2017 Annual Report 3 Notice of Annual General Meeting

ANNUAL REPORT 2017 Your success is the “measure of our success. ” ”

Mr. John Awuah (Chief Executive O cer, UMB) It’s been 45 years of growth and excellence For decades UMB has been the nancial bedrock of the corporate and private sector, supporting businesses, training banking professionals and enabling dreams. Our 45th anniversary isn’t just a celebration of our past achievements, but also the beginning of greater things to come.

Website: www.myumbbank.com MTN: 0800-100880 Airtel & Vodafone: 0800-10088 Other Lines: 0302-633988 Table of Contents

Notice of Annual General Meeting 4

Financial Highlights 5

Corporate Information 6

Corporate Profile 7

Report from Directors 8-9

Corporate Governance 10-12

Board of Directors 14-20

Management 22-25

Report from the Chairman 26-28

Report from the Chief Executive Officer 30-32

Statement by the Chief Operating Officer 34

Statement by the Chief Finance Officer 35

Year in Review 37-42

Independent Auditor’s Report 44-46

Financial Statements 48-53

Notes to the Financial Statements 54-106

UNIVERSAL MERCHANT BANK | 2017 Annual Report 3 Notice of Annual General Meeting

NOTICE IS HEREBY GIVEN that, the 44th Annual General Meeting of Universal Merchant Bank Limited will be held in the Stafford Conference Room of the Kempinski Hotel, Gold Coast City Accra, on, Wednesday 25th July, 2018 at 12.30 p.m. to transact the following businesses:

Agenda:

Ordinary Business 1. Receive the Chairman’s Statement. 2. Receive and consider the reports of the Directors and Auditors, and the Financial Statements of the Company for the year ended 31st December, 2017. 3. Confirmation/election of Directors in place of those retiring. 4. Confirmation/election of continuing Directors. 5. Declaration of dividend. 6. Approval of Directors remuneration. 7. Authorisation of Directors to determine/fix the fees of the auditors for the 2018 audit.

Special Business 8. Adoption of new Regulations for the Bank by consolidating in one document, amendments as detailed in the special resolution proposed to be passed.

Dated at Accra this 8th day of February, 2018. By Order of the Board,

Signed BRENDA SEMEVO AFARI (MRS.) COMPANY SECRETARY

Notes: 1. A Member entitled to attend and vote at the Annual General Meeting may appoint a Proxy to attend and vote on its' behalf. Such a Proxy need not be a Member of the Bank.

2. A copy of the instrument appointing a Proxy may be deposited at the registered office of the Bank, located at SSNIT Emporium, Airport City, Liberation Road, Accra, at any time prior to the commencement of the meeting in accordance with Regulation 55(3) of the Regulations of the Bank.

4 UNIVERSAL MERCHANT BANK | 2017 Annual Report Financial Highlights

2017 2016 GH¢ ‘000 GH¢ ‘000 At 31 December Total assets 2,985,505 2,789,941 Loans and advances to customers 730,961 752,906 Deposits from customers 1,948,855 1,406,009 Shareholders' fund 212,318 164,627

For the year ended 31 December Profit before tax 68,656 27,387 Profit after tax 47,639 20,444 Dividend per share (Ghana pesewas): Earnings per share (Ghana pesewas): - Basic 8 3 Diluted 8 3

Return on equity (%) 0.224 0.124 Return on assets (%) 0.0160 0.0073

At 31 December Number of staff 516 466 Number of branches 35 32 Number of ATMs 66 55

All amounts disclosed are those of the Bank

UNIVERSAL MERCHANT BANK | 2017 Annual Report 5 Corporate Information

DIRECTORS Mr. Ras Boateng Board Chairman (appointed 31/12/2017.) Mr. John Awuah Chief Executive Officer Mr. Menson Torkornoo Non Executive Director Mr. Mawuli Hedo Non Executive Director Mr. William Ofei Quartey Non Executive Director (resigned 31/05/2017) Dr. Alhassan Iddrisu Non Executive Director (resigned 31/05/2017) Mr. Joseph Tackie Non Executive Director Mr. Ken Tshribi Non Executive Director Dr. William Mensah Non Executive Director (appointed 01/06/2017) Dr. Kwame Ampofo Kusi Non Executive Director (appointed 01/06/2017) Mrs. Elizabeth Zormelo Non Executive Director (immediate past Board Chairperson, resigned 31/12/2017) Mr. Kwame Adjei-Adjivonh Executive Mr. Benjamin Amenumey Executive

SECRETARY Mrs. Brenda Semevo Afari SSNIT Emporium Liberation Road, Airport City P.O.Box GP 401 Accra

AUDITOR KPMG Chartered Accountants 13 Yiyiwa Drive, Abelenkpe P.O. Box GP 242 Accra

REGISTERED OFFICE SSNIT Emporium Liberation Road, Airport City P.O.Box GP 401 Accra

6 UNIVERSAL MERCHANT BANK | 2017 Annual Report Corporate Profile

Corporate Headquarters: SSNIT Emporium Building, Liberation Road, Airport City, Accra-Ghana Postal Address: P. O. Box GP 401, Accra, Ghana Tel: 0302 666 331 Toll-Free Lines: MTN 0800 -100880; Airtel and Vodafone 0800 -10088; Other Lines 0302633988 Email: [email protected] Website: www.myumbbank.com Facebook: www.facebook.com/myumbbank Twitter: www.twitter.com/myumbbank LinkedIn: www.linkedin.com/company/universal-merchant-bank

Universal Merchant Bank (UMB) is a full-service financial institution specializing in customized banking products and services. Opened on March 15, 1972, UMB is a leading Ghanaian indigenous bank with considerable financial expertise. Through our Corporate, Business, Private, Personal and Internet Banking departments we are able to adequately address the financial needs of various segments of the market. Furthermore, our Trade, Treasury and Credit departments complement our broad range of financial services with their unique and innovative banking products. Additionally, with 36 branches across Ghana, 3 UMB Centre for Businesses in Madina, Kumasi and Accra and a vast ATM network, UMB makes banking easy and accessible. Mission To lead, create and professionally provide a wide range of innovative and superior banking services that guarantee returns exceeding stakeholders’ expectations. Vision UMB aspires to be positioned as a leading Ghanaian Bank and a leader in innovative banking solutions by 2020. Core Values Speed Passion Excellence Ethics Diligence

Board of Directors Board Chairman, Mr. Ras Boateng (appointed 31/12/2017) Mr. John Awuah Mr. Benjamin Amenumey Mr. Kwame Adjei-Adjivonh Mr. Mawuli Hedo Dr. Kwame Ampofo Kusi (appointed 1/06/2017) Dr. William Mensah (appointed 1/06/2017) Mr. Joseph Tackie Mr. Menson Torkornoo Mr. Ken Tshribi Company Secretary, Mrs. Brenda Semevo Afari Mrs. Elizabeth Zormelo (immediate past Board Chairperson, resigned 31/12/2017) Mr. William Ofei-Quartey (resigned 31/05/2017) Dr. Alhassan Iddrisu (resigned 31/05/2017) UNIVERSAL MERCHANT BANK | 2017 Annual Report 7 Report of the Directors

The Directors present their report and the financial statements Parent Company of Universal Merchant Bank (“the Bank”) for the year ended 31 December 2017. The Bank is a subsidiary of Fortiz Private Equity Fund limited, a company incorporated in Ghana. Directors’ Responsibility Statement Subsidiaries and Associates The Directors are responsible for the preparation of financial statements that give a true and fair view of Universal Merchant Merban Properties Limited is wholly owned by the Bank and Bank Limited, comprising the statement of financial position at 31 remained its subsidiary at the reporting date. This company has, December 2017, and the statements of comprehensive income, however, been dormant for a number of years. changes in equity and cash flows for the year then ended, and the notes to the financial statements which include a summary The Bank has 25% interest in the following Companies which of significant accounting policies and other explanatory notes, made them its associates at the reporting date in accordance with International Financial Reporting Standards and in the manner required by the Companies Act, 1963 (Act 179) and the Banks and Specialised Deposit Taking Institutions Act, • UMB Investment Holdings Limited (UMBIHL) 2016 (Act 930). In addition, the Directors are responsible for the • UMB Stockbrokers Limited (UMBSL) preparation of the Directors’ report. • Strategic Debt Solutions Limited (SDSL) originally Merban Asset Recovery Trust (MART) The Directors are also responsible for such internal controls as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and for maintaining adequate Directors’ Interest accounting records and an effective system of risk management. None of the Directors had any interest in the shares of the Bank at the reporting date. The Directors have made an assessment of the ability of the None of the Directors had a material interest in any contract of company to continue as a going concern and have no reason to significance except a contract of service in the normal course of believe that the business will not be a going concern in the year business with Executive Directors. ahead.

The Auditor is responsible for reporting on whether the financial Auditors statements give a true and fair view in accordance with the The Directors recommend that KPMG continue in office, in applicable financial reporting framework and relevant laws. accordance with Section 134(5) of the Companies Act, 1963 (Act

179). This recommendation is subject to the approval of the shareholders at the next annual general meeting. Principal Activities The Bank has a universal license which entitles it to undertake the business of banking. There was no change in the nature of the Bank’s business during the year.

8 UNIVERSAL MERCHANT BANK | 2017 Annual Report Financial Results The Bank’s results for the year are summarised as follows: 2017 2016 GH¢ ‘000 GH¢ ‘000

Total Revenue 287,309 196,334 Profit Before Tax 68,656 27,387 from which is added/(deducted): Share of Associate’s (loss)/profit (151) 87 Tax expense (20,866) (7,030) Resulting in profit after tax of 47,639 20,444

Add or deduct: deduction of deficit brought forward from the previous year of (127,702) (108,820)

Resulting in a total deficit on the income surplus account of (80,063) (88,376) less transfers to credit risk reserve of (5,208) (28,942) less transfers to statutory reserve fund of (23,819) (10,384) leaving a net deficit on the income surplus account of (109,090) (127,702)

In accordance with section 34 of the Banks and Specialised Deposit Taking Institutions Act, 2016 (Act 930), an amount of Approval of the Financial Statements GH¢ 23.8m was transferred to the statutory reserve fund from net profit for the year in 2017 (2016: GH¢10.4m). The financial statements were approved by the Board of Directors on March 27, 2018. and signed on their behalf by: Dividend

The Directors cannot declare dividend whiles there remain a deficit on the income surplus account. The Directors confirm that to the best of their knowledge:

• the financial statements which have been prepared in accordance with applicable laws and the Bank’s financial reporting framework, give a true and fair view of the Bank’s John Awuah Ras Boateng financial position, performance and cash flows and the state Chief Executive Officer Board Chairman of the Bank’s affairs is satisfactory.

