Dealing with Ghana Amalgamated Trust Albatross on two indigenous banks

 By Dr Richmond Akwasi ATUAHENE

The Ghana Amalgamated Trust had become an albatross on the indigenous banks that participated in the Special Purpose Vehicle because high-interest funding cost of 19.1 percent per annum which had created dependency rather than sustainability and had concerns for long-viability of the two indigenous banks. While it was intended to boost capital, GAT high cost compounded model had placed financial burden on the beneficiary banks.

Major challenges associated with GAT Model were the High Cost of Funding, Sustainability Concerns and Misaligned priorities. High cost of funding at 19.1 percent per annum compounded annually. GAT’s intervention had been criticized for using high interest, equity-linked funding which had become a massive financial burden on the very indigenous banks that participated in the model.

The Ministry of Finance created a special purpose vehicle (SPV) named Ghana Amalgamated Trust to support 4 local banks with funds at a compounded rate of 19.1 percent. It was primarily set up to raise funds to recapitalize selected Ghanaian banks that needed assistance to meet the new minimum capital requirements of the Bank of Ghana and to help transform these banks to become more competitive in the industry. GAT has committed funds from pension funds and other investors, through a bond program, with proceeds of up to GH¢2.0 billion (US$ 0.363 billion) to be used for equity investment in the eligible Ghanaian banks, as determined by the investors. The bonds issued to the Pension Funds will be listed on the Ghana Fixed Income Market (GFIM) for liquidity purposes. The high cost of funds to the local banks at 19.1 percent compounded rate of interest seemed to stifle the banking business

GAT was established to help local banks meet higher minimum capital requirements (GH¢ 400 million) post-2017/2018 banking crisis. However, the funds were provided at high interest rates (around 19.1 percent) combined with a 1 percent annual management fee, which created intense financial pressure on the banks. The cost of capital provided seemed to be unreasonably too high at 19.1 percent at compound rate on year to year.

• High Cost of Funding of 19.1% Annualized yearly

Analysis of the 2023/2024 financial statements for three banks clearly showed that these banks are all financially distressed. The cost of capital provided seemed to be unreasonably too high at 19.1 percent at compound rate on year to year compared to the Post DDEP Government bonds with the coupon rate of 9 percent.  For example, the bank that secured year on GH¢ 243 million (USD 44.181 million) at a compounded interest rate of 19.1 percent excluding the management fees. The compounded interest rate of 19.1 percent on GH¢ 243 million on year basis by end of December 2020 to end- December 2023 had translated into outstanding unpaid Tier 2 capital of GH¢490 million (US$ 41.24million) to further increase to GH¢531million (US$ 37.210 million) by 30/6/2024 and increased further to GH¢ 632 million by 30/06/2025. The GH¢243 million as at 2020 by 2025 has grown to GH¢ 632million at 19.1 percent compounded rate.

The outstanding unpaid capital for the banks had negative impact on their banking businesses. Existing shareholders may lose their banks if they are unable to buy GAT out from the scheme. Based on the provided results by Salman Partners and Financial Consult (2024), the assertion that the Ghana Amalgamated Trust (GAT) has become an “albatross” (a burdensome liability) on indigenous banks in Ghana is supported by several arguments regarding its role in the financial sector

Private Pension Fund through GAT holds majority shares in 3 three could systemically increase risk in the financial sector. Failure or collapse of any bank could have serious and negative effects on peoples’ pensions. In a highly interconnected system, as agents typically fail to take account of the effects of their actions on others, the potential for systemic risk rises. Analysis of the GAT interconnectedness between the banking and pension sectors in the financial system is essential to understand the relations between them and the possible transmission channels for the risks generated in each sector. The failure of the GAT scheme could negatively impact both the banking and pension sectors as well as individual Tier 2 pension schemes

3.0 Key Concerns

Sustainability: GAT has created a dependency model rather fostering long term, independent viability for those indigenous banks and the lack of transparency and misaligned priorities could threaten the stability of indigenous banks

Impact of Debt Exchange (DDEP): The 2022 Domestic Debt Exchange Programme further damaged the balance sheets of banks that were already struggling, rendering GAT’s intervention less effective and, in some cases, contributing to a “toxic” debt cycle. The high annualized interest of 19.1 percent per annum and the negative impact of DDEP have driven those banks into insolvency. The DDEP rate was 9.1 percent, The Domestic Debt Exchange Programme and the activities of the Ghana Amalgamated Trust (GAT), had further weakened indigenous banks

Loss of Local Ownership and Control:  GAT’s structure has forced indigenous shareholders to lose control of their institutions, with GAT (and by extension, the government) gaining significant equity. Today in one of indigenous banks through annualization of high interest, equity linked model. The initial GAT Capital Support was GH¢243 million, on 26/02/2026 GAT had reached close to GH¢ 632 million as it is holding 75.8 percent in one of the banks that participated. Rather than providing capital support, the GAT intervention has been described as having worsened the financial positions of beneficiary banks, hindering their ability to be solvent, as well as being competitive, and ability to support the local economy

1. Policy Recommendations.
2. Convert High-Interest Debt to Low-Cost Equity: GAT initially provided funds with high-interest rates (approx. 19.1 percent) and management fees, which burdened banks. The government should work with GAT to convert these high-cost loans into cheaper, long-term equity or convertible preference shares to immediately relieve liquidity pressure
3. The Government of Ghana, Bank of Ghana (BoG), and Ghana Amalgamated Trust (GAT) should consider restructuring the outstanding Tier 2 capital of GH¢ 431 million (US$ 3.6 billion) and by 2025 Tier Capital GH¢582 on the banks’ balance sheets in a manner like the treatment given to GoG bonds during the Domestic Debt Exchange Programme (DDEP). This restructuring could involve a reduction in the coupon rate on the Tier 2 capital, much like how the domestic bonds’ coupon rate was reduced from 19.1 percent to 9.1 percent under the DDEP.
4. The Government, Ministry of Finance and GAT must urgently review the entire GAT funding by ring-fencing the high existing debt and by reducing the high cost of funding of 19.1 percent. to make them more attractive to local strategic investors’ participation
5. The Ministry of Finance and GAT should urgently off-load their shares in the 3 Ghanaian banks to settle those pension funds that participated in the scheme. Off-loading the shares on the local bourse will not be attractive because their poor performance since their participation in the GAT (SPV)
6. Restructure Loan Tenor: Extend the repayment periods for GAT funds, offering longer grace periods to allow indigenous banks to rebuild their asset bases without immediate pressure to repay capital.
7. Independent Audit and Review of GAT Operations and the banking cleanup of GHS25 billion: The Government must appoint independent consultant to review the entire banking sector clean up estimated to have cost GH¢ 25 billion as well as the operations of GAT and it’s SPV estimated to GH¢ 2 billion with particular reference to the cost of capital provided seemed to be unreasonably too high at 19.1 percent at compound rate on year to year.
8. Establish a Dedicated Indigenous Bank Support Fund: Utilize public funds (e.g., from the Financial Stability Fund) to directly recapitalize local banks rather than relying on high-cost, special-purpose vehicles

DR RICHMOND AKWASI ATUAHENE

Corporate Governance/ Banking Consultant