Banks, bondholders on edge as outstanding, future Treasury obligations rise

Banks and other bondholders face an anxious wait over the ability of the Treasury to meet its August 2023 coupon obligations, owing to the delays in servicing old bonds which were not tendered during the domestic debt exchange programme (DDEP).

The Pensioner Bond Holder’s Forum (PBHF), in May, voiced its dissatisfaction with the outstanding principal and coupon payments on old bonds, prompting the Treasury to convene a meeting on June 2, 2023 to address the matter.

Following that meeting, the finance ministry issued a communique acknowledging the concerns and resolving to settle coupon arrears immediately. As promised, coupon payments from May 12 to May 29, 2023 have been honoured.

The Treasury committed to paying the outstanding principal from February 20 to May 29, 2023 by today June 16, 2023. However, on the eve of this deadline the full obligations have not been met, checks by the B&FT have shown.

“The settlement of coupon arrears and commitment to pay-off the outstanding principal is a positive step, but there is still a significant obligation and we are eagerly awaiting what government does – which will inform our next line of action,” said a representative of the PBHF.

GCL Research, in a note, estimates that based on outstanding balances of the old bonds – assuming debt service on all unexchanged eligible bonds – that the principal obligation is approximately GH¢6.06billion and coupon obligation is nearly GH¢290million for the specified period.

Additionally, another principal plus coupon obligation of around GH¢1.84billion is expected to mature over the next three months; preceding the August 2023 coupon payment date for new bonds.

“Our estimates based on the outstanding balances on the old bonds (assuming debt service on all unexchanged eligible bonds) show that the principal obligation for the stipulated period is about GH¢6.06billion and a coupon obligation of nearly GH¢290million. Another principal plus coupon obligation of about GH¢1.84billion will fall due over the next three months and ahead of the Aug-2023 coupon payment date for new bonds. At the 5 percent cash coupon rate for 2023, we estimate the coupon obligation on the new bonds in Aug-23 at about GH¢2billion,” read the note signed by its Research Lead, Courage Boti.

Already, the accounting treatment of the bonds resulted in commercial banks taking heavy impairments for 2023, which eroded capital. Thus, coupon payments in August without distress could lead to banks revaluing their holdings of domestic Treasury bonds.

One of the major concerns stemming from these delays is the impact on commercial banks. The bonds’ accounting treatment has led to significant impairments in 2023, resulting in capital erosion for banks. Consequently, if the coupon payments in August 2023 are made without causing distress, banks may need to revalue their holdings of government bonds, further exacerbating the strain on their financial positions.

As the situation unfolds, market participants, regulators and the Treasury will remain vigilant, working toward restoring confidence and ensuring the stability of Ghana’s bond market.

Market observers have cautioned that based on the estimates, the principal obligation for the stipulated period is substantial and the coupon payments add further financial strain. This could impact the banking sector and bond investors. The outcome of upcoming obligations and their potential impact will shape financing conditions on the market.