Bankers offer counter - Proposals for debt conversion

The High Street Journal carries that a latest negotiations twist between the Government of Ghana and its commercial and Merchant bank creditors, has the Ghana Association of Bankers (GAB) suggesting to the government to do a major rethink of the structure proposed for the bonds which would emerge out of conversion of some short term debt into medium term ones.

While the government is pushing for some ?3 trillion (out of ?9 trillion) in short term (mostly treasury bill) debt to be converted by commercial banks creditors into three year bonds at a fixed rate of 35% per annum, the banks themselves argue that this will not be in their best interest, since most of their deposits are very short term. Indeed, the proportion of their deposits that are of three years term or more is insignificant.

This, the banks, under the auspices of GAB are suggesting that government issue the bonds with tenors of one year, two years and three years respectively, in equal amounts, thereby giving the banks instruments of varying maturity to allow them some level of portfolio diversification. Government, on its part, expects a vibrant secondary market for trading its proposed three-year bonds and therefore does not envisage that the bond issue would create liquidity problems for the banks.

However, banking chieftains point out that it may prove presumptuous to assume there will be secondary market demand for the bonds, especially since there will still be several billions of cedis in short term treasury bills in circulation.