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2017ANNUALREPORT

HFC BANK (GHANA) LIMITEDAND ITS SUBSIDIARIES

ANNUAL FINANCIAL STATEMENTS

31 DECEMBER 2017

02ANNUAL FINANCIAL STATEMENTS 2017

HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Ø Integrity

Ø Professionalism

Ø Respect for the Individual

Ø Customer Focus

Ø Results Orientation

VISION

MISSION

COREVALUES

The Ghanaian Financial Institution of choice for our Staff, Customers and Shareholders.

We set the standards of excellence in:

Ø Customer Satisfaction

Ø Employee Engagement

Ø Social Responsibility

Ø Shareholder Value

Ø While building successful communities

To create wealth and a better life for our stakeholders

03 ANNUAL FINANCIAL STATEMENTS 2017


TABLE OF CONTENTS

04NOTICE OF MEETING

06CORPORATE INFORMATION

08BOARD OF DIRECTORS

14 REPORT OF THE DIRECTORS

23 CORPORATE GOVERNANCE & SOCIAL RESPONSIBILITY

37INDEPENDENT AUDITORS’ REPORT

32STATEMENT OF COMPREHENSIVE INCOME

33STATEMENT OF FINANCIAL POSITION

34STATEMENT OF CHANGES IN EQUITY

36 STATEMENT OF CASH FLOWS

37NOTES TO THE FINANCIAL STATEMENTS



NOTICE IS HEREBY GIVEN THAT the 27th Annual General Meeting of HFC Bank (Ghana) Limited (the “Company”) will be held at Accra City Hotel, Barnes Road, Accra at Eleven O’clock in the forenoon (11.00 am) on Thursday 26th April 2018 to transact the following business:

AGENDAORDINARY BUSINESS1. To receive and adopt the Annual Report and Audited Financial Statements of the Company (and its

Subsidiaries) for 2017 together with the Directors’ and Auditors’ Reports thereon.

2. To ratify / elect / re-elect Directors.

3. To authorize the Directors to raise capital under a Rights Issue.

4. To appoint KPMG as Auditors.

5. To authorize Directors to fix the remuneration of the Auditors for the year 2018.

SPECIAL BUSINESS6. To amend the Company’s Regulations by Special Resolution in the following manner:-

That Regulation 55 be deleted in its entirety and replaced with the following as a new Regulation 55:-

Meetings shall be conducted in accordance with sections 166 to 173 of the Code. On a poll being validly demanded the Chairman of the meeting shall direct such poll in accordance with Section 170 of the Code;

NOTE:

A Member who is unable to attend a General Meeting is entitled to appoint a proxy to attend and vote on his/her behalf. A proxy need not also be a member.

A proxy form is attached herewith to enable you exercise your vote if you cannot attend. The form should be completed and deposited at the Company’s Registered Office at Ebankese, No. 35 6th Avenue, North Ridge, Accra, aforesaid or via email to [email protected] at any time prior to the commencement of the meeting in accordance with the Company’s Regulations.

All relevant documents in connection with the meeting are available to shareholders from the date of this notice on the Company’s website (www.hfcbank.com.gh) and at the Company’s Registered Office aforesaid.

Dated this 8th day of March 2018COMPANY SECRETARYBY ORDER OF THE BOARD

NOTICE OF MEETING



CORPORATEINFORMATION



CORPORATE INFORMATION

Directors Charles William Zwennes Chairman Joshua Alabi Chairman (Retired April 2017)Anthony Jordan Managing Director (Appointed December 2017)Robert Le Hunte Managing Director (Retired August 2017)Nigel Mark Baptiste MemberDavid Dulal-Whiteway MemberRebecca Atswei Lomo (Ms.) Member (Retired July 2017)Paul King Aryene MemberEbenezer Tetteh Tagoe MemberMichael Addotey Addo Member (Appointed May 2017)

Secretary Beatrix Ama Amoah (Mrs.)EbankeseNo.35 Sixth AvenueNorth Ridge, AccraP. O. Box CT 4603Cantonments, Accra

Registered Office EbankeseNo.35 Sixth AvenueNorth Ridge, AccraP. O. Box CT 4603Cantonments, Accra

Auditors Ernst and YoungChartered AccountantsG15. White AvenueAirport Residential AreaP. O. Box 16009Airport, Accra

Registrars Universal Merchant BankKwame Nkrumah AvenueSethi Plaza, Accra

Holding Company Republic Financial Holdings Limited9-17 Park StreetPort of SpainTrinidad & Tobago



BOARDOF DIRECTORS



Mr. Charles William Zwennes is a Barrister-at-Law of England & Wales and a Barrister & Solicitor of the Superior Courts of Ghana.

He is currently a partner at Gaise Zwennes Hughes & Co, Private Practitioners. Prior to joining Gaise Zwennes Hughes & Co, he worked at the Chambers of Chris-tian Bevington QC, London and Messrs. Arnold Fooks Chadwick, Solicitors, London.

Mr. Zwennes holds an LLB from the University of Kent, UK and an LLM in Corporate & Commercial Law from the University of Lon-don, UK. He also holds a Certificate in Structuring, Negotiating and

MR. CHARLESWILLIAM ZWENNES (BOARD CHAIRMAN

MR. ANTHONYJORDAN (MANAGING DIRECTOR)

Mr. Anthony Jordan was appointed the Managing Director of the Bank in December 2017. Prior to this appointment, he was the General Manager, Risk Management at HFC Bank (Ghana) Ltd.

Mr. Jordan is an experienced and highly respected corporate and commercial banker with 33 years’ service in the banking industry in Trinidad & Tobago and in Ghana. Mr. Jordan holds an EMBA and a BSc in Management from the University of the West Indies and is a member of the Chartered Institute of Bankers (UK).

Jordan

Documenting Oil and Gas Transac-tions from the Centre for Energy & Mineral Policy Law (CEMPL), Uni-versity of Dundee, Scotland.

Mr. Zwennes is a member of the American Society of International Law (ASIL), Institute of Advanced Legal Studies (IALS), Chartered Institute of Arbitrators, Common-wealth Law Bulletin, Honoura-ble Society of Gray’s Inn and the Ghana Bar Association.

Mr. Zwennes was appointed Chairman of the HFC Bank Board in April 2017.

Zwennes



Mr. Dulal-Whiteway is the CEO of the University of the West Indies (UWI), Arthur Lok Jack Global School of Business, Trinidad & Tobago. He was Managing Director of the Republic Bank Group until February 2016, a Director on several Boards of the Republic Bank Group and Chairman of The Foundation for the Enhancement and Enrichment of Life (FEEL), a non-profit organisation.

MR. DAVIDDULAL-WHITEWAY

MR. NIGELMARK BAPTISTE

Mr. Nigel Mark Baptiste, a Banker for the past 25 years, holds the position of President and Chief Executive Officer of Republic Financial Holdings Limited and Managing Director of Republic Bank Limited, Trinidad & Tobago.

Mr. Baptiste holds a BSc and MSc in Economics from the University of the West Indies and is a graduate of the Harvard Business School’s Advanced Management Programme. He also holds a Diploma with distinction from the ABA Stonier Graduate School of Banking (USA) and is a member of the Chartered Institute of Bankers (England).

Mr. Baptiste joined Republic Bank in 1991, after spending two years at the Caribbean Development

Mr. Dulal-Whiteway is a seasoned banker with over 25 years’ experience in banking. He holds a BSc in Management Studies from the University of the West Indies (UWI) and an MBA from the University of Western Ontario, Canada. Mr. Dulal-Whiteway was appointed to the Board in April 2013 as a representative of Republic Bank.

Dulal-Whiteway

Bank in Barbados where he was employed as a Country Economist. Prior to assuming his current position of Managing Director, he held the positions of Deputy Managing Director, Executive Director, Managing Director of the Group’s subsidiary in Guyana and General Manager, Human Resources.

Mr. Baptiste serves on the Boards of Republic Financial Holdings Limited, Republic Bank Limited (Trinidad and Tobago), Republic Bank (Guyana) Limited and other entities within the Republic Group. Mr. Baptiste was appointed to the Board in September 2016 as a representative of Republic Bank.

Baptiste



Mr. Paul King Aryene served as the Ambassador to the Federal Republic of Germany with concurrent accreditation to Estonia, Latvia and Lithuania. He is a diplomat of high repute and has served in various positions at both the Ministry of Foreign Affairs and Overseas Missions.

Mr. Aryene holds a Degree from the University of Ghana, Diploma in Diplomacy from the University

MR. PAULKING ARYENE

MR. EBENEZERTETTEH TAGOE

Mr. Ebenezer Tetteh Tagoe was the Board Chairman of the State Enterprises Audit Corporation (a corporation established to audit state organizations) until January 2017.

He is a Board Member of Adisadel College and Council Member of Accra Ridge Church.

Mr. Tagoe has immense experi-ence in Accounting and Adminis-tration and has served at various management positions with the

of Nairobi and a Diploma in Investment Analysis from the Research Institute of Investment Analyses, Malaysia.

He was appointed to the Board of HFC Bank in April 2015.

Aryene

United Nations World Food Pro-gramme, Peat Marwick Mitchell (London) and Mobil Oil Ghana Ltd.

Mr. Tagoe holds a BSc. Adminis-tration (Accounting) from the Uni-versity of Ghana. He is a Fellow (of the) Chartered Association of Cer-tified Accountants (FCCA).

He was appointed to the HFC Bank Board in April 2015.

Tagoe



MR. MICHAELADDOTEY ADDO

Mr. Michael Addotey Addo is currently the Deputy Director General responsible for Administration & Finance at the Social Security and National Insurance Trust (SSNIT).

He was until recently the Executive Director at Emex Oil Ndawta Limited (Ghana & Nigeria). He has also served as a General Manager, Investments & Development at SSNIT, Chief Operating Officer & Fund Manager at Databank Agrifund Manager Limited and Deputy Managing Director at NTHC Limited.

Mr. Addo has served on the Boards of several organizations including

Starwin Products Limited, Ghana International Bank (London), First Atlantic Bank and Prudential Bank.

Mr. Addo holds an MBA Finance from the Johnson Graduate School of Management, Cornell University; an MSAT (Insurance) from Barney School of Business, University of Hartford and BA Economics from the Bates College, all in the USA.

Mr. Addo was appointed to the Board of HFC Bank in May 2017 as a representative of SSNIT.

Addo



MANAGEMENT



MANAGEMENT

Executive Management

Mr. Anthony Jordan Managing Director

Mr. Benjamin Dzoboku General Manager, Finance & Strategy

Mrs. Beatrix Ama Amoah Company Secretary

Mr. Peter Larbi-Yeboa General Manager, HFC Investment Services

Mr. Kofi Agyenim Boateng Managing Director, HFC Boafo Microfinance

Mr. Charles Agyeman Bonsu General Manager, Tech. & Business Systems Support

Ms. Paula Baldwin General Manager, Retail Banking

Mr. Joseph Edward Nketsiah General Manager, Treasury & International Trade

Ms. Frances Sallah-Brown Senior Manager, Human Resources

Mr. Rodney N.A. Saint Acquaye Senior Manager, Corporate Banking

Mr. Frank Yaovi Lawoe Senior Manager, Recoveries & Collections

Mr. Joseph Laryea Ashong Internal Auditor

Senior Management & Department Heads

Ms. Amiel Adjorkor Codjoe Senior Manager, Compliance

Mr. Hans Abboud Awude Senior Manager, Legal

Mr. Ferguson Ofori-Atta Senior Manager, Finance

Mr. Emmanuel Fobri Manager, Credit Risk

Mr. Alfred Noonoo Manager, Administration

Mr. Randy Osei Pipim Manager, Enterprise Risk Management

Ms. Nana Yaa Korang Faakye Manager, Institutional Banking

Mr. Francis Adjepong Manager, Treasury

Mr. George Teisika Leigh Manager, Credit Administration

Mr. Louis Philips Abadoo Manager, International Trade Services

Mr. Elvis Agyare-Boakye Manager, Strategic Planning & Research

Mr. Elias Augustine Dey Manager, Custody Services

Zonal Managers (Retail Banking)

Mr. Sa-Aadu Osman Abdallah Northern Zone

Mr. Festus Tornam Habada Central Zone

Mr. Daniel Obeng Tema Zone

Ms. Jessica Benson Dzam Accra Zone

Mr. Kwabena Sarfo Mainu Western Zone



REPORT OF THE DIRECTORS

The directors submit their report together with the audited financial statements for the year ended 31 December, 2017, which shows the state of affairs of the Bank standing alone and its subsidiaries (together called the “Group”).

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

The directors are responsible for the preparation of financial statements for each financial year, which give a true and fair view of the state of affairs of the Group and of the profit or loss and cash flows for that year. In preparing these financial statements, the directors have selected suitable accounting policies and applied them consistently, made judgments and estimates that are reasonable and prudent and followed International Financial Reporting Standards (IFRS) and complied with the requirements of the Companies Act, 1963, (Act 179) and the Banks and Specialised Deposit–Taking Institutions Act, 2016 (Act 930).

The directors are responsible for ensuring that the Group keeps proper accounting records that disclose with reasonable accuracy at any time the financial position of the Group. The directors are also responsible for safeguarding the assets of the Group and taking reasonable steps for the prevention and detection of fraud and other irregularities.

PRINCIPAL ACTIVITIES

The principal activities of the Group are:

� to carry on the business of universal banking;

� to provide residential and commercial mortgages;

� to provide brokerage services;

� to provide microfinance services

� to provide fund and asset management services;

� to undertake venture capital activities.

RESULTS FROM OPERATIONS

The Bank The Group

Profit before income tax for the year is 56,645 69,445

From which is deducted national stabilization levy of (2,832) (3,261)

From which is deducted income tax of (16,890) (19,690)

Giving a profit after income tax expense for the year of 36,923 46,494

From which is deducted a non-controlling interest of - (1,063)

Leaving profit after non-controlling interest of 36,923 45,431

To which is added balance brought forward on the income surplus account of (47,682) (43,750)

Giving a balance before distribution of (10,759) 1,681

To which is added transfer from revaluation surplus 242 242

Out of which is transferred to Statutory Reserve (18,462) (18,462)

Out of which is transferred to regulatory credit risk reserve of

(1,637) (1,637)

Out of which is deducted share issuance expense of (1,877) (1,877)

Leaving a balance carried forward on income surplus account of

(32,493) (20,053)



REPORT OF THE DIRECTORS

SUBSIDIARIES

The Bank has the following subsidiaries:

� HFC Investment Services Limited, a wholly owned subsidiary of the Bank;

� HFC Realty Limited, a wholly owned subsidiary of the Bank;

� HFC Brokerage Services Limited, a wholly owned subsidiary of HFC Investment Services Limited;

� Boafo Microfinance Services Limited, a company in which the Bank has 51% equity holding;

� HFC Capital Partners Limited, a wholly owned subsidiary of the Bank;

� UG-HFC, a company in which the Bank has 60% equity holding.

The results of these subsidiaries have been included in the Group’s financial statements.

GOING CONCERN

The Bank has a strong capital and liquidity position and a good business franchise. Its business remains profitable with competitive returns on equity. The directors therefore have a reasonable expectation that the Bank has adequate resources to continue in operational existence for the foreseeable future. Thus we continue to adopt the going concern basis in preparing the annual financial statements.

CORPORATE SOCIAL RESPONSIBILITY (CSR)

As a corporate entity, the Bank interacts with and impacts its community in many ways. The Bank therefore ensures that as it works to deliver sustainable growth and Shareholder value, it contributes to the wider stakeholder community by being a responsible corporate citizen, an employer of choice and a banker of choice. To this end, the Bank is committed to promoting and engaging in projects that benefit and enhance the socio-economic development of the Community and the country as a whole.

The Bank’s main contributions in this area have been in sponsorship of education and youth development, health and the support of the underprivileged in society.

The Bank also promotes social communication and integration within different groups in the community by successfully organising sporting activities, including football competitions.

DIVIDENDS

No Dividend has been recommended by the Directors for approval by the Shareholders (2016: Nil).

AUDITOR

In accordance with Section 134 (4) of the Companies Act, 1963 (Act 179), it is proposed that Messrs KPMG be appointed as the new auditors of the Bank and its Subsidiaries.

Chairman Managing DirectorDate: 24th January, 2018 Date: 24th January, 2018



INTRODUCTION

On behalf of the Board of Directors, Management and Staff of HFC Bank, I would like to welcome you all to the 27th Annual General Meeting of HFC Bank. I am delighted to report that your Bank returned to profitability at the end of the financial year 2017 after two year’s successive loss positions.

GLOBAL ECONOMY

The global economy grew by 3.7% in 2017 compared to the International Monetary Fund (IMF) forecasted growth of 3.6%. The modest projected growth in the global economy was mainly attributed to an incomplete recovery and below target inflation in most advanced economies. Growth was high in advanced economies particularly in investments, manufacturing and trading activities.

Global financing conditions remained favourable in 2017 amid improved global growth prospects and expectations of persistently low interest rates, despite the on-going policy normalization.

Commodity prices, mainly crude oil and gold, performed better than expected in 2017 on the back of production cuts for crude oil and a flight to safety and stability for gold. Cocoa prices were generally weak throughout 2017 driven by excess supply of the commodity in the West African Sub-region.

DOMESTIC ECONOMY

Ghana’s economy grew by 9.3% in the third quarter of 2017, up from 4.5% in December 2016. The economic performance in 2017 was positively affected by better than expected crude oil and gold prices which increased by 17% and 10% respectively. Cocoa prices however declined in 2017 by 16%.

CHAIRMAN’S REVIEW

Commodity prices resulted in a 23.5% jump in Ghana’s export revenue to US$13,752 million compared with US$11,137 million in 2016. The highest contributor to export revenue was gold (US$5,786 million), followed by oil (US$3,019 million), then cocoa (US$2,711 million). Consequently, Ghana’s Gross International Reserves closed the year at US$7,555 million), equivalent of 4.3 months import cover.

Consumer price inflation at the end of December 2017 was 11.8%. This was higher than the Government’s year-end target of 11.2%, but lower than previous year rate of 15.4%. In 2017, the Ghana Cedi depreciated by 4.9% against the U.S Dollar compared with 9.7% in 2016. The Bank of Ghana policy rate closed the year at 20% (25.50% in 2016). The interbank weighted average rate ended the year at 19.34% (25.26% in 2016). The 91-Day Treasury Bill also decreased during the year closing at 13.33% compared to 16.81% in the previous year.

GHANAIAN BANKING INDUSTRY

During the period twelve months ending December 2017;

� Banking industry assets reached GHS93.2 billion, representing a year-on-year growth of 12.8%.

� Industry deposits grew by 10.6% to GHS58.3 billion.

� Loans and advances topped GHS37.7 billion, a 5.9% increase.

� Capital Adequacy Ratio (CAR) decreased to 15.0% compared with 18.0% in the previous year.

� Non-Performing Loans (NPL) ratio was 22.7% compared with 17.3% in 2016.

The banking industry was generally liquid and solvent during the period. High loan impairments however remained the main source of risk to the sector. The industry also faced declining interest margins.

Charles William Zwennes



In August 2017, GCB Bank acquired Capital Bank and UT Bank in a Purchase and Assumption Agreement. The liquidation of UT and Capital Banks became necessary to protect depositors’ funds owing to the severe impairment of the capital of the two financial entities.

In September 2017, the Bank of Ghana revised upward the minimum paid up capital requirement for existing banks and new entrants from GHS120 million to GHS400 million. Banks would be required to meet the required minimum capital through

� Fresh capital injection

� Capitalization of income surplus

� A combination of fresh capital injection and capitalization of income surplus.

All existing banks have up to December 31, 2018 to meet the new minimum paid up capital requirement.

RESULTS

HFC Bank (Ghana) Ltd and its subsidiaries recorded 10.7% rise in assets from GHS1.89 billion to GHS2.10 billion. Deposits also increased by 10% in-line with the industry average of 10.6%. On the back of strong recoveries in loans and advances, accounts management, and prudent investments, our Bank recorded profit after tax of GHS 45.43 million after two successive years of losses.

A full discussion on the aforementioned can be found in the Managing Director’s Discussion and Analysis.

LIQUIDITY POSITION

The liquidity position of the Bank was considered very healthy for normal banking operations. Management, in line with the Bank’s risk strategy, adopted effective liquidity risk practices and kept a prudent level of liquidity as indicated in the table below:

Jan - 17 Jun - 17 Dec - 17

Liquid Assets to Total Assets 41.62% 44.32% 54.07%

Investments to Total Assets 30.09% 31.55% 37.21%

Loan to Deposit 50.44% 58.58% 41.09%

The liquidity risk of the Bank was kept under firm control and the Bank was able to meet, on timely basis, its financial obligations as they fell due.

RIGHTS ISSUE

The Board of Directors passed a resolution to increase the stated capital of the Bank by an additional GHS 50 million via a renounceable rights issue to Shareholders. The rights issue was approved by the Shareholders of the Bank at its Extraordinary General Meeting on September 28, 2017 and by the Securities and Exchange Commission

on November 21, 2017. Approval for the listing of the new shares was obtained from the Ghana Stock Exchange on November 13, 2017. The offer which begun on December 4, 2017 and ended on December 20, 2017, resulted in the increase of the Bank’s stated capital from GHS 96.19 million to GHS 146.19 million. The increase in stated capital was to ensure that the Bank met the Central Bank’s minimum capital requirement of GHS 120 million by the end of December 2017.

In compliance with the new minimum capital requirement of GHS 400 million in 2018, the Bank is pursuing a GHS255 million Rights Offer to be executed in the 2018 financial year.

Fellow Shareholders, we need to put our Bank on a sound footing this year by raising additional capital. When the proposed rights issue comes up for voting I entreat you all to support the motion to enable us continue on the journey of building a great Bank.

CAPITAL ADEQUACY

We ended the year with a Capital Adequacy Ratio (CAR) of 22.14% (11.50%:2016), well above the regulatory minimum level of 10% and Bank of Ghana’s comfort level of 12%. The improved CAR position was as a result of the increase in stated capital of GHS 50 million, and the profit recorded at the end of the year.

NAME CHANGE/REBRANDING

The Shareholders at the Extraordinary General Meeting held on September 28, 2017 approved the proposal to change the name of the Bank from “HFC Bank (Ghana) Limited” to “Republic Bank (Ghana) Limited” subject to statutory/regulatory approvals. Following regulatory approvals, HFC Bank has been rebranded to Republic Bank (Ghana) Limited. It is expected that the name change will help in easy identification and alignment to the ratings and core competencies of the Republic Financial Holdings Limited (RFHL) Group.

APPOINTMENT OF DIRECTORS

During the year, Professor Joshua Alabi, the immediate past Chairman of the Board, and a representative of Social Security and National Insurance Trust (SSNIT) retired from the Board. We thank him for steering the affairs of the Bank through our restructuring to lay a solid foundation for growth and expansion. We wish him well in his future endeavours.

Ms. Rebecca Atswei Lomo, a representative of SSNIT also retired from the Board in July 2017. I wish to express our gratitude to her for providing sound guidance over the years, particularly in her role as Chairperson of the Audit and Risk Committee. We wish her all the best in her retirement.



Mr. Robert L. Le Hunte retired from the Board in August 2017 to take up a ministerial (cabinet level) appointment in Trinidad and Tobago. We thank him for leading the Management Team to turnaround the fortunes of our Bank. We wish honourable well in his cabinet ministerial role.

Mr. Anthony Jordan was appointed Acting Managing Director in August 2017, replacing Mr. Robert Le Hunte.

I wish to extend a hearty welcome to Mr. Anthony Jordan, as Managing Director. Mr. Jordan has over 34 years of experience in the financial services sector. Prior to this appointment, he was responsible for Enterprise Wide Risk Management including Market, Credit, Operational, Compliance, Information and Technology Risk in the Bank. Prior to joining HFC Bank he was Assistant General Manager-Corporate and Investment banking at Republic Bank Limited in Trinidad & Tobago with responsibility for all aspects of Business Development in both Corporate Banking and the Capital Markets.

During the year SSNIT appointed Mr. Michael Addotey Addo to the Board of our Bank. Mr. Addo is currently the Deputy Director-General responsible for Finance & Administration at SSNIT. He was until recently the Executive Director at Emex Oil Ndawta Limited (Ghana & Nigeria). He has also previously served as a General Manager, Investments & Development at SSNIT, Chief Operating Officer & Fund Manager at Databank Agrifund Manager Limited and Deputy Managing Director at NTHC Limited.

DIVIDEND

The Board of Directors is recommending no dividend payment as a result of the GHS255 million capital injection being pursued by the Bank to meet the new minimum capital requirement of GHS 400 million in 2018. This new capital will put us in a better position to build on a strong foundation and our Bank will work hard at providing a satisfactory return in 2018 and beyond.

OUTLOOK

The outlook is for a continued robust expansion in 2018 and 2019, with global growth revised up to 3.9 percent for both years. According to the IMF World Economic Outlook January 2018 update, the forecast reflects expectations that favourable financing conditions and strong sentiments will help maintain the recent acceleration in demand, especially in investments, with a noticeable impact on growth in economies with large exports. Growth in emerging economies is also projected to pick

up in 2018 driven mainly by the recovery in commodity prices, sustained growth in China and India, end of recession in large emerging economies such as Russia and Brazil, and a general pickup in global trade.

