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Ghana’s sovereign debt crisis is a potential drag on Absa’s credit impairments

Ghana’s sovereign debt crisis is a potential drag on Absa’s credit impairments
Flag of Ghana. (Photo: Wikipedia) | Absa corporate logo. (Photo: Waldo Swiegers / Bloomberg via Getty Images)

Although Absa expects a strong increase in group revenue when it comes to its next annual results, the bank has flagged Ghana’s debt exchange programme as a potential risk to performance.

Banking group Absa has warned shareholders that greater certainty regarding the terms of a proposed debt exchange programme with the Ghana sovereign means that the bank’s credit impairments are expected to increase significantly year-on-year. 

This is mainly because of impairments on sovereign investment securities and related exposures in the banking book, Absa said in a statement on Friday, 17 February.

Reuters reports that Ghana’s inflation had soared to a 21-year peak of 40.4% by October last year. Several steep interest rate hikes – the most recent a 250-basis points rise to 27% in November – have failed to check rising prices.

Finance Minister Ken Ofori-Atta said in December that interest payments were consuming between 70 and 100% of government revenues. Ratings agency Fitch flagged this as one of the worst statistics globally.


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Strong performance

The rest of the Absa group has put up a strong performance, with group revenue for 2022 expected to increase by double digits. This has been driven by strong non-interest income growth, which has been boosted in part by a recovery in life insurance revenue.

The trading update notes that given high single-digit operating expense growth, management anticipates substantial pre-provision profit growth in the mid-20s.

“Consequently, our 2022 cost-to-income ratio is expected to improve noticeably to the low 50s, in line with the first half 2022 ratio. Our 2022 credit loss ratio is expected to be similar to our first half 2022 charge of 91 basis points when excluding Ghana sovereign-related charges,” Absa said.

When it comes to solvency, Absa expects all subsidiary entities to report capital levels in excess of local regulatory requirements.

Shareholders can expect an increase of 10% to 20% in headline earnings per share, moving from R21.47 to between R23.62 and R24.69. BM/DM

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