UNIVERSAL MERCHANT BANK | 2017 Annual Report 9 Corporate Governance

The Directors of the Bank respect and are committed to the Responsibilities principles of good corporate governance. To ensure effective control and monitoring of the Bank’s business, the Board The responsibilities of the Audit and Compliance Committee are currently has four (4) committees namely: Credit Committee, as follows: Audit & Compliance Committee, Enterprise Risk Management Committee and Strategy Committee . The responsibilities of the • approve the Internal Audit plan for the year. relevant committees are set out below: • propose to the Board of Directors the appointment of independent External Auditors and make recommendations for their fees. The Credit Committee • evaluate the effectiveness of Internal Control Systems and The Credit committee improve the credit delivery process at analyse periodic information on such systems. Board level and ensure effective credit governance is in place, • review procurement policies and practices for the Bank’s own expenditures. Responsibilities • evaluate the results of work performed by the External The responsibilities of the Credit Committee are as follows: Auditors • approve loans whose value is more than US$ 2,500,000 or • examine the process of preparation of annual and interim its equivalent but less than or equal to US$ 5,000,000 or its financial statements on the basis of reports provided by those equivalent. responsible for the related function at least once a year. • review of loan portfolio on quarterly basis. • evaluate potential findings arising from the Bank’s Internal • make recommendations to the Board on all credit policy and Audit function or from other third parties’ examine and/or delivery matters. investigate, in particular the inspection reports from the Bank of Ghana (BOG). Membership • evaluate the adequacy and effectiveness of the Bank’s procedures and systems for ensuring compliance with • Three (3) or more Non Executive Directors as determined by legal and regulatory requirements and internal policies. the Board and the Chief Executive Officer. • oversee procedures and internal controls consistent with the • Chief Operating Officer, Head of Corporate Banking and/or Bank’s corporate governance structure, including evaluating Head of Retail, Head of Enterprise Risk are to be in attendance the work plans prepared by the Bank’s Compliance and Anti of meetings. Money Laundering Functions. • The Board of Directors however have the overall responsibility • meet at least twice in a year with the External Auditor for credit policy and management of the Bank. The Board of to approve their audit plan and receive their final report Directors remain the ultimate credit approval level in the Bank respectively. and have the responsibility to review and approve the Bank’s • maintain effective working relationships with the Board credit policy manual of Directors, management and the Internal and External • review and monitor quality of loan portfolio Auditors. • review exposure policy and other indicators. • approve all loans below US$ 5,000,000 or its equivalent. Membership • approve all related party transactions i.e. the Bank’s • The Audit and Compliance Committee is composed of three transactions with Directors and their spouses, children and (3) or more Non Executive Directors as determined by the family members, shareholders and key management staff. Board. • approve loans to Politically Exposed Persons (PEP) • The Chairman of the Audit and Compliance Committee will be selected by the Board of Directors from the members of The Audit and Compliance the Audit and Compliance Committee. • The Company Secretary of the Bank shall be the Secretary to Committee the Audit and Compliance Committee. The Audit and Compliance Committee supervises and monitors Members of the Audit and Compliance Committee shall avoid all audit and compliance matters. It provides direct supervision placing themselves in any position of real or apparent conflict over the Bank’s operations. of interest, and in any such case shall notify the Chairman of the Committee (or the Committee as a whole, in the case when such member is the Chairman) and excuse themselves from participating in discussions or voting on such issues.

10 UNIVERSAL MERCHANT BANK | 2017 Annual Report The Enterprise Risk Management Responsibilities

Committee The Committee shall: • ensure that there are processes in place for the development The Enterpise Risk Committee is appointed by the Board of Di- of an annual operating budget. rectors to assist the Board in fulfilling its oversight responsibilities • review and recommend to the Board financial assumptions in respect of: used to develop operating budget and the strategic plan. • The risks inherent in the business of the Bank and the control processes with respect to such risks. • review and recommend to the Board annual operating plan and budget. • The risk profile of the Bank. • review the quarterly financial performance of the Bank and • The risk management activities of the Bank. compare actual performance against budget. • Information Technology governance and its operations in the • review and recommend to the Board plans developed by Bank. management to address variances between budget and actual performance, revenues and forecasts. Responsibilities • monitor implementation of plans to address variances and report to the Board. The Risk Committee shall: • review and monitor the Bank’s long term capital expenditure • review the risk appetite of the Bank on the basis of the analysis plan. from the Head/Enterprise Risk and formulate appropriate • ensure there are processes in place to manage the assets of policies for its implementation. the Bank effectively and efficiently. • approve the credit rating system used by the Bank and • review and make recommendations concerning material the basic policies for asset and liability management as asset acquisitions (software and hardware) that are or were developed by the Assets and Liabilities Committee (ALCO). not contemplated in the annual operating plan. • review significant financial and other risk exposures and the • review and provide recommendations to the Board. steps management has taken to monitor, control and report • review and make recommendations to the Board concerning such exposures, including, without limitation, review of credit, market, liquidity, reputation, operational, fraud and financial and banking transactions. strategic risks and evaluate risk exposure and tolerance and • consider the proposed strategic plan and its contents and approve appropriate transaction or trading limits. recommendations before it is submitted to the Board for • review the scope of the work of the risk department and approval. their planned activities with respect to the risk management • after approval of the strategy, monitors the Bank’s activities of the Bank. performance vis a vis the strategy. • review reports and significant findings identified by the risk • receive reports from management, as required by the Board, department with respect to the risk management activities of on any new and significant emerging threats which may the Bank, together with management’s responses and follow impact the Bank’s operations with a view to ensuring, where up to these reports. possible, that the Bank takes appropriate action to address • review significant reports from regulatory agencies relating to those threats. risk issues and management responses • receive reports from management on corporate performance • review the activities of the internal Information Technology with a view to ensuring that the Bank delivers its mandate in a governance framework and/or CORBIT and its operations in consistent, effective and efficient manner. the Bank. • provide oversight of, and advise management on, any • attend to any matters referred to it by the Board and its other material change to the major element of its business as the Sub Committees. Committee deems necessary. • review and re assess the adequacy of these terms of reference • monitor the financial performance and the forecasts in the periodically and recommend changes to the Board when strategy and necessary. • provide oversight, advise or make recommendations in accordance with the committee’s legislated mandate, with regard to any other issues that may arise requiring strategic Membership consideration. • review recruitment and selection policy, procedures and The Risk Committee shall be comprised of three (3) or more integrity of same. Non Executive Directors as determined by the Board and the Chief Executive Officer. Risk Committee members, including a • ensure selection in both execution and result/impact propels Chairman, shall be appointed by the Board of Directors. the vision and strategy of the Bank. • ensure the Bank is fully compliant with all relevant aspects of the Labour Law. The Strategy Committee • ensure placement and orientation policies are in place. The Committee shall oversee, review, develop, recommend and • ensure performance management systems are in place to report to the Board on issues related to the analysis of the finan- provide adequate guidance for employee task behaviours, cial performance and capital management of the Bank. brand behaviours and values demonstration and thus build

UNIVERSAL MERCHANT BANK | 2017 Annual Report 11 a performance culture that facilitates/feeds into appropriate The Committee will, in accordance with the Bank’s approved people management. Strategic Plan for the year, consider management’s proposals, • ensure policies regarding training and development are in provide oversight and advice to management and provide place to facilitate sound competencies and succession across recommendations to the Board on matters relating to the all the Bank’s operations. Bank’s future direction which may include performing the • review and ensure sound compensation policy and benefits following duties and responsibilities: regime that takes account of affordability, market trends, staff and company performance in a manner that enables the Membership Bank to attract and retain best performers. The Committee shall be comprised of three non executive • provide for sound termination and exit policy and Directors, the majority of whom should have experience in arrangements. financial matters. • provide general guidance to the Board and also to management on all human resource issues. The Board Committees met regularly and submitted appropriate • be the initial point of review for all Human Resource related reports to the Board to facilitate its decisions. appeals and petitions and guide the Board on all possible appellate matters. • recommend to the Board for approval Human Resource Board Meeting and Attendance plans, establishment and training and development strategy for the year. Board meetings are held once every quarter. There were two Emergency Board meetings (06/04/2017 & 29/12/2017) in 2017. • recommend to the Board for approval all Human Resource Below are the attendance of the Bard meetings held in 2017. and Organizational structure issues and attend to any matters referred to it by the Board and its other Sub Committees.

Directors 25/01/2017 29/03/2017 06/04/2017 26/07/2017 25/10/2017 29/12/2017 1 Elizabeth Zormelo      X 2 Ras Boateng  X    X 3 Mawuli Hedo       4 Menson Torkornoo       5 Joseph Tackie       6 Ken Tshribi       7 Alhassan Iddrisu  X X R R R 8 William Ofei Quartey    R R R 9 William Mensah X X X    10 Kwame Ampofo Kusi X X X    11 Kwame Adjei Adjivonh       12 Benjamin Amenumey   X    13 John Awuah (C.E.O, UMB)      X

Legend  Attended x Apologies R Resigned

Systems Of Internal Control Anti Money Laundering

The Bank generally has effective systems of internal controls UMB maintained its focus on assessing, identifying and through which risks are identified, managed and monitored. mitigating money laundering risks. The assessment included the These controls are designed to provide reasonable assurance of annual review of the Bank’s branches, products and customers the appropriateness of controls to adequately address risks faced to guarantee that the necessary mechanisms are in place to by the Bank. mitigate emerging risks. The Bank continues to comply with the requirements of the Anti Money Laundering Act, Bank of Ghana The corporate internal audit and compliance function of the Bank guidelines on Anti Money Laundering and the Financial Task plays a key role in providing an objective view and continuing Force recommendations. assessment of the effectiveness of the internal control systems. The systems of internal control are implemented and monitored by appropriately trained personnel with clearly defined duties and reporting lines.