It is expected that the IMF Extended Credit Facility programme will ensure more fiscal discipline in 2018. Government revenue is also expected to increase with rising crude oil prices and the ramp up in oil and gas production from the offshore Tweneboa Enyenra Ntomme (TEN) and Sankofa - Gye-Nyame fields. The IMF therefore forecast Ghana’s 2018 GDP growth rate at 8.9%.

The banking sector continues to be resilient despite the marginal declines in some key financial indicators due to global and domestic macroeconomic challenges.

This year has been challenging but rewarding for us as a Bank. Coming into 2017, we were all uncomfortable with our two years of successive loss positions and there was a strong desire and commitment from all of us to turn around the position. Thankfully, we posted a profit of GHS45.43 million. In addition, the Bank can now boast of having one of the highest cover ratios (i.e. provision to non-performing loans) of over 60% which provides the Bank with protection against future shocks. This position signifies that we remain very strong as a Bank in the face of challenging trends in the Banking sector.

We are confident that the momentum achieved in 2017 will continue in the years ahead as we remain committed to achieving positive results for our Customers, Shareholders, Staff and all other Stakeholders.

We look forward with optimism in 2018 as there are a number of exciting opportunities on the horizon. We have set some ambitious targets for ourselves. We are confident that with your continued support, and the leadership of the Management Team, our goals will be achieved.

Finally, I wish to thank my fellow Directors for their unwavering support. My sincere gratitude also goes to our Customers, Shareholders and Staff for their dedication and loyalty throughout the year.

Thank you.

Charles William Zwennes / BOARD CHAIRMAN



INTRODUCTION

The year 2017 marked a new beginning for HFC Bank as our results reflected both a healthy and resilient business dedicated towards creating value for customers, shareholders and stakeholders. The Bank and its subsidiary businesses performed exceptionally well in delivering positive results in profit from a consecutive loss position over the prior two years. These achievements are largely due to the work towards achieving the five strategic initiatives of Deposit Mobilization, Asset Creation, Improving Recoveries, Cost Management and Culture Revitalization, which were agreed on three years ago. In 2017, Management identified Registration of Mortgages as a critical area of concern as unregistered mortgages were impacting negatively on levels of provisioning. Expounded below are some of activities and impact of the key strategic initiatives undertaken throughout the year:

Deposit Mobilization

As part of our efforts to maintain the momentum gained from the deposit mobilization drive which commenced in January 2016, a Susu plus campaign was launched at the beginning of the year 2017. Susu plus is one of the seven unique deposit products which was introduced into the market in 2016 to increase “Top of Mind Awareness” (TOMA) of HFC Bank brand; to drive traffic to the banking halls and to mobilise cheaper deposit. The Campaign has yielded positive result in deposit growth as total deposits continue to expand. As at the end of the year 2017, total deposits grew by 9.9% to GHS1,712.65 million from GHS1,558.21 million recorded in 2016.

It is worth noting that there was a significant improvement in the cheaper components of deposits, specifically current deposit, which increased by 31.9% while the expensive component i.e. time deposit decreased by 7.4%. This together with management continuous effort of re-pricing maturing fixed deposits in line with general reduction in interest repricing of deposit products resulted in 0.44% in interest expense.

Asset Creation

The asset creation initiative was to grow the loans and advances portfolio by booking quality loans. However, a decision was taken at the beginning of the year 2017 to focus on accounts monitoring and management with the view to ensure that performing loans are not deteriorated as well as recovering delinquent loans. The Bank’s decision to focus attention on accounts monitoring and management adversely affected the size of the loan book which shrunk from GHS919.44 million in 2016 to GHS809.74 in 2017.

Deposits were, hence, channelled into investment in government and related investment securities to generate income. In the course of the year, interest rates and spreads on Government securities begun to decline prompting the need to refocus attention on asset creation.

Subsequently, a Christmas Loan Sale Campaign (CLC) was launched in November 2017. The campaign offered loan packages targeting government workers, private sector salaried workers, senior and middle level Managers. The loan package includes a number of loan products such as vehicle, salary advances, and mortgage and consumer loans.

Improving Recoveries and Impairment Levels

The implementation of proactive management of carrying costs associated with Non-Performing Loans (NPL); expediting mutual settlements and agreed payment terms with customers; and aggressive collection on mortgage loans; were the main focus area under this initiative.

As at the end of December 2017, total loans recovered amounted to GHS84.63 million. The recoveries included GHS16.92 million recovered from the Bulk Oil Distribution Companies (BDC’s) in the last quarter of 2017. The amount was from proceeds of the recent energy bond to defray part of the indebtedness of the BDCs in our books. The

Ant hony Jordan

MANAGING DIRECTOR’S DISCUSSION AND ANALYSIS



payments received from the BDCs was used to shore up identified accounts of which provisions were to be made in 2017.

Therefore, during the twelve months under review, a sum of GHS0.022 million was charged for credit losses compared to GHS72.78 million charged in 2016. The cumulative provision therefore stood at GHS140.53 million as at December 2017 compared to GHS140.55 as at December 2016. The aggregate amount represents 58.81% of the NPL portfolio. The table below shows the portfolio quality of the Bank:

All figures in GHS Million 2017 2016 Change

Gross Loans & Advance (GHS Million) 950.27 1,059.99 -10.4%

Non Performing Loans - NPL 238.98 230.75 3.6%

NPL Ratio (%) 25.15% 21.77% 3.4%

Total Provision (GHS Million) 140.53 140.55 -0.01%

NPL Cover (%) 58.81% 60.91% -2.1%

Cost Management

The Bank continues to be prudent in cost management by encouraging a cost saving culture. Our Cost Management initiative sought to improve cost by streamlining employment and managing the level of staff attrition; subjecting all projects to rigorous cost-benefit analysis before implementation; and encouraging cost saving culture in the Bank.

Operating Expense (including personnel, lease, depreciation and amortisation, and other expenses) for the period increased slightly by 5.6% to GHS203.33 million from GHS192.60 million recorded in 2016. Personal expenses witnessed a 3.8% year-on-year decline from GHS97.77 million in 2016 to GHS94.10 million in 2017. Generally operating expenses were kept low as compared to the 20.4% year-on-year surge witnessed between the years 2016 and 2015.


Personal Expenses 94.10 97.77 -3.80%

Operating leaseExpenses 9.04 7.98 13.2%

Depreciation and Amortization 13.95 13.00 7.3%

Other Expenses 86.24 73.85 16.8%

TOTAL 203.33 192.60 5.6%

Branch Clustering System was introduced in June 2017 in an effort to reduce staffing costs and improve management efficiency. As a result of this, six (6) Clusters were created in four (4) of the five (5) Zones across the Branch network. The Clustering System was implemented for branches which fall within a distance that did not exceed a 2 - hour commute. The introduction of the system led to the collapsed of certain roles with total cost savings to the Bank from inception to January 2018 recorded at GHS725,696.11.

Culture Revitalisation

The notion behind this initiative was to transform the Bank’s culture into a more performance driven and customer focused bank. Over the past three years various events such as the formation of a culture revitalization team to drive a positive culture and training sessions on service delivery and excellence have been initiated towards achieving this goal. In 2017, however, priority was placed on staff training. For this reason, an Exchange Programme was created between HFC Bank and Republic Financial Holdings Limited (RFHL) to facilitate knowledge transfer. This led to four (4) employees of HFC Bank nominated to work with Republic Bank Limited (RBL) particularly with the Credit Risk and International Trade Services. Four (4) RBL staff also assume various roles in HFC including Internal Audit, Credit Risk and Retail Banking.



Net Interest Income

The Group’s Net Interest Income from loans and investments for the year 2017 was GHS165.61 million. This represents 26.2% year-on-year increase driven partly by strong growth in income from Investment. Income from Investment improved by 66% from GHS85.55 million in 2016 to GHS142.16 million in 2017.


Net Interest Income 165.61 131.19 26.2%

net Free and Commission 43.41 35.04 23.9%

Operation Income 272.75 201.60 35.3%

Operation Expenses (203.33) (192.60) 5.6.8%

Profit/ Loss After Taxation 46.49 (47.73) 197.4%

Fee and Commission

In light of declining interest rate in the market, greater focus was put on improving non-interest income during the year. The Net Fee and Commission income from retail banking customer fees expanded by 23.9% from GHS35.04 million to GHS43.41 million.

The other non-interest income items such as trading income, other operating income and other income also improved within the year. Net trading income registered a 30.1% growth; other operating income (mainly from property sale) recorded 181.4% growth; and other income (which includes bad debt recovery, profit on disposal of asset and valuation gains) increased by 21.5%.

Profit After Tax

A strong growth in operating income and a substantial reduction in impairment led to a 197.4% rise in profit after tax to GHS46.49 million from a loss position of GHS47.72 million in 2016. Our two subsidiaries, HFC Investment Services and HFC Boafo Microfinance contributions to the Group’s net profit was GHS5.02 million and GHS1.97 million respectively.

CONCLUSION

The year 2017 has charted the path for extraordinary achievements and renewed commitment in creating wealth and a better life for our customers, staff, shareholders and all stakeholders.

I seize this opportunity to thank our customers and shareholders for their continued interest and loyalty to the Bank. I also thank the Board for their invaluable counsel and support in moving the Bank to greater heights.

Most of all, my sincere gratitude to the employees and the management team of HFC Bank and its subsidiaries for investing efforts and energies in improving the image of the Bank as a healthy and strong business with the potential for continuous growth. Your hard work and commitment will continue to be the foundation of the Bank’s future feats.

ANTHONY JORDAN / MANAGING DIRECTOR

HIGHLIGHTS OF CONSOLIDATEDSTATEMENT OF INCOME



CORPORATEGOVERNANCE &

SOCIAL RESPONSIBILITY



CORPORATE GOVERNANCE

HFC Bank acknowledges the pivotal role corporate governance plays in the sustained success of any organisation. To this end, the Board of Directors (“the Board”) is committed to ensuring that best practice in corporate governance remains a fundamental part of the culture and business of the Bank and its Subsidiaries, whilst ensuring adequate levels of Shareholder participation and protection.

The Bank’s policies, systems and procedures are therefore geared towards promoting and enhancing the corporate governance principles of accountability, integrity, transparency, robustness, fairness and social responsibility, whilst maximising long term Shareholder value. These principles, which are compliant with regulatory and international guidelines, underpin all areas of the Bank’s business.

Key aspects of the Bank’s Corporate Governance Framework are outlined below.

THE BOARD OF DIRECTORS

The role of the Board is to provide effective leadership, strategic direction, governance, enterprise and good judgement in guiding the Management to achieve growth and deliver long term sustainable Shareholder value.

The Bank’s Core Values of Customer Focus, Integrity, Respect for the Individual, Professionalism and Results Orientation are set by the Board to ensure that the Bank’s obligations to its Shareholders, Employees, Customers and the Communities it serves are met.

Composition

For the first part of the year, the Board of HFC Bank comprised a Non-Executive Chairman, six (6) other Non-Executive Directors, (two (2) of whom represent the minority Shareholders and the public interest in accordance with the Bank’s Regulations). The Non-Executive Directors are independent of Management and free from management constraints which could interfere with the exercise of their objective and independent judgment. There was one (1) Executive Director who was the Managing Director.

The two institutional Directors from SSNIT retired from the Board in April and July respectively. A new Non-Executive Director from SSNIT, Mr. Michael Addo, was appointed in May 2017. Additionally, the Managing Director retired from the Board in August 2017 and was replaced by a new substantive Managing Director effective 1st December 2017.

The Directors collectively possess strong functional knowledge, expertise, experience and relevant skills to make valuable contributions to the Bank.

Conflicts of Interest

The Directors are expected to avoid any action, position or interest that may conflict or appear to conflict with any of the Bank’s interests. Any Director who has a material personal interest in a matter relating to the Bank’s affairs is expected to notify the other Directors of that interest.

Meetings’ Calendar

The Board’s annual meetings calendar, showing the scheduled dates for meetings of the Board and Board Committees, is circulated to Directors at the beginning of each year. In 2017 the Full Board had six (6) meetings.

Board Committees

To assist the Board in its functions and thereby increase its effectiveness, the Board has entrusted specific responsibilities to three (3) standing Committees. These are the Finance and Credit Committee, the Remuneration and Nominations Committee and the Audit and Enterprise Risk Committee.

Finance and Credit Committee

The Finance and Credit Committee is appointed by the Board. In the year 2017, the Committee was made up of the Executive Director and four (4) Non-Executive Directors, namely Mr. Charles Zwennes (Chairman), Ms. Rebecca Lomo, Mr. Ebenezer Tagoe and Mr. Nigel Baptiste. Mr. Le Hunte and Ms. Lomo retired from the Committee in the course of the year 2017.

The duties of the Finance and Credit Committee are to assist the Board to review all credit and finance related policies and issues of the Bank, to review credit within the limits set for the Committee by the Board and to recommend to the Board credit facilities above their limit. The Committee had six (6) meetings in 2017.



Remuneration and Nominations Committee

The Remuneration and Nominations Committee is appointed by the Board and is composed of all the Non-Executive Directors. The Chairman of the Committee is the Board Chairman.

The duties of the Remuneration and Nominations Committee are to assist the Board establish a transparent structure for developing policy on executive and staff compensation; to advise the Board on appropriate compensation for Directors, Management and Staff; and to consider nominations and appointments of Directors and Executive Management. The Remuneration and Nominations Committee did not sit in 2017; however all related matters were dealt with directly by the Board of Directors. The Committee is scheduled to meet in the first quarter of 2018.

The Audit and Enterprise Risk Committee

The Audit and Enterprise Risk Committee is appointed by the Board. In the year 2017 the following were the members of the Committee, namely Ms. Rebecca Lomo (Chairperson), Mr. Robert Le Hunte, Mr. Ebenezer Tagoe, Mr. Paul Aryene and Mr. David Dulal-Whiteway. Mr. Le Hunte and Ms. Lomo retired from the Committee in the course of the year 2017 and Mr. Tagoe took over the chairmanship of the Committee.

During the course of the year the Committee, previously named Audit & Risk Committee was re-named, Audit & Enterprise Risk Committee, to take into consideration the expansion of its mandate.

The duties of the Audit and Enterprise Risk Committee include reviewing the scope and findings of all audits (internal and external), as well as the independence and objectivity of the Auditors. The Committee also monitors the adequacy, integrity and effectiveness of critical systems and internal financial controls; compliance with legal obligations; safe-guarding of assets and the review of all activities to control the Bank’s risk exposure. The Committee had seven (7) meetings in 2017.

SYSTEMS OF INTERNAL CONTROL

The Board is ultimately responsible for the integrity and adequacy of the Bank’s Internal Control Systems and towards this end promotes the independence, credibility and robustness of the internal control function. Under the Board’s direction, the Bank operates a dedicated and well-established internal control system for identifying, managing and monitoring risks. The Head of the Internal Audit Department who reports directly to the Board also plays a pivotal role in providing an independent and objective view to ensure the continuing assessment of the robustness and effectiveness of the control systems in the Bank.

RISK MANAGEMENT FRAMEWORK

The Board oversees the Risk Management Framework of the Bank. The Enterprise Risk Management Division advises the Board and Management on areas of risk faced by the Bank and the adequacy of controls throughout the Bank. The Bank continually reviews the integrity and adequacy of its procedures to ensure, to the greatest extent possible, the protection of the Bank’s assets and Shareholders’ investments. To this end, enterprise risk management remains firmly rooted in the Bank’s management systems.

COMPLIANCE & ANTI-MONEY LAUNDERING POLICIES

HFC Bank has in place policies, procedures and systems for the successful implementation of the Bank’s Anti Money Laundering (AML) compliance program, which is designed to comply with all the relevant laws and regulations. It is the policy of the Bank to take all reasonable and appropriate steps to prevent persons engaged in money laundering, fraud, or other financial crime, including the financing of terrorists or terrorist operations, from utilizing the Bank’s products and services/platforms to launder money. Compliance with both the letter and the spirit of the anti-money laundering regulatory regime of Ghana and the International Community is one of the ways the Bank works to achieve this policy.



CORPORATE SOCIAL RESPONSIBILITY (CSR)

As part of the Bank’s vision statement which is to build successful communities, the Bank undertook various Corporate Social Responsibility and Staff Volunteerism initiatives for the year 2017. As the Bank works to deliver sustainable growth and shareholder value, it also contributes to the wider community by being a responsible corporate citizen, a Bank with a heart and an employer of choice. The Bank is therefore committed to promoting and engaging in activities that benefit and enhance the socio-economic development of the Community and the country as a whole.

The Bank’s main CSR drive in the year 2017 was in the area of institutional and business capacity development and youth development. The Bank engaged in providing support to major educational and health institutions and also developing local content in the Oil and Gas Sector. Under the youth development program, the Bank supported the Ghana Education Service in the development of youth athletics by sponsoring the 2017 National Youth Athletics Festival for Second Cycle Schools.

The Bank also made donations and sponsored several activities including:-

� National Partnership For Children’s Trust (NPCT)

� SOS Children’s Village Ghana

� University of Ghana – Needy Students

� Institute of African Studies, University of Ghana towards the second Kwame Nkrumah Cultural and Intellectual Festival

� Ministry of the Future towards the Historical Citizenship Workshop - University of Ghana

� Soft Landscaping Project - University of Ghana

� Local Content Seminars in the Oil and Gas Sector

� Citi FM Easter Orphan Project

� Latifa – Child with Eye Cancer

� Rebecca Akuffo-Addo Foundation towards rehabilitation of the Maternity Block of the Komfo Anokye Teaching Hospital

� Ghana National Trust Fund to provide grants to brilliant but needy children

� Catholic Organization for Social and Religious Advancement (COSRA) towards the annual blood donation exercise to replenish the Korle Bu Blood Bank

� Infanta Malaria Prevention Foundation, building of CHPS Compound in Nyanshegu, Tamale

� Worm Free Project in partnership with Cradle to Crayon at Chorkor, Accra.

Under the Staff Volunteerism Program (SVP), staff were encouraged to identify, finance and execute their own community initiatives through voluntary contributions. The following initiatives were undertaken in 2017:-

� Donation to Women in Prison as part of the Mother’s Day Celebrations

� Nationwide Clean Up Exercise as part of the Bank’s Clean Ghana Campaign

� Donation of Incubator to the Keta General Hospital by HFC Investments

� Construction of a Borehole for the People of Manchie – funded by HFC Investments.

Outlook for 2018

The Bank will continue the creation of positive Top of Mind Awareness (TOMA) in communities within which it operates and Ghana as a whole. The spotlight will continue to be on youth athletics development, health and education.

Staff will also intensify enhanced volunteerism projects to derive value for the Bank’s stakeholders.

Beatrix Ama Amoah (Mrs.) / COMPANY SECRETARY



INDEPENDENTAUDITOR’S REPORT



Report on the Audit of the Financial Statements

TO THE SHAREHOLDERS OFHFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Opinion

We have audited the consolidated and separate financial statements of HFC Bank (Ghana) Limited, (the Bank) and its subsidiaries (collectively ‘’the Group’’) set out on pages 36 to 111 which comprise the consolidated and separate statements of financial position as at 31 December 2017, and the consolidated and separate statements of comprehensive income, the consolidated and separate statements of changes in equity and the consolidated and separate statements of cash flows for the year then ended, and notes to the consolidated and separate financial statements, including a summary of significant accounting policies.

In our opinion, the consolidated and separate financial statements present fairly, in all material respects, the consolidated and separate financial position of the Group as at 31 December 2017, and its consolidated and separate financial performance and consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards and in the manner required by the Companies Act, 1963 (Act 179) and The Banks and Deposit-Taking Institutions Act, 2016 (Act 930).

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the International Ethics

Standards Board for Accountants (IESBA Code) and other independence requirements applicable to performing audits of HFC Bank (Ghana) Limited and it’s subsidiaries. We have fulfilled our other ethical responsibilities in accordance with the IESBA Code, and in accordance with other ethical requirements applicable to performing the audits of HFC Bank (Ghana) Limited and it’s subsidiaries. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial statements.



Key Audit Matter How the matter was addressed in the audit

Impairment of loans and advances in line with IFRS

Total impairment formed about 15% of gross loans however, the impairment for the year decreased marginally resulting to a write back of impairment (note 21g). The net loans and advances of the Group provision for the year formed about 39% (note 21d) of total assets.

This involves the application of significant estimates, judgements and assumptions by management. Determination of the impairment loss provision is an inherently uncertain process involving various assumptions and factors including the financial condition of the counterparty, expected future cash flows, estimated time to realisation of collaterals and expected net selling price. This process therefore required significant audit attention as changes in these judgements and assumptions could produce significantly different estimates of loan loss provisions.

We assessed and tested the design and operating effectiveness of the controls over individual and collective impairment calculations including the quality of underlying data and systems.

For loan loss provisions calculated on an individual basis, we tested the assumptions underlying the main triggers for specific impairment assessment. The process for estimating impairment loss included forecasts of future cash flows, valuation of underlying collateral mainly by reviewing and discussing some of the valuation reports with the Specialists. We also considered the estimated period to realisation and estimates of recovery on default.

For loan loss provisions calculated on a collective basis, we tested the underlying assumptions and compared to industry norms.

Adequacy of regulatory credit risk provisioning

Regulatory Credit Risk Reserve is governed by Bank of Ghana specific regulatory provisioning rules aside the IFRS impairment provision. Unlike IFRS impairment rules however, regulatory provision rules are more deterministic and triggered mainly by the number of days a facility has been in default.

The excess of regulatory provision over IFRS provision is recognised directly in equity as credit risk reserves. The balance on this account as at 31 December 2017 was GHS4.0million. Regulatory credit risk provisions represent a key risk area for the bank as misstatements in the carrying amount of this balance could have significant impact on the bank’s financial statements including the accuracy of its capital adequacy computations and other key industry performance indicators. Regulatory Credit Risk Provision has been disclosed in note 36 of these financial statements.

We assessed the accounting systems and related controls instituted by management to ensure the accurate determination of these provisions.

We reviewed the process for aging and categorisation of the various loan buckets and the application of related regulatory provision rates.

We tested a sample of these provisions based on our overall risk assessment of this account.



Other Information

The Directors are responsible for the other information. The other information comprises corporate information (Directors, Officials and Registered Office), report of the Directors and statement of directors’ responsibilities. Other information does not include the consolidated financial statements and our auditor’s report thereon. Our opinion on the consolidated financial statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the Directors for the financial statements

The Directors are responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards and the requirements of the Companies Act, 1963 (Act 179) and the and the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930), and for such internal control as the Directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the Directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group’s financial reporting processes.

Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

� Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

� Obtain an understanding of internal controls relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

� Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Directors.

� Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based



on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.

� Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

� Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the Direction, supervision and performance of the Group’s audit. We remain solely responsible for our audit opinion.

We communicate with the Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal controls that we identify during our audit.

We also provide the Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with the Directors, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on other legal requirements

The Companies Act, 1963 (Act 179) requires that in carrying out our audit we consider and report on the following matters. We confirm that:

� We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit;

� In our opinion proper books of account have been kept by the Group, so far as appears from our examination of those books;

� Proper returns adequate for the purpose of our audit have been received from branches not visited by us; and

� The balance sheet (statement of financial position) and the profit or loss account (profit or loss section of the statement of profit or loss and other comprehensive income) are in agreement with the books of account.

The Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930) under section 85(2) requires that we report on certain matters. Accordingly, we state that;

� The accounts give a true and fair view of the statement of affairs of the bank and the results of operations for the year under review;

� We were able to obtain all the information and explanation required for the efficient performance of our duties;

� The transactions of the Bank are generally within the powers of the bank;

� The Bank has generally complied with the provisions of the Anti-Money Laundering Act, 2008 (Act 749), the Anti-Terrorism Act, 2008 (Act 762) and regulations made under these enactments;

� The Bank has generally complied with the provisions of the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930).

