Holdings Plc’s full-year results for 2022 show strong growth across revenue lines despite the strong macroeconomic headwinds, locally and internationally. The banking group registered a record revenue of N1.4 trillion, a 43% year-on-year growth (FY 2021: N971.9 billion). Other Nigerian banks have also taken a hit from the Ghana crisis.

International lenders will always come up against country risks – economic, social and political conditions and events in a foreign country that may adversely affect a financial institution’s operations. They must therefore put in place suitable mechanisms to manage these innate risks. In December, Ghana suspended payments on most of its external debts, effectively defaulting as the country struggles to plug its huge balance of payment deficit. The government said that it would not service its Eurobonds, commercial loans and most bilateral loans.

As at last September, Ghana’s public debt stood at $55 billion (compared to Nigeria’s $103.3 billion). But Nigeria has never defaulted on its debt payments despite our own dire financial situation. Ghana is experiencing its worst economic crisis in a decade, with inflation going above 50%, the highest in 21 years, despite being a major cocoa and gold exporter, and in spite of its significant oil revenues.

But its huge social welfarist programmes like free education, free meals to primary and secondary school students, scrapping of VAT on some goods and services, reduction of import duties led to a huge financial burden on the government and massive reduction in government revenue. Besides, in the last 13 years that the country discovered and exported crude oil, it neglected to invest in agriculture. It was therefore not a surprise that the global rating agency, Standard & Poors, in December lowered the sovereign rating on Ghana from Cc to SD (Selective Default), implying that the country has defaulted on some of its matured obligations.

Despite the unexpected challenges that the Nigerian lenders have run into in the West African country, I am confident that the fundamentals of our banks are strong enough to withstand the various country risks within the sovereign borders they operate in.

Access Holdings, for example, ended the year with over 58 million customers across the extensive networks of subsidiaries and business verticals, the largest in the country. The company’s asset base grew to N15 trillion and customer deposits to N9.25 trillion, with CASA (Current and savings account) mix up by 5% to 63%, as a result of leveraging innovation, digital technology and financial inclusion to mobilize low-cost deposits.

By abandoning agriculture due to the arrival of crude oil, Ghana seems to have sleep-walked into the same problem Nigeria brought upon itself decades ago. But with some determination, we have re-invested heavily in agriculture and diversified our economy away from crude petroleum. Yet, there is still so much to do. I wish Ghana a full recovery and I hope that she learns fast from her big brother, Nigeria!