12 UNIVERSAL MERCHANT BANK | 2017 Annual Report The dynamic nature of UMB constantly challenges me “ to grow. ” ”

Mr. Je rey Odame Yeboah (Head of Personal Banking, UMB) It’s been 45 years of nurturing bright futures For decades UMB has been the nancial bedrock of the corporate and private sector, supporting businesses, training banking professionals and enabling dreams. Our 45th anniversary isn’t just a celebration of our past achievements, but also the beginning of greater things to come.

Website: www.myumbbank.com MTN: 0800-100880 Airtel & Vodafone: 0800-10088 Other Lines: 0302-633988 Board of Directors

MR. RAS BOATENG Board Chairman Mr. Ras A. Boateng, CFA is a top level professional with over twenty years of broad management experience in Insurance, Fund Management and Investment Banking. Until May 2010, Ras was the Chief Executive Officer of the National Health Insurance Authority (NHIA) where he served as the key architect and builder of Africa’s first successful social health insurance program. Prior to joining the NHIA, Ras had held other executive positions such as Deputy Director General (SSNIT -Ghana), Vice President and Director of Investments (Hanover Investments, Inc – USA), Vice President, Debt Capital Markets (Paine Webber Inc., USA), Actuarial Associate, Group Pension & Employee Benefit Services (Connecticut General life Insurance Company---CIGNA, USA). Ras was educated at the Massachusetts Institute of Technology – MIT, where he earned an (MSc. Management with concentration in Finance and Applied Economics); (BSc. Industrial Engineering & Applied Mathematics); University of Illinois – Urbana Champaign (Post Graduate Certificate, Investment Analysis and Portfolio Management). Ras was the first Ghanaian awarded the CFA Charter, he significantly influenced the selection of Accra as the sole CFA examination centre for West Africa and served on the CFA examination board as a grader of CFA professional examinations from 1997 until 2008. He co-chaired the National Bond Market Development Committee whose work culminated in recommendations to the Ghanaian government for sovereign credit rating, a global bond issue and a central securities depository (CSD) of the Ghana Stock Exchange. Ras serves as a Director on the Boards of Millennium Insurance Company, and Universal Merchant Bank. He is a member of the Chartered Financial Analysts Institute and a member of the Boston Securities Analysts Society. Ras is an avid reader of history, philosophy and social development.

MR. JOHN AWUAH Chief Executive Officer Prior to joining UMB, Mr. John Awuah was the Chief Finance Officer and Director of Finance of GCB Bank Limited. He joined GCB from Ecobank Capital where he was the Group Chief Finance Officer and exercised leadership over the finance functions of Ghana, Nigeria, Cote d’Ivoire, Cameroon, Kenya and Zimbabwe. He has had senior management experience with Barclays Bank of Ghana, United Bank for Africa Ghana Ltd. (UBA Ghana Ltd.) and Standard Chartered Bank Ghana Ltd. with industry exposure from Tractor & Equipment (now Mantrac Ghana) and Western Castings Ltd. in various capacities. Mr. Awuah is a known subject matter expert on financial controls and governance in Ghana and he has had many years of progressively responsible work experience in areas including Financial Control, Regulatory Reporting, Credit Control, Performance Management, Taxation, Market Risk Monitoring, Financial Accounting, Business Partnering, Business Analytics, Operational Risk and Corporate Strategy. He is a Fellow of the Association of Chartered Certified Accountants (UK) and a member of the Institute of Chartered Accountants (Ghana). He holds a Bachelor of Commerce degree from the University of Cape Coast (Ghana) with first class honors and MBA (with merit) from the Oxford Institute of International Finance – Oxford Brookes University (UK). He is the Treasurer of the Ghana Association of Bankers and he is the Board Chairman of Radiance Pharmacy. He is also a member of the Board of Directors of UMB Bank, UMB Foundation, Phoenix Life Assurance and Excel College.

14 UNIVERSAL MERCHANT BANK | 2017 Annual Report Board of Directors

MR. BENJAMIN AMENUMEY Chief Operating Officer Benjamin has been the Chief Operating Officer of UMB since the beginning of February, 2016. Benjamin brings to the role his highly specialized knowledge of Banking Operations. He has over 21 years of experience in Banking Operations, Internal Control, Treasury and Treasury Operations. He previously worked with Agricultural Development Bank and Barclays Bank Ghana Limited in various roles in Trade Services, Reconciliation, Remittances, SWIFT, Back Office Support, Treasury Operation, Operations Support for Consumer Banking, Corporate Banking, Payments, Cards Operations Unit, Cash Management Unit, and Treasury and Money markets activities, Properties and Procurement among others.

MR. KWAME ADJEI-ADJIVONH Chief Finance Officer Kwame is the Chief Finance Officer of UMB. Prior to joining UMB, Kwame had exercised leadership roles in Portfolio Management, Internal Audit, Finance, Strategic Planning and Information Technology within the Reinsurance and the Investment Banking industries. Previously, he was the Head, Treasury and Investment at Ghana Reinsurance Company Ltd (Ghana Re), the leading reinsurer in Ghana with operational footprint across Africa. Prior to that, he served as the Head, Internal Audit, and also the Senior Manager, Finance. He joined Ghana Re from CDH Financial Holdings Ltd, where he led the strategic planning and Information Technology functions. Prior to that role, he served as the Head, Finance for the group where he exercised leadership over the Finance function for the Holding company and its subsidiaries. A Chartered Accountant and a Chartered Financial Analyst with over 18 years of experience, he holds a Bachelors of Arts degree in Economics with Statistics from the University of Ghana.

UNIVERSAL MERCHANT BANK | 2017 Annual Report 15 Board of Directors

MR. MAWULI HEDO Board Member Mr. Mawuli Hedo is an Investment Banker and is currently the Chief Executive Officer of The FirstGroup Ghana Ltd. FirstGroup is a Management Consultancy Firm and a Private Equity Company with investment concentration in Media, Finance and Banking, Insurance, Real Estate, ICT among others. Prior to joining FirstGroup Ghana, Mawuli was the CEO of FirstBanC Financial Services, a leading Investment Banking Firm in Ghana. He worked with Strategic African Securities Finance Group prior to FirstBanC. He has been involved in many Corporate Finance deals on the Ghana Stock Exchange. He led the team in the marketing of the first retail bond in Ghana; the Government of Ghana’s Golden Jubilee Bonds. The Marketing of the Bonds took him to the United Kingdom, (UK), USA, Germany, and Canada where the bonds were marketed to Ghanaians in the Diaspora. In June 2008, Mawuli made a presentation to the members of Parliament at Ghana’s Parliament House to defend the need for raising local retail finance for developmental projects. Mawuli holds an MSc in Finance.

DR. KWAME AMPOFO KUSI Board Member

Dr. Kusi was appointed to the UMB Board of Directors on June 1, 2017. He was the Chief Executive Officer of uniSecurities Ghana Limited. Prior to that he was the Head of Operations at SIC Financial Services, having previously worked with SDC Finance Company Limited as the General Manager, Brokerage Services. Dr. Kusi also worked with Social Security & National Insurance Trust (SSNIT) as Corporate Planning Officer and Deputy Treasurer before joining NTHC Limited as the Head of Corporate Finance & Research. Dr. Kusi holds a PhD in Finance from UGSM-Monarch Business School, Zug-Switzerland, a MSc Banking & Finance from University of Lausanne, Switzerland, and an MBA Financial Management from South Bank University, London. He also holds a BSc. Computer Science degree from K.N.U.S.T. He served as a Board member of Bank of Ghana from 2016 to 2017. Dr. Kusi is a certified Treasury Analyst, U.K., a Fellow of the Global Academy of Finance & Management, U.K. and a certified Valuation Analyst, USA. He is married with 4 children.

16 UNIVERSAL MERCHANT BANK | 2017 Annual Report Board of Directors

DR. WILLIAM MENSAH Board Member Dr. Mensah was appointed to the UMB Board of Directors on June 1, 2017. Dr. Mensah is the Deputy Chief Executive, in charge of Finance and Administration of Ghana Cocoa Board, having held this position since 2005. He has over 37 years of working experience in the Public Sector with over 25 years in senior managerial positions. Dr. Mensah has in-depth knowledge of corporate finance, financial analysis, budgetary control, international marketing and performance management. A strong advocate of effective organisational management, business planning and strategic positioning, Dr. Mensah has considerable experience working in the public sector and with public sector and private sector clients. He has successfully concluded specialist assignments for the public sector, Government departments, state agencies and related bodies. Dr. Mensah served on the HFC Bank Board from 2012 to 2014, contributing immensely to the strategic direction of the Bank. He also serves as a member of the Tema Chemicals Ltd. board and Joy Oilfields Ltd. board. Dr. Mensah holds a Doctorate of Business Administration degree from Swiss Management Center (SMC) University (2014), and a Master of Business Administration Degree from the University of Salford (2001) in the United Kingdom. He is a member of the Institute of Chartered Accountants (Ghana)-(1990) with 27 years of post-qualification experience as a Chartered Accountant. He is a member of the Chartered Management Institute (CMI) (UK) and a member of Chartered Institute of Personnel and Development (CIPD) (UK) and also an Associate member of Certified Fraud Examiners (CFE).