Pamela Des Bordes (ICAG/P/1329)For and on behalf of Ernst & Young (ICAG/F/2018/126)Chartered AccountantsAccra, Ghana

Date:



FINANCIALS



Consolidated Statement Of Comprehensive Income For the year ended 31 December 2017

2017 2016

In thousands of GHS Note Bank Group Bank Group

Interest income 8 310,598 321,313 276,012 287,572

Interest expense 9 (155,701) (155,701) (156,383) (156,383)

Net interest income 154,897 165,612 119,629 131,189

Fee and commission income 10a 24,307 44,606 20,096 35,768

Fee and commission expense 10b (1,198) (1,198) (729) (729)

Net fee and commission income 23,109 43,408 19,367 35,039

Net trading income 11 14,964 14,964 11,503 11,503

Other operating income 12a 5,263 34,782 2,372 12,359

Other income 12b 9,503 13,987 19,990 11,510

Operating income 207,736 272,753 172,861 201,600

Net impairment gain / (loss) on financial asset 21e 21 21 (69,781) (72,781)

Personnel expenses 13 (79,829) (94,103) (84,264) (97,770)

Operating lease expenses 14 (8,288) (9,038) (6,870) (7,981)

Depreciation and amortization 15 (12,858) (13,951) (11,957) (12,999)

Other expenses 16 (50,137) (86,237) (56,984) (73,851)

Profit / (loss) before income tax for the period 56,645 69,445 (56,995) (63,782)

National Stabilization Levy 17 (2,832) (3,261) - (393)

Tax expense 17 (16,890) (19,690) 18,389 16,446

Profit / (loss) for the period 36,923 46,494 (38,606) (47,729)

Other comprehensive income /(loss), net of income tax - - - -

Total comprehensive income /(loss) for the period 36,923 46,494 (38,606) (47,729)

Profit / (loss) attributable to:

Controlling Equity holders of the bank 36,923 45,431 (38,606) (47,982)

Non-controlling interest - 1,063 - 253

Profit / (loss) for the period 36,923 46,494 (38,606) (47,729)

Total comprehensive income/ (loss) attributable to:

Controlling Equity holders of the bank 36,923 45,431 (38,606) (47,982)

Non-controlling interest - 1,063 - 253

36,923 46,494 (38,606) (47,729)

Basic earnings per share (Ghana pesewas) 47 12.30 15.49 (12.98) (16.13)

Diluted earnings per share (Ghana pesewas) 12.79 (13.56)

The attached notes on pages 37 to 107 form an integral part of these financial statements.



Consolidated Statement Of Financial Position as at 31 December 2017

2017 2016

In thousands of GHS Note The Bank The Group The Bank The Group

Assets

Cash and cash equivalents 18 842,923 844,104 638,851 642,944

Non-Pledged assets 19 216,071 216,071 68,607 68,607

Pledged assets 19 38,000 38,000 22,300 22,300

Other investments 20 39,667 37,156 42,838 28,376

Loans and advances to customers 21 809,926 809,736 919,964 919,436

Investment securities 22 8,303 17,393 8,612 26,225

Current income tax assets 23 - 0 25,111 25,275

Deferred tax assets 24 19,941 19,949 15,199 15,263

Intangible asset 25 5,789 5,952 6,512 6,685

Other assets 26 33,756 44,567 45,200 76,900

Property, plant and equipment 27 64,720 67,250 62,977 65,545

Total assets 2,079,096 2,100,178 1,856,171 1,897,556

Liabilities and equity

Deposits from banks 28 - - - -

Deposits from customers 29 1,712,646 1,712,646 1,558,210 1,558,210

Borrowing 30 14,719 14,719 41,845 41,845

Current income tax 23 2,256 2,132 - -

Other liabilities 31 123,280 128,482 114,967 149,903

Total liabilities 1,852,901 1,857,979 1,715,022 1,749,958

Equity

Stated capital 32 146,191 146,191 96,191 96,191

Income surplus 33 (32,493) (20,053) (47,682) (43,750)

Revaluation reserve 34 32,051 32,051 32,293 32,309

Statutory reserve fund 35 75,665 75,665 57,203 57,203

Regulatory credit risk reserve 36 4,037 4,037 2,400 2,400

Housing development assistance reserve 37 744 744 744 744

Total equity attributable to equity holders of the Bank 226,195 238,635 141,149 145,097

Non-controlling interest 38 - 3,564 - 2,501

Total equity 226,195 242,199 141,149 147,598

Total liabilities and equity 2,079,096 2,100,178 1,856,171 1,897,556

The financial statements on pages 32 to 107 were approved by the Board of directors on January 24 2018 and signed on its behalf by:

Chairman: Managing Director: Date: 24th January, 2018 Date: 24th January, 2018



Statement Of Changes In Equity For the Year ended 31 December 2017

The Bank-2017

Stated Capital

Income surplus

account Statutory

reserveRevaluation

reserve

Housing development

assistance reserve

Regulatory credit risk

reserve Total

Equity

In thousands of GHS (Note 32) (Note 33) (Note 35) (Note 34) (Note 37) (Note 36)

Balance at 1 January 2017 96,191 (47,682) 57,203 32,293 744 2,400 141,149

Profit for the year - 36,923 - - - - 36,923

Issue of ordinary shares 50,000 - - - - - 50,000

Shares issuance cost - (1,877) - - - - (1,877)

Transfer from comprehensive income to statutory reserve - (18,462) 18,462 - - - -

Transfer from revaluation surplus - 242 - (242) - - -

Movement from regulatory credit risk reserve - (1,637) - - - 1,637 -

At 31 December 2017 146,191 (32,493) 75,665 32,051 744 4,037 226,195

The Bank-2016

Stated Capital

Income surplus

account Statutory

reserveRevaluation

reserve

Housing development

assistance reserve


reserve Total

Equity

In thousands of GHS (Note 32) (Note 33) (Note 35) (Note 34) (Note 37) (Note 36)

Balance at 1 January 2016 96,191 (13,475) 57,203 32,819 744 6,273 179,755

Loss for the year (38,606) - - - - (38,606)

Transfer from revaluation surplus - 526 - (526) - - -Movement from regulatory credit risk reserve - 3,873 - - - (3,873) -

At 31 December 2016 96,191 (47,682) 57,203 32,293 744 2,400 141,149



Statement Of Changes In Equity For the Year ended 31 December 2017

The Group-2017

Stated Capital

Income surplus

account Statutory

reserveRevaluation

reserve

Housing development

assistance reserve


reserve

Non-controlling

interestTotal

Equity

In thousands of GHS (Note 32) (Note 33) (Note 35) (Note 34) (Note 37) (Note 36) (Note 38)

Balance at 1 January 96,191 (43,750) 57,203 32,309 744 2,400 2,501 147,598

Profit for the year - 45,431 - - - - 1,063 46,494

Issue of ordinary shares 50,000 - - - - - - 50,000

Shares issuance cost - (1,877) - - - - - (1,877)

Transfer from comprehensive income to statutory reserve

- (18,462) 18,462 - - - - -

Transfer from capital surplus - 242 - (258) - - - (16)

Transfer from regulatory credit risk reserve - (1,637) - - - 1,637 - -

At 31 December 146,191 (20,053) 75,665 32,051 744 4,037 3,564 242,199

The Group-2016

Stated Capital

Income surplus

account Statutory

reserveRevaluation

reserve

Housing development

assistance reserve


reserve

Non-controlling

interestTotal

Equity

In thousands of GHS (Note 32) (Note 33) (Note 35) (Note 34) (Note 37) (Note 36) (Note 38)

Balance at 1 January 96,191 (167) 57,203 32,835 744 6,273 2,248 195,327

(Loss) /profit for the year - (47,982)

- - - - 253 (47,729)

Transfer from capital surplus - 526 - (526) - - - -

Transfer from regulatory credit risk reserve - 3,873 - - - ( 3,873) - -

At 31 December 96,191 (43,750) 57,203 32,309 744 2,400 2,501 147,598



Consolidated Statement OF Cash Flows For the Year ended 31 December 2017

2017 2016

In thousands of GHS Note Bank Group Bank Group

Cash flows from Operating activities

Cash generated from operations 40 331,513 331,867 274,425 275,247

Interest paid-long term bonds and borrowing 30/31a (9,612) (9,612) (17,454) (17,454)

Tax paid 23 (4,028) (6,941) (11,377) (13,456)

National stabilization levy paid 23b (3,501) (3,721) (2,119) (2,527)

Tax refund – Corporate tax 23 6,530 6,530 - -

Tax refund – National stabilization levy 23b 3,902 3,902 - -

Net cash generated from operating activities 324,804 322,025 243,475 245,435

Cash flows from investing activities

Purchase of property, plant and equipment 27 (13,090) (14,251) (14,103) (15,265)

Purchase of Intangible asset- software 25b (1,091) (1,091) (742) (785)

Proceeds from sale of property, plant and equipment 27 590 706 740 935

Purchase of government securities (8,662,479) (8,662,479) (4,394,445) (4,394,531)

Sale of government securities 8,515,015 8,518,515 4,385,804 4,385,815

Purchase of other investments (3,000) (3,000) (5,000) (5,000)

Purchase of other short-term investments 20 - (5,659) - -

Sale of other investments 20(a) 8,580 3,128 - 5,136

Sale / (purchase) of investment securities 2,478 11,001 6,134 (10,984)

Investment in venture capital fund (2,169) (2,169) 913 18,200

Net cash used in investing activities (155,166) (155,299) (20,699) (16,479)

Cash flows from financing activities

Redemption of bonds 31a (4,524) (4,524) (16,766) (16,766)

Borrowings repaid 30 (25,554) (25,554) (32,902) (32,902)

Proceeds from borrowings 30 - - 43,245 43,245

Proceeds from ordinary shares issued 30 50,000 50,000 - -

Ordinary shares issuance cost (1,877) (1,877) - -

Net cash generated from/ (used in) financing activities 18,045 18,045 (6,423) (6,423)

Increase in cash and cash equivalents 187,683 184,771 216,353 218,908

Net foreign exchange difference 16,389 16,389 10,578 10,578

At 1 January 638,851 642,944 411,920 413,458

Cash and cash equivalents as at 31 December 842,923 844,104 638,851 642,944

The attached notes on pages 37 to 107 form an integral part of these financial statements.


Notes To The Consolidated Financial Statements 31 December 2017


1. Reporting entity

HFC Bank (Ghana) Limited (the “Bank”) is a limited liability company incorporated and domiciled in Ghana. The address of the Bank’s registered office is Ebankese No. 35 Sixth Avenue, North Ridge, Accra. The financial statements as at and for the twelve months ended 31 December 2017 comprise the Bank’s stand alone and its subsidiaries (together referred to as the “Group”). The Group’s principal activities are in investment banking, corporate banking, retail banking, mortgage banking, asset management services and property management and development. The Bank is listed on the Ghana Stock Exchange.

2. Basis of preparation

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Boards (IASB), the Banking Act and the Ghana companies Act.

The financial statements have been prepared under the historical cost basis except where the fair value measurement of certain financial instruments is required or permitted under IFRS and set out in the relevant accounting policies below. The financial statements are presented in Ghana cedis (GHS) and rounded to the nearest thousand.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 7.

3. Basis of consolidation

The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 31 December 2017. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has:

� Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee)

� Exposure, or rights, to variable returns from its involvement with the investee, and

� The ability to use its power over the investee to affect its returns

Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

� The contractual arrangement with the other vote holders of the investee

� Rights arising from other contractual arrangements

� The Group’s voting rights and potential voting rights

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it:

� Derecognises the assets (including goodwill) and liabilities of the subsidiary

� Derecognises the carrying amount of any non-controlling interests

� Derecognises the cumulative translation differences recorded in equity

� Recognises the fair value of the consideration received

� Recognises the fair value of any investment retained

� Recognises any surplus or deficit in profit or loss




� Reclassifies the parent’s share of components previously recognised in OCI to profit or loss or

Ø retained earnings, as appropriate, as would be required if the Group had directly disposed of the

Ø related assets or liabilities

The Bank accounts for investments in subsidiaries, joint ventures and associates in its separate financial statements at costs. Any dividend from a subsidiary, a joint venture or an associate is recognised in profit or loss in its separate financial statements when its right to receive the dividend is established.

4 Statement of compliance

The consolidated financial statements of the Bank have been prepared in accordance with IFRS as issued by the IASB.

5. Summary of significant accounting policies

5.1 Foreign currency translation

(a) Functional and presentation currency

Items included in the Group’s financial statements are measured by each group entity using the e currency of the primary economic environment in which that entity operates (‘the functional currency’).

The financial statements are presented in Ghana Cedis, which is the Bank’s functional and presentation currency.

(b) Transactions and balances

Transactions in foreign currencies are initially recorded at the spot rate of exchange ruling at the date of the transaction.

Monetary assets and liabilities denominated in foreign currencies are retranslated at the spot rate of exchange at the reporting date. The spot rate used for foreign currency translation is the Ghana Association of Bankers’ interbank average rate.

Non–monetary items that are measured in terms of historical cost in a foreign currency are translated using the spot exchange rates as at the date of recognition. Non–monetary items measured at fair value in a foreign currency are translated using the spot exchange rates at the date when the fair value was determined.

All foreign exchange gains and losses recognised in the profit or loss are presented net within the corresponding item. Foreign exchange gains and losses on other comprehensive income items are presented in other comprehensive income within the corresponding item.

Translation differences related to changes in the amortised cost are recognised in the profit or loss, and other changes in the carrying amount, except impairment, are recognised in other comprehensive income. All differences arising on non–trading activities are taken to other operating income in profit or loss.

5.2 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the Asset and Liabilities Committee (ALCO) and the Board of Directors. The Board allocates resources to and assesses the performance of the operating segments of the entity. All transactions between operating segments are conducted on an arm’s length basis, with intra-segment revenue and costs being eliminated in head office. Income and expenses directly associated with each segment are included in determining operating segment performance.

The Group has the following reporting segments: retail banking, corporate banking, microfinance and mortgage banking

5.3 Sale and repurchase agreements

Securities sold subject to repurchase agreements (‘repos’) are reclassified in the financial statements as pledged assets when the transferee has the right by contract or custom to sell or repledge the collateral; the counterparty liability is included in deposits from banks or deposits from customers, as appropriate. Securities purchased under agreements to resell (‘reverse repos’) are recorded as loans and advances to other banks or customers, as appropriate.

The difference between sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest method. Securities lent to counterparties are also retained in the financial statements.

5.4 Financial assets and liabilities

5.4.1. Date of recognition

All financial assets and liabilities are initially recognised on the trade date, i.e., the date that the bank becomes a party to the contractual provisions of the instrument. This includes “regular way trades”: purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place.

5.4.2. Initial measurement of financial instruments

The classification of financial instruments at initial recognition depends on the purpose and the management’s intention for which the financial




instruments were acquired and their characteristics. All financial instruments are measured initially at their fair value plus transaction costs, except in the case of financial assets and financial liabilities recorded at fair value through profit or loss.

All financial assets and liabilities – have to be recognised in the statement of financial position and measured in accordance with their assigned category.

“Day 1” profit or loss

When the transaction price differs from the fair value of other observable current market transactions in the same instrument, or based on a valuation technique whose variables include only data from observable markets, the bank immediately recognises the difference between the transaction price and fair value (a “Day 1” profit or loss) in “net trading income”. In cases where fair value is determined using data which is not observable, the difference between the transaction price and model value is only recognised in profit or loss when the inputs become observable, or when the instrument is derecognised.

5.4.3 Financial assets

The Group classifies its financial assets in the following categories: financial assets at fair value through profit or loss; loans and receivables; held-to-maturity investments; and available-for-sale financial assets. Management determines the classification of its financial assets at initial recognition.

(a) Financial assets at fair value through profit or loss

This category comprises two sub-categories: financial assets classified as held for trading, and financial assets designated by the Group as at fair value through profit or loss. A financial asset is classified as held for trading if it is acquired or incurred principally for the purpose of selling or repurchasing it in the near term or if it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. Derivatives are also classified as held for trading and measured at fair value. The group has not designated any financial assets as at fair value through profit or loss.

Financial instruments classified as fair value through profit or loss are recognised initially at fair value; transaction costs are taken directly to the profit or loss. Gains and losses arising from changes in fair value are included directly in profit or loss as part of ‘other operating income’.

(b) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than:

a. those that the Group intends to sell immediately or in the short term has not been designated as financial assets at fair value through profit or loss;

b. those that the Group upon initial recognition designates as available for sale; or

c. those for which the holder may not recover substantially all of its initial investment, other than because of credit deterioration.

Loans and receivables are initially recognised at fair value plus transaction costs and measured subsequently at amortised cost using the effective interest method. Loans and receivables are reported in the statement of financial position as loans and advances to banks or customers. Interest on loans is included in the statement of comprehensive income and is reported as ‘Interest income’. In the case of impairment, the impairment loss is reported as a deduction from the carrying value of the loan and recognised in profit or loss within the statement of comprehensive income as ‘loan impairment charges’.

(c) Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity, other than:

a. those that the Group upon initial recognition designates as at fair value through profit or loss;

b. those that the Group designates available for sale; and

c. those that meet the definition of loans and receivables.

These are initially recognised at fair value including direct and incremental transaction costs and measured subsequently at amortised cost, using the effective interest method.

Interest on held-to-maturity investments is included in profit or loss within the statement of comprehensive income and reported as ‘Interest income’. In the case of impairment, the impairment loss is been reported as a deduction from the carrying value of the investment and recognised in profit or loss within the statement of comprehensive income.




5.4.4 Financial liabilities

The Group’s financial liabilities includes deposits from customers, banks and other financial institutions, bonds, borrowings, short term borrowings and derivatives. Except for derivatives, all other financial liabilities are measured at amortised cost. Derivatives are measured at fair value with gains and losses recognised in profit or loss.

5.4.5 Determination of fair value

For financial instruments traded in active markets, the determination of fair values is based on quoted market prices.

A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, industry group, regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. If the above criteria are not met, the market is regarded as being inactive. Indicators that a market is inactive are when there is a wide bid-offer spread or significant increase in the bid-offer spread or there are few recent transactions.

For all other financial instruments, fair value is determined using valuation techniques. In these techniques, fair values are estimated from observable data in respect of similar financial instruments, using models to estimate the present value of expected future cash flows or other valuation techniques.

The Group uses widely recognised valuation models for determining fair values of non-standardised financial instruments of lower complexity, such as options or interest rate and currency swaps. For these financial instruments, inputs into models are generally market-observable.

5.4.6 Derecognition of financial assets and financial liabilities

(i) Financial assets

A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when:

Ø The rights to receive cash flows from the asset have expired.

Ø The bank has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay.

The received cash flows in full without material delay to a third party under a ‘pass–through’ arrangement; and either:

Ø the bank has transferred substantially all the risks and rewards of the asset, or

Ø the bank has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the bank has transferred its rights to receive cash flows from an asset or has entered into a pass–through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the bank’s continuing involvement in the asset. In that case, the bank also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the bank has retained.

(ii) Financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. The difference between the carrying value of the original financial liability and the consideration paid is recognised in profit or loss.

5.4.7 Offsetting financial instruments

Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amount and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, therefore, the related assets and liabilities are presented gross in the statement of financial position.

5.5 Interest income and expense

Interest income and expense for all interest-bearing financial instruments are recognised within ‘interest income’ and ‘interest expense’ in profit or loss within the statement of comprehensive income using the original effective interest rate.

The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant




period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses.

The calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.

Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.

5.6 Fee and commission income

Fees and commissions are generally recognised on an accrual basis when the service has been provided. Loan commitment fees for loans that are likely to be drawn down are deferred (together with related direct costs) and recognised as an adjustment to the effective interest rate on the loan. Loan syndication fees are recognised as revenue when the syndication has been completed and the Group has retained no part of the loan package for itself or has retained a part at the same effective

interest rate as the other participants. Commission and fees arising from negotiating or participating in the negotiation of, a transaction for a third party – such as the arrangement of the acquisition of shares or other securities are recognised on completion of the underlying transaction. Portfolio and other management advisory and service fees are recognised based on the applicable service contracts, usually on a time-apportionate basis. Asset management fees related to investment funds are recognised over the period in which the service is provided. The same principle is applied for custody services that are continuously provided over extended period of time.

5.7 Impairment of financial assets

(a) Assets carried at amortised cost

The Group assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there

is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

The criteria that the Group uses to determine that there is objective evidence of an impairment loss include:

(a) significant financial difficulty of the issuer or obligor;

(b) a breach of contract, such as a default or delinquency in interest or principal payments;

(c) the lender, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider;

(d) it becomes probable that the borrower will enter financial reorganisation;

(e) the disappearance of an active market for that financial asset because of financial difficulties; or

(f) observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio, including:

(i) adverse changes in the payment status of borrowers in the portfolio; and

(ii) national or local economic conditions that correlate with defaults on the assets in the portfolio.

The estimated period between a loss occurring and its identification is determined by local management for each identified portfolio. In general, the periods used vary between 3 and 12 months; in exceptional cases, longer periods are warranted.

The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.




The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the profit or loss. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract.

The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.

For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics (that is, on the basis of the Group’s grading process that considers asset type, industry, geographical location, collateral type, past-due status and other relevant factors). Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated.

Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the group and historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exist.

Estimates of changes in future cash flows for groups of assets should reflect and be directionally consistent with changes in related observable data from period to period (for example, changes in unemployment rates, property prices, payment status, or other factors indicative of changes in the probability of losses in the Bank and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Group to reduce any differences between loss estimates and actual loss experience.

When a loan is uncollectible, it is written off against the related allowance for loan impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Impairment charges relating to loans and advances to banks and customers are classified in loan impairment charges whilst impairment charges relating to investment securities (held to maturity and loans and receivables categories) are classified in ‘Net gains/(losses) on investment securities’.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the profit or loss.

Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre–tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators.

For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). The impairment test also can be performed on a single asset when the fair value less cost to sell or the value in use can be determined reliably.

Goodwill is tested for impairment annually and when circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each CGU to which the goodwill relates. When the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods. Intangible assets with indefinite useful lives are tested for impairment annually at the CGU level, as appropriate, and when circumstances indicate that the carrying value may be impaired.




Non- financial assets that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

5.8 Cash and cash equivalents

Cash and cash equivalents as referred to in the cash flow statement comprises cash on hand, non–restricted current accounts with central banks and amounts due from banks on demand or with an original maturity of three months or less.

5.9 Leases

The determination of whether an arrangement is (or contains) a lease is based on the substance of the arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement.

Group as a lessee

A lease is classified at the inception date as a finance lease or an operating lease. A lease that transfers substantially all the risks and rewards incidental to ownership to the Group is classified as a finance lease.

Finance leases are capitalised at the commencement of the lease at the inception date fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in finance costs in the profit or loss.

A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.

An operating lease is a lease other than a finance lease. Operating lease payments are recognised as an operating expense in the profit or loss on a straight-line basis over the lease term.

5.10 Property, plant and equipment

Land and buildings comprise mainly branches and offices and are shown at fair value, based on periodic, valuations by external independent

valuers, less subsequent depreciation for buildings. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. All other property, plant and equipment are stated at historical cost less depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent expenditures are included in the asset’s carrying amount or are recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Bank and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repair and maintenance costs are charged to profit or loss during the financial period in which they are incurred.

Land is not depreciated. Depreciation of other assets is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows:

%

– Buildings 2– Computers 33.3– Furniture and Equipment 20– Motor Vehicle 20

The assets’ residual values and useful lives are reviewed and prospectively adjusted if appropriate, at the end of each reporting period. Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

The recoverable amount is the higher of the asset’s fair value less costs to sell and value in use. No property and equipment were impaired as at 31 December 2017 (2016; nil).

Increases in the carrying amount arising on revaluation of buildings are credited to other comprehensive income and shown as capital surplus in the shareholders’ equity. Decreases that offset previous increases of the same asset are charged in other comprehensive income and debited against capital surplus directly in equity; all other decreases are charged to the profit or loss.




The revaluation surplus included in equity in respect of an item of property, plant and equipment is transferred directly to retained earnings when the asset is derecognised. This may involve transferring the whole of the surplus when the asset is retired or disposed of.

Property, plant and equipment is derecognised on disposal or when no future economic benefits are expected from its use. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is recognised in ‘Other operating income’ in profit or loss in the year the asset is derecognised.

5.11 Income tax

(a) Current income tax

The tax expense for the period comprises current and deferred income tax. Tax is recognised in the profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity respectively. The current income tax charge is calculated on the basis of tax laws enacted or substantively enacted at the reporting date. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

(b) Deferred income tax

Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

� When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss

� In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future

However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the reporting date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is realised.

The carrying amount of a deferred tax asset is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

5.12 Provisions

Provisions are recognised when the Bank has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The expense relating to any provision is presented in the statement of comprehensive income net of any reimbursement.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.

Contingent liabilities are possible obligations whose existence will be confirmed only by uncertain future events or present obligations where the transfer of economic benefit is uncertain or cannot be reliably measured. Contingent liabilities are not recognised but are disclosed unless they are remote.




5.13 Convertible bonds

The liability component and the equity component of convertible bonds if any are presented separately:

� The Bank’s obligation to make scheduled payments of interest and principal is a financial liability

� that exists as long as the instrument is not converted. On initial recognition, the fair value of the liability component is the present value of the contractually determined stream of future cash flows discounted at the rate of interest for an equivalent non-convertible bond.

� The equity instrument is an embedded option to convert the liability into equity of the Bank. The

� fair value of the option comprises its time value and its intrinsic value.

� Interest, losses and gains relating to the financial liability component of the convertible bonds are recognised in the profit or loss.

5.14 Stated capital

Dividends on ordinary shares are recognised as a liability and deducted from equity when they are approved by the bank’s shareholders. Interim dividends are deducted from equity when they are declared and no longer at the discretion of the bank. Dividends for the year that are approved after the statement of financial position date are disclosed as an event after the statement of financial position date.

Treasury shares and contracts on own shares

Own equity instruments of the group which are acquired by it or by any of its subsidiaries (treasury shares) are deducted from equity and accounted for at weighted average cost. Consideration paid or received on the purchase, sale, issue or cancellation of the bank’s own equity instruments is recognised directly in equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of own equity instruments.

