United Bank for Africa (UBA), a tier-one Nigerian lender has booked a N17.280 billion impairment loss attributable to the Group’s exposure to its Ghana subsidiary investments in financial assets which significantly lost its value due to the government’s debt default and subsequent restructuring.
The Ghana subsidiary is UBA’s second largest operations with revenues of N50.29 billion in 2022, according to data from its audited financials seen by MoneyCentral.
On December 5, 2022, the Government of Ghana launched the first Ghana’s Domestic Debt Exchange programme (DDEP), in response to the Government defaulting in servicing its debts when it suspended payments on most of its external debts including Eurobonds, to ensure debt sustainability aimed at securing a $3 billion IMF economic support.
“The suspension announcement effectively represents a default given the high likelihood of bondholders taking hair-cuts on principal and interest on Eurobonds. We have thus classified the Eurobonds in stage 3 under IFRS and have recognized expected credit loss (ECL) charge on the assumption of a 30% and 59% haircut on principal and interest for UBA New York & UBA UK respectively,” UBA said.
The DDEP entailed an invitation for the voluntary exchange of the domestic notes and bonds for a package of New Bonds to be issued by the Republic in a transparent, efficient and expedited manner.
As of 14th of February, 2023 Government indicated a successful completion of the DDEP with 84.91% achievement above the 80% target set.
Following the completion, the Government of Ghana is currently in engagements with external creditors towards an orderly and comprehensive resolution of the country’s debt challenges.
The UBA Group’s exposure in Ghana debt market was through the investment activities of UBA Ghana, UBA UK and its 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 Ghana Eurobond segment.
Impact on UBA Ghana
Total bond portfolio by UBA Ghana eligible for the exchange was N38.576 billion. The present value of the new bond using the weighted average rate on the existing bonds is N24.338 billion, resulting in a derecognition/impairment loss of N14.238 billion.
Consequently, the subsidiary recorded a decline in FY2022 PBT from N18.071 billion to N3.833 billion.
UBA said recent Stress Test conducted indicated that the bank’s Capital Adequacy Ratio will close above the prudential requirement of 13% even after taking losses from the Debt restructuring, while Liquidity ratio also remains healthy and above the Industry average of 35.30% (per the bank of Ghana report for banking sector in December 2022) after considering the impact of the debt restructure.
“The successful participation of the Domestic Debt Exchange Programme will have minimal impact on the earning capacity of UBA Ghana,” UBA said.