Nigerian banks’ Africa foray faces major test

Nigerian banks are finding out the hard way that the grass is not always greener on the other side as the country’s biggest banks are incurring billion-naira impairment costs from their investments in Ghanaian bonds due to the neighbouring country’s debt crisis.

Zenith Bank, Guaranty Trust Holding Company (GTCO), United Bank for Africa (UBA), Ecobank and Access Holding booked combined impairment costs of N320 billion, according to BusinessDay’s calculation.

Zenith Bank, the country’s biggest lender by market value, made provision of N123 billion, the highest of the pack, followed by Access Bank (N103 billion).

In distant third is Ecobank, which made a provision of N40.9 billion, while GTCO and UBA both booked losses running into N35.6 billion and N17.2 billion respectively due to Ghana’s debt restructuring.

“Though restructuring parameters are subject to a lot of uncertainty, the possibility of further material impairment charge for this event is considered remote. The fair value for Ghana sovereign debts in the books of the Group amounts to N348.15 billion,” Access Bank said Thursday.

Zenith Bank said in its financial statements that it “exchanged N123.6 billion of its existing Government of Ghana bonds for a series of new bonds with maturity dates commencing from 2027 to 2038 under the Ghana Domestic Debt Exchange Programme”.

“The new bonds were successfully settled on the 21st of February 2023 and have been allotted to the Central Securities Depository. The effect of the exchange on impairment of the existing bonds on 31 December 2022 was duly recognised in the consolidated financial statements,” it added.

Zenith Bank’s net deferred tax assets grew from N1.8 billion to N18.3 billion in 2022.

“The group’s deferred tax asset is largely attributable to Zenith Bank Ghana, which suffered a loss in the current year. The deferred tax asset principally arose from Expected Credit Losses allowance on financial instruments,” the lender said.

GTCO, another top lender affected by Ghana’s debt crisis, said the total investment portfolio exposure by the group was about N167 billion.

It however incurred a loss of about N35.6 billion on Ghanaian bonds. The losses include exposure to Treasury bills, local bonds, and Eurobonds issued by Ghana.

UBA, which has its tentacles spread across 20 African countries, said its Ghanaian subsidiary alone incurred about N14.2 billion of the losses.

“The Group’s exposure in the Ghana debt market was through the investment activities of UBA Ghana, UBA UK and our New York branch. While UBA Ghana currently maintains investments in the Ghana domestic and Eurobond market, UBA UK and New York branch of the Bank were primarily in the Ghana Eurobond segment,” UBA said in its financial statements.

Read also: Nigerian banks and Ghana’s sovereign debt crisis

As many as 15 emerging markets tracked in a Bloomberg gauge have average dollar-bond yields trading at an excess of 10 percentage points over US Treasuries, an indication of distress.

Among them are defaulters Zambia, Ethiopia and Ghana. Tunisia, which last year struck a crucial accord with the International Monetary Fund, is also on the list.

These rising developments in African countries are causing pain for Nigeria’s biggest banks who are making billion-naira provisions for massive losses on their investments in Ghana Bonds.

A report from a global credit rating agency, Fitch Ratings, showed a restructuring of Ghana’s debt would have some impact on some Nigerian banks operating in the neighbouring country.

“Asset quality of the largest five banking groups will also be influenced by rising sovereign debt sustainability risks across the continent through their Sub-Saharan Africa subsidiaries. A restructuring of Ghana’s debt would have some impact [on] some banks’ asset quality as they have large operations in the country,” it said.

Nigerian banks operating in Ghana are Access Bank, Ecobank, Fidelity Bank, Guaranty Trust Bank, United Bank of Africa and Zenith Bank.

Fidelity Bank is yet to release its audited results for 2022.