When the bank holds own equity instruments on behalf of its clients, those holdings are not included in the group’s statement of financial position. Contracts on own shares that require physical settlement of a fixed number of own shares for a fixed consideration are classified as equity and added to or deducted from equity. Contracts on own shares that require net cash settlement or provide a choice of settlement are classified as trading instruments and changes in the fair value are reported in profit or loss.

5.15 Comparatives

Except when a standard or an interpretation permits or requires otherwise, all amounts are reported or disclosed with comparative information.

5.16 Share based payments

The bank engages in equity settled share-based payment transactions in respect of services received from certain of its employees. All options are exercised in the year. The exercise price of the share options is equal to the market price of the underlying shares on the date of grant. The share options vest if and when the bank’s budgeted profit is exceeded. 30% of the exceeded profit is offered as share to those employees. The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using an appropriate valuation model. That cost is recognised, together with a corresponding increase in other capital reserves in equity, over the period in which the performance and/or service conditions are fulfilled in employee staff cost or expense.

5.17 Intangible assets

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less accumulated impairment losses.

Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.

Gains or losses arising from de-recognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in profit or loss when the asset is derecognised.

5.18 Business combinations and goodwill

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred measured at acquisition date fair value and the amount of any non-controlling interests in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at




the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate Classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.

If the business combination is achieved in stages, any previously held equity interest is re-measured at its acquisition date fair value and any resulting gain or loss is recognised in profit or loss. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IAS 39 Financial Instruments: Recognition and Measurement, is measured at fair value with changes in fair value recognised either in either profit or loss or as a change to OCI. If the contingent consideration is not within the scope of IAS 39, it is measured in accordance with the appropriate IFRS. Contingent consideration that is classified as equity is not re-measured and subsequent settlement is accounted for within equity.

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests, and any previous interest held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in profit or loss. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

Where goodwill has been allocated to a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying

amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained.

5.19 Employee benefits

For defined contribution schemes, the Bank recognises contributions due in respect of the accounting period in profit or loss. Any contributions unpaid at the reporting date are included as a liability.

Short-term employee benefits, such as salaries, paid absences, and other benefits, are accounted for on an accruals basis over the period which employees have provided services in the year. Bonuses are recognised to the extent that the Bank has a present obligation to its employees that can be measured reliably.

All expenses related to employee benefits are recognised in profit or loss in staff costs, which is included within operating expenses.

5.19.1 Other employee benefits - loans at concessionary rate

The Bank grants facilities to staff of the Bank on concessionary terms. The Bank recognises such offerings as part of employee benefits on the basis that such facilities are granted to staff on the assumption of their continued future service to the Bank and not for their past service. The Bank’s Lending Rate adjusted for risk not associated with the Bank’s staff is applied to fair value such facilities.

Any discount arising there from it is recognised as a prepaid staff benefit which is amortised through profit or loss over the shorter of the life of the related facilities and expected average remaining working lives of employees.

5.20 Financial guarantee contracts

Financial guarantee contracts issued by the Group are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. Financial guarantee contracts are recognised initially as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. Subsequently, the liability is measured at the higher of the best estimate of the expenditure required to settle the present obligation at the reporting date and the amount recognised less cumulative amortisation.




6. Standards issued but not yet effective

The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Bank’s financial statements are disclosed below. The Group intends to adopt these standards, if applicable, when they become effective.

FRS 9 Financial Instruments

In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9.

IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Except for hedge accounting, retrospective application is required but providing comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions.

The Group plans to adopt the new standard on the required effective date and will not restate comparative information. During 2017, the Group has performed a detailed impact assessment on the adoption of IFRS 9. This assessment is based on currently available information and may be subject to changes arising from further reasonable and supportable information being made available to the Group in 2018 when the Group will adopt IFRS 9. Overall, the Group expects a significant impact on its statement of financial position and equity mainly resulting from the effect of applying the impairment requirements of IFRS 9. The Group expects an increase in the loss allowance resulting in a negative impact on equity as discussed below. In addition, the Group will implement changes in classification of certain financial instruments.

(a) Classification and measurement

The Group does not expect a significant impact on its balance sheet or equity in applying the classification and measurement requirements of IFRS 9. It expects to continue measuring at fair value all financial assets currently held at fair value through profit or loss however, unquoted equity shares currently held at cost will be reclassified as fair value through other comprehensive income and be measured as fair value. Debt securities are expected to continue to be measured at amortised cost.

Loans and advances to customers are held to collect contractual cash flows and are expected to give rise to cash flows representing solely payments of principal and interest. The Group analysed the contractual cash flow characteristics of those instruments and concluded that they meet the criteria for amortised cost measurement

under IFRS 9. Therefore, reclassification for these instruments is not required.

(b) Impairment

Overview

IFRS 9 will also fundamentally change the loan loss impairment methodology. The standard will replace IAS 39’s incurred loss approach with a forward-looking expected credit loss (ECL) approach. The Group will be required to record an allowance for expected losses for all loans and other debt financial assets not held at FVPL, together with loan commitments and financial guarantee contracts. The allowance is based on the expected credit losses associated with the probability of default in the next twelve months unless there has been a significant increase in credit risk since origination, in which case, the allowance is based on the probability of default over the life of the asset.

The Group has established a policy to perform an assessment at the end of each reporting period whether credit risk has increased significantly since initial recognition by considering the change in the risk of default occurring over the remaining life of the financial instrument.

� To calculate ECL, the Group will estimate the risk of a default occurring on the financial instrument during its expected life. ECLs are estimated based on the present value of all cash shortfalls over the remaining expected life of the financial asset, i.e., the difference between: the contractual cash flows that are due to the Group under the contract, and

� The cash flows that the Bank expects to receive, discounted at the effective interest rate of the loan.

In comparison to IAS 39, the Bank expects the impairment charge under IFRS 9 to be more volatile than under IAS 39 and to result in an increase in the total level of current impairment allowances.

The Bank groups its loans into Stage 1, Stage 2 and Stage 3, based on the applied impairment methodology, as described below:

� Stage 1 – Performing loans: when loans are first recognised, the Bank recognises an allowance based on 12-month expected credit loss.

� Stage 2 – Underperforming loans: when a loan shows a significant increase in credit risk, the Bank records an allowance for the lifetime expected credit loss.

� Stage 3 – Impaired loans: the Group recognises the lifetime expected credit losses for these loans.

� In addition, in Stage 3 the Group accrues interest income on the amortised cost of the loan net of allowances.




The Group will record impairment for FVOCI debt securities, depending on whether they are classified as Stage 1, 2, or 3, as explained above. However, the expected credit losses will not reduce the carrying amount of these financial assets in the statement of financial position, which will remain at fair value.

Instead, an amount equal to the allowance that would arise if the asset were measured at amortised cost will be recognised in OCI as an accumulated impairment amount, with a corresponding charge to profit or loss.

For ‘low risk’ FVOCI debt securities, the Bank intends to apply a policy which assumes that the credit risk on the instrument has not increased significantly since initial recognition and will calculate ECL. Such instruments will generally include Ghana Government and Bank of Ghana Treasury bills which the borrower has a strong capacity to meet its contractual cash flow obligations in the near term and adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce the ability of the borrower to fulfil its contractual cash flow obligations.

The Group will not consider instruments to have low credit risk simply because of the value of collateral. Financial instruments are also not considered to have low credit risk simply because they have a lower risk of default than the Bank’s other financial instruments.

When estimating lifetime ECLs for undrawn loan commitments, the Bank will:

� Estimate the expected portion of the loan commitment that will be drawn down over the expected life of the loan commitment And

� Calculate the present value of cash shortfalls between the contractual cash flows that are due to the entity if the holder of the loan commitment draws down that expected portion of the loan and the cash flows that the entity expects to receive if that expected portion of the loan is drawn down For financial guarantee contracts, the Group will estimate the lifetime ECLs based on the present value of the expected payments to reimburse the holder for a credit loss that it incurs less any amounts that the guarantor expects to receive from the holder, the debtor or any other party. If a loan is fully guaranteed, the ECL estimate for the financial guarantee contract would be the same as the estimated cash shortfall estimate for the loan subject to the guarantee.

For revolving facilities such as overdrafts, the Group measures ECLs by determining the period over which it expects to be exposed to credit risk, taking into account the credit risk management actions that it expects to take once the credit risk has increased and that serve to mitigate losses.

The Group intends to apply a policy that if the transfer into Stage 2 had been initially triggered by indicators other than the movement in the probability of default, the loan can only return to Stage 1 after a probation period of two years

Forward looking information

The Group will incorporate forward-looking information in both the assessment of significant increase in credit risk and the measurement of ECLs.

The Group considers forward-looking information such as macroeconomic factors (e.g., unemployment and GDP growth) and economic forecasts. To evaluate a range of possible outcomes, the Group intends to formulate three scenarios: a base case, a worse case and a better case. The base case scenario represents the more likely outcome resulting from the Group’s normal financial planning and budgeting process, while the better and worse case scenarios represent more optimistic or pessimistic outcomes. For each scenario, the Group will derive an ECL and apply a probability weighted approach to determine the impairment allowance.

The Group will use internal information coming from internal economic experts, combined with published external information from government and other global organisations the world Bank and IMF. Both the Risk and Finance management teams will need to approve the forward-looking assumptions before they are applied for different scenarios

(c) Hedge accounting

The Group determined that it does not have any hedging relationships hence this may not have any impact on the Group.

Other adjustments

In addition to the adjustments described above, on adoption of IFRS 9, other items of the primary financial statements such as deferred taxes, will be adjusted as necessary.

In summary, the impact of IFRS 9 adoption is expected to be, as follows:




Impact on assets, liabilities and equity (increase/(decrease)) as of 31 December 2017:

In thousands of GHS Adjustments Amount

Assets

Loans and advances to customers Decrease 11,536

Investments including pledged and non-pledged assets Decrease 3,846

Deferred Tax Increase 2,884

Liabilities

Provisions for off balance sheet items Increase 830

Net impact on equity, Including

Retained earnings Decrease 8,481

Regulated Risk Reserve Decrease 4,037

The impact on equity above does not include the expected impact which may result from the fair value measurement of equity investments which is currently measured at cost.

Impact of IFRS 9 had it been applied on the on income statements for the period ended 31 December 2017:

In thousands of GHS Values after impact

assessment

Values prior to impact

assessment Impact

Profit before impairment charge and tax 56,624 56,624 Nil

Impairment write-back /(charge) (16,191) 21 Increase

Profit before income tax 40,433 56,645 Decrease

National Stabilization Levy 2,022 2,832 Decrease

Corporate tax expense 14,006 16,890 Decrease

Profit after tax for the period 24,405 36,923 Decrease

Impact on Capital Adequacy Ratio as of 31 December 2017:

In thousands of GHS Values after impact

assessment

Values prior to impact

assessment Impact

Share capital 146,191 146,191 Nil

Disclosed Reserves 37,969 47,209 Decrease

Total Tier 1 Capital 150,640 156,084 Decrease

Total Tier 2 Capital 86,549 86,549 Nil

Total Regulatory Capital 238,189 242,63 Decrease

On Financial Position 994,349 1,005,572 Decrease

Off Financial Position 43,170 43,170 Nil

Total risk weighted assets 1,037,519 1,048,742 Decrease

Capital adequacy ratio 22.96% 23.14% Decrease




IFRS 15 Revenue from Contracts with Customers

In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers, effective for periods beginning on 1 January 2018 with early adoption permitted. IFRS 15 defines principles for recognising revenue and will be applicable to all contracts with customers. However, interest and fee income integral to financial instruments and leases will continue to fall outside the scope of IFRS 15 and will be regulated by the other applicable standards (e.g., IFRS 9, and IFRS 16 Leases).

Revenue under IFRS 15 will need to be recognised as goods and services are transferred, to the extent that the transferor anticipates entitlement to goods and services. The standard will also specify a comprehensive set of disclosure requirements regarding the nature, extent and timing as well as any uncertainty of revenue and corresponding cash flows with customers.

The Group does not expect any significant impact on its revenue on the adoption of this standard.

IFRS 16 Leases

The IASB issued the new standard for accounting for leases - IFRS 16 Leases in January 2016. The new standard does not significantly change the accounting for leases for lessors. However, it does require lessees to recognise most leases on their balance sheets as lease liabilities, with the corresponding right-of-use assets. Lessees must apply a single model for all recognised leases, but will have the option not to recognise ‘short-term’ leases and leases of ‘low-value’ assets. Generally, the profit or loss recognition pattern for recognised leases will be similar to today’s finance lease accounting, with interest and depreciation expense recognised separately in the statement of profit or loss.

IFRS 16 is effective for annual periods beginning on or after 1 January 2019. Early application is permitted provided the new revenue standard, IFRS 15, is applied on the same date. Lessees must adopt IFRS 16 using either a full retrospective or a modified retrospective approach.

In 2018, the Group will continue to assess the potential effect of IFRS 16 on its financial statements.

IFRS 17 Insurance Contracts

In May 2017, the IASB issued IFRS 17 Insurance Contracts (IFRS 17), a comprehensive new accounting standard for insurance contracts covering recognition and measurement, presentation and disclosure. Once effective, IFRS 17 will replace IFRS 4 Insurance Contracts (IFRS 4) that was issued in 2005. IFRS 17 applies to all types of insurance contracts (i.e., life, non-life, direct insurance and re-insurance), regardless of the type of entities that issue them, as well as to certain guarantees and financial instruments with discretionary participation features.

A few scope exceptions will apply. The overall objective of IFRS 17 is to provide an accounting model for insurance contracts that is more useful and consistent for insurers. In contrast to the requirements in IFRS 4, which are largely based on grandfathering previous local accounting policies, IFRS 17 provides a comprehensive model for insurance contracts, covering all relevant accounting aspects. The core of IFRS 17 is the general model, supplemented by:

� A specific adaptation for contracts with direct participation features (the variable fee approach)

� A simplified approach (the premium allocation approach) mainly for short-duration contracts.

IFRS 17 is effective for reporting periods beginning on or after 1 January 2021, with comparative figures required. Early application is permitted, provided the entity also applies IFRS 9 and IFRS 15 on or before the date it first applies IFRS 17. This standard is not applicable to the Group.

Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

The amendments address the conflict between IFRS 10 and IAS 28 in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments clarify that the gain or loss resulting from the sale or contribution of assets that constitute a business, as defined in IFRS 3, between an investor and its associate or joint venture, is recognised in full. Any gain or loss resulting from the sale or contribution of assets that do not constitute a business, however, is recognised only to the extent of unrelated investors’ interests in the associate or joint venture. The IASB has deferred the effective date of these amendments indefinitely, but an entity that early adopts the amendments must apply them prospectively. The Group will apply these amendments when they become effective.

IFRS 2 Classification and Measurement of Share-based Payment Transactions — Amendments to IFRS 2 The IASB issued amendments to IFRS 2 Share-based Payment that address three main areas: the effects of vesting conditions on the measurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; and accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash settled to equity settled.

On adoption, entities are required to apply the amendments without restating prior periods, but retrospective application is permitted if elected for all three amendments and other criteria are met. The amendments are effective for annual periods beginning on or after 1 January 2018, with early application permitted.




This is not expected to impact the Group.

Transfers of Investment Property — Amendments to IAS 40

The amendments clarify when an entity should transfer property, including property under construction or development into, or out of investment property. The amendments state that a change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. A mere change in management’s intentions for the use of a property does not provide evidence of a change in use. Entities should apply the amendments prospectively to changes in use that occur on or after the beginning of the annual reporting period in which the entity first applies the amendments. An entity should reassess the classification of property held at that date and, if applicable, reclassify property to reflect the conditions that exist at that date. Retrospective application in accordance with IAS 8 is only permitted if it is possible without the use of hindsight. Effective for annual periods beginning on or after 1 January 2018. Early application of the amendments is permitted and must be disclosed.

The Group does not expect any impact when the standard become effective.

IAS 28 Investments in Associates and Joint Ventures - Clarification that measuring investees at fair value through profit or loss is an investment-by-investment choice

The amendments clarify that:

� An entity that is a venture capital organisation, or other qualifying entity, may elect, at initial recognition on an investment-by-investment basis, to measure its investments in associates and joint ventures at fair value through profit or loss.

� If an entity, that is not itself an investment entity, has an interest in an associate or joint venture that is an investment entity, the entity may, when applying the equity method, elect to retain the fair value measurement applied by that investment entity associate or joint venture to the investment entity associate’s or joint venture’s interests in subsidiaries.

� This election is made separately for each investment entity associate or joint venture, at the later of the date on which: (a) the investment entity associate or joint venture is initially recognised; (b) the associate or joint venture becomes an investment entity; and (c) the investment entity associate or joint venture first becomes a parent.

The amendments should be applied retrospectively and are effective from 1 January 2018, with earlier application

permitted. If an entity applies those amendments for an earlier period, it must disclose that fact. These amendments are not applicable to the Group.

FRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration

The Interpretation clarifies that, in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which an entity initially recognises the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, then the entity must determine the transaction date for each payment or receipt of advance consideration. Entities may apply the amendments on a fully retrospective basis. Alternatively, an entity may apply the Interpretation prospectively to all assets, expenses and income in its scope that are initially recognised on or after:

� (i) The beginning of the reporting period in which the entity first applies the interpretation or

� (ii) The beginning of a prior reporting period presented as comparative information in the financial statements of the reporting period in which the entity first applies the interpretation.

The Interpretation is effective for annual periods beginning on or after 1 January 2018. Early application of interpretation is permitted and must be disclosed. However, since the Group’s current practice is in line with the Interpretation, the Group does not expect any effect on its financial statements.

IFRIC Interpretation 23 Uncertainty over Income Tax Treatment

The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of IAS 12 and does not apply to taxes or levies outside the scope of IAS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The Interpretation specifically addresses the following:

� Whether an entity considers uncertain tax treatments separately

� The assumptions an entity makes about the examination of tax treatments by taxation authorities

� How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates

� How an entity considers changes in facts and circumstances




An entity must determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments. The approach that better predicts the resolution of the uncertainty should be followed. The interpretation is effective for annual reporting periods beginning on or after 1 January 2019, but certain transition reliefs are available. The Group will apply interpretation from its effective date. In addition, the Group may need to establish processes and procedures to obtain information that is necessary to apply the Interpretation on a timely basis.

7. Critical accounting estimates and judgements

The Group’s financial statements and its financial result are influenced by accounting policies, assumptions, estimates and management judgement, which necessarily have to be made in the course of preparation of the financial statements. The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. All estimates and assumptions required in conformity with IFRS are best estimates undertaken in accordance with the applicable standard. Estimates and judgements are evaluated on a continuous basis, and are based on past experience and other factors, including expectations with regard to future events.

Impairment losses on loans and advances

(a) Impairment losses on loans and advances

The Group reviews its loan portfolios to assess impairment at least on a quarterly basis. In determining whether an impairment loss should be recorded in the profit or loss, the Group makes judgements as to whether there is any observable data indicating an impairment trigger followed by measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a bank, or national or local economic conditions that correlate with defaults on assets in the Bank. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

Fair value of financial instruments

The fair values of financial instruments where no active market exists or where quoted prices are not otherwise available are determined by using valuation techniques. In these cases, the fair values are estimated

from observable data in respect of similar financial instruments or using models. Where market observable inputs are not available, they are estimated based on appropriate assumptions. Where valuation techniques (for example, models) are used to determine fair values, they are validated and periodically reviewed by qualified personnel independent of those that sourced them. All models are certified before they are used, and models are calibrated to ensure that outputs reflect actual data and comparative market prices. To the extent practical, models use only observable data; however, areas such as credit risk (both own credit risk and counterparty risk), volatilities and correlations require management to make estimates. Additional disclosures where required, are provided in the individual notes relating to the assets and liabilities whose fair values were determined. Fair value hierarchy is provided in Note 46 (v).

Held-to-maturity investments

In accordance with guidance, the Group classifies some non-derivative financial assets with fixed or determinable payments and fixed maturity as held to maturity. This classification requires significant judgement. In making this judgement, the Group evaluates its intention and ability to hold such investments to maturity. If the Group were to fail to keep these investments to maturity other than for the specific circumstances – for example, selling an insignificant amount close to maturity – the Group is required to reclassify the entire category as available for sale. Accordingly, the investments would be measured at fair value instead of amortised cost.

Income taxes

Significant estimates are required in determining the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Bank recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions.

Revaluation of property, plant and equipment

The Group’s buildings were revalued in 2013 year by independent valuers. (Assenta Properties Consulting). Valuations were made on the basis of recent market transactions. The revaluation surplus net of applicable deferred income tax was credited to other comprehensive income and is shown in Capital surplus in shareholders’ equity. Capital surplus is a non-distributable reserve.

None of the property, plant and equipment has been placed as collateral for liabilities and there is no contractual commitment for the acquisition of property and equipment.




8. Interest income

In thousands of GHS 2017 2016

The Bank The Group The Bank The Group

Cash and cash equivalent 88,257 88,273 43,149 43,149

Loans and advances to customers 179,157 179,157 202,022 202,022

Investment securities 43,184 53,883 30,841 42,401

310,598 321,313 276,012 287,572

9. Interest expense



Deposit from banks 2,647 2,647 1,683 1,683

Deposit from customers 133,096 133,096 127,694 127,694

Debts securities issued 9,828 9,828 14,786 14,786

Others 10,130 10,130 12,220 12,220

Total interest expense 155,701 155,701 156,383 156,383

Net interest income 154,897 165,612 119,629 131,189

10. Net fees and commission income In thousands of GHS 2017 2016


10A. Fees and commission income

Retail banking customer fees 24,307 44,606 20,096 35,768

Total fee and commission income 24,307 44,606 20,096 35,768

10B. Fees and commission expense

Others 1,198 1,198 729 729

Total fees and commission expense 1,198 1,198 729 729

Net fee and commission income 23,109 43,408 19,367 35,039

11. Net trading income2017 2016

In thousands of GHS The Bank The Group The Bank The Group

Foreign exchange 16,389

16,389

10,578

10,578

Other (1,425) (1,425) 925 925

Net trading income 14,964 14,964 11,503 11,503

Share-based payments

The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them.

Going Concern

The Board and Management of the Bank have made an assessment of the ability of the Bank to continue as a going concern and is satisfied that it has the resources to continue in business in the foreseeable future. Furthermore, the Board is not aware of any material uncertainties that may cast significant doubt upon the bank’s ability to continue as a going concern. Therefore, the financial statements continue to be prepared on the going concern basis.




12a. Other Operating Income

2017 2016


Rental income - -

- 2,061

Property sales - 29,519 - 6,453

Others 5,263 5,263 2,372 3,845

Total 5,263 34,782 2,372 12,359

12b. Other income

2017 2016


Profit /(loss) on disposal of Asset 287 287 (229) (198)

Sundry Income 4,175 5,011 7,220 7,614

Bad debt recovered 194 194 - -

Upfront fees / spread - 3,648 - 4,094

Valuation gain 4,847 4,847 - -

Dividend Received - - 12,999 -

Total 9,503 13,987 19,990 11,510

13. Personnel Expense



Salaries 45,328 54,809 39,859 48,196

Contributions to defined Contribution Plan 6,990 5,496 5,221 6,346

Other Staff Cost 27,511 33,798 39,184 43,228

Total 79,829 94,103 84,264 97,770

Other staff cost includes



Rent allowance 2,431 2,690 2,055 2,219

Car maintenance and fuel 7,748 8,352 7,410 7,960

Medical & dental expense 3,013 3,416 2,927 3,027

Severance package 1,704 1,704 6,977 6,977

Clothing expense 3,854 4,257 3,899 4,243

Sundry staff expense 8,761 13,379 15,916 18,802

Total 27,511 33,798 39,184 43,228




14. Operating lease expense



Rent 8,288 9,038 6,870 7,981

15. Depreciation and amortization

2017 2016


Depreciation- Property, plant and Equipment 11,044 12,127 8,075 9,006

Amortisation- Intangible asset 1,814 1,824 3,882 3,993

12,858 13,951 11,957 12,999

16. Other Expenses

2017 2016


Other expenses is made up of the following;

Software licensing and other ICT costs 9,388 9,630 6,050 6,069

Auditors’ remuneration 375 675 483 785

Others 40,374 75,932 50,451 66,997

Total 50,137 86,237 56,984 73,851

Other expenses includes:



Marketing and advertisement 2,475 3,121 4,374 4,881

Electricity and water 5,291 6,476 4,876 5,749

Printing and stationery 1,535 1,674 1,693 1,830

Equipment repairs and maintenance 3,747 4,026 2,606 2,898

Consultancy fees 2,575 2,796 1,836 2,645

Travelling and transport 2,152 2,399 1,961 2,153

General expense 5,820 37,533 18,450 26,112

Cash collection expenses 3,377 3,377 3,344 3,344

Other expenses 13,402 14,530 11,311 17,385

Total 40,374 75,932 50,451 66,997




17. Income tax expense



Current tax (Note 23) 21,632 24,376 - 1,943

Deferred tax (Note 24) (4,742) (4,686) (18,389) (18,389)

16,890 19,690 (18,389) (16,446)

National Fiscal stabilization levy (Note23b) 2,832 3,261 - 393

All tax liabilities are subject to the agreement of the Commissioner General of the Ghana Revenue Authority. The tax on the Bank’s and the Group’s profit before tax differs from the theoretical amount that would arise using the statutory income tax rate applicable to profits.

