Dr. Richmond Atuahene, a banking consultant commenting on the revised agreement by government to pay five percent coupon on bonds for the year says its better with the 5% agreed coupon (interest) on bonds for the year than none at all.

He says even though he does not come to terms with an understanding of how the negotiations went with the government however he sees a good option on the agreed 5% rather than none.

In a conversation with Omanhene on Sompa Tv, Dr. Atuahene said the expected average interest pay was 20% he could not understand the basics of the agreement on the 5%.

“I heard they were negotiating for both risk and short-period maturity, for example, instead of 15 years, he makes it 10 years, there's something we call the time value of money, in 2006, inflation was 6%, we haven't experienced such inflation again, it has been 10% or 20% even currently at 50% so if someone takes your money for a longer period of years the money loses its value, so I don't know what went into the negotiation process and why they accepted it, but if you could analyze it well, you would bear with me that the reason for their acceptance is neither here nor there,” he said.

Dr. Atuahene explained that money loses its value when it's being loaned out for a longer period of years with the same value

“100 million today after 5 years is not the same, it's lower than that, so I was thinking they could have lobbied for the coupon with less maturity period, make it 10 years instead of 15 years”.

Explaining the effect on the banking investors, Dr. Atauhene said shareholders, are going to suffer because they will lose their capital. After all, 50% of their investment will be slashed due to the new revised agreement with the government.

“Any shareholder with major bonds will suffer because you will lose your capital due to MPV values, those accumulated losses will deposit in the accounts and declare losses, which means that it constitutes profit and loss on the balance sheet so your capital becomes minimal and liquidity becomes rare since you can no longer trade your bonds.

He argued that the stability fund should have been established as a backup for the lost bonds.

According to him, Banks could no longer give loans as compared to the previous years because they do not have the financial muscles and it's likely to affect the private sector including output and domestic tax remuneration.

“Nobody thinks about the output, it's going to affect the output, and it will, in turn, affect revenue generation, because if people are been laid off, production is going to go down, how are you going to hey taxes on the profitability and what have you? So we are in a very critical situation.

Dr. Atuahene said the ripple effect of the revised 5% payment by the government is the direct impact on loans, the banks cannot give loans, the economy will also grow because the banks are not given loans and if the economy does not grow, you can't achieve the tax figures of the 19 %.

The government has agreed to pay a five percent coupon (interest) on bonds for this year.

It will also pay a single coupon of nine percent on the 12 new bonds it proposes to issue to domestic bondholders who tender their old bonds.

The government and the bankers also agreed on the removal or amendment of all clauses in the Exchange Memorandum that empowered the Republic to, at its sole discretion, vary the terms of the exchange.

Source//sompaonline.com//Eric Murphy Asare