Banking consultant Dr. Richmond Atuahene notes that the Ghana Deposit Protection Corporation (GDPC) suffered a net present value (NPV) loss of GH¢296million following coupon rate reduction in the Domestic Debt Exchange Programme (DDEP).
The GDPC’s 2022 annual report raised concerns about the corporation’s ability to maintain profitability and solvency. Indeed, GDPC’s financial health has been severely impacted by the DDEP which saw coupons reduced to between 5 and 10 percent – significantly lower than the 16 to 30 percent on existing bonds.
Established in 2019 following the financial crisis, GDPC’s primary role is to protect depositors by reimbursing insured deposits in the event of a bank failure. GDPC operates under a Pay Box mandate – which means it collects premiums, manages insurance funds and reimburses depositors without engaging in broader risk management activities.
However, with the financial strain caused by the DDEP, GDPC’s ability to respond promptly in times of financial distress appears to have been weakened.
The corporation assessed the bonds eligible for exchange under the DDEP as ‘credit impaired’ under International Financial Reporting Standards (IFRS) 9, resulting in a significant reduction of the bonds’ carrying value.
Additionally, GDPC’s financial troubles have been compounded by the broader macroeconomic environment; which has been characterised by high inflation, persistent currency depreciation and ballooning fiscal deficits.
The deteriorating macroeconomic conditions created uncertainty in financial markets, further impacting the corporation’s stability. Consequently, it has prompted calls for a review of the GDPC’s operational and financial framework.
Over the past five years, macro-economic instabilities and market volatility have led to destabilising creditor runs; these conditions make it difficult for financial institutions to assess the long-term viability of their operations.
Currently, the corporation provides coverage of GH¢6,250 for banks and GH¢1,250 for specialised deposit-taking institutions – limits that are increasingly seen as inadequate in the face of rising inflation and currency depreciation.
As a consequence, Dr. Atuahene is calling for GDPC to raise its insurance coverage limits to reflect realities of the economic environment. Increasing these limits would help restore depositor confidence and ensure financial stability in the banking sector.
Also, the corporation’s governance structure has been criticised for lacking operational independence, as external entities such as the Ministry of Finance and Bank of Ghana have significant influence over its decisions.