Income tax expense / (income) reconciliation

In thousands in of GHS 2017 2016


Profit / (loss) before income tax 56,645 69,445 (56,995) (63,782)

Tax using the domestic corporate tax rate of 25% 14,161 17,361 (14,249) (15,946)

Tax effect of non-deductible expenses 6,960 6,562 (4,140) (500)

Tax effect of income exempted from tax (4,231) (4,233) - -

Tax charge 16,890 19,690 (18,389) (16,446)

Effective tax rate 29.82% 28.35% (32.26%) (25.78%)

Non-deductible expenses include donations, entertainment and penalty fees.

18. Cash and cash equivalents



Cash and bank balances with banks 181,829 183,010 161,506 165,599

Balances with Central Banks 95,704 95,704 15,353 15,353

Mandatory balance with central Bank 128,701 128,701 122,706 122,706

Money market placement 436,689 436,689 339,286 339,286

Total cash and cash equivalents 842,923 844,104 638,851 642,944

19. Pledged and non-pledged assets


PledgedNon

Pledged Total PledgedNon

Pledged Total

Government bonds - 97,937 97,937 - 8,300 8,300

Treasury bills 38,000 118,134 156,134 22,300 60,307 82,607

Total pledged and non-pledged assets 38,000 216,071 254,071 22,300 68,607 90,907




20. Other investments


Bank Group Bank Group

Investment in Unit Trust 26,262 26,262 20,013 23,141

Investments in subsidiaries 13,405 - 22,825 -

Other short term-investments - 10,894 - 5,235

39,667 37,156 42,838 28,376

20a. Investment in Unit Trust



Opening balance 20,013 23,141 11,886 14,516

Additional Investment 3,000 3,000 5,000 5,000

Disinvestment - (3,128) - -

Fair value appreciation 3,249 3,249 3,127 3,625

Closing balance 26,262 26,262 20,013 23,141

Investment in Unit trust is recognised at fair value. Gains and losses arising from changes in fair value are included directly in profit or loss.

20b. Investments in subsidiaries

(i). Investment balances 2017 2016

In thousands of GHS Bank Group Bank Group

HFC Investment Services Limited 2,535 - 2,535 -

HFC Realty Limited 1,930 - 1,930 -

Boafo Microfinance Services Limited 503 - 503 -

UG-HFC 289 - 289 -

HFC Brokerage Services Limited 75 - 75 -

HFC Capital Partners 51 - 51 -

HFC Venture Capital Fund 8,022 - 17,442 -

13,405 - 22,825 -

Investments in subsidiaries are accounted for at cost. During the year, a capital return / redemption for the sum of GHS8.58 million was received by the Bank on its equity investment in HFC Venture Capital Fund. The redemption was fully settled by way of cash.

Pledged assets are the carrying amount of Government Securities (Treasury bills) used as collateral for short term funds borrowed from banks and non-bank financial institutions.

In the event that, the entity fails to make good the payment as and when it falls due, the collateral will not be released back to the entity.

The pledged assets could not be used for any other trading until the payment is done and the pledged assets are released by Central Security Depository.

These transactions are conducted under terms that are usual and customary to securities borrowing and lending activities. It is at a rate of 91 day treasury bill plus a spread of 1%.




The Bank assessed and made an impairment provision for the sum of GHS0.84 million on its investment in HFC Venture Capital Fund at the reporting date.

The decrease in the HFC Venture Capital Fund was as a result of the capital return received during the financial year and the impairment provision made.

(ii). Holding structureThe holdings of HFC Bank in the various subsidiaries are as follows:

Subsidiaries Holding Country of Relationship Nature of business

2017 2016 Incorporation

% %

HFC Investment Services Limited 100 100 Ghana A wholly owned subsidiary of the bank

Investment management

HFC Realty Limited 100 100 Ghana A wholly owned subsidiary of the bank

Property management

Boafo Microfinance Services Limited 51 51 Ghana A company in which the Bank

has 51% equity holding Microfinance

UG-HFC 60 60 Ghana A company in which the bank has 60% equity holding

Asset management

HFC Capital Partners 100 100 Ghana A wholly owned subsidiary of the bank Venture capitalist

HFC Venture Capital Fund 100 100 Ghana A wholly owned subsidiary of the bank Venture capitalist

Investment in subsidiaries has been carried at cost in the Bank’s financial statements. The investments in the above subsidiaries are not material to the Group.

21. Loans and advances to customers



Loans and advances to customers & FI at amortized cost 809,926 809,736 919,964 919,436

Loans and advances to customers & FI at fair value through profit or loss - - - -

Total loans and advances 809,926 809,736 919,964 919,436

21b. Loans and advances to customers at amortized cost

In thousands of GHS

2017 2016


Financial institution lending 50,709 50,709 64,605 64,605

Individuals 245,513 245,513 229,940 229,940

Private / public enterprises 648,991 648,801 759,188 758,660

Staff 5,246 5,246 6,785 6,785

Gross loans and advances 950,459 950,269 1,060,518 1,059,990

Less provision for impairment:

Specific impairment (123,285) (123,285) (123,016) (123,016)

Collective impairment (17,248) (17,248) (17,538) (17,538)

Net loans and advances 809,926 809,736 919,964 919,436




� 78% of the loans and advances portfolio are backed by collateral and this covers in full all collateralized balances. (2016: 78%).

� Collaterals held as security and other credit enhancements, were largely in the form of landed properties and fixed and floating charge over the assets of the borrowing entities amounted to GHS1,211,617,000 (2016: GHS1,264,073,000)

Included in the loans and advances balance at the Bank level is the sum of GHS190,010 which relates to the loan balance to Boafo Microfinance Services Limited, a subsidiary of the Bank. This has been eliminated at the Group level.

2017 2016



Agriculture, Forestry & Fishing 513 513 2,718 2,718

Manufacturing 75,183 75,183 58,495 58,495

Construction 69,400 69,400 48,196 48,196

Electricity, Gas & Water 93,575 93,575 184,091 184,091

Commerce & Finance 180,367 180,177 274,707 274,179

Mortgage loans 245,513 245,513 229,940 229,940

Transport, Storage & Communication 25,489 25,489 33,034 33,034

Services 127,513 127,513 82,692 82,692

Miscellaneous 82,197 82,197 82,040 82,040

Gross loans and advances to Customers 950,459 950,269 1,060,518 1,059,990

Identified impairment (123,285) (123,285) (123,016) (123,016)

Unidentified impairment (17,248) (17,248) (17,538) (17,538)

Net loans and advances to customers 809,926 809,736 919,964 919,436

Miscellaneous is mainly personal and retail loans.

21d. Loans and advances by type of advance to customer

In thousands of GHS

2017 2016

Bank Group The Bank The Group


Commercial loans 613,848 613,658 759,188 758,660

Retail loans 35,143 35,143 759,188 758,660

Mortgage loans 245,513 245,513 229,940 229,940

Staff 5,246 5,246 6,785 6,785

Gross loans and advances 950,459 950,269 1,060,518 1,059,990

Less provision for impairment:

Specific impairment (123,285) (123,285) (123,016) (123,016)

Collective impairment (17,248) (17,248) (17,538) (17,538)

Net loans and advances 809,926 809,736 919,964 919,436

The impairment relates to all categories of loans.




21e. Movement in impairment balance

The movement in impairment of loans is as follows:

In thousands in of GHS Identified credit risk

Unidentified credit risk Total

The Bank

At 1 January 2017 123,016 17,538 140,554

Charge to profit or loss 269 (290) (21)

At 31 December 2017 123,285 17,248 140,533

At 1 January 2016 111,382 15,463 126,845

Charge to profit or loss 67,706 2,075 69,781

Bad debt written-off (56,072) - (56,072)

At 31 December 2016 123,016 17,538 140,554

In thousands in of GHS Identified credit risk

Unidentified credit risk Total

Group

At 1 January 2017 123,016 17,538 140,554

Charge to profit or loss 269 (290) (21)

At 31 December 2017 123,285 17,248 140,533

At 1 January 2016 108,382 15,463 123,845

Charge to profit or loss 70,706 2,075 72,781

Bad debt written-off (56,072) - (56,072)

At 31 December 2016 123,016 17,538 140,554

21f. Non- performing loans and advances analysis by business segments

2017 The Bank The Group

In thousands in of GHS NPL Impairment NPL Impairment

Manufacturing 20,180 2,670 20,180 2,670

Construction 34,999 6, 34,999 6,659



Mortgage loans 79,912 29,581 79,912 29,581


Services 14,953 4,629 14,953 4,629

Miscellaneous 10,095 11,781 10,095 11,781

As at 31 December 238,976 123,285 238,976 123,285




2016 The Bank The Group

In thousands in of GHS NPL Impairment NPL Impairment

Agriculture, Forestry & Fishing 296 296 296 296

Manufacturing 2,967 2,378 2,967 2,378

Construction 14,262 5,931 14,262 5,931



Mortgage loans 77,304 26,347 77,304 26,347


Services 9,689 4,123 9,689 4,123

Miscellaneous 17,801 10,493 17,801 10,493

As at 31 December 230,752 123,016 230,752 123,016

21g. Impairment expense



Charge /(write-back) for the year (21) (21) 69,781 72,781

Bad debt recovered - - - -

(21) (21) 69,781 72,781

21h. Loans and advances ratios



% % % %

Loan loss provision ratio 14.79 14.79 13.25 13.36

Gross non-performing loans ratio 25.14 25.15 21.75 21.77

Ratio of 50 largest exposures 46.93 46.95 58.50 58.53


Interest rate charge Bank Group The Bank The Group

% % % %

Commercial loan 24 – 30 24 – 30 28 – 31 28 - 31

Consumer loans 15 – 24 15 – 24 29 – 32 29 - 32

Mortgage loans – dollar 12 – 14 12 – 14 12 – 14 12 - 14

Mortgage loans – Cedi 20 - 28 20 – 28 28 - 31 28 - 31

Staff loans – dollar 3 - 4 3 – 4 3 - 4 3 - 4

Staff loans – Cedi 6 - 12 6 – 12 6 - 12 6 - 12

22. Investment securities



Held-to-maturity investment securities 3,000 12,090 5,478 23,091

Investment securities at amortised cost 5,303 5,303 3,134 3,134

8,303 17,393 8,612 26,225




22b. Investment securities - held-to-maturity



At 1 January 5,478 23,091 11,612 12,107

Purchases 6,059 17,849 5,478 23,096

Interest earned 794 3,348 1,027 1,029

Interest received (841) (3,745) (986) (986)

Exchange difference - - 608 608

Redemption (8,490) (28,453) (12,261) (12,763)

At 31 December 3,000 12,090 5,478 23,091

These are fixed deposits with other financial institutions that would mature within one year. The Cedi investments attract an average interest rate of 25% (2016: 28%) per annum whilst the dollar attracts 6% (2016: 6%) per annum. The investments were not impaired at the end of the year and no provision was made.

22c. Investment securities at amortised cost



Ebankese Venture Capital Fund 5,303 5,303 3,134 3,134

5,303 5,303 3,134 3,134

Management assessed and made provision for impairment of GHS0.512 million on the Ebankese Venture Capital Fund as at 31 December 2017 (2016: Nil). The balance is therefore the net after the impairment provision.

23. Current income tax

The Bank

In thousands in of GHSBalance at

1/1/2017Charge for

the year

Payments during

the year

Tax refund during

the yearBalance at

31/12/17

Up to 2016 (21,209) 14,679 - 6,530 -

2017 - 6,953 (4,028) - 2,925

Liability (21,209) 21,632 (4,028) 6,530 2,925

National Fiscal Stabilization Levy

The Bank


1/1/2017Charge for

the year

Payments during

the year

Tax refund during

the yearBalance at

31/12/17

Up to 2016 (3,902) - - 3,902 -

2017 - 2,832 (3,501) - (669)

Assets (3,902) 2,832 (3,501) 3,902 (669)

Total Current income tax liability including National Stabilisation Levy- Bank

The Bank


1/1/2017Charge for

the year

Payments during

the year

Tax refund during

the yearBalance at

31/12/17

Total (25,111) 24,464 (7,529) 10,432 2,256




The Group

In thousands in of GHS

Balance at 1/1/2017

Charge for the year

Payments during

the year

Tax refund during

the year

Balance at 31/12/17

Up to 2016 (21,350) 14,679 - 6,530 (141)

2017 - 9,697 (6,941) - 2,756

Liability (21,350) 24,376 (6,941) 6,530 2,615

The GroupNational Fiscal Stabilization Levy (Note 23b)

In thousands in of GHS Balance at 1/1/2017

Charge for the year

Payments during

the year

Tax refund during

the year

Balance at 31/12/17

Up to 2016 (3,925) - 3,902 (23)

2017 - 3,261 (3,721) - (460)

Assets (3,925) 3,261 (3,721) 3,902 (483)

Total Current income tax liability including National Stabilisation Levy- Group

In thousands in of GHS Balance at 1/1/2017

Charge for the year

Payments during

the year

Tax refund during

the year

Balance at 31/12/17

Total (25,275) 27,637 (10,662) 10,432 2,132

The Bank


Current tax -2016Balance at 1/1/2016 Adjustment

Charge for the year

Payments during the year

Balance at 31/12/16

Up to 2010 (779) - - - (779)

2011 154 - - - 154

2012 (324) - - - (324)

2013 (168) - - - (168)

2014 1,280 - - - 1,280

2015 (9,993) (9,993

2016 - (2) - (11,377) (11,379)

Assets 180 (97) - (11,377) (21,209)

National Fiscal Stabilization levy

In thousands in of GHSBalance at 1/1/2016 Adjustment

Charge for the year Payment

Balance at 31/12/16

Up to 2015 (1,783) - - (1,783)

2016 - - - (2,119) (2,119)

(1,783) - - (2,119) (3,902)

Total current tax asset (25,111)




23a. Corporate tax – The Group

Current tax


1/1/2016 AdjustmentCharge for

the year

Payments during

the yearBalance at 31/12/2016

Up to 2010 (734) - - - (734)

2011 330 - - - 330

2012 (198) - - - (198)

2013 421 - - - 421

2014 1,260 - - - 1,260

2015 (10,819) - - - (10,819)

2016 - (97) 1,943 (13,456) (11,610)

Assets (9,740) (97) 1,943 (13,456) (21,350)

National Fiscal Stabilization Levy (Note 23b)


Balance at 1/1/2016 Adjustment

Charge for the year Payment

Balance at 31/12/16

Up to 2015 (1,777) - - (1,777)

2016 - (14) 393 (2,527) (2,148)

(1,777) (14) 393 (2,527) (3,925)

Total current tax asset (25,275)

The National Stabilisation Levy is assessed under the National Fiscal Stabilisation Levy Act (Act 862) of 2013 at 5% on accounting profit before tax, effectively July 2013 to June 2014 and is not tax deductible.

The Levy is temporary and applicable from 2013 to 2014 fiscal years but is currently extended to 2019.

24. Deferred income tax

Deferred income taxes are calculated on all temporary differences under the liability method using a principal tax rate of 25% (2016: 25%). The movement on the deferred tax account is as follows:

2017 2016

In thousands in of GHS Bank Group The Bank The Group

At 1 January (15.199) (15,263) 3,189 3,098

Charge to profit or loss (note 17) (4,742) (4,686) (18,388) (18,361)

Adjustment - - - -

At 31 December (19,941) (19,949) (15,199) (15,263)




Deferred income tax assets and liabilities are attributable to the following items:

2017 2016


Accelerated capital allowances - - 1,239 1,239

Loan impairment (20,571) (20,571) (4,373) (4,373)

Unutilized capital allowance 7,801 7,793 (5,312) (5,312)

Carried forward losses - - (14,082) (14,146)

Revaluation of building (7,171) (7,171) 7,329 7,329

(19,941) (19,949) (15,199) (15,263)

25. Intangible Asset

2017 2016


Goodwill 3,931 3,931 3,931 3,931

Software 1,858 2,021 2,581 2,754

5,789 5,952 6,512 6,685

25a. Goodwill

2017 2016In thousands in of GHS Bank Group The Bank The Group

Goodwill 3,931 3,931 3,931 3,931

Impairment testing

For the purpose of annual impairment testing, goodwill is allocated to the operating segments expected to benefit from the synergies of the business acquisition in which the goodwill arises, as follows:

Carrying amount of goodwill as allocated to each of the CGUs

In thousands in of GHS Retail Total

Goodwill 3,931 3,931

The recoverable amount of the retail segment was determined based on value-in-use calculations, covering a detailed five-year forecast, followed by an extrapolation of expected cash flows for the remaining useful lives using a declining growth rate determined by management. The recoverable amount of the retail segment is set out below:

In thousands in of GHS Retail Total

Goodwill 24,411 24,411

The present value of the expected cash flows of the retail segment is determined by applying a suitable discount rate reflecting current market assessments of the time value of money and risks specific to the segment.

Growth rate Discount rate

Retail 4% 13.5%




Key assumptions used in value in use calculations

Growth rates

The growth rates reflect the long-term average growth rates for the retail segments (all publicly available). The growth rate for online retailing exceeds the overall long-term average growth rates for Ghana because this sector is expected to continue to grow at above-average rates for the foreseeable future.

Discount rates

The discount rates reflect appropriate adjustments relating to market risk and specific risk factors of the retail segment.

Cash flow assumptions

Retail segment

Management’s key assumptions include stable profit margins, based on past experience in this market. The Group’s management believes that this is the best available input for forecasting this mature market. Cash flow projections reflect stable profit margins achieved immediately before the budget period. No expected efficiency improvements have been taken into account and prices and wages reflect publicly available forecasts of inflation for the industry.

25b. Software



Cost

Opening balance 11,967 12,556 11,225 11,771

Additions 1,091 1,091 742 785

At 31 December 13,058 13,647 11,967 12,556

Accumulated depreciation

Opening balance 9,386 9,802 5,502 5,809

Charge for the year 1,814 1,824 3,884 3,993

At 31 December 11,200 11,626 9,386 9,802

Net Book Value 1,858 2,021 2,581 2,754

Total carrying amount of Intangible asset

2017 2016


Goodwill 3,931 3,931 3,931 3,931

Software 1,858 2,021 2,581 2,754

5,789 5,952 6,512 6,685

26. Other assets



Prepayments 15,943 15,943 17,508 17,508

Other receivables 17,813 28,624 27,692 59,392

33,756 44,567 45,200 76,900




Other receivables includes the following:

2017 2016


Interest receivable 7,928 7,928 4,207 4,207

Receivable from Realty 1,349 - 16,439 -

Inventory - 4,421 - 15,061

Sundry account receivable 5,974 10,619 1,669 22,577

Others 2,562 5,656 5,377 17,547

17,813 28,624 27,692 59,392

27. Property, plant and equipment

The Bank – 2017

In thousands in of GHS Land and Building Computers

Furniture and

Equipment Motor

Vehicles Capital Work

In Progress Total

Cost/valuation

At 1 January 38,100 16,687 22,718 8,635 8,241 94,381

Additions 5,926 138 654 1,128 5,244 13,090

Disposals (322) - - (380) - (702)

Transfers 526 4,888 4,258 - (9,672) -

At 31 December 44,230 21,713 27,630 9,383 3,813 106,769

Accumulated Depreciation

At 1 January 2,345 8,677 15,517 4,865 - 31,404

Charge for the year 591 5,730 3,156 1,567 - 11,044

Disposals (27) - - (372) - (399)

At 31 December 2,909 14,407 18,673 6,060 - 42,049

Net Book Value 41,321 7,306 8,957 3,323 3,813 64,720

If land and buildings were measured using the cost model, the carrying amounts would be, as follows:


Cost 17,060 11,134

Accumulated depreciation (2,125) (1,784)

Net carrying amount 14,935 9,350




The Bank - 2016


Furniture and

Equipment Motor

Vehicles

Capital Work In

Progress Total

Cost/valuation

At 1 January 38,736 11,170 21,848 7,681 2,281 81,716

Additions 67 5,517 1,395 1,164 5,960 14,103

Disposals (703) - (525) (210) - (1,438)

At 31 December 38,100 16,687 22,718 8,635 8,241 94,381


At 1 January 1,788 5,592 12,901 3,516 - 23,797


Disposals (65) - (282) (121) - (468)

At 31 December 2,345 8,677 15,517 4,865 - 31,404

Net Book Value 35,755 8,010 7,201 3,770 8,241 62,977

Profit on disposal of property and equipment



Gross book value 702 1,300 1,438 1,835

Accumulated depreciation (399) (881) (469) (702)

Net book value 303 419 969 1,133

Sale proceeds 590 706 740 935

(Loss) / profit on disposal 287 287 (229) (198)

The Group 2017


Furniture and

Equipment Motor

Vehicles

Capital Work In

Progress Total

Cost/valuation

At 1 January 38,100 17,639 25,552 10,506 8,241 100,038

Additions 5,926 251 779 2,051 5,244 14,251

Disposals (322) (89) (309) (580) (1,833)

Transfers 526 4,888 4,258 - (9,672) 0

At 31 December 44,230 22,689 30,280 11,977 3,813 112,989


At 1 January 2,345 9,388 16,949 5,811 - 34,493


Disposals (27) (83) (207) (564) - (881)

AT 31 December 2,909 15,304 20,359 7,167 - 45,739

Net Book Value 41,321 7,385 9,921 4,810 3,813 67,250




The Group - 2016


Furniture and

Equipment Motor

Vehicles

Capital Work In

Progress Total

Cost/valuation

At 1 January 38,736 12,060 24,353 9,179 2,281 86,609

Additions 67 5,597 1,725 1,916 5,960 15,265

Disposals (703) - (526) (589) - (1,300)

At 31 December 38,100 17,639 25,552 10,506 8,241 100,038


At 1 January 1,788 6,124 13,827 4,446 - 26,185


Disposals / adjust. (65) (7) (281) (345) - (699)

At 31 December 2,345 9,388 16,949 5,811 - 34,493

Net Book Value 35,755 8,251 8,603 4,695 8,241 65,545

The Group has entered into operating leases on certain buildings for their branches, with lease terms between three and Ten years. The Group has the option, under some of its leases, to lease the assets for additional terms of three to five years.

The future lease rental have been prepaid and recognised under other assets as disclosed in “Note 26 Other Assets”.

28. Deposits from banks



Money market deposits - - - -

29. Deposits from customers



Retail customers:

Term deposits 421,158 421,158 416,506 416,506

Current deposits 679,494 679,494 522,263 522,263

Others 337,631 337,631 301,214 301,214

Corporate customers;

Term deposit 246,300 246,300 303,990 303,990

Current deposit 28,063 28,063 14,237 14,237

1,712,646 1,712,646 1,558,210 1,558,210

29a. Analysis of deposits from customers



Current 1,045,188 1,045,188 948,500 948,500

Non-current 667,458 667,458 609,710 609,710

Total 1,712,646 1,712,646 1,558,210 1,558,210

The ratio of the 20 largest deposits to total deposits for the current financial year is 38.84% (2016: 33%)




30. Borrowings



Proparco (ii) 14,719 14,719 19,601 19,601

Ghana International Bank (GHIB) (i) - - 22,244 22,244

14,719 14,719 41,845 41,845

The movement on borrowings is as follow:

At 1 January 41,845 41,845 28,463 28,463

Addition - - 43,245 43,245

Interest charged 2,596 2,596 10,224 10,224

Repayment (25,554) (25,554) (32,902) (32,902)

Interest paid (4,168) (4,168) (7,185) (7,185)

At 31 December 14,719 14,719 41,845 41,845

Current 5,895 5,895 28,911 28,911

Non-current 8,824 8,824 12,934 12,934

14,719 14,719 41,845 41,845

(i) Ghana International Bank

The GHIB loan was an unsecured medium term loan of GHS22.24 million (US$5.296 million) (2016:GHS22.24 – US$ 5.296 million) contracted for on-lending. The facility was for a 10 months period and attracts interest at Libor plus 3.75%. The interest was payable monthly. The loan was paid off on May 1, 2017.

(ii) Proparco

The Proparco loan represents an unsecured term loan of US$10 million contracted for seven and a half years at an interest rate of 6%. Maturity date for the loan falls on April 30, 2020. The amount outstanding at the end of the year is GHS 14.7 million (US$3.33 million); (2016, GHS 19.6 million or US$5.33 million).

(iii) Arbitrage Borrowing

The Bank did not enter into any new arbitrage borrowing in Ghana Cedi with local non-bank financial institutions for on-lending.