MR. JOSEPH TACKIE Board Member Mr. Joseph Tackie has over 25 years of practical experience in working with the Private Sector and Small and Medium Scale Enterprises (SMEs) in Ghana and has a field based understanding of SME development and its role in enhancing livelihoods and the relevant macro-economic and international issues impinging on SME development. Mr. Tackie is currently the CEO of the National Medium-Term Private Sector Development Strategy (PSDS II) having previously served as the Coordinator of the Trade Sector Support Programme (TSSP) and the Industrial Sector Support Programme (ISSP) at the Ministry of Trade and Industry. He is the Chairman of the recently launched Ghana Commodity Exchange (GCX), member of the Board of Directors of the National Board for Small Scales Industries (NBSSI), member of the Steering Committees of the Ghana Skills and Technology Development Programme (GSTDP) and the Support to Private Sector Development Programme at the Royal Danish Embassy. As an accomplished entrepreneur Mr. Tackie is the Founder and Chief Executive Officer of Global Entrepreneurship Solutions, Meaty Foods Limited, and Co-Founder and Executive Director of Small Business Development Foundation. As a Business Consultant, Mr. Tackie had extensive engagement in consulting at O.I.M International B.V. (Cape Town, SA) in Organizational Structuring and Re-structuring, Strategic Human Resources Development, Development of Codes of Conduct and Monitoring Mechanisms, Leadership Training and Coaching amongst others. Mr. Joe Tackie has tremendous experience in corporate governance and boardroom dynamics and serves on several Boards across industries. He is an Adjunct Lecturer in Entrepreneurship Strategies at the Graduate Business School of the Central University College and has delivered several seminars and talks on Entrepreneurial Leadership and Innovation. He is a distinguished speaker at several international conferences. Mr. Tackie is a Doctoral Candidate for Business Administration and Masters in Leading Innovation and Change and holds a B.Sc. (Hons) in Agriculture and Executive MBA in Entrepreneurial Management. He is a member of Ghana Association of Consultants.

UNIVERSAL MERCHANT BANK | 2017 Annual Report 17 Board of Directors

MR. MENSON TORKORNOO Board Member Mr. Menson Torkornoo was the Managing Director and Chief Executive Officer of Amalgamated Bank Limited (now Bank of Africa, Ghana). Mr. Torkornoo was also the Deputy Managing Director prior to becoming the substantive Managing Director. He joined Amalbank in June 2006 with over 10 years of banking experience as the Head of Foreign and International Operations at the then Oceanic Bank International PLC of Nigeria. Mr. Torkornoo had a stint with Stoy Hayward, Chartered Accountants, the 7th largest Accounting Firm in London for six months in 1989. He is a Chartered Accountant (CA Ghana) and a Chartered Banker ACIB, Chartered Institute of Bankers, Nigeria (CIBN). He also holds a Post Graduate Diploma in Management Sciences and MBA in Banking and Finance both at Enugu State University of Science and Technology in Nigeria. He is also a Fellow of the Board Room Institute (FBI).

MR. KEN TSHRIBI Board Member Mr. Ken Tshribi is a seasoned Lawyer with considerable experience in the areas of corporate law, projects, banking, investments, international transactions, commercial, mining law, company secretarial as well as corporate ethics and compliance. Ken obtained his qualification as a Solicitor and Barrister-at-Law in 1984 in Ghana. He is also a Solicitor of England and Wales. Ken spent 13 years in the banking industry where he played key roles as in-house counsel advising on corporate legal matters, financial structuring and transactions, syndicated financing and investments. In 1996, Ken moved to the mining industry and played pivotal roles in the areas of cross- border transactions, projects, project finance, joint ventures, mergers and acquisitions, stock exchange issues, dispute resolution and cross-border mining rights issues. Ken was the global head of AngloGold Ashanti’s global regulatory compliance and corporate ethics based in Johannesburg, South Africa until October 2012. Ken is a member of the Society of Corporate Compliance and Ethics. He was previously involved in teaching of law and legal journal editing.

18 UNIVERSAL MERCHANT BANK | 2017 Annual Report Board of Directors

MRS. ELIZABETH ZORMELO Immediate past Board Chairperson (resigned 31/12/2017) Mrs. Zormelo is the Executive Director of Zormelo & Associates, where she has been responsible for Human Resources Management Consulting for the past seven years. Prior to this she occupied several Human Resource leadership roles in Barclays Bank both locally and at Pan African level for over nine years. She also worked as a Principal Consultant with Deloitte & Touche West Africa and with Network South East in the UK in different generalist Human Resource positions. She qualified as a lawyer in 1988 after obtaining an LLB from the University of Ghana in 1986. She also holds a MSc. Economics from UCL, University of London and a Post Graduate Diploma in Human Resources from Thames Valley University, UK.

DR. ALHASSAN IDDRISU Board Member (resigned 31/05/2017) Dr. Alhassan Iddrisu is currently the Director of the Economic Research and Forecasting Division (ERFD) of the Ministry of Finance. Prior to this position, he headed the Real Sector Division (RSD) of the Ministry from 2010 to the first quarter of 2013 after heading the then Economic Planning Division (EPD) of the Ministry from 2008 to 2010. Dr. Iddrisu, who is an economist with wide experience in economic policy and management, has played key roles in the management of the Ghanaian economy since he joined the Ministry in 1997. He has been instrumental in macroeconomic management, public financial management reforms in Ghana, in salary administration and reforms, in the preparation and implementation of the national budget, and in the management of petroleum revenues in Ghana’s nascent petroleum industry. Dr. Iddrisu serves on several boards and committees, where his vast experience and knowledge in Economics are brought to bear on national development. He has also consulted for a number of local and international organizations and provided lecturing and facilitation services in the area of economic policy and management in reputable domestic and international institutions such as the University of Ghana, the Ghana Institute of Management and Public Administration (GIMPA) in Ghana, and the West African Institute for Financial and Economic Management (WAEFEM) in Nigeria. Dr. Iddrisu holds a PhD and a Masters in International Development Studies from the National Graduate Institute for Policy Studies (GRIPS), Tokyo; a MPhil in Economics from the University of Ghana; and a BA in Economics and Statistics from the University of Ghana, Legon, Accra.

UNIVERSAL MERCHANT BANK | 2017 Annual Report 19 Board of Directors

MR. WILLIAM OFEI-QUARTEY Board Member (resigned 31/05/2017) Mr. William Ofei-Quartey is a specialized Investment Analyst with 14 years of increasing experience, exposure and responsibility. He has experience in all the sectors of the Ghanaian Economy with special knowledge and experience in the Financial Industry. He currently manages Government of Ghana Bonds held by Social Security and National Insurance Trust (SSNIT) and other Government loan facilities granted by the Trust. Mr. Ofei-Quartey holds a bachelor’s degree in Economics and a Diploma in Education from the University of Cape Coast. He also holds an MBA in Accounting & Finance from the Maastricht School of Management in The Netherlands.

MRS. BRENDA SEMEVO AFARI Company Secretary Mrs. Brenda Semevo Afari joined Universal Merchant Bank in April 2015, after seven very successful years as Chief Legal Affairs and Corporate Governance Officer at the Forum for Agricultural Research in Africa, a technical arm of the African Union Commission responsible for implementing Pillar IV of the Comprehensive African Agriculture Development Program (CAADP Pillar IV). She has considerable experience in the Ghanaian financial sector having worked with Standard Chartered Bank Ghana Limited for 4 years and for another three years with Awoonor Law Consultancy a reputable firm of Corporate and Investment Lawyers. She has supported institutions in obtaining and administering loans and / or grants from financial institutions and international development organizations including the World Bank and European Union Commission and has facilitated the efficient running of Boards across the continent. Brenda is a Lawyer with 15 years hands on experience in the general practice of law and corporate governance. Specialized areas of law include business/commercial, investment and corporate law, legal aspects of banking and finance and international non-profit organizations. Her work has taken her to over 15 countries in Africa and Europe. She holds an LLM in Banking and Finance from the London School of Economics and Political Science, an LLB from the University of Ghana and GCE O and A Levels from Achimota School. She is also in the final stage of gaining membership to the Institute of Chartered Secretaries and Administrators, London UK and is a Chevening Scholar.

20 UNIVERSAL MERCHANT BANK | 2017 Annual Report UMB saw the good in us and gave us a helping hand “when no one else did. ”

Mr. Thomas Senya (Chief Financial O cer, Micheletti) It’s been 45 years of building empires For decades UMB has been the nancial bedrock of the corporate and private sector, supporting businesses, training banking professionals and enabling dreams. Our 45th anniversary isn’t just a celebration of our past achievements, but also the beginning of greater things to come.

Website: www.myumbbank.com MTN: 0800-100880 Airtel & Vodafone: 0800-10088 Other Lines: 0302-633988 UNIVERSAL MERCHANT BANK | 2017 Annual Report 21 Management

MR. JOHN AWUAH Chief Executive Officer Prior to joining UMB, Mr. John Awuah was the Chief Finance Officer and Director of Finance of GCB Bank Limited. He joined GCB from Ecobank Capital where he was the Group Chief Finance Officer and exercised leadership over the Finance Functions of Ghana, Nigeria, Cote d’Ivoire, Cameroon, Kenya and Zimbabwe. He has had senior management experience with Barclays Bank of Ghana, United Bank for Africa Ghana Ltd. (UBA Ghana Ltd.) and Standard Chartered Bank Ghana Ltd. with industry exposure from Tractor & Equipment (now Mantrac Ghana) and Western Castings Ltd. in various capacities. Mr. Awuah is a known subject matter expert on financial controls and governance in Ghana and has had many years of progressively responsible work experience in areas including Financial Control, Regulatory Reporting, Credit Control, Performance Management, Taxation, Market Risk Monitoring, Financial Accounting, Business Partnering, Business Analytics, Operational Risk and Corporate Strategy. He is a Fellow of the Association of Chartered Certified Accountants (UK) and a member of the Institute of Chartered Accountants (Ghana). He holds a Bachelor of Commerce degree from the University of Cape Coast (Ghana) with first class honors and MBA (with merit) from the Oxford Institute of International Finance – Oxford Brookes University (UK). He is the Board Chairman of Radiance Pharmacy and also the Advisory Board Chairman of ENS Africa, Ghana. He also serves on the Boards of Phoenix Life Assurance, UMB Foundation, UMB and Excel College.

