Creation of Consolidated Bank will increase Ghana government debt to 72.4% – Moody’s

The creation of Consolidated Bank Ghana, which is effectively the government of Ghana taking over the liabilities of the five banks that were collapsed and formed into the new bank will increase public debt.

On August 1, 2018, the Bank of Ghana announced the revocation of the licenses of five commercial banks. The governor of the central bank, Dr. Ernest Addison announced that the Bank has revoked the licenses of uniBank Ghana Limited, The Royal Bank Limited, Beige Bank Limited, Sovereign Bank Limited, and Construction Bank Limited and appointed Mr. Nii Amanor Dodoo of KPMG as the Receiver for the five banks. The Bank also announced the formation of the wholly government-owned bank – Consolidated Bank Ghana Ltd to take over the assets and liabilities of the five banks.

The government capitalized the bank with GH¢450 million (0.2 per cent of GDP) and endowed it with a GH¢5.76 billion bond ($1.2 billion or 2.4 per cent of GDP) to cover the gap between the liabilities and viable assets assumed by Consolidated Bank.

Moody’s indicates that the government intends to offload its shares within a period of two years to the Ghanaian public.

The creation of Consolidated Bank supports financial stability when the commercial banking system faces high asset risks and is in the process of consolidating to meet new capital requirements (GH¢400 million minimum by the end of this year from GH¢120 million previously), it states.

“However, with the 2.6 per cent of GDP costs associated with operationalizing Consolidated Bank, coupled with the 0.9 per cent of GDP costs associated with the resolution of UT and Capital Bank earlier in the year, we expect Ghana’s debt burden to reach 72.4 per cent of GDP by the end of this year, declining to 68.9 per cent by end-2019–a higher level than previously anticipated.

Ghana’s large debt stock, low debt affordability (interest/revenue of over 30 per cent), and exposure to foreign exchange-related valuation changes underpin our “Very Low (-)” assessment of its fiscal strength, a key constraint to the sovereign’s credit profile,” Moody’s said in email copied to ghanabusinessnews.com.

By Emmanuel K. Dogbevi