31. Other liabilities



Bonds 53,754 53,754 53,894 53,894

Other liabilities 69,526 74,728 61,073 96,009

123,280 128,482 114,967 149,903




31a. Bonds



At 1 January 53,894 53,894 68,096 68,096

Interest charged 8,829 8,829 10,093 10,093

Inflation adjustment 999 999 2,740 2,740

63,722 63,722 80,929 80,929

Redemptions (4,524) (4,524) (16,766) (16,766)

Interest paid (5,444) (5,444) (10,269) (10,269)

At 31 December 53,754 53,754 53,894 53,894

Analysis by type of bond:



SSNIT Bonds – Inflation linked 31,754 31,754 28,480 28,480

SSNIT Bonds – Treasury linked 22,000 22,000 22,000 22,000

HFC 2016 Bonds - - 3,414 3,414

Total Ghana cedi bonds 53,754 53,754 53,894 53,894

At 31 December 53,754 53,754 53,894 53,894

Pilot Scheme

Social Security and National Insurance Trust (SSNIT) has lent the cedi equivalent value of GHS50.48million (2013: US$16.2million) to the Bank for the implementation of Home Mortgage Finance Pilot Scheme. The loan which has a 20-year term is fully indexed to Consumer Price Index and attracts interest at the rate of 1% per annum. The Treasury linked bond is also for 20yrs. The rate is a 2 year Treasury bill rate plus a spread of 2.5%. Interest is paid semi-annually.

HFC Bank also issued a total of GHS43 million as bonds to boost working capital in 2014. This was issued at coupon rate of a floating 182 day Government of Ghana Treasury bill rate plus 250 basis points or 2.5% per annum; interest payable semi-annually for a tenor of 2 years. The HFC Bonds were fully repaid during the period under review.

31b. Other liabilities



Creditors 69,517 74,719 61,029 95,965

Escrow funds - - 35 35

Dividend payable (Note 39) 9 9 9 9

69,526 74,728 61,073 96,009




The creditors balance includes the following:



Interest payable 25,549 25,549 35,479 35,479

Payment order 5,837 5,837 5,693 5,693

Deferred commission & fees 5,544 5,544 4,877 4,877

Other account payable 16,150 19,078 9,062 14,808

Custody settlement 13,695 13,695 - -

Sundry payable 2,751 5,025 5,918 35,109

Creditors are non-interest bearing, non-secured and current liabilities. The escrow funds represent amounts held in trust for a financial institution.



Current 65,294 70,496 57,243 80,343

Non-current 4,232 4,232 3,830 15,666

69,526 74,728 61,073 96,009

32. Stated capital

The Bank has authorised shares of 1,000,000,000 (2016: 1,000,000,000) out of which 388,330,009 (2016:297,420,918) have been issued. The movement in stated capital is as follows:


No of shares Proceeds No of shares Proceeds

At 1 January 297,421 96,191 297,421 96,191

Ordinary shares issued 90,909 50,000 - -

31 December 388,330 146,191 297,421 96,191

During the year, a renounceable right issue for 90,909,054 ordinary shares were offered for a total consideration of GHS50 million. The shares were fully subscribed and there is no unpaid liability on any shares. There are no calls or instalments unpaid. There are no treasury shares (2016: nil).

33. Income surplus account



At 1 January (47,682) (43,750) (13,475) (167)

Profit / (loss) for the year 36,923 45,431 (38,606) (47,982)

Transfer from capital surplus 242 242 526 526

Movement from regulatory credit risk reserve (1,637) (1,637) 3,873 3,873

Transfer to statutory reserve (18,462) (18,462) - -

Shares issuance cost (1,877) (1,877) - -

At 31 December (32,493) (20,053) (47,682) (43,750)




34. Revaluation reserve

The revaluation reserve relates to the unrealised surplus on the revaluation of buildings which is non-distributable.

35. Statutory reserve fund

Statutory reserve represents the cumulative amounts set aside from annual net profit after tax as required by Section 34 of the Banks and Specialised Deposit–Taking Institutions Act, 2016 (Act 930). The proportion of net profits transferred to this reserve ranges from 12.5% to 50% of net profit after tax depending on the ratio of existing statutory reserve fund to paid up capital.

36. Regulatory credit risk reserve

Regulatory credit risk reserve represents differences in loan loss provisioning resulting from the application of IFRS impairment rules and the credit loss provisioning rules of the Bank of Ghana.

Regulatory credit risk reserve reconciliation

In thousands in of GHS 2017 2016 Movement

Provision under BoG principles 144,570 142,954 1,616

Provision under IFRS 140,533 140,554 (21)

Regulatory credit risk reserve 4,037 2,400 1,637

37. Housing development assistance reserve



At 31 December 744 744 744 744

The housing development assistance reserve has been set up by management to fund housing related research and new technologies when the need arises and is as such not available for distribution to shareholders.

38. Non-controlling interest


The Group The Group

At 1 January 2,501 2,248

Share of net profit 1,063 253

At 31 December 3,564 2,501

39. Dividend



At 1 January 9 9 9 9

Approved Dividend - -

Dividend paid in the year - - - -

At 31 December 9 9 9 9

The payment of dividend is subject to the deduction of withholding tax at a rate of 8% for residents and non-residents (2016: 8%).




40. Cash generated from operations

Notes 2017 2016

In thousands in of GHS The Bank The Group The Bank The Group

Profit before tax 56,645 69,445 (56,995) (63,782)

Depreciation 25b/27 12,858 13,951 11,957 12,999

Loss / (profit) on disposal of property and equipment 27 (287) (287) 229 198

Increase /(decrease) in impairment for credit losses 21e (21) (21) 13,709 16,709

Interest expense on long term bonds and borrowings 30/31a 11,425 11,425 20,317 20,317

Inflation adjustment on long term bonds 31a 999 999 2,740 2,740

Fair value appreciation – Other investments 20a (3,249) (3,249) (3,127) (3,625)

Impairment of investment in subsidiary 840 - - -

Net foreign exchange difference (16,389) (16,389) (10,578) (10,578)

Cash generated from operations before changes in operating assets and liabilities 62,821 75,874 (21,748) (25,022)

Decrease / (increase) in loans and advances to customers 110,060 109,722 (8,938) (45,255)

Decrease / (increase) in interest receivable and other assets 6,913 27,857 (27,257) (3,350)

Increase in deposits from customers 154,436 154,436 368,756 368,756

Changes in pledge assets (15,700) (15,700) - -

Increase in interest payables and other liabilities 12,983 (20,322) (36,388) (19,882)

Cash generated from operations 331,513 331,867 274,425 275,247

41. Analysis of cash and cash equivalents as shown in the cash flow statement

For the purposes of the statement of cash flows, cash and cash equivalents comprise the following balances with less than 90 days maturity:

2017 2016


Cash and bank balances with banks 181,829 183,010 161,506 165,599

Balances with Central Banks 95,704 95,704 15,353 15,353

Mandatory balance with central Bank 128,701 128,701 122,706 122,706

Money market placement 436,689 436,689 339,286 339,286

Total cash and cash equivalents 842,923 844,104 638,851 642,944

Restricted balance with central Banks represents 10% of customer deposits which are assessable when customer deposits are drawn down.




42. Value Added Statements for the year ended 31 December 2017

2017 2016


Interest earned and other operating income 349,869 380,883 307,611 334,843

Direct cost of services (156,899) (156,899) (157,112) (157,112)

Value added by banking services 192,970 223,984 150,499 177,731

Non-banking income 14,766 48,769 22,362 23,869

Impairment (charge) /write-back 21 21 (69,781) (72,781)

Value added 207,757 272,774 103,080 128,819

Distributed as follows

To employees:

Non-executive directors 873 1,290 684 1,011

Executive directors 603 603 1,185 1,185

Other employees 78,353 92,210 82,396 95,574

To Government:

Income tax 19,722 22,951 18,389 16,053

To shareholders:

Dividends to shareholders - - - -

To expansion and growth:

Depreciation 11,044 12,127 8,073 8,940

Amortisation 1,814 1,824 3,884 3,993

Other operating expenses 58,425 95,275 63,854 81,898

To retained earnings 36,923 46,494 (38,606) (47,729)

43. Contingent liabilities and commitments

The Bank conducts business involving acceptances, guarantees and performance bonds. The majority of these facilities are offset by corresponding obligations of third parties. The table below shows outstanding commitments at the reporting date:

The Bank The Bank


Letters of credit 13,786 13,434

Guarantees and bonds without cash collateral 29,384 57,051

43,170 70,485

All contingent liabilities and commitments are current. There were no instruments or commitments pending drawdown as at the end of December, 2017.

Nature of commitments

An acceptance is an undertaking to pay a bill of exchange drawn on a customer. The Bank expects most acceptances to be presented, but reimbursement by the customer is normally immediate.

Letters of credits commit the bank to make payments to third parties, on production of documents, which are subsequently reimbursed by customers. Guarantees are generally written by the Bank to support performance by a customer to third parties. The Bank will only be required to meet these obligations in the event of the customers default.




Legal Proceedings

There were a number of legal proceedings outstanding against the Group as at 31 December 2016. No provision has been made as professional advice indicates that it is unlikely that any significant loss will arise.

The above information also relates to the group.

44. Related party transactions

A number of transactions are entered into with related parties in the normal course of business. These include mortgages and deposits. The outstanding balances at the year end and related expense and income for the year are as follows:

Type of related party

(i) Relationship with related party

� Republic Bank Financial Holdings Ltd Parent Company of HFC Bank (Gh) Ltd

� HFC Investment Services Limited wholly owned subsidiary

� HFC Realty Limited wholly owned subsidiary

� HFC Brokerage Services Limited wholly owned subsidiary of HFC Investments Services Ltd

� Boafo Microfinance Services Limited 51% equity holding

� HFC Capital Partners Limited wholly owned subsidiary

� UG-HFC 60% equity holding

� Social Security National Insurance Trust Minority Shareholder

� St. Patrick Estate Ltd Indirect control

� Syndication CAL CENIT Non-investment relation

( i ) Loan and Advances to Directors

Loans to Directors 2017 2016


Loans outstanding at January 1 - - 1,626 1,626

Loans Issued during the year - - - -

Interest Income Earned - - 44 44

Loan receipts during the year - - (1,670) (1,670)

Loans Outstanding at December 31 - - - -

Loans to directors were mainly mortgage loans at a rate of 14% (USD loans) for 15 years and secured by mortgage properties. These transactions are at arm’s length. There were no disbursements during the year.

(ii) Deposits from directors



Deposit at January 1 514 514 861 861

Deposit received during the year 1,013 1,013 1,843 1,843

Withdrawal during the year (1,121) (1,121) (2,190) (2,190)

Deposit at December 31 406 406 514 514




(iii) Loans to other related parties ( Boafo Micro Finance)

In addition to transactions with key management, the Bank entered into transactions with entities whose by virtue of their relationship with the Bank, directly or indirectly could have influenced decision making. In all such transactions with balances as shown below, businesses were conducted on an arm’s length basis. The table below shows the outstanding balances and corresponding interest during the year. The loans were denominated in cedis and attracts an interest rate of 23% ( 2016: 28%) per annum.

2017 2016

In thousands in of GHS The Bank The Bank

Loans outstanding at 1 January 597 36,846

Loans issued during the year - -

Interest income earned 57 88

Loan repayments during the year (464) (36,337)

Loans outstanding at 31 December 190 597

iv) Receivable from HFC Realty Limited

2017 2016

The Bank The Bank

Receivable 1,349 16,439

v) Deposits from related parties (HFC Realty, Boafo Micro Finance, Investment Services Limited and Brokerage Services Limited, Directors and Key Management)

2017 2016


Deposit at 1 January 39,965 39,233 2,663 1,931

Deposit received during the year 558,180 558,912 489,978 489,978

Interest income earned 13,153 13,153 6,238 6,238

Withdrawals during the year (580,483) (580,483) (458,914) (458,914)

Deposit at 31 December 30,815 30,815 39,965 39,233

v) Directors, other key management persons and connected persons

2017 2016


Salaries and other short term benefits 1,940 2,385 1,830 2,367

Employer Social Security charges 209 292 216 280

2,149 2,677 2,046 2,647

vi) Share options

The share option is exercised after 31st December of each year end. There was no share options granted during the 2017 and 2016 financial years.




45. Country analysis

The amount of total assets and liabilities held by the Bank inside and outside Ghana are analysed below:

Bank 2017 2016

In thousands of GHS In Ghana Outside Ghana In Ghana Outside Ghana

Cash and cash equivalents 821,584 21,339 602,445 36,406

Non-Pledged assets 216,071 - 68,607 -

Pledged assets 38,000 - 22,300 -

Other investments 26,262 - 20,013 -

Investment in subsidiaries 13,405 - 22,825 -

Loans and advances to customers 809,926 - 919,964 -

Investment securities 8,303 - 8,612 -

Current income tax assets - - 25,111 -

Deferred tax assets 19,941 - 15,199 -

Intangible asset - Goodwill 3,931 - 3,931 -

Intangible asset – Software 1,858 - 2,581 -

Other assets 33,756 - 45,200 -

Property, plant and equipment 64,720 - 62,977 -

Total assets 2,057,757 21,339 1,819,765 36,406

Liabilities 2017 2016

In Ghana Outside Ghana In Ghana Outside Ghana

Deposits from banks - - - -

Deposits from customers 1,712,646 - 1,558,210 -

Bonds 53,754 53,894 -

Borrowings - 14,719 - 41,845

Current income tax liabilities 2,256 - - -

Other liabilities 69,526 - 96,009 -

Total liabilities 1,838,182 14,719 1,673,177 41,845




Group 2017 2016

In thousands of GHS In Ghana Outside Ghana In Ghana Outside Ghana


Non-Pledged assets 216,071 - 68,607 -

Pledged assets 38,000 - 22,300 -

Other investments 37,156 - 28,376 -

Loans and advances to customers 809,736 - 919,436 -

Investment securities 17,393 - 26,225 -

Current income tax assets - - 25,275 -

Deferred tax assets 19,949 - 15,263 -

Intangible asset – Goodwill 3,931 - 3,931 -

Intangible asset – Software 2,021 - 2,754 -

Other assets 44,567 - 76,900 -

Property, plant and equipment 67,250 - 65,545 -

Total assets 2,078,839 21,339 1,861,150 36,406

Liabilities 2017 2016

In Ghana Outside Ghana In Ghana Outside Ghana

Deposits from banks - - - -

Deposits from customers 1,712,646 - 1,558,210 -

Bonds 53,754 53,894 -

Borrowings - 14,719 - 41,845

Current income tax liabilities 2,132 - - -

Other liabilities 74,728 - 96,009 -

Total liabilities 1,843,260 14,719 1,708,113 41,845

46. Financial risk management

The Group’s activities expose it to a variety of financial risks and those activities involve the analysis, evaluation, acceptance and management of some degree of risk or combination of risks. Taking risk is core to the financial services business, and the operational risks are an inevitable consequence of being in business. The Group’s aim is therefore, to achieve an appropriate balance between risk and return and minimise potential adverse effects on the Group’s financial performance.

The Group’s risk management policies are designed to identify and analyse these risks, to set appropriate risk limits and controls, and to monitor the risks and adherence to limits by means of reliable and up-to-date information systems. The Risk Management and Compliance Department regularly reviews its risk management policies and systems to reflect changes in markets, products and emerging best practice.

The objective of the Risk Management and Compliance Department is to ensure that the Group’s operations are carried out in a manner to ensure that risks are balanced with rewards. The Risk Management and Compliance Department ensures that the Group complies with all prudential and regulatory guidelines in the pursuit of

profitable banking opportunities while avoiding excessive, unnecessary and uncontrollable risk exposures. Risk is an inherent feature in the business activities of the Group and therefore the Group has put in place various mitigating measures to prevent their occurrence.

The Board of directors is the ultimate authority for approving large credit exposures. It has delegated certain limits in amounts for approval to the Finance and Credit committee.

Finance and credit committee of the Board

The Finance and credit committee is chaired by a non-executive director. It is vested with power to approve credits facility which is above the limit of the credit committee. In addition, this committee of the Board ensures that the Group’s risk taking is consistent with shareholders’ expectations and the Group’s strategic plan.

The Credit committee, chaired by the Managing director, approves credit exposures with ceilings established by the Board of directors. Credit exposures are evaluated in line with the Group’s strategic plan.




Assets and Liabilities Committee (ALCO)

The Assets and liabilities committee (ALCO), chaired by the Managing Director, monitor, compile and analyse market interest rates, exchange rates and inflation rate. ALCO analyse and report on trends in volumes and volatility of advances, deposits and investments.

ALCO also considers gap analysis and capital maturity reports by Treasury Department, with its recommendations.

The committee also monitors the Group’s liquidity position and mandates the treasurer to undertake any necessary measures for changing the Group’s liquidity position, if necessary. Decisions about repricing of interest rate charged out are undertaken to align the Group’s risk and return.

Risk management framework

The Risk management and compliance department is guided by a set of policy and procedure manuals which have been instituted by the Board of directors and management. A comprehensive departmental manual has established a framework within which management effectively manages and controls risks. Tasks involved in the risk management functions are to identify, define, measure, control, monitor and mitigate potential events that could impair the ability of the Group to generate stable and sustainable financial results from its operations.

Risk identification

All risks are qualitatively evaluated on a recurring basis and, where appropriate, evaluation including quantitative analysis is made. Management understands the degree and nature of risk exposures on decisions regarding allocation of resources. Risk assessment is validated by the risk department which also tests the effectiveness of risk management activities and makes recommendations for remedial action. The Group also identifies risk by evaluating the potential impact of internal and external factors business transactions and positions. Once the risks are identified various mitigating measures are put in place to regulate the degree of risks involved.

Risk monitoring, control and reporting

The Risk Management and Compliance department monitors, on a continuous basis, the Group’s risks. Management is regularly updated on the risks likely to impact on the Group operations. The findings are reported at ALCO meetings and appropriate remedial actions are taken to control the risks identified.

Risk types

Through its risk management structure the Group seeks to manage efficiently the core risks: credit, liquidity and market risk. These arise directly through the Group’s commercial activities whilst compliance and regulatory risk, operational risk and reputational risks are normal consequences of any business undertaking.

Internal audit

The Group’s policy is that risk management processes throughout the Group are audited by the internal audit function, which examines both the adequacy of the procedures and the Group’s compliance with the procedures. Internal Audit discusses the results of all assessments with management, and reports its findings and recommendations to the Audit committee.

Credit risk

The Group takes on exposure to credit risk, which is the risk that counterparty will cause a financial loss for the Group by failing to discharge an obligation. Credit risk is the most important risk for the Group’s business; management therefore manages its exposure to credit risk carefully. Credit exposures arise principally in lending activities that lead to loans and advances, and investment activities that bring debt securities and other bills into the Group’s asset portfolio. There is also credit risk in off- statement of financial position instruments, such as loan commitments. The credit risk management and control are centralised in credit risk management team of the Group treasury department and report to the Board of directors.

In addition to direct financial loss, credit risk is viewed in the context of economic exposures, taking into consideration opportunity costs, mark-to-market re-valuations, transaction costs and expenses associated with recovering a non-performing asset over and above the accounting losses. Credit risk is mitigated by appropriate risk-based pricing, case-by-case loan structuring, collateralisation and contingencies to protect the Group’s position.

In evaluating credit risk, the Group consistently assesses three principal components: portfolio at risk, expected default frequency and loss in the event of default.

The exposure to any one borrower including banks is further restricted by sub-limits covering on and off- statement of financial position exposures and daily delivery risk limits in relation to trading items such as forward foreign exchange contracts. Actual exposure against limits is monitored daily.

Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing lending limits where appropriate.




Group’s rating Description of the grade Average number of months of delinquency

1 Current Less than 1 month

2 Olem 1 - 3 months

3 Sub-standard 4 - 6 months

4 Doubtful 7 - 12 months

5 Loss 12 months and above

(i) Credit risk measurement

Loans and advances (including loan commitments and guarantees)

In measuring credit risk of loan and advances to customers and to banks at a counterparty level, the Group reflects three components (i) the ‘probability of default’ by the client or counterparty on its contractual obligations; (ii) current exposures to the counterparty and its likely future development, from which the Group derive the ‘exposure at default’; and (iii) the likely recovery ratio on the defaulted obligations (the ‘loss given default’).

The Group assesses the probability of default of individual counterparties using internal rating tools tailored to the various categories of counterparty. They have been developed internally and combine statistical analysis with credit officer judgment and are validated, where appropriate, by comparison with externally available data. Customers of the Group are segmented into five rating classes. The Group’s rating scale, which is shown below, reflects the range of default probabilities defined for each rating class. This means that, in principle, exposures migrate between classes as the assessment of their probability of default changes. The rating tools are kept under review and upgraded as necessary. The internal rating scale is as follows:

Risk limit control and mitigation policies

The Group manages limits and controls concentrations of credit risk wherever they are identified in particular, to individual counterparties and industries.

Exposure to credit risk is also managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing these lending limits where appropriate.

The Group’s main control and mitigation measures to credit risk exposure is through the use of collateral.

The Group employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of security for funds advances, which is common practice. The Group implements guidelines on the acceptability of specific classes of collateral or credit risk mitigation. The principal collateral types for loans and advances are:

� Mortgages over residential properties;

� Charges over business assets such as premises, inventory and accounts receivable;

� Charges over financial instruments such as debt securities and equities; and

� Hypothetication of stock.

The internal and external rating systems described above focus more on credit-quality mapping from the inception of the lending and investment activities.

In contrast, impairment provisions are recognised for financial reporting purposes only for losses that have been incurred at the financial position date based on objective evidence of impairment. Due to the different methodologies applied, the amount of incurred credit losses provided for in the financial statements are usually lower than the amount determined from the expected loss model that is used for internal operational management and banking regulation purposes.

The impairment provision shown in the financial position at year-end is derived from each of the five internal rating grades.

(ii) Impairment and provisioning policies

The internal rating tool assists management to determine whether objective evidence of impairment exists based on the following criteria set out by the Group:

� Delinquency in contractual payments of principal or interest;

� Cash flow difficulties experienced by the borrower (e.g. equity ratio, net income percentage of sales);

� Breach of loan covenants or conditions;

� Deterioration of the borrower’s competitive position; and

� Deterioration in the value of collateral.




Collateral and security

The Bank routinely obtains collateral and security to mitigate credit risk.

The Bank ensures that any collateral held is sufficiently liquid, legally effective, enforceable and regularly reassessed. Before attaching value to collateral, businesses holding approved classes of collateral must ensure that they are legally perfected devoid of encumbrances. Before reliance is placed on third party protection in the form of bank, government or corporate guarantees or credit derivative protection from financial intermediary counterparties, a credit assessment is undertaken. Security structures and legal covenants are subject to regular review, at least annually, to ensure that they remain fit for purpose and remain consistent with accepted local market practice.

Maximum exposure to credit risk before collateral held




Non-Pledged assets 216,071 216,071 68,607 68,607

Pledged assets 38,000 38,000 22,300 22,300

Other investments 26,262 37,156 20,013 28,376

Loans and advances to customers 809,926 809,736 919,964 919,436

Investment securities 8,303 17,393 8,612 26,225

Other assets(excluding prepayments) 17,813 28,624 27,692 59,392

1,891,263 1,923,049 1,706,039 1,767,280

Off Financial position 2017 2016

In Thousands of GHS Bank Group Bank Group

Letters of credits 13,786 13,786 13,434 13,434

Guarantees commitments 29,384 29,384 57,051 57,051

43,170 43,170 70,485 70,485

Total Exposure 1,934,433 1,966,219 1,776,524 1,837,765

The above table represents a worst-case scenario of credit risk exposure to the Bank and Group at 31 December 2017 and 31 December 2016, without taking account of any collateral held or other credit enhancements attached. For on-financial position assets, the exposures set out above are based on net carrying amounts as reported in the statement of financial position.

As shown above, 41% of the total maximum exposure is derived from loans and advances to banks and customers (2016: 50%) at the Group level

Management is confident in its ability to continue to control and sustain minimal exposure of credit risk to the Bank resulting from both its loan and advances portfolio and debt securities based on the following:

� 72% of the loans and advances portfolio is categorised in the top two grades of the internal rating system (2016: 78%);

� 86 % of the loans and advances portfolio are considered to be neither past due nor impaired (2016: 91%);




Loans and advance

Loans and advances are summarised as follows:

2017 2016

In thousands of GHS Loans and advances to

customers

Loans and advances to banks

Loans and advances to

customers


The Bank – Commercial and Mortgage

Neither past due nor impaired 660.775 50,709 765,678 64,605

Past due but not impaired 63,719 - 71,858 -

Individually impaired 175,256 - 158,377 -

Gross 899,750 50,709 995,913 64,605

Less: allowance for impairment 140,533 0 140,554 0

Net 759,217 50,709 855,359 64,605

2017 2016

In thousands of GHSLoans and

advances to customers



customers


The Bank – Mortgage loan

Neither past due nor impaired 165,601 - 149,873 -



Gross 245.513 - 229,940 -

Less: allowance for impairment 35,547 - 32,310 -

Net 209,966 - 197,630 -

The Group 2017 2016

Commercial and Mortgage


customers



customers


Neither past due nor impaired 660,585 50,709 765,150 64,605



Gross 899,560 50,709 995,385 64,605

Less: allowance for impairment 140,533 - 140,554 -

Net 759,027 50,709 854,831 64,605




Credit quality per class of financial assets

The credit quality of the financial assets is managed by the Group using the internal credit ratings. The table below shows the credit quality by class of financial asset. The security values presented are made up of lien over investments / cash balances and mortgaged properties. The mortgage properties are presented at their forced sale values.