22 UNIVERSAL MERCHANT BANK | 2017 Annual Report Management

MRS. NELLY ABOTCHIE Director, Corporate Banking Nelly began her banking career with UMB in 1995. She re-joined the Bank in 2015 after working for several years at United Bank for Africa Ghana Limited. Nelly is a consummate banking professional with over 20 years of experience in corporate banking, retail banking and consumer banking. She holds a Bachelor of Arts degree in Sociology from the University of Ghana, Legon and an MBA in Marketing from the University of Ghana, Legon

MR. KEVIN CAIN Director, Consumer and Business Banking Kevin joined UMB in 2017. He is a seasoned banking professional with over 30 years of international consulting, banking and general management experience in over fifteen countries across Europe, the Middle East and Africa. He also has an enviable track record of executing successful SME and commercial banking initiatives. Prior to joining UMB, Kevin was a consultant for the East African Development Bank in Uganda. He also completed a 3 year International Finance Corporation (IFC) sponsored project in Kenya where he served as the Resident Advisor to Bank of Africa and assisted in developing their SME business in Kenya, Uganda and Tanzania. Kevin was also a member of the IFC team that carried out the diagnostic review of Fidelity Bank and Keystone Bank in Lagos, Nigeria. He was also the Head of Wholesale Banking of Doha Bank in Qatar and he is credited with setting up the very successful SME unit within Doha Bank.

UNIVERSAL MERCHANT BANK | 2017 Annual Report 23 Management

MR. KEVIN ADARKWAH Director, Treasury Kevin joined UMB from Agricultural Development Bank where he worked as a Treasurer and had oversight of the Bank’s Treasury Business. He previously worked with GFX Brokers Limited where he was Director, Institutional FX and also with Standard Chartered Bank where he rose through the ranks to Director, Head- Rates and Foreign Exchange Trading. Kevin brings to the role his highly specialized knowledge of treasury with a proven track record in revenue generation and growth, product implementation and risk management. He has over 21 years of experience in Treasury Management, Risks, Assets and Liability Management, Forex trading, cash instruments and financial market products. Kevin is a Chartered Banker and he holds an EMBA. He is also part qualified with ACCA.

MR. FELIX DATE Director, Enterprise Risk (resigned 28/2/2018) Felix joined UMB in 2015. He joined UMB from Barclays Bank Ghana Ltd, where he was until his appointment, the Head of Compliance. He has previously held the portfolio of Head of Credit Risk Control in the Global Shared Service Centre of Standard Chartered Bank (SCB), with responsibility for Ghana and 5 other West African Countries. He has also held previous roles in Coopers & Lybrand (now PricewaterhouseCoopers) and Western Telesystems Ghana Ltd (now Airtel Ghana). He has over 23 years of experience gained from working in multinational and international organizations in risk management, compliance, audit and accountancy. Felix is a Chartered Accountant, whose first degree is in Economics and Geography, from the Kwame Nkrumah University of Science and Technology. He is currently pursuing an International MBA programme with the Australian Institute of Business (AIB), Australia and he is a member of the Institute of Chartered Accountants, Ghana.

MR. ERNEST PASCAL GEMADZIE Director, Legal Ernest joined UMB in 2015 having worked with GN Bank Limited and Intercontinental Bank (now Access Bank Ghana Limited). He has over 15 years of experience as a Lawyer and over 7 years in Credit, Legal and Recovery issues. He holds a Bachelor of Law Degree (LLB) from the University of Ghana and a Barrister-At-Law Certificate (BL) from the Ghana School of Law. He also possesses a Postgraduate Diploma from the Institute of Social Studies (ISS)-The Netherlands and International Law Development Organizations, (IDLO), Italy.

24 UNIVERSAL MERCHANT BANK | 2017 Annual Report Management

MS. AKWELLEY ADOLEY BULLEY Director, Human Resource Akwelley joined UMB in 2016 from Agricultural Development Bank Ltd where she worked as Human Capital Management Executive and Executive Head, Human Resources. She has experience from Millicom Ghana Limited (Tigo) as Head of Human Resources, Holiday Inn as the Human Resources Manager and Cadbury Ghana Limited as the Human Resources Manager and the Employee Relations Manager. She holds an MA in Employment Studies and Human Resource Management and a BA (Hons) in Psychology with Linguistics. A certified coach, she is also a member of the CIPD (UK) and a certified test administrator.

MRS. GIFTY AFUA SACKEY Chief Internal Auditor Gifty joined UMB from Stanbic Bank Ghana Limited. She previously worked with Guaranty Trust Bank as the Head of Internal Control, Department for Internal Development (DFID) as the Senior Regional Auditor for West Africa; Finance and Internal Audit Departments of Societe Generale Ghana Limited and KPMG as an Audit Senior. She has over 16 years of demonstrable experience in Risk and Control Assessment, Fraud Investigations, Reporting, Training and Operational, financial and compliance related audits. She is a Fellow of the Association of Certified Chartered Accountants (FCCA), a registered member of the IIA (Institute of Internal Auditors) and holds a Bachelor of Commerce Degree.

MS. YVONNE BOTCHEY Director, Marketing and Communications Yvonne, a multilingual legal and brand management professional with over 10 years of experience in North America, Europe and Africa, joined UMB in 2014. She is the successful founder of YYB Luxury Brand Consulting, and she previously worked at Eki Orleans in London and Chloé in Paris. She holds an MBA in International Luxury Brand Management from ESSEC Business School in Paris, France, a law degree from Harvard Law School in Cambridge, Massachusetts, United States and a Bachelor of Arts degree from McGill University in Montreal, Québec, Canada.

UNIVERSAL MERCHANT BANK | 2017 Annual Report 25 Report from the Chairman

Mr. Ras Boateng Board Chairman

Distinguished shareholders, fellow Board Members, ladies and gentlemen, on behalf of the Board of Directors, I welcome you to the 44th Annual General Meeting of our bank, Universal Merchant Bank (UMB). Significant strides have been made by your bank for the year ending 31 De- cember 2017. It is thus with great delight that I present ...we are the performance review of the bank for the year under review. The deep desire to become the bank of choice optimistic about has urged UMB to attain these enviable strides, regardless the future, and of the upheavals in the financial industry. The Board and management identified opportunities with the aid of and strengthened existing structures and systems to management ensure that the goals of improved customer experience and satisfaction were achieved. Moreover, the deploy- and staff, we will ment of technological solutions was vital in helping us to achieve the impressive feat of more than doubling the work tirelessly bank’s earnings. to position the bank,...

26 UNIVERSAL MERCHANT BANK | 2017 Annual Report Operating Environment Financial review Global economic activity continued to firm up with estimated Due to the bank’s implemented strategic initiatives during 2017, global output growth of 3.7% in 2017, which was 0.1 percentage earnings before tax surged 150.7% y/y to GHS 68.7m. Ladies and point faster than projected. The pickup in growth had been broad gentlemen, I am glad to let you know that UMB’s profit after tax based, with notable upside surprises in Europe and Asia. increased 133% y/y to GHS 47.6m. The robust growth in the bot- tom line was as a result of the impressive top line performance. China's economy grew 6.9% in 2017 and this was a year that end- The total operating income grew 46.3% y/y to GHS 287.3m. Op- ed on a positive note compared to the previous year where there erating expenses increased to GHS 188.9m in 2017 from GHS was an economic slowdown. According to the African Develop- 155.1m in 2016 as the bank continued its expansion programme ment Bank, Africa’s economic outlook improved in 2017 com- and internal restructuring of systems and structures in line with pared with 2016 and is expected to gain momentum in 2018. our digitisation agenda. Total assets of the bank for 2017 increased GDP growth in 2017 is expected at 3.0% up from 2.2% in 2016 7% y/y to GHS 3bn. In spite of challenges in the economy, UMB re- and projected to expand to 3.7% in 2018, the African Develop- corded impressive growth in customer deposits which increased ment Bank stated. 38.6% y/y to GHS 1.9bn. In effect, the laudable performance of According to the Ghana Statistical Service, Ghana’s economy UMB impacted on shareholders’ fund positively as it increased expanded 8.5% y/y in 2017, up from 3.7% in 2016. The industry 29% y/y to GHS 212.3m. sector recorded the highest growth of 16.7%, compared to a contraction of 0.5% in 2016, with significant contributions stemming Dividend from the oil and gas sub-sector (80.4% y/y growth). The agricul- The Board of Directors have not recommended or declared any ture sector grew by 8.4% in 2017, up from 3% the previous year, dividend for the year under review. This is to enable us fast track driven by good performance in the fisheries sub-sector (11.7% our compliance with Bank of Ghana’s (BoG’s) directive of increas- y/y growth). Also, growth in the services sector decelerated to ing minimum regulatory stated capital to GHS 400m. We believe 4.3% from 5.7%, due to a slowdown in the Financial and Insur- this decision will pay off in the medium term. Shareholders, in our ance Activities, Information and communication and Transport view, will be the primary benefactors of a profitable and a more and Storage sub-sectors. The non-oil economy grew by 4.9% in competitive bank in the near term. 2017, which compared unfavourably with the 5% growth recorded in 2016. Regulatory Environment The inflation rate remained benign throughout 2017, ending the As mentioned earlier, the BoG announced to the market of the year with a rate of 11.8%, down by 360bp from the same period upward revision of the regulatory minimum capital from GHS in 2016. Inflation was driven by the non-food basket items due 120m to GHS 400m for both existing banks and new entrants. The to pass-through effects of the upward adjustments in petroleum deadline for full compliance of this regulatory minimum capital di- and transport prices. The monetary policy committee responded rective is 31 December 2018. According to BoG, banks will require to the downward trend of the headline inflation by reducing the a more sophisticated and robust capital framework adequate to prime rate by 550bp cumulatively to 20% by the end of the year. transform the banking sector and consistent with the growing risk On the money market, yields on short-term treasury papers de- levels of sophistication and exposure that banks are currently fac- clined sharply as the 91-day Treasury bill averaged 14% within the ing. In accordance with Section 28(1) of the Banks and Specialised period, while the 182-day also averaged 14.8%. In comparison, in Deposit Taking Institutions Act 2016 (Act 930), BoG announced 2016, the 91-day Treasury bill averaged 22%, while the 182-day the upward revision to a new level of GHS 400m in accordance also averaged 23.8%. In a similar vein, the 1-year and 2-year notes with strict guidelines. Banks will be required to meet the required also declined 655bp y/y and 510bp y/y, averaging 16.4% and minimum capital through the means listed below. 18.5% respectively. • Fresh capital injection, The cedi remained relatively stable within the period under re- • Capitalization of income surplus, or view. It was down by 4.9% against the US dollar (USD) in 2017. However, the cedi recorded sharp depreciations against the • A combination of fresh capital injection and capitalization of British pound (GBP) and the euro (EUR), going down 12.9% and income surplus. 16.2% respectively. It is, however, noteworthy to know that the Your Bank has engaged the services of Renaissance Capital, an performance of the cedi against the GBP and the EUR was more emerging and frontier markets focused investment company, to of a cross-rate effect emanating from the USD’s performance enable us ensure full compliance with BoG’s directive long before against those currencies. the regulatory deadline.

