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DDEP: Axing Coupon rate and maturity wing time will affect banks

Dr. Richmond Atuahene and K B Frimpong's further analysis prove that some 23 banks in operation will be hit by a ¢6.1 billion loss due to axing coupon rate and maturity extension of the period from five to fifteen years.

Dr-Atuahene

The 23 banks would have generated a positive cash flow of about ¢10.1 billion over the period, from the original coupon rate of 19.3% per annum.

An earlier report revealed that banks will lose a total of about ¢41.3 billion from the DDEP, between 2023 and 2028.

But for the new development of the Domestic Debt Exchange Program (DDEP), the delay of the maturity period and reduction of coupon rate will affect their earnings from investments in Government of Ghana Bonds.

“This liquidity gap is a result of the drop in the average bond rate of 19.3% to a weighted average rate of 9% per annum, thus leading to a nominal negative liquidity gap of 10.3%. The liquidity gap is expected to get worse if the average customer deposit rate was around 10% per annum but later declined to a weighted average rate of 9% per annum”.

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“For example, Bank A with a bond value of ¢9, I06,452,000 and an average coupon rate of 19.3% would have had a cash flow of ¢1,821,290,000, but with the Domestic Debt Exchange Program, the effective rate of 9% per annum will cause a drop in cash flow to ¢720,927,000, thus leading to liquidity gap of ¢1,100,363,000”

For critical measures for banks' survival, there is been a recommendation of the immediate establishment and operationalization of the Financial Stability Support Fund of ¢15 billion to mitigate and address the expected liquidity challenges.

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