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South African big-six bank Absa says it remains committed to Ghana for the long haul, even as it raised nearly R3 billion in impairment charges to cushion it against the west African nation’s sovereign debt crisis.
Absa on Monday reported its results for the year to December 2022, in which normalised headline earnings surged 13% to R21 billion, boosted by stronger revenues across its banking its units. This helped the group increase profits well above pandemic levels and to a historic high.
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Ghana, which is in part to blame for Absa’s credit impairments increasing 61% during the period (to R13.7 billion), is in the throes of a sovereign debt restructuring plan, after it defaulted on commercial loans and payments on its Eurobonds last year.
As a result, Absa has had to raise R2.7 billion in coverage to protect it against the blow of Ghana sovereign debt exposures as well as delinquencies in the domestic South African retail portfolios.
Ghana’s sovereign debt impairments also led to Absa head office, treasury and other operations’ headline earnings loss increasing 72% to R692 million, according to the bank.
Profits for its core South African operations increased 16% to R18.2 billion, while its Africa regions declined 4% to R2.7 billion, it added.
Reiterating the bank’s commitment to Ghana, Absa group financial director Jason Quinn told Moneyweb the economic distress that currently plagues that country is not unlike many of the markets it already operates in on the continent, especially having come out of the Covid-19 pandemic that battered many developing economies, and spurred on stubborn inflation.
In Ghana’s instance, the inflation rate has reached sky-high levels and is well above 50%. Its interest rate sits at over 25%.
Read: Absa to report solid earnings growth, but takes hit from Ghana’s debt crisis
“We fundamentally are committed to that country, our bank there is really well capitalised, I have no doubt that Ghana will recover,” Quinn said.
“There’s some uncertainty still around the timing of the International Monetary Fund (IMF) intervention, which is critical because Ghana needs that intervention quite soon,” he said.
IMF intervention
At the end of last year, after Ghana approached the IMF for support, Ghana’s Finance Minister Ken Ofori-Atta announced his government’s plan to undertake a debt operation programme. The Domestic Debt Exchange Programme is to give it time to bring its debt to sustainable levels by way of exchanging existing domestic bonds for a set of four, with maturation dates of 2027, 2029, 2032 and 2037.
The debt exchange plans would see 137.3 billion Ghanaian cedis or over R202 billion in local bonds exchanged for new ones, its finance ministry said in an earlier statement.
Quinn said Absa participated in the debt swap and that the IMF intervention would return confidence in that market.
“When you’re in a portfolio of countries, you are diversified and we don’t see our strategy changing from that perspective. Certainly, we support the government of Ghana with respect to its need to reorganise its debt; we think that we’ve [dealt] with this materially in last year’s accounts,” said Quinn.
“We’ve operated that Ghana business, together with our Africa Region operations, for more than 10 years now, so we’re in this for the long-term, we’ve been in Ghana very profitably for a very long time,” he said.
African growth strategy
The group’s staunchness on Ghana speaks to its growth strategy on the African continent (since its separation from Barclays), with its presence spanning Botswana, Kenya, Mauritius, Mozambique and Tanzania among others. In Ghana, the bank has one of its largest Corporate and Investment Banking operations.
By the close of Monday’s trading session, Absa’s share price had slid 6.6% to close at R175.19, moving in tandem with its peers in the banking sector.
Investec saw its share fall over 5% to just above R100, while FirstRand was down 3% to R65. Standard Bank’s share price dropped 2.9% to trade at R170 while Nedbank and Capitec were down just over 2% to R220 and R1 652 respectively.
The contagion seen in South Africa’s banking sector stocks on Monday was triggered by external factors such as news of the collapse of US-based Silicon Valley Bank (SVB), despite the Federal Reserve committing to bail it out, according to Casparus Treurnicht, research analyst and portfolio manager at Gryphon Asset Management.
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“It’s more of a global concern, if you look at the share prices, they are down quite severely … the foreigners are taking risk off the table in terms of South Africa,” Treurnicht said.
But they also face risks from South Africa’s energy crisis and infrastructure issues, he added.
Quinn said while the news of the collapse of SVB may cause investors to flee from banks, it does not have any impact on Absa.
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