UNIVERSAL MERCHANT BANK | 2017 Annual Report 27 Corporate Governance Outlook The expectations of the Boards of banking institutions have in- When we look at where we stand today, UMB is stronger and creased post the global financial crisis, which make prudent and better positioned to deliver long term value to our shareholders; proactive corporate governance essential. UMB is committed thanks to the drive to continually innovate and simplify our pro- to the principles of good corporate governance and sound risk cesses. management, which are of fundamental importance in the banking business. The Companies Code and The Banking Act provide At the core of our strategy is the commitment to enrich the lives us with the regulatory framework for ensuring effective corporate of our customers by connecting those we serve, to the resources governance, anti-money laundering and combating the financ- and expertise they need to achieve their goals. In 2018, UMB will ing of terrorism. leave no stone unturned in digitizing the experience of our customers. Hence, the adopted theme of the bank in 2018 is “Digitiz- ing Customer Experience.” Directorship During the period under review, we had three resignations in Conclusion the persons of Mrs. Elizabeth Zormelo (Immediate past Board Chairperson), Mr. Alhassan Iddrisu and Mr. William Ofei-Quartey On the Board’s part, we are optimistic about the future, and with (Non-Executive Directors). On behalf of the Board, I want to thank the aid of management and staff, we will work tirelessly to posi- them for their relentless efforts in steering the company to prof- tion the bank to take advantage of the immense opportunities itable ways. In the interim, I, Ras Boateng, have been appointed inherent in the market in order to grow earnings, improve profita- Chairperson. Also, Dr. William Mensah and Dr. Kwame Ampofo bility and deliver returns to our esteemed shareholders. Kusi have been appointed to the Board, effective 1 June 2017. Thank you for your loyalty and continued support. Dr. William Mensah is a seasoned executive with in-depth knowledge of corporate finance, financial analysis, budgetary control, international marketing and performance management. Dr. Kwame Ampofo Kusi is a consummate professional with subject matter expertise in investment banking, financial services and corporate finance. We are privileged that they will be contributing their wealth of knowledge and experience to the UMB Board.

28 UNIVERSAL MERCHANT BANK | 2017 Annual Report UMB has been a breeding ground for the founders of some of the “ most successful establishments in the country”.

Ambassador Afare Donkor, (Pioneer Member of UMB Executive Leadership Team, Founder and Former Managing Director of Consolidated Discount House and Founder of Securities Discount House) It’s been 45 years of creating great leaders and private sector, supporting businesses, training banking professionals and enabling dreams. Our 45th anniversary isn’t just a celebration of our past achievements, but also the beginning of greater things to come.

Website: www.myumbbank.com MTN: 0800-100880 Airtel & Vodafone: 0800-10088 Other Lines: 0302-633988 Report from the Chief Executive Officer

Mr. John Awuah Chief Executive Officer

“A satisfied customer is the best business strategy of all.” – Michael LeBoeuf Introduction I am pleased to report we had a year of strong growth at Universal Merchant Bank (UMB) as we completed the second year of our Five-Year Strategic Plan. The year under review I would like had particular significance as it was the 45th anniversary to express since UMB opened its doors to the Ghanaian public. my sincere At the core of our 2017 success is our strategic focus on providing exceptional and responsible customer service. appreciation to We’re listening to our customers, focusing on initiatives that create a personalized banking experience. Our customers our customers gave us an ‘A’ grade approval rating in our customer for their experience survey in 2017. This included rating us on customer care, convenience, courtesy, professionalism, unflinching timely execution of requests and responsiveness. The high- level grading of the bank demonstrates the resolve of both confidence in management and staff in ensuring our customers have a UMB... superb banking experience. That notwithstanding, the bank will not rest on its laurels until our customer service becomes an industry disruptor.

30 UNIVERSAL MERCHANT BANK | 2017 Annual Report Global Economic Development industry remained solvent, with CAR (excluding impaired capital positions of UT Bank and Capital Bank) at 17.9% in 2017, almost The cyclical upswing underway since mid-2016 continued unchanged from 17.8% in 2016. to strengthen. According to the IMF, some 120 economies, accounting for three-quarters of the world’s GDP, saw a pickup in growth in year-on-year terms in 2017, the broadest synchronized Financial Performance global growth upsurge since 2010. Global growth for 2017 is estimated at 3.7%, 0.1 percentage point higher than projected. From the backdrop of the average performance of the banking The stronger momentum experienced in 2017 is expected to industry, I am heartened to announce to you, our valuable carry into 2018 and 2019, with global growth revised up to 3.9% shareholders that UMB leaped in terms of its performance in for both years. Growth in the sub-Saharan African region (SSA) 2017. With the bank’s strategic theme for 2017 being “Enhancing is anticipated to pick up to 3.2% in 2018 from 2.4% in 2017. The Customer Experience”, the bank embarked on an aggressive World Bank disclosed that stronger growth would depend on campaign to put the customer at the centre of everything we do. a firming of commodity prices and implementation of reforms. This, I believe reflected on our performance as the bank posted The Bretton Wood institution also warned in its January 2018 impressive growth along all key performance benchmarks. Global Economic Prospects report that, a drop in commodity prices, steeper-than-anticipated global interest rate increases, and inadequate efforts to ameliorate debt dynamics could set back The bank’s profit before tax was up 150.7% y/y to GHS 68.7m, on economic growth in the SSA. support from strong growth in funded income. Funded income increased by 49.9% y/y to GHS 214.5m as Net Interest Margins (NIMs) went up by 76bp y/y to 11.8%. Non-funded income was Domestic Economic Development also up 36.7% y/y to GHS 72.8m on the back of strong growth in net fees and commissions (49.6% y/y). In effect, the total operating Rising industrial and oil output, along with steady declines in income surged 46.3% y/y to GHS 287.3m. Operating expenses inflation and debt ratios, combined to support accelerated increased to GHS 188.9m in 2017 from GHS 155.1m in 2016 on growth in Ghana in 2017. The economy gained momentum in the back of staff compensation rationalisation and enhancement. 2017, expanding by 8.5% y/y. On top of increased activity in key Due to the robust growth in the income line as well as the bank’s sectors, 2017 also saw Ghana make progress on efforts to reduce continuous drive to enhance efficiency, the cost-to-income ratio the spending and debt levels. Thus, the public debt dropped declined to 65.7% in 2017 from 79% in 2016. The bank intends from 73.3% of GDP in 2016 to 69.8 % in 2017. The budgetary to aggressively improve efficiency through implementation deficit also narrowed to 5.9% of GDP in 2017, which compared of technological solutions to boost its expansion programme. favourably with the 8.7% recorded in 2016. Inflation continued to The bank’s balance sheet performance was commendably cool, easing to 11.8% in December 2017, according to data issued strong as we implemented customer-centric initiatives over the by the Ghana Statistical Service, down from the 15.4% recorded period resulting in 38.6% y/y increase in customer deposits. I am the same month in 2016. The continued fall in inflation flowed elated to state that the growth rate eclipsed that of the industry into monetary policy. The central bank cut its benchmark interest (12.8% y/y). Total assets increased 7% y/y to GHS 3bn in 2017 rate four times throughout 2017, to 20% by December 2017, the as maturing loans and the strategic repositioning of the loan lowest level since October 2014. The accommodative monetary book saw the loan portfolio shrink by 2.9% y/y to GHS 731m, stance translated into a decline of an average 3.7 percentage mimicking the lethargic growth recorded by the industry (0.3% points on the rates of short-term papers on the money market. y/y). Nevertheless, the bank’s total earning assets increased 14.1% y/y to GHS 1.9bn impacting positively on NIMs. CAR remained relatively flat at 10.2% (-10bp y/y) in 2017. Return on equity surged Developments in the Banking 12.1 percentage points y/y to 25.3%, which was well above the industry’s recorded average of 16.7%. Furthermore, return on Industry earning assets increased 104bp y/y to 2.6%. Growth in the various components of banks’ balance sheet slowed in 2017, compared with 2016. The banking sector’s total assets increased from GHS 81.2bn (28.1% y/y) in 2016 to GHS Operational Performance 93.2bn (14.8% y/y) in 2017. The banking industry’s stock of gross In 2017, we strategically decided to make the customer the loans and advances stood at GHS 37.7bn in 2017, representing centre of everything we do, hence the theme for the year 1.3% contraction in real growth. This was on the back of tightened “Enhancing Customer Experience.” Thus, UMB launched an credit stance by banks in response to the large stock of impaired internal reorientation and training programme to ensure that assets and a decline in credit to the public sector. Banks’ net loans the commitment of all staff members is deepened to exceed and advances increased marginally to GHS 31.1bn in 2017 from the expectations of stakeholders and our customers. This called GHS 31.0bn in 2016 (0.3% y/y). The banking industry’s deposits for a progressive overhaul of our internal processes and systems stood at GHS 58.3bn (12.8% y/y) in December 2017 from GHS to ensure that customers’ expectations are exceeded every time 51.7bn (25.2% y/y) in 2016 as they remained the largest source they interact with any touch point of our organization – from the of funding for the banking industry. The industry’s shareholders’ conduct of the security men at our branches to the quick and funds grew by 14.3% y/y to GHS 12.2bn in 2017. The NPL ratio fast track work culture. Subsequently, in line with the initiatives of the industry spiked to 22.7% in 2017 from 17.3% in 2016 as to attain excellence in customer service, the bank enhanced challenging macroeconomic headwinds in the previous year the UMB S.P.E.E.D. Champion programme. The programme was culminated in worsening asset quality. Nonetheless, the banking

