14 Banks sweat under GH¢3.7bn VRA debt

The Volta River Authority's (VRA's) indebtedness to banks has risen to US$930 million (GH¢3.7bn) in March, this year, compounding fears that the debt levels in the energy sector will mess up the loan books of banks and subdue their growth, similar to what happened in the 2015 financial year.

The authority’s indebtedness was exclusive of “interest, rollover fees and other charges,” according to documents cited by the GRAPHIC BUSINESS.

It showed that apart from the Africa Export-Import (AFREXIM) Bank, which is an international lender, 14 of the affected banks are based in the country. Nine of them are foreign-owned. They are Ecobank, Standard Chartered Bank, Zenith Bank, Stanbic Bank, Guaranty Trust Bank, UBA, Access Bank, First Atlantic Bank and the Ghana International Bank.

The Unibank, UMB, CAL Bank and Fidelity Bank are the locally-owned banks, whose loans and advancements were also outstanding as of March.

According to the documents, which were secured from VRA, the authority's outstanding financial obligation to AFREXIM was US$120 million. 

This means that the company's obligation to the 13 banks operating in the country totaled US$810 million, equivalent to GH¢3.2 billion (using an exchange rate of one dollar to GH¢3.93).

This is more than 65 per cent of the current value of non-performing loans (NPLs), which was reported at GH¢4.9 billion by the Bank of Ghana (BoG) in March, this year. 

Should all of VRA's debts be overdue, the credibility of the NPLs figure could be in doubt, given that it raises questions over the share of the company's obligations to the entire industry's bad loans. 

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Debt distribution 

Currently, the Ecobank is the biggest creditor of VRA's debt burden, with an exposure in excess of US$103 million. The Ghana International Bank (GHIB), which is based in London, with a contact office in Ghana, is the least exposed among its peers. The bank's financial commitment to the electricity producer was US$6.7 million.

Strangely, however, none of the three top state-owned banks, the GCB Bank Limited, Agricultural Development Bank (ADB) and the National Investment Bank (NIB), is among VRA's outstanding creditors.

Cyclical debt

The latest insight into the magnitude of VRA's debt burden gives a clearer picture to the cyclical nature of the debt situation in the energy sector. There, every player owes the other.

From the bottom, consumers of power owe the two distributors, the Electricity Company of Ghana and the Northern Electricity Distribution Company (NEDCo), for unpaid bills. The two intend owe the Ghana Grid Company (GRIDCo) and the VRA for unpaid power supply and purchases respectively. 

At the top of that equation are the banks and fuel suppliers, whose continuous show of magnanimity keeps the power producer on its feet.

In the documents, VRA's outstanding commitments to three of its major gas suppliers – the Sahara Energy Resources, the Ghana Gas Company Limited (Ghana Gas) and the Nigerian Gas Company Limited (N-Gas) – totaled US$582.7 million (GH¢2.3 billion). 

This means that the company's total outstanding commitments, as of March, 2016 was US$1.54 billion (GH¢6.1 billion), minus the interest, rollover fees and other charges.

This translates into 6.3 per cent of the public debt, which closed 2015 at GH¢97.2 billion. 

A recent arrangement by the Ministry of Finance, however, ensured that the debts of state-owned enterprises (SOEs) such as VRA and ECG are excluded from the national debt stock.

Implication on banks

The GH¢3.2 billion that VRA owns the 13 banks in the country is equal to the minimum paid up capital of all banks in the country as of March, this year.

At the current levels, the authority's debt to the13 banks can establish 26.7 new banks, using the GH¢120 million stated capital that the central bank requires of new entrants into the banking business.

The amount also represents 16.5 per cent of the net loans and advances of all banks in the country, which totaled GH¢26.77 billion in March. 

Over the years, VRA's debt has proven a headache to the resilience and smooth operation of banks and the banking sector in general.

Last year, the debt burden combined with other operational challenges and dampened consumer sentiments to suppress growth in banks while spiking the industry's non-performing loans (NPLs) ratio.

The NPL ratio, which was 11 per cent in 2014, worsened to 14.7 per cent in December, last year. In March, this year, it was reported at 16.2 per cent, up from 11.4 per cent in the corresponding month in 2015. 

In monetary terms, however, the NPLs increased by 59.9 per cent from GH¢3.1 billion in March 2015 to GH¢4.9 billion in March 2016, something the BoG blamed, in part, on the increasing exposure of banks to the energy sector.

A Research Fellow at the Institute of Fiscal Studies (IFS), Mr Leslie Dwight Mensah, said this was a clear manifestation that the banking sector is already reeling under the heat of VRA's indebtedness, 

“As it is now, we do not know if all of the debt is pass-due but if they are, then it will make me doubt the accuracy of the NPL figure that the BoG published,” he said. 

Risk-free loans

A source within the banking sector said the BoG had earlier asked the banks to exclude their exposure to the energy sector in the computation of NPLs, a claim the paper could not readily authenticate from the industry regulator.

However, should VRA continue to be in default, Mr Mensah said, “it will make things even more difficult for the banks because they have already made provisions for these debts.” 

His concern was premised on the increasing trend in provisions for bad debts.

In the May 2016 Financial Stability report, provisions for bad debts, which is taken from the incomes of banks, amounted to GH¢217.3 million compared to GH¢115.2 million in the same period last year.

In per cent terms, the provisions rose to 7.2 per cent in March this year from 4.3 per cent in March 2015.

A Banking Consulltant, Nana Otuo Acheampong, however, downplayed the impact of VRA’s debt on the banks, explaining that the risk-free nature of loans to the government meant that they will be paid irrespective of the time.

“Loans to the government never get bad unless the state goes bankrupt. If government cannot pay, you and I will pay through increased taxes,” he said.