The Bank Current OlemSub

standard Doubtful Loss

Gross maximum

exposures

Security against

impaired loans

In thousands of GHS

At 31 December 2017

Loans and advances to banks 50,709 - - - - 50,709

Loans and advances to customers 479,825 15,349 60,716 19,606 78,741 654,237 (303,290)

Mortgage lending 150,748 14,852 51,462 20,628 7,823 245,513

Gross loans and advances 681,282 30,201 112,178 40,234 86,564 950,459

The BankCurrent Olem

Sub standard Doubtful Loss

Gross maximum

exposures

Security against

impaired loans

In thousands of GHS

At 31 December 2016




Gross loans and advances 746,892 107,938 54,386 77,727 73,575 1,060,518

The GroupCurrent Olem


Gross maximum

exposures

Security against

impaired loans

In thousands of GHS

At 31 December 2017




Gross loans and advances 680,901 30,201 112,178 40,234 86,564 950,078

The GroupCurrent Olem


Gross maximum

exposures

Security against

impaired loans

In thousands of GHS

At 31 December 2016




Gross loans and advances 746,892 107,938 54,386 77,727 73,575 1,060,518




Concentration risk

The following table shows the Group’s credit exposure as categorised by industry sectors.

2017 2016


Financial Institution lending 50,709 50,709 64,605 64,605

Agriculture, Forestry & Fishing 513 513 2,718 2,718

Manufacturing 75,183 75,183 58,495 58,495

Construction 69,400 69,400 48,196 48,196



Mortgage loans 245,513 245,513 229,940 229,940


Services 127,513 127,513 82,692 82,692

Miscellaneous 82,197 82,197 82,040 82,040

Gross loans and advances to Customers 950,459 950,269 1,060,518 1,059,990

The following table shows the Group’s credit exposure as categorised by contingent products;

BankGuarantees, acceptances

and other financial facilitiesGuarantees, acceptances

and other financial facilities


At 31 December

Letters of Credit 15,951 13,434

Banks guarantee 12,889 19,683

Advance Payment Guarantee 9,366 30,503

Bid Security 1,020 3,000

Tender security 2,432 195

Performance Bond 1,512 3,670

43,170 70,485

Group

At 31 December

Letters of Credit 15,951 13,434

Banks guarantee 12,889 19,683

Advance Payment Guarantee 9,366 30,503

Bid Security 1,020 3,000

Tender security 2,432 195

Performance Bond 1,512 3,670

43,170 70,485




Market risk

Market risk is managed through the Group’s treasury operations where the primary objective is to minimise both interest rate risk and foreign exchange loss. On a trading basis, investments in Government of Ghana Securities and Commercial Paper are restricted to the highest grade issues. The Group does not engage in speculative operations, either in Ghana or overseas.

Speculative operations are those operations which create short term open risk positions to the Group. Investment in equity instruments for trading purposes is not permitted, except with the approval of the Board of Directors.

(i) Interest rate risk

Interest rate risk refers to the Group’s exposure to interest rate changes in the economy that could impact on the Group’s earning capacity and capital. This risk is composed of the following sub-risks:

(ii) Re-pricing risk, arising from timing differences or mismatches in maturity and re-pricing of the Group’s assets (mainly loans, overdrafts, advances and investments) and liabilities (primarily customer deposits);

(iii) Basis risk, arising from imperfect correlation in the adjustment of rates earned and paid on different instruments with otherwise similar re-pricing characteristics; and

The tables below summarise the Bank and the Group’s exposure to interest rate risks. Included in the tables are the Bank and the Group’s assets and liabilities at carrying amounts (non-derivatives), categorised by the earlier of contractual repricing or maturity dates. The Bank and the Group does not bear interest rate risk on off statement of financial position items.

Sensitivity analysis

2017Increase in policy rate

Sensitivity of net Interest income

Sensitivity of Equity

In thousands of GHS

Interest rate 2% 493 345

2016Increase in policy rate

Sensitivity of net Interest income


In thousands of GHS

Interest rate 2% 557 591

In 2017 or 2016, a 2% increase in interest rate will have a positive or negative impact on net interest income by the value indicated; likewise the same percentage increase will have a negative of positive impact on equity by the value indicated.




Bank

2017

In thousands of GHSUp to 1 month

2- 3 months

4-12 months 1-5 years

Over 5 years

Non interest bearing Total

Financial asset

Cash and cash equivalents 671,063 3,422 - - - 168,438 842,923Government securities (including pledged assets) - 4,445 151,689 97,937 - 254,071

Loans and advances to customers and bank 2,790 122,429 124,565 300,470 259,671 - 809,926

Other Assets (excluding prepayments) 17,813 17,813

Investment securities 3,000 - - - 5,303 - 8,303

Other short term investments 14,650 1,391 52 2,925 7,244 - 26,262

Total financial assets 691,503 127,242 129,062 455,084 370,155 186,251 1,959,298

Deposits from customers 129,876 580,113 209,743 349,079 443,835 - 1,712,646

Creditors - - - - - 69,526 69,526

Bonds - - - - 53,754 - 53,754

Borrowings - - 5,888 8,831 - - 14,719

Total financial liabilities (contractual maturity dates) 129,876 580,113 215,631 357,910 497,589 69,526 1,850,645

Total Interest re-pricing gap 561,627 (452,871) (86,569) 97,174 (127,434) 116,725 108,683

Bank

2016


2- 3 months


Over 5 years


Financial asset

Cash and cash equivalents 444,051 4,011 - - - 190,789 638,851

Government securities (including pledged assets) 22,095 68,812 - - - 90,907



Investment securities 5,478 - - - 3,134 - 8,612

Other short term investments 11,164 1,060 40 2,229 5,520 - 20,013



Creditors - - - - - 61,073 61,073

Bonds - - - - 53,894 - 53,894

Borrowings - - 17,234 24,611 - - 41,845






GROUP

2017


2- 3 months


Over 5 years


Financial asset


Government securities (including pledged assets) - - 4,445 151,689 97,937 - 254,071



Investment securities 12,090 - - 5,303 - 17,393

Other short term investments 14,912 1,416 9,590 3,587 7,651 - 37,156



Creditors - - - - - 74,728 74,728

Bonds - - - - 53,754 - 53,754

Borrowings - - 5,888 8,831 - - 14,719



GROUP

2016


2- 3 months

4-12 months

1-5 years

Over 5 years


Financial asset


Government securities (including pledged assets) - 22,095 68,812 - - - 90,907



Investment securities 5,478 - - - 3,134 17,613 26,225

Other short term investments 11,164 1,060 8,403 2,229 5,520 - 28,376



Creditors - - - - - 96,009 96,009

Bonds - - - 53,894 - 53,894

Borrowings - - 17,234 24,611 - - 41,845


Total Interest repricing gap 109,074 (6,203) (247,948) 9,815 (23,294) 175,878 17,322




(ii) Foreign exchange rate risk

Foreign exchange rate risk arises from changes in foreign exchange rates that affect the value of assets (primarily loans, overdrafts, advances and investments), liabilities (primarily, customer deposits) and off- statement of financial position transactions denominated in foreign currencies. Management developed procedures, instruments and control mechanisms designed to protect the value of the Group’s equity without endangering other business priorities.

(iii) Concentration of currency risk-on-and off- statement of financial position financial instruments

The Group takes on exposure to effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The Board sets limits on the level of exposure by currency and in total for both overnight and intra-day positions, which are monitored daily. The table below summarises the Group’s exposure to foreign currency exchange rate at 31 December 2017. Included in the table are the Group’s assets and liabilities at carrying amounts categorised by currency:

The Bank

At 31 December 2017 EUR USD GBP CEDI Total

In thousands of GHS

Assets

Cash and balance with central bank 12,671 26,117 6,549 797,586 842,923

Non-pledged assets - 5,967 210,104 216,071

Pledged assets 38,000 38,000

Other investments - 6,624 - 19,638 26,262

Investment in subsidiaries - - - 13,405 13,405

Loans and advances to customers 1,534 270,856 431 537,105 809,926

Investment securities - - - 8,303 8,303

Deferred tax assets - - - 19,941 19,941

Intangible asset – Goodwill - - - 3,931 3,931

Intangible asset – Software - - - 1,858 1,858

Other assets - 1,620 205 31,931 33,756

Property, plant and equipment - - - 64,720 64,720

Total assets 14,205 305,217 13,152 1,746,522 2,079,096

Liabilities

Deposits from customers 13,881 273,510 13,068 1,412,187 1,712,646

Bonds - - - 53,754 53,754

Short term borrowings - 14,719 - 14,719

Current income tax liabilities 2,256 2,256

Other liabilities 38 12,118 - 57,370 69,526

Total liabilities 13,919 300,347 13,068 1,525,567 1,852,901

Net on statement of financial position 286 4,870 84 220,955 226,195

At 31 December, 2016

Total assets 9,333 304,423 11,578 1,530,837 1,856,171


Net on statement of financial position (837) (18,667) 339 160,314 141,149




The Group

At 31 December 2017 EUR USD GBP CEDI Total

In thousands of GHS

Assets

Cash and balance with central bank 12,671 26,117 6,549 798,767 844,104

Non-pledged assets - - 5,967 210,104 216,071

Pledged assets - - - 38,000 38,000

Other investments - 6,624 - 30,532 37,156

Investment in subsidiaries - - - - -

Loans and advances to customers 1,534 270,856 431 536,915 809,736

Investment securities - - - 17,393 17,393

Current income tax assets - - - - -

Deferred tax assets - - - 19,949 19,949

Intangible asset – Goodwill - - - 3,931 3,931

Intangible asset – Software - - - 2,021 2,021

Other assets - 1,620 205 42,742 44,567

Property, plant and equipment - - - 67,250 67,250

Total assets 14,205 305,217 13,152 1,767,604 2,100,178

Liabilities

Deposits from customers 13,881 273,510 13,068 1,412,187 1,712,646

Bonds - - - 53,754 53,754

Short term borrowings - 14,719 - 14,719

Current income tax liabilities 2,132 2,132

Other liabilities 38 -12,118 - 62,572 74,728


Net on statement of financial position 286 4,870 84 236,261 241,501

At 31 December, 2016

Total assets 9,333 304,423 11,578 1,572,222 1,897,556


Net on statement of financial position (837) (18,667) 339 166,763 147,598

(c) Sensitivity analysis

Change in currency

Sensitivity of net Interest

income


In thousands of GHS

Currency

USD 2% 557 591

EUR 2% 528 559

GBP 2% 450 477

A 2% change in the various currencies will have a positive or negative impact on net interest income by the values indicated; likewise the same percentage change in the currencies will have a negative of positive impact on equity by the values indicated.




(c) Liquidity risk

Liquidity risk is the risk that the Group is unable to meet its payment obligations associated with its financial liabilities when they fall due and to replace funds when they are withdrawn. The consequence may be the failure to meet obligations to repay depositors and fulfil commitments to lend.

The Group regularly and without delay meets its obligations and liabilities on maturity dates during its everyday activity, and maintain business flow as usual without any strains on its payment capability.

The Group manages this risk by striving to maintain a well-diversified customer depositor base and satisfactory access to a variety of funding sources. Particular attention is paid to marketability of assets, whose availability for sale or as collateral for refinance is evaluated under different market scenarios.

The Group’s liquidity management process, as carried out within the individual entities in the Group and monitored by a separate team in the Group treasury department, includes:

Day-to-day funding, managed by monitoring future cash flows to ensure that requirements can be met. This includes replenishment of funds as they mature or is borrowed by customers;

Maintaining a portfolio of highly marketable assets that can easily be liquidated as protection against any unforeseen interruption to cash flow;

Monitoring statement of financial position liquidity ratios against internal and regulatory requirements; and

Managing the concentration and profile of debt maturities.

A key measure used by the bank and Group for managing liquidity risk is the ratio of net liquid assets to deposits from customers. Details of the reported bank and Group liquid ratio of net liquid assets to current deposits at the reporting date and during the reporting period were as follows:

2017 2016


At 31 December 119.13% 119.30% 119.08% 119.84%

Average for the period 133.49% 133.99% 99.27% 99.95%

Maximum for the period 158.45% 159.06% 124.99% 125.93%

Minimum for the period 112.01% 112.80% 79.36% 79.69%

Liquidity risk management process

The Group is exposed to daily calls on its available cash resources from overnight deposits, current accounts, maturing deposits, and calls on cash to settle contingencies. The Group does not maintain cash resources to meet all of these needs as experience shows that a minimum level of reinvestment of maturing funds can be predicted with a high level of certainty. The Board sets limits on the minimum proportion of maturing funds available to meet such call and on the minimum level of inter-bank and other borrowing facilities that should be in place to cover withdrawals at unexpected levels of demand.

The matching and controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to the management of the Group. It is unusual for banks ever to be completely matched since business transacted is often of uncertain terms and of different types. An unmatched position potentially enhances profitability, but can also increase the risk of losses.

(ii) Funding approach

Sources of liquidity are regularly reviewed by a separate team in Bank Treasury to maintain a wide diversification by currency, provider, product and term.




The table below analyses financial assets and liabilities into relevant maturity groupings based on the remaining period at 31 December 2017 to the contractual maturity date.

The Bank


2- 3 months

4-12 months

1-5 year(s)

Over 5 years Total

2017Financial asset

Cash and cash equivalents 856,278 3,644 - - - 859,922

Government securities (incl. pledged assets) - - 5,023 250,287 171,390 426,699

Loans and advances to customers 2,860 130,387 140,759 495,776 454,425 1,224,206

Other assets (excluding prepayment) 13,949 - - 3,864 - 17,813

Investment securities 3,075 - - - 9,280 12,355

Other short term investments 15,016 1,481 59 4,826 12,676 34,059

891,178 135,513 145,841 754,753 647,771 2,575,055

In thousands of GHS

2017 Up to 1 month

2- 3 months

4-12 months

1-5 year(s)

Over 5 years Total

Financial liabilities

Deposits from customers 131,824 600,417 226,522 411,913 550,355 1,921,032

Creditors 60,117 - 4,431 4,978 69,526

Bonds - - - - 66,655 66,655

Borrowings - - 6,359 10,421 - 16,780

Total financial liabilities (contractual maturity dates) 191,237 600,417 232,881 426,765 621,988 2,073,993

The Group


2- 3 months

4-12 months

1-5 year(s)

Over 5 years Total

2017Financial asset


Government securities (incl. pledged assets) - - 5,023 250,287 171,390 426,699

Loans and advances to customers 2,860 130,158 140,759 495,776 454,425 1,223,977

Other assets (excluding prepayment) 24,760 - 3,864 28,624

Investment securities 12,392 - - - 9,280 21,673

Other short term investments 15,285 1,508 10,837 5,919 13,389 46,937

912,824 135,310 156,618 755,845 648,484 2,609,082

In thousands of GHS

2017 Up to 1 month

2- 3 months

4-12 months

1-5 year(s)

Over 5 years Total



Creditors 65,319 - - 4,431 4,978 74,728

Bonds - - - - 66,187 66,187

Borrowings - - 6,359 10,421 - 16,780





The Bank

In thousands of GHSUp to 1 month 2- 3 months

4-12 months

1-5 year(s)

Over 5 years Total

2016Financial asset


Government securities (incl. pledged assets) - 22,785 81,707 - - 104,492

Loans and advances to customers 3,216 143,943 142,981 1,114,807 101,491 1,506,438

Other assets (excluding prepayment) 20,222 177 1,116 576 225 22,316

Investment securities 5,478 - - - - 5,478

Other short term investments 11,164 1,060 40 2,229 5,520 20,013

683,547 172,081 225,844 1,117,612 107,236 2,306,320

In thousands of GHS

2016 Up to 1 month 2- 3 months

4-12 months

1-5 year(s)

Over 5 years Total



Creditors 33,913 14,702 8,728 211 - 57,554

Bonds 82,923 82,923

Borrowings - - 17,322 32,935 - 50,257


The Group

In thousands of GHS Up to 1 month 2- 3 months

4-12 months

1-5 year(s)

Over 5 years Total

2016Financial assetCash and cash equivalents 644,683 7,086 - - - 651,769

Government securities (including pledged assets) - 22,785 197,764 - - 220,549

Loans and advances to customers 3,216 143,393 142,981 1,114,807 2,780,491 4,184,888

Other asset (excluding prepayment) 20,222 31,877 1,116 576 225 54,016

Investment securities 5,478 17,613 - - - 23,091

Other investments 11,164 1,060 40 2,229 5,520 20,013

Total financial assets 684,763 223,814 341,901 1,117,612 2,786,236 5,154,326

In thousands of GHS

2016 Up to 1 month 2- 3 months

4-12 months

1-5 year(s)

Over 5 years Total



Creditors 33,913 37,702 8,728 211 - 80,554

Bonds - - - - 82,923 82,923

Borrowings - - 17,322 2,935 - 50,257





iii) Assets held for managing liquidity risk

The Bank holds a diversified portfolio of cash and high-quality highly-liquid securities to support payment obligations and contingent funding in a stressed market environment. The Bank’s assets held for managing liquidity risk comprise:

� Cash and balances with central banks;

� Certificates of deposit;

Government bonds and other securities that is readily acceptable in repurchase agreements with the central banks.

Fair value of financial assets and liabilities

(a) Financial instruments not measured at fair value

The carrying values of the Group’s financial assets and liabilities approximate their fair values both for the current and period financial years.

(iv) Deposits from banks and due to customers

The estimated fair value of deposits with no stated maturity, which includes non-interest-bearing deposits, is the amount repayable on demand.

(i) Loans and advances to banks

Loans and advances to banks include inter-bank placements and items in the course of collection.

The carrying amount of floating rate placements and overnight deposits is a reasonable approximation of fair value.

The estimated fair value of fixed interest bearing deposits is based on discounted cash flows using prevailing money-market interest rates for debts with similar credit risk and remaining maturity.

(ii) Loans and advances to customers

Loans and advances are net of charges for impairment. The estimated fair value of loans and advances represents the discounted amount of estimated future cash flows expected to be received. Expected cash flows are discounted at current market rates to determine fair value.

(iii) Investment securities

The fair value for investment securities and held-to-maturity financial assets is based on market prices. Where this information is not available, fair value is estimated using quoted market prices for securities with similar credit, maturity and yield characteristics.

The estimated fair value of fixed interest-bearing deposits not quoted in an active market is based on discounted cash flows using interest rates for new debts with similar remaining maturity.

(iv) Fair value of hierarchy

IFRS 13 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources; unobservable inputs reflect the Group’s market assumptions. These two types of inputs have created the following fair value hierarchy:

� Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities. This level includes listed equity securities and debt instruments on exchanges (for example, The Ghana Stock Exchange).

� Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices). This level includes the majority of Bank of Ghana’s securities and other investments which are valued by reference to Bank of Ghana rates and the use of discounted cash flow techniques.

� Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs). This level includes equity investments and debt instruments with significant unobservable components. This hierarchy requires the use of observation market data when available. The Group considers relevant and observable market prices in its valuation when possible. As at 31 December 2017 and 31 December 2016, the Bank held level 2 and 3 financial assets and/or liabilities.




The Bank Level 2 Level 3 Total

The Bank The Bank The Bank The Bank The Bank The Bank

In thousands of GHS 2017 2016 2017 2016 2017 2016

Land and Building - - 60,973 55,046 60,973 55,046

Other investments - Unit trust 26,262 20,013 - 26,262 20,013

The Group Level 2 Level 3 Total

The Bank The Bank The Bank The Bank The Bank The Bank

In thousands of GHS 2017 2016 2017 2016 2017 2016

Land and Building - - 60,973 55,046 60,973 55,046

Other investments - Unit trust 26,262 20,013 - 25,925 20,013

The Group invests in Unit trust,, which are not quoted in an active market and The Group considers the valuation techniques and inputs used in valuing these investments as part of its due diligence prior to investing, to ensure they are reasonable and appropriate and therefore the NAV of unit trust may be used as an input into measuring their fair value. In measuring this fair value, the NAV of the unit trust is adjusted, as necessary, to reflect restrictions on redemptions, future commitments, and other specific factors of the Trust.

The fair values of the office buildings are estimated using a valuation work done by an independent valuer. The most significant inputs, all of which are unobservable, are the estimated rental

v) Financial instruments by category


In thousands of GHS

Financial liabilities at fair value through

profit or loss Other financial liabilities

at amortised cost Total

The Bank 2017

Deposits from banks - - -

Deposits from customers - 1,712,646 1,712,646

Bonds - 53,754 53,754

Borrowings - 14,719 14,719

Other liabilities - 69,526 72,215

- 1,850,645 1,853,334

Financial Liabilities

Financial liabilities at fair value through

profit or loss Other financial liabilities


The Bank 2016



Bonds - 53,894 53,894

Borrowings - 41,845 41,845


- 1,715,022 1,715,022




Financial LiabilitiesFinancial liabilities at fair

value through profit or loss Other financial liabilities


In thousands of GHS

The Group 2017



Bonds - 53,754 53,754

Borrowings - 14,719 14,719


- 1,855,847 1,858,053

Financial LiabilitiesFinancial liabilities at fair

value through profit or loss Other financial liabilities


The Group 2016



Bonds - 53,894 53,894

Borrowings - 41,845 41,845


- 1,749,958 1,749,958

Financial assets Loans and receivables

Financial assets at fair value through profit or loss

Held to maturity Total

In thousands of GHS

The Bank 2017

Cash and Cash Equivalent 168,438 - 674,485 842,923

Non-Pledged Assets - 216,071 216,071

Pledged assets - 38,000 38,000

Other investments 26,262 0 26,262

Loans and advances to banks 809,926 - - 809,926

Investment securities - 8,303 8,303

Other assets (excluding prepayments) 17,813 - - 16,813

996,177 26,262 936,859 1,959,298

Financial assets Loans and receivables

Financial assets at fair value through profit or loss


In thousands of GHS

The Bank 2016

Cash and Cash Equivalent 299,565 -

339,286 638,851

Non-Pledged Assets - -

68,607 68,607


Other investments 20,013 20,013




1,247,221 20,013 438,805 1,706,039




Financial assetsLoans and

receivables

Financial assets at fair

value through profit or loss


In thousands of GHS

The Group 2017

Cash and Cash Equivalent 169,619 - 674,485 844,104

Non-Pledged Assets - -

216,071 216,071


Other investments 26,262 10,894 37,156




1,007,979 26,262 956,843 1,991,084

Financial assetsLoans and

receivables

Financial assets at fair

value through profit or loss


In thousands of GHS

The Group 2016

Cash and Cash Equivalent 303,658

-

339,286 642,944

Non-Pledged Assets -

68,607 68,607

Pledged assets - - 22,300 22,300

Other investments - 28,376 - 28,376

Loans and advances to banks 919,436 - 919,436

Investment securities - - 26,225 26,225


1,282,486 28,376 458,418 1,767,280

viii) Capital management

The Group’s objectives when managing capital, which is a broader concept than the ‘equity’ on the face of statement of financial position, are:

� to comply with the capital requirements set by Bank of Ghana;

� to safeguard the Group’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders; and

� to maintain a strong capital base to support the development of its business.

Capital adequacy and the use of regulatory capital are monitored daily by the Group’s management, employing techniques based on the guidelines developed by the Bank of Ghana for supervisory purposes. The required information is filed with the Bank of Ghana on a monthly basis. The Bank of Ghana requires each locally owned bank to:

� hold the minimum level of regulatory capital of GHS120 million in 2017;

� Tier 1 capital ratio:

� Tier 1 capital ratio is calculated as the adjusted tier 1 capital divided by the total risk-weighted assets. The Bank’s internal guideline is to ensure that Tier 1 capital ratio must be at least 6%.




Total capital ratio:

� Total capital ratio (also referred to as capital adequacy ratio) is calculated as total capital divided by total risk-weighted assets. Total capital ratio must be at least 10%.

� Maintained a ratio of total regulatory capital to the risk-weighted assets plus risk-weighted off- statement of financial positions assets at or above the required minimum of 10%;

� Maintain core capital of not less than 8% of total deposit liabilities; and

The Group’s regulatory capital is divided into two tiers:

Tier 1 capital (i.e. core or primary capital) is the portion of capital which is

� Permanently and freely available to absorb unanticipated losses without the bank being obliged to cease trading, and it is defined to be made up of equity and disclosed reserves. Disclosed reserves are defined to be revenue created or increased by appropriations of retained earnings or surplus after tax and dividends. Example, retained profits, statutory reserves, general reserves (not ear-marked for any identifiable losses), the book value of goodwill is deducted in arriving at Tier 1 capital; and

Tier 2 Capital

� Tier 2 capital (secondary/supplementary capital) is the portion of capital with some attributes of tier 1 capital, but restricted in its ability to absorb losses accept in liquidation. It however, provides a useful supplement to tier 1 capital, but due to the significant efficiencies in its ability to provide protection for depositors and other creditors, it is restricted in its inclusion in capital. Tier 2 capital is divided into: a. Upper tier 2 capital (has no fixed maturity).b. Lower tier 2 capital (has a limited lifetime).