UNIVERSAL MERCHANT BANK | 2017 Annual Report 31 initiated to encourage staff members to live the values of UMB African Senior Secondary Certificate Examination (WASSCE). We and to ultimately improve the experience of our customers. also provided laptops to other deserving students. Additionally, to promote the health and well-being of our staff members, UMB The bank also successfully launched the UMB instant VISA cards conducted a health walk in honour of our 45th anniversary year to improve on turnaround time for cards delivery. This meant where staff members raised funds to support the Princess Marie that our cherished customers could obtain UMB VISA Classic Louise Children’s Hospital in Accra. cards, UMB VISA Business cards and UMB VISA Prepaid cards within minutes at all UMB branches. During the period, the bank also introduced a new service for UnionPay cardholders which enables them make withdrawals from any UMB ATM Outlook with their UnionPay International card. We also made changes As part of our commitment to delivering unrivalled service to to the internet banking platform to improve the ease of use and our valued customers, our unifying theme for 2018 is Digitizing availability of the platform. Also, our partnership with Hello Paisa Customer Experience. According to McKinsey & Company enabled customers to conveniently receive money from South Financial Services, “Banks have three to five years at most to Africa at all UMB branches. We, additionally, engaged a third-party become digitally proficient. If they fail to take action, they risk vendor to install and implement new software to expedite our entering a spiral of decline similar to laggards in other industries.” credit processing service, which has significantly reduced our In light of this, our focus in 2018 will be on how we can go the credit application sanctioning cycle. extra mile to enhance the experience of our customers through Furthermore, we leveraged on our solid SME banking experience digital innovations. to set up a UMB PPP Incubator Centre in Madina, Accra solely for In keeping with the theme for 2018, the bank will launch its the purpose of supporting the needs of enterprises that seek to ground-breaking mobile banking app, the UMB SpeedApp, in partner with the government on any initiative and also to drive February 2018. Our UMB SpeedApp is a game changer as both our start-up support programme. UMB has been deeply involved UMB customers and non-customers can use it for a number of in the One District, One Factory initiative and the Stimulus services including airtime top-up, mobile money transactions, Programme of the government. We established two additional instant funds transfer, cardless ATM withdrawals, bills payments, UMB Centres for Businesses, a stand-alone unit designed to set request for loans and investments and many other additional new standards in the delivery of SME Banking Services, in Madina services. The UMB SpeedApp is available on Android, iOS and (Greater Accra) and Kasoa in the Central Region. This brings the Windows mobile devices, so do well to download yours today, innovative UMB Centre for Businesses to three in all; Madina in and use it for your day-to-day banking and other mobile financial Accra, Kasoa in the Central Region and Ashtown in Kumasi. services. This is just one of our bank’s disruptive initiatives in As part of efforts to expand the bank’s physical presence across digitizing your banking experience in 2018 and beyond. the country, UMB added a new branch in Tamale. Our Koforidua UMB intends to capitalise on its user-centred, customer-journey branch also underwent renovations to reflect the modernised, digital banking solutions to assail to the pole position of digital customer-friendly look and feel of UMB. Our Konongo branch banking in the country. was relocated to a more spacious and accessible location in the business district of Konongo in the Ashanti Region of Ghana. Conclusion With the return of the business to consecutively profitable Regulatory Environment growth from 2016 reporting, we are confident our business has the right strategies and enablers to achieve its targets for 2018. The Bank of Ghana announced a revision to the minimum capital We are committed to creating long-term sustainable value for requirement for banks in September 2017. The directive required our shareholders and in doing so, we will continue to pursue our banks to increase stated capital to GHS 400m from GHS 120m by strategy of delivering growth and profitability in a sustainable the end of 2018. The rationale for the increment by the central manner. bank is to create a more robust and resilient financial services sector capable of accelerating the developmental needs of the I would like to thank our staff for their continuing pledge towards Country. UMB is well placed to meet this new requirements UMB. They are the engine that drives our growth and success. before the advertised deadline of December 31, 2018. To our customers, we are extremely grateful for your confidence in our ability to deliver. Your sustained loyalty and dedication to Corporate Social Responsibility UMB, allows us to continue to succeed. We cannot close the chapter on 2017 without recognising the UMB adheres to the view espoused by Henry Ford, that a support, encouragement and drive of our Board of Directors. It “business that makes nothing, but money is a poor business”. In has been a good year for all of us and we trust that we can always this spirit, I am elated to announce that we inaugurated the UMB count on them for the many years ahead. Foundation during the period under review. UMB Foundation is an independent charitable organization that will implement the social impact initiatives of UMB and its affiliate UMB Capital. UMB Thank you, everyone, and may God bless us all. Foundation will support projects in education, health and the celebration and promotion of Ghanaian heritage and culture. In the year under review, UMB continued its partnership with the West African Examination Council in providing financial scholarship to the overall top performing student in the West

32 UNIVERSAL MERCHANT BANK | 2017 Annual Report Global Haulage wouldn’t have gotten to where it is “today if it wasn’t for the 45 year support we have had from UMB.”

Alhaji Abdul Aziz Adamu (CEO, Global Haulage ) It’s been 45 years of building empires For decades UMB has been the nancial bedrock of the corporate and private sector, supporting businesses, training banking professionals and enabling dreams. Our 45th anniversary isn’t just a celebration of our past achievements, but also the beginning of greater things to come.

Website: www.myumbbank.com MTN: 0800-100880 Airtel & Vodafone: 0800-10088 Other Lines: 0302-633988 Statement by the Chief Operating Officer

Mr. Benjamin Amenumey Chief Operating Officer

There were significant projects implemented by the bank in 2017 to support our growth agenda and to position the bank towards market leadership in technology deployment. From a customer touch point perspective, we renovated several branches and expanded our ATM network to strengthen the brand and increase visibility and top of mind awareness.

The bank also implemented many efficiency and service improvement projects to enhance customer convenience and the bank’s competitive leverage. For 2018, we To optimize our service delivery and preserve institutional knowl- will continue to edge, we conducted thorough review of our Retail Banking pro- use innovative cesses and documentation and ended 2017 by creating a state- of-the-art disaster recovery site to improve business recovery in technology to times of disruption as well as to enhance business continuity.

enhance our For 2018, we will continue to use innovative technology to operational enhance our operational performance to better serve our customers. Specifically, we will initiate a number of interventions to performance... enhance and protect our IT and physical infrastructure resources to make banking more convenient for our cherished customers.

34 UNIVERSAL MERCHANT BANK | 2017 Annual Report Statement by the Chief Finance Officer

Mr. Kwame Adjei-Adjivonh Chief Finance Officer

Our 2017 performance underscores not only the resil- ience of the franchise but also the merits of our strategy. In a very subdued economic environment, we grew revenue, deposits, and profit before tax by 46%, 39% and 151%, respectively. Our return on equity was 22.4% top- ping industry average of 16.7% whilst our liquidity ratio As a result of improved significantly from 61% to 71%. our strategic We enter 2018 well-positioned to meet the new Bank of Ghana minimum capital requirement of GHS400 million approach, we and also to execute our digital strategy aimed at not only are confident deepening customer engagement with our bank but also reducing the cost of serving and acquiring new custom- of sustaining ers.

and improving As a result of our strategic approach, we are confident of performance in sustaining and improving performance in the coming the coming years. years.

UNIVERSAL MERCHANT BANK | 2017 Annual Report 35 UMB has produced countless pacesetters “ whose achievements have immensely impacted on the economy of this nation.”

Mrs. Stephanie Baeta-Ansah, (Former UMB Sta Member and Founder and Former Managing Director of HFC Bank) It’s been 45 years of creating great leaders For decades UMB has been the nancial bedrock of the corporate and private sector, supporting businesses, training banking professionals and enabling dreams. Our 45th anniversary isn’t just a celebration of our past achievements, but also the beginning of greater things to come.

Website: www.myumbbank.com MTN: 0800-100880 Airtel & Vodafone: 0800-10088 Other Lines: 0302-633988

36 UNIVERSAL MERCHANT BANK | 2017 Annual Report Year In Review

2017 will go down in the history of UMB as the most remarkable year as we celebrated 45 years of banking excellence and record- Service Standard Promise Initiative ed impressive financial results. Below are notable highlights of the year. “Enhancing Customer Experience” was our bank’s theme for 2017. As part of the initiatives to execute our theme for the year, we UMB Presents Full Scholarship to Overall Best 2016 WASSCE successfully initiated the Service Standards project in April 2017. Student This was to streamline and standardize service delivery across the UMB presented Pius Kyere, a first year medical student at Kwame business by openly publicizing our bank’s service standard prom- Nkrumah University of Science and Technology with a full schol- ise in all of our banking halls and in all of our Head Office depart- arship for emerging as the overall best student at the 2016 WAS- ments. As a control and monitoring measure, mystery shopping SCE. The scholarship was presented to him on March 8, at the and customer satisfaction surveys were conducted periodically to WAEC Distinction Awards ceremony which is organized annually ensure strict adherence to our bank’s service standards. to recognize the top performing students in the WASSCE.

Henrietta Duho, Head, Service Quality and Customer Service in front of Service Standard Promise in Airport City Branch

UMB CEO John Awuah presenting full scholarship to Pius Kyere UMB launched Instant Visa Cards UMB CEO John Awuah presenting full scholarship to Pius Kyere In addition to the full scholarship, UMB also presented a laptop In line with our S.P.E.E.D. values, on April 20, 2017, UMB launched to Pius and opened a personal account for him with seed funds. Instant Visa cards to expedite the UMB Visa card issuance process for our valued customers. With this introduction, our valued customers now enjoy the convenience of being issued their Visa UMB Earmarks $100 Million to Support One District, One cards within minutes upon request. UMB will continue to active- Factory Initiative ly invest in apt technology that provides maximum value for our customers. UMB earmarked US$100 million to support the government's audacious One District, One Factory initiative. A delegation from our bank, led by our Board Chairperson (retired), Mrs. Elizabeth Zormelo, announced this when the delegation paid a courtesy call on President Nana Addo Dankwa Akufo-Addo at the Flagstaff House on March, 31, 2017.