The table below summarises the composition of regulatory capital and the ratios of the Group for the years ended 31 December. During those two years, the individual entities within the Group and the Bank complied with all of the externally imposed capital requirements to which they are subject to.

In thousands of GHS The Bank

2017 2016

Tier 1 Capital

Share Capital 146,191 96,191

Disclosed Reserves 47,209 11,921

193,400 108,112

Goodwill and other assets (19,874) (21,439)

Losses not provided for (4,037) (2,400)

Investment in subsidiaries & associates (13,405) (22,825)

Connected Lending of Long Term Nature - -

156,084 61,448

Tier 2 Capital

Capital Surplus account 32,051 32,293

Long Term Bonds 53,754 53,894

Convertible bonds - -

Other reserves - -

Housing Development assistance reserve 744 744

86,549 86,931

Total Regulatory Capital 242,633 148,379

Risk weighted assets

On Financial Position 1,005,572 1,219,265

Off Financial Position 43,170 70,485

Total risk weighted assets 1,048,742 1,289,750

Capital adequacy ratio 23.14% 11.50%




47. Basic and diluted earnings per share

Basic and diluted earnings per share are calculated by dividing the net profit attributable to equity holders by the weighted average number of ordinary shares in issue during the year.



Profit/ (loss) attributable to the equity holders 36,923 45,431 (38,606) (47,982)

Weighted average number of ordinary share issued 300,160 300,160 297,421 297,421

Bonus shares issued included in right issues 54,938 54,938 54,938 54,938

Total Weighted average number of shares outstanding 355,098 355,098 352,359 352,359

Basic earnings per share (expressed in GH Pesewas) (12.30) (15.49) (10.96) (13.55)

The right issue were fully subscribed and settled during the year

48. Segment analysis

The Group has four main reporting segments on a worldwide basis:

� Retail banking – incorporating private banking services, private customer current accounts, savings, deposits, investment savings products, custody, credit and consumer loans;

� Mortgage banking – incorporating mortgage services

� Corporate banking – incorporating direct debit facilities, current accounts, deposits, overdrafts, loans, and foreign currency; and

� Microfinance banking – incorporating savings account, deposits, loan and other credit facilities

Other Group’s operations comprise fund management, institutional finance and providing computer services, none of which constitutes a separately reportable segment and business activities from head office.

As the Group’s segment operations are all financial with a majority of revenues deriving from interest and the Board of Directors relies primarily on net interest revenue to assess the performance of the segment, the total interest income and expense for all reportable segments is presented on a net basis.

There were no changes in the reportable segments during the year.

Transactions between the business segments are carried out at arm’s length. The revenue from external parties reported to the Board of directors is measured in a manner consistent with that in the profit or loss.

Funds are ordinarily allocated between segments, resulting in funding cost transfers disclosed in inter-segment net interest income. Interest charged for these funds is based on the Bank’s cost of capital. There are no other material items of income or expense between the business segments.

Internal charges and transfer pricing adjustments have been reflected in the performance of each business. Revenue-sharing agreements are used to allocate external customer revenues to a business segment on a reasonable basis.




The Bank SEGMENT REPORTING

In thousands of GHS Corporate Mortgage Consumer Microfinance Total

At 31 December 2017

Income

Interest income 271,292 27,935 2,068 9,303 310,598

Interest expenses (125,570) (20,951) (1,551) (7,628) (155,701)

Net interest income 145,722 6,984 517 1,675 154,897

Fee and commission income 21,555 2,700 52 - 24,307

Fee and commission expenses (1,198) - - - (1,198)

20,357 2,700 52 - 23,109

Net Trading Income 14,964 - - - 14,964

Other Operating Income 5,263 - - - 5,263

Other Income 9,503 - - - 9,503

Total 196,128 9,684 569 1,675 208,055

Segment assets

Loans and advances 531,567 238,017 5,200 35,142 809,926

Unallocated assets 1,269,170

Total assets 2,079,096

Segment liabilities

Total deposits 1,712,646

Unallocated liabilities 140,255

Total Liabilities 1,852,901

Segment Equity

Total shareholders’ funds 226,195

Total liabilities and shareholders’ fund 2,079,096

Impairment write-back for credit losses 21




The segment information provided to the Board of Directors for the reportable segments for the year ended 31 December 2016 is as follows:

The Bank SEGMENT REPORTING


At 31 December 2017

Income

Interest income 225,440 28,546 1,192 20,834 276,012



Fee and commission income 14,677 4,064 1,355 - 20,096

Fee and commission expenses (729) - - - (729)

13,948 4,064 1,355 - 19,367



Other Income 19,990 - - - 19,990

Total 150,907 17,824 1,377 2,753 172,861

Segment assets


Unallocated assets 936,207


Segment liabilities




Segment Equity



Impairment charge for credit losses 69,781




The Group SEGMENT REPORTING


At 31 December 2017

Income

Interest income 282,007 27,935 2,068 9,303 321,313



Fee and commission income 41,854 2,700 52 - 44,606

Fee and commission expenses (1,198) - - - (1,198)

40,656 2,700 52 - 43,408



Other Income 13,987 - - - 13,987

Total 260,826 9,684 569 1,675 272,753

Segment assets


Unallocated assets 1,290,442


Segment liabilities




Segment Equity



Impairment write-back for credit losses 21




The Group SEGMENT REPORTING


At 31 December 2017

Income

Interest income 237,000 28,546 1,192 20,834 287,572



Fee and commission income 27,215 6,415 2,138 - 35,768

Fee and commission expenses (729) - - - (729)

26,486 6,415 2,138 - 35,039



Other Income 11,510 - - - 11,510

Total 176,512 20,175 2,160 2,753 201,600

Segment assets


Unallocated assets 978,120


Segment liabilities




Segment Equity



Impairment charge for credit losses 72,781

Operating segments are reported in a manner consistent with internal reporting provided to ALCO and the Board of Directors. All transactions between business segments are conducted on arm’s length basis, with intra - segment revenue and costs being eliminated in head office. Income and expenses directly associated with each segment are included in determining business segment performance.




49. Maturity analysis of assets and liabilities

Bank 2017 At 31 December

In thousands of GHS Note Total Within 12 months After 12 months

Assets

Cash and Cash Equivalent 18 842,923 842,923 -

Non- Pledged Assets 19 216,071 216,071 -

Pledged assets 19 38,000 38,000 -

Other investments 20 26,262 16,093 10,169

Investment in subsidiaries 20 13,405 - 13,405

Loans and advances to customers 21 809,926 249,784 560,142

Investment securities 22 8,303 3,000 5,303

Deferred Tax 24 19,941 - 19,941

Intangible Assets - Goodwill 25a 3,931 - 3,931

Intangible Assets - Software 25b 1,858 590 1,268

Other Assets 26 33,756 29,571 4,185

Property , Plant and Equipment 27 64,720 12,962 51,758

Total assets 2,079,096 1,408,994 670,102

Liabilities

Deposits from customers 29 1,712,646 919,732 792,914

Bonds 31a 53,754 53,754

Borrowings 30 14,719 5,888 8,831

Current income tax liabilities 23 2,256 2,256 -

Other Liabilities 31b 69,526 60,117 9,409

Total liabilities 1,852,901 997,993 864,908

The Group 2017 At 31 December


Assets


Non- Pledged Assets 19 216,071 216,071 -

Pledged assets 19 38,000 38,000 -


Investment in subsidiaries 20 - - -



Deferred Tax 24 19,949 - 19,949


Intangible Assets - Software 25b 2,021 644 1,377

Other Assets 26 44,567 40,703 3,864


Total assets 2,100,178 1,444,004 656,175

Liabilities


Bonds 31a 53,754 53,754

Borrowings 30 14,719 5,888 8,831

Current income tax liabilities 23 2,132 2,132 -


Total liabilities 1,857,979 993,071 864,908





Bank 2016 At 31 December


Assets


Non- Pledged Assets 19 68,607 68,607

Pledged assets 19 22,300 22,300


Investment in subsidiaries 20 22,825 - 22,825



Current income tax assets 23 25,111 25,111

Deferred Tax 24 15,199 15,199


Intangible Assets - Software 25b 2,581 1,290 1,291

Other Assets 26 45,200 31,754 13,446


Total assets 1,856,171 1,089,438 766,733

Liabilities and equity

Deposits from banks 28 - -


Bonds 31a 53,894 53,894

Borrowings 30 41,845 17,234 24,611


Total liabilities 1,715,022 1,022,977 692,045





Group 2016 At 31 December


Assets

Cash and Cash Equivalent 18 642,944 642,944

Non- Pledged Assets 19 68,607 68,607

Pledged assets 19 22,300 22,300



Investment securities 22 26,225 23,091 3134

Current income tax assets 23 25,275 25,275

Deferred Tax 24 15,263 15,263


Intangible Assets - Software 25b 2,754 1,370. 1,384

Other Assets 26 76,900 56,734 20,166


Total assets 1,897,556 1,137,321 760,235

Liabilities

Deposits from customers 31a 1,558,210 965,600 592,610

Bonds 30 53,894 53,894

Borrowings 21 41,845 17,234 24,611

Other Liabilities 29 96,009 80,343 15,666

Total liabilities 1,749,958 1,063,177 686,781

50. Events after the reporting period

There was no event after reporting date that require adjustments or disclosure.




51. Major shareholdersHFC BANK (GHANA) LIMITED - SHAREHOLDERS’ ANALYSIS AS AT 31 DECEMBER 2017

SHAREHOLDERS’ STRUCTURE AS AT 31.12.2017

FROM TO MEMBERS SHARES CAPITAL %

1 1,000 1,750 532,746 0.13

1,001 5,000 397 920,595 0.24

5,001 10,000 73 531,872 0.14

10,001 9,999,999,999 118 386,344,796 99.49

TOTAL 2,338 388,330,009 100.00

DIRECTOR’S SHAREHOLDING AS AT 31 DECEMBER 2017

SHARES % OF ISSUED CAPITAL

Mr. Robert Le Hunte 13,057 0.0034

Mr. Charles William Zwennes 2.000 0.0005

Total 15,057 0.0039

HFC BANK (GHANA) LIMITED – MAJOR SHAREHOLDERS AS AT 31 DECEMBER 2017 (TOP 20)

SHARES % OF ISSUED CAPITAL

Republic Financial Holdings Limited 250,894,484 64.61

Social Security & National Ins. Trust 77,591,323 19.98

Ghana Union Assurance Co. Ltd 42,334,167 10.90

Scgn/Ghana International Bank Plc 9,221,968 2.37

Capital and Equity Ltd 625,000 0.16

United Master Trust Provident 401,300 0.10

Std Noms TVL Pty/Heritage Fund Ltd 384,876 0.10

Databank Brokerage Limited 200,000 0.05

Mr. C.A. Martinson 180,566 0.05

Fanel Ltd 165,000 0.04

Mr. G. Amenuvor 150,000 0.04

HFC Equity Trust 142,749 0.04

Enterprise Group 133,420 0.03

GES Occupational Pension Scheme 126,800 0.03

Dr. D.A.D. Boateng 126,113 0.03

Mr. J.E. Nketsiah 125,400 0.03

Mr. C.A. Bonsu 120,000 0.03

Mr.O. Asafo-Adjei 120,000 0.03

GNI/GGFC-Prime Equity 112,200 0.03

United Smart Provident Fund Scheme 102,654 0.03

Reported totals 383,258,020 98.68

Not reported 5,071,989 1.32

Grand totals 388,330,009 100.00



BRANCHNETWORK



HEAD OFFICE “EBANKESE”#35, Sixth Avenue, North RidgeP.O. Box CT4603, Cantonments, AccraTel: +233-302-242090-4Fax: +233-302-242095Website: www.hfcbank.com.ghEmail: [email protected]

ABOSSEY OKAI BRANCHCrystal Plaza BuildingOpposite Presby. ChurchMain Spare Parts LaneAbossey Okai, Accra Tel: +233 302 673181 / 673475Fax: +233 302 671918Email: [email protected]

ACCRA CENTRAL BRANCH31-33 Kwame Nkrumah AvenueSIC Building, Okaishie, AccraTel: +233 302 683756-9Fax: +233 302 683761Email: [email protected]

ACHIMOTA BRANCH# 09-121, Near Neoplan StationOff Nsawam Road, AchimotaTel: +233 54 114491-2Email: [email protected]

ADABRAKA BRANCH#C89/2 Bonsu Brothers BuildingKwame Nkrumah AvenueAdabraka, AccraTel: +233 302-251330/2Fax: +233 302-251406Email: [email protected]

ADUM BRANCH#OTB 571 Asomfo RoadAdum Roundabout, AdumPrivate Mail Bag, G.P.O, KumasiTel: +233 3220 49430-5Fax: +233 3220-49436Email: [email protected]

AGONA SWEDRU BRANCHNear Texaco, Agona SwedruTel: +233 3320 20172/3Fax: +233 3320 20174Email: [email protected]

ASAMANKESE BRANCHPlot No. 5, AsamankeseTel: +233 28 966922 / 28 9669316Fax: +233 57 7900016Email: [email protected]

ASHAIMAN BRANCHOpposite Ashaiman Govt. SchoolNight Market Road, AshaimanTel: +233 303 307785 / 301475 / 301468Fax: +233 303 301419Email: [email protected]

ASANKRAGUA BRANCHOpp. Takoradi/Kumasi Lorry StationAsankragua P. O. Box 57, AsankraguaTel: +233 312 093999 / 0544 341305 / 0577 650944-5Email: [email protected]

ASOKWA BRANCHThe Ark (Plot 1 Block C)Asokwa Industrial Area, KumasiP. O. Box 11226, Adum-KumasiTel: +233 303 931537-8 / 0540 114489/90Email: [email protected]

ASEMPANEYE BRANCHMain Street Opposite PBC Ltd DepotAsempaneyeTel: +233 57 765 5389Email: [email protected]

ADABOKROM BRANCHMain Street, Opposite Dormaman ClinicAdabokromTel: +233 544341204/ 0244 330906Email: [email protected]

ADJIRINGANO BRANCHNo. 9/90 Block 23Baby Jet Heights BuildingEast Adjiringano

BAATSONA BRANCH#47 Nungua Link RoadBaatsona – Spintex Road AccraTel. +233 302 816600-9Fax. +233 302 816602Email. [email protected]

BOLGATANGA BRANCH#A4, 3B Kotokoli LineOff Bawku RoadP. O. Box BG 401, BolgatangaTel: +233 242 700865-8Email: [email protected]

CAPE COAST BRANCHMancell Place 110/1 TantriAdjacent Accra Lorry Station, Cape CoastTel: +233 3321 36441-2Fax: +233 3321 36440Email: [email protected] DANSOMAN BRANCHPlot 1A, High Street,Dansoman EstatesTel: +233 302 320837-8 / 0289 559310Fax: +233 302 320831Email: [email protected]

EBANKESE BRANCH#35, Sixth Avenue, North RidgeP.O. Box CT4603, Cantonments, AccraTel: +233 302 242090-4Fax: +233 302 242095Email: [email protected]

ESSAM BRANCHNear Essam Post OfficeOff Debiso-Oseikojokrom Main RoadP. O. Box 99, Sefwi EssamTel: +233 244 339226 / 0544 341204Email: [email protected]

GOASO BRANCHNana Sei Building,Goaso RoundaboutTel: +233 303 931535-6Fax: + 233 577 986086Email: [email protected]

JUABOSO BRANCHH/No. J19, JuabosoP.O. Box JB 12, Ecomog Residential AreaTel: +233 244 341413 / 0544 341203Email: [email protected]

KASOA BRANCHP. O. Box OK 28KasoaTel: +233 302 862696-9Fax: +233 302 862723Email: [email protected]

KASOA AGENCYYOO MART P.O. BOX OK 28 Kasoa Tel: +233Email. [email protected]

KNUST BRANCHCommercial AreaJubilee Mall KNUST Campus Tel: +233 3220 64243/64241-2Fax: +233 3220 64244Email: [email protected]

KUMASI MAIN BRANCHAsokwa Railway Taxi RankOpp. Former Unicorn HouseP.O.Box 1226, AdumTel: +233 3220 49430-4Fax: +233 3220 49436Email: [email protected]

KUMASI MAGAZINE BRANCHPlot No. XVIIIMattias JunctionSuame RoundaboutTel: +233 322 046033/043037Fax: +233 322 046218Email: [email protected]

KOFORIDUA BRANCH Antartic Plaza Central Market, Koforidua Tel: +233 3420 26840-1 Fax: +233 3420 26842Email: [email protected]

NETWORK OF HFC BANK BRANCHES



LEGON BRANCH The UG-Credit Union Building Noguchi RoadUniversity of Ghana, LegonTel: +233 302 519154-6Fax: +233 302 519153Email: [email protected]

MADINA BRANCH# M1224/3Post Office Road, MadinaTel: +233 289 669320Fax: +233 302 240565Email: [email protected]

NEW TOWN BRANCH# 1509 Opposite House Party ComputersAccra New TownTel: +233 302 240520 / 240596 / 0289 669319Fax: +233 302 240565Email: [email protected]

POST OFFICE SQUARE BRANCHPermasu Building Asafoatse Nettey Street, AccraTel: +233 302 684112-5Fax: +233 302 684161Email: [email protected]

PRIVATE BANKING‘Adeshie Place’ No. F/235/6Josiah Tongogari Street, Labone, AccraTel: +233 302 767191 – 2Fax: +233 302 767164Email: [email protected]

RIDGE BRANCH6 Sixth Avenue Ridge Ambassadorial EnclaveWest Ridge, AccraTel: +233 302 683891-3/683895-9, 683900Fax: +233 302 683901Email: [email protected]

SEFWI BEKWAI BRANCHMarket Square, Sefwi BekwaiP. O. Box 15, Sefwi BekwaiTel: +233 577 650957Email: [email protected]

SEFWI WIAWSO BRANCHNear Dwenase MarketP. O. Box 189, Sefwi WiawsoTel: +233 577650961Email: [email protected]

SEFWI AKONTOMBRA BRANCH C/o Sefwi Wiawso BranchP. O. BOX 189, WIAWSO.Tel: +233 54 010 4245

TAKORADI BRANCHNo.3 /1 Kitson Avenue RoadOld GNTC Building, Market CircleTel: +233 3120 26247 / 26192/ 26231Fax: +233 3120 26209Email: [email protected]

TAMALE BRANCHNo. 8 Daboya StreetOld Market, TamaleP.O. Box TL 718, Tamale Tel: +233 3720 25558/ 25220Fax: +233 3720 24699Email: [email protected]

TECHIMAN (JUBILEE) BRANCHPlot 415 AbanimTechiman-Tamale Main RoadP.O. Box TM 515, Techiman Tel: +233 3525 22411-2 Fax: +233 3525 22414Email: [email protected]

TEMA BRANCHAsafoatse Kotei Offices and Commercial ComplexPrivate Mail BagCommunity One, Tema.Tel: +233 303 201432/ 201423/208385-6Fax: +233 303 200362Email: [email protected] COMMUNITY 25 BRANCHCommunity 25 MallNear Devtraco Junction, TemaTel: + 233 540 108896-8Email: [email protected]

TUDU BRANCHDarkmak House, Kojo Thompson RoadAccra Tel: +233 302 666203, 675114Fax: +233 302 664106Email: [email protected]

UNIVERSITY OF GHANA BRANCHUG Banking SquareUniversity of Ghana, LegonTel. +233 302 519154-6Fax. +233 302 670816Email. [email protected]

WINNEBA BRANCHKojo Beedu Street Near Winneba SHS JunctionPrivate Mail Bag, WinnebaTel: +233 3323 20578Fax: +233 3323 20579Email: [email protected]

NETWORK OF HFC BANK BRANCHES



DRAFT RESOLUTIONS

I AS ORDINARY RESOLUTIONS

1. That the Financial Statements of HFC Bank (Ghana) Limited and its Subsidiaries for the financial year ended 31st December 2017 together with the Auditors’ Report thereon be received and adopted.

2. That the Directors’ Report for the year ended 31st December 2017 be received and adopted.

3. That the appointment by the Directors of Mr. Anthony Jordan as a Managing Director of the Company pursuant to Regulation 62 of the Company’s Regulations and Sections 181 (3) and 193 (a) of the Companies Act, 1963 (Act 179) (the “Companies Act”) be and is hereby ratified in accordance with Section 137 (5) (c) of the Companies Act, subject to regulatory approval.

4. That Mr. Ebenezer Tetteh Tagoe be and is hereby re-elected as a Director of the Company under Regulation 64 of the Company’s Regulations and Section 298 (e) of the Companies Act.

5. That Mr. Paul King Aryene be and is hereby re-elected as a Director of the Company under Regulation 64 of the Company’s Regulations and Section 298 (e) of the Companies Act.

6. Raising of Capital:-

(1) That the Directors of the Company be and are hereby generally and unconditionally authorised to increase the Company’s Stated Capital by up to Two Hundred and Fifty-Five Million Ghana Cedis (GHS 255,000,000) by a renounceable rights issue and to exercise all the powers of the Company pursuant to Section 202 (1) of the Companies Act, 1963 (Act 179) to offer, issue and allot to registered members of the Company, in proportion as nearly as may be practicable to their respective holdings in the issued shares of the Company, such number of ordinary shares as may be required to increase the Company’s Stated Capital by up to Two Hundred and Fifty-Five Million Ghana Cedis (GHS 255,000,000) (“the Rights Issue”).

(2) That the Directors of the Company be and are hereby authorised, subject to all applicable laws and regulatory requirements, to determine the terms, timing and pricing of any such offer, option, allotment or issue and to offer, issue, allot, and/or deal with all such shares as are not subscribed to by the registered members of the Company in the Rights Issue at such times, on such terms and for such prices as the Directors shall determine.

7. That KPMG be and is hereby appointed as Auditors of the Company pursuant to Section 134 (4) of the Companies Act and subject to regulatory approval.

8. That the Directors be and are hereby authorized to fix the remuneration of the Company’s Auditors for the Financial Year 2018.

II AS SPECIAL RESOLUTION

To amend the Company’s Regulations by Special Resolution in the following manner:-

9. That Regulation 55 be deleted in its entirety and replaced with the following as a new Regulation 55:-

55) Meetings shall be conducted in accordance with sections 166 to 173 of the Code. On a poll being validly demanded the Chairman of the meeting shall direct such poll in accordance with Section 170 of the Code;



PROXY

I/We___________________________________________________________________________________ of ______

_________________________________________________________________ being members of HFC BANK (GHANA)

LIMITED hereby appoint _____________________________________________ or failing him, MR. CHARLES ZWENNES, Chairman of HFC Bank (Ghana) Limited, P.O. Box CT4603, Cantonments, Accra, as my/our proxy to vote for me/us on my/our behalf at the Extraordinary General Meeting of the Company to be held at Accra City Hotel, Barnes Road, Accra at eleven o’clock (11:00am) in the forenoon oon the 26th day of April 2018 and at any adjournment thereof.

Please indicate with a tick in the space below how you wish your votes to be cast

RESOLUTIONS FOR AGAINST ABSTAIN

1. To consider and approve the Financial Statements of HFC Bank (Ghana) Limited & Auditors Report thereon.

1.

2. To receive and adopt the Directors’ Report. 2.

3. To ratify the appointment of Mr. Anthony Jordan as Managing Director. 3.

4. To re-elect Mr. Ebenezer Tetteh Tagoe as a Director. 4.

5. To re-elect Mr. Paul King Aryene as a Director. 5.

6. (1) To undertake a renounceable rights issue, to offer, issue and allot shares.

6 (1).

(2) To determine terms of the issue and deal with unsubscribed shares.

6 (2).

7. To appoint KPMG as Auditors. 7.

8. To authorise Directors to fix the Auditors’ fees. 8.

SPECIAL RESOLUTIONS

9. To amend the Regulations – Regulation 55. 9.

Or any other business transacted at the meeting and otherwise instructed in the paragraphs above, the proxy will vote as he/she thinks fit.

This ___ day of __________________________ 2018 Signed ____________________________________

THIS FORM SHOULD NOT BE COMPLETED AND SENT TO THE SECRETARY IF THE SENDER WILL BE ATTENDING THE MEETING

1. Provision has been made on the form for MR. CHARLES ZWENNES, the Chairman of the Meeting, to act as your Proxy but if you so wish, you may insert in the blank space the name of any person whether a member of the Company or not who will attend the Meeting and vote on your behalf instead of the Chairman.

2. In the case of joint holder, each holder must sign. In case of a company, the Proxy Form must be signed by a Director or its Common Seal appended.

If you intend to sign a Proxy, please sign the above Proxy Form and post/submit it to reach the Secretary, HFC Bank (Ghana) Limited, Ebankese, P.O. Box CT4603, Cantonments, Accra, Ghana or via email to [email protected] at any time prior to the commencement of the meeting in accordance with the Company’s Regulations.

THIRD FOLD HERE

BEFORE POSTING THE ABOVE FORM, TEAR OFF AND RETAIN THE PART BELOW

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