Customer receiving her instant UMB Visa card at Airport City Branch

Inauguration of UMB PPP Incubator Centre and Madina UMB Delegation with President Nana Addo Dankwa Akufo-Addo UMB Centre for Businesses On May 15, UMB officially opened the second UMB Centre for UMB Delegation with President Nana Addo Dankwa Akufo-Addo Businesses in Madina and inaugurated the UMB PPP Incubator President Akufo-Addo described the decision by UMB as exem- Centre, a specialized business incubation centre to support the plary and an expression of nationalism within the context of busi- government's bold One District, One Factory initiative. Located ness and investment. in the UMB Centre for Businesses building at Madina, the UMB PPP Incubator Centre, was set up to offer financial and technical UNIVERSAL MERCHANT BANK | 2017 Annual Report 37 support to private sector entrepreneurs and businesses to fully take advantage of the government’s district industrialization programme.

UMB Board Members with H.E. Former President Jerry John Rawlings and the Minister of Trade and Industry, Honourable Alan Kyerematen.

The festive evening included special guest H.E. Former President Jerry John Rawlings and other notable dignitaries such as the Minister of Trade and Information, Alan Kyerematen; the Minister of Information, Mustapha Abdul-Hamid; Deputy Chief of Staff, Mr. The Deputy Minister of Trade and Industry, Mr. Robert Ahomka Lindsay, Francis Asenso-Boakye; former Governor of the Bank of Ghana, Dr. with members of UMB Board and Management. H. A. Kofi Wampah; Nii Kpobi Tettey Tsuru III, La Mantse; the acting head of the Ga Traditional Council, Nii Dodoo Nsaki II, Otublohum This initiative of the government seeks to industrialize the Ghana- Mantse; and many others. ian economy through the creation of factories in all the 216 dis- The evening highlights included the premiere of a documentary tricts nationwide and UMB pledged to create liquidity space of up showcasing UMB’s achievements and future strategy and perfor- to $100million to support this initiative. mances by Kwabena Kwabena, Steve Bedi and the Abibigorom- ma Dancers.

Best Bank Award for Cyber Security Risk Management Launch of UMB Foundation At the 7th Ghana Information Technology and Telecom Awards UMB Bank in conjunction with UMB Capital announced the (GITTA) 2017, our bank distinguished itself by beating 3 other launch of UMB Foundation on August 6, 2017. The UMB Founda- banks to win the Best Bank Award for Cyber Security Risk Man- tion is the corporate social responsibility extension of UMB Bank agement. to undertake impactful projects in the areas of education, health and the celebration and promotion of Ghanaian heritage and culture. UMB Foundation is funded by our bank, UMB and UMB Capital.

Acting Head, I.T. Department, Mr. Sylvester Apedoe receiving the award flanked by his team members

Acting Head, I.T. Department, Mr. Sylvester Apedoe, accepted the award on behalf of our bank. The Ghana Information Technology Board and Management members of UMB Foundation at the launch and Telecom Awards (GITTA), which was held at the Kempinksi Hotel Gold Coast City, Accra is meant to recognise customer service, innovation and excellence in the Ghana Telecom and Infor- mation Technology industry. Corporate Bank of the Year at 2017 Global Banking and Fi- nance Awards UMB was awarded the prestigious Corporate Bank of the Year UMB 45th Anniversary Celebration Gala award at the Global Banking and Finance Awards organized by The European Magazine. The Global Banking and Finance Awards In commemoration of UMB’s 45 years of banking excellence, the are designed to recognize financial institutions for outstanding bank held a 45th Anniversary gala at the Mövenpick Ambassador achievements in various market segments across the globe. The Hotel in Accra on July 28, 2017. The anniversary celebration gala Global Banking and Finance Awards ceremony has been a tra- was held in honour of our customers and stakeholders to show dition within the banking and finance industry for the last four our appreciation to them for supporting the bank since our doors years. UMB was adjudged the winner amid firm competition. opened for business in 1972.

38 UNIVERSAL MERCHANT BANK | 2017 Annual Report I’m glad to be with a bank that understands “ my needs as a student. ”

Abdul Wahab Abdulai (Student Customer) It’s been 45 years of supporting dreams For decades UMB has been the nancial bedrock of the corporate and private sector, supporting businesses, training banking professionals and enabling dreams. Our 45th anniversary isn’t just a celebration of our past achievements, but also the beginning of greater things to come.

Website: www.myumbbank.com MTN: 0800-100880 Airtel & Vodafone: 0800-10088 Other Lines: 0302-633988

UNIVERSAL MERCHANT BANK | 2017 Annual Report 39 UMB is a bank that has the needs “ of students at heart. ”

Miss Antonia Odarkor Odartei (Student Customer) It’s been 45 years of supporting dreams For decades UMB has been the nancial bedrock of the corporate and private sector, supporting businesses, training banking professionals and enabling dreams. Our 45th anniversary isn’t just a celebration of our past achievements, but also the beginning of greater things to come.

Website: www.myumbbank.com MTN: 0800-100880 Airtel & Vodafone: 0800-10088 Other Lines: 0302-633988

40 UNIVERSAL MERCHANT BANK | 2017 Annual Report On September 26, 2017, UMB opened its third UMB Centre for Businesses in Kasoa to accommodate the vibrant and dynamic businesses in the area and to leverage the diverse and emergent commercial activity in the catchment vicinity. This UMB Centre for Businesses, like that of Ashtown and Madina, is staffed with banking professionals who understand exactly what SMEs need in order to grow and fully equipped with free advisory and capac- ity building capabilities.

Visit to Chief Imam and Thanksgiving Service UMB paid a courtesy visit to the National Chief Imam, Sheikh Osmanu Nuhu Sharubutu on September 29, 2017 and held a Thanksgiving Service on October, 8, 2017. The UMB delegation that paid a courtesy call on the National Chief Imam was led by our Chief Executive Officer, Mr. John Awuah. He was accompanied by UMB Executives, Mr. Benjamin Amenumey, Chief Operating Officer); Ms. Yvonne Botchey, Director Marketing & Communications; and prominent Muslim members of staff to offer special prayers and gratitude to the almighty Allah for seeing Director, Corporate Banking, Mrs. Nelly Abotchie with the award plaque UMB through 45 years of banking excellence in Ghana.

45th Anniversary Health Walk As part of its 45th Anniversary celebrations, UMB held a health walk on September, 16 2017 for its staff and customers. The walk was organized under the theme; “Walking to Celebrate 45 Years”.

National Chief Imam, Inner cities & Zongo Development Minister, Hon. Saddique Boniface and UMB delegation

Our 45th Anniversary Thanksgiving Service, was presided by Most. Rev. Professor Emmanuel Asante, the immediate past Presiding Bishop of the Methodist Church, and was attended by tradition- Health walk participants in a warm up routine al leaders, diplomatic envoys and government dignitaries. Oth- The Health Walk was organized to create awareness of UMB’s 45 er guests included customers of UMB, shareholders, UMB Board years of providing the Ghanaian market with exceptional prod- Members, UMB Foundation members and UMB staff. ucts and service and also to instill in staff members, customers and the general public the importance of physical exercise to our UMB Management and guests at 45th Anniversary Thanksgiving health. Service At the conclusion of the walk, UMB donated GHS10,000 to UMB Foundation to support the foundation’s imminent projects in UMB’s visit to the National Chief Imam and its 45th Anniversary health, education and celebration and promotion of Ghanaian Thanksgiving Service were part of the yearlong celebration to heritage and culture. highlight and celebrate UMB’s evolution as one of the premier financial institutions in Ghana. Launch of UMB Centre for Businesses in Kasoa As a bank that has always supported the business sector, the UMB Centre for Businesses is a unique concept from UMB that provides Branch Openings and Renovations small and medium scale businesses with customized services In an effort to increase UMB’s branch network and to better serve that are separate from UMB’s traditional branches. and reach our customers easily across the country, the bank opened its first location in the Northern region in Tamale on Oc- tober 10, 2017. The new branch will cater to the needs of individuals and corporate organizations located in and around the Tamale Municipality and beyond.

Frontal view of the UMB Centre for Businesses in Kasoa

UNIVERSAL MERCHANT BANK | 2017 Annual Report 41 The award was in acknowledgement of his immense contributions to youth development initiatives in the country. Young Professional and Youth Coalition is a vast network of young professionals and youth who seek to connect and engage in discussions relevant to leadership, entrepreneurship and professional enhancement towards national development.

UMB Accra Open UMB in association with the Achimota Golf Club organized the UMB Accra Open 2017 from the 7th – 10th of December, 2017 as part of activities to mark UMB’s 45th Anniversary celebrations. The 4-day tournament was acknowledged as the capital’s finest golf Opinion leaders in Tamale and UMB Board members event of 2017.

Other branch location projects included the complete renovation of our Koforidua branch and relocation of our Konongo branch to a more convenient and accessible location.

UMB Olympics and Family Day UMB organized its maiden Olympics & Family Day event, on Octo- ber 14, for staff members and their families. The maiden sporting event was established in honour of UMB’s 45th anniversary to al- Overall tournament winner, Mr. Vincent Torgah of the Tema Golf Club receiving his low staff members to build better relationships amongst them- award selves in a fun and engaging way. The 4-day tournament commenced with the professionals teeing off, followed by Group B Ladies/Men and then Group A joined the competition the next day. The final day saw spectacular performance from the Group A Men/Ladies and the professionals.

CEO of UMB, Mr. John Awuah, presented a cash prize of GHS10,000 to the overall tournament winner, Mr. Vincent Torgah of the Tema Golf Club.

Festival of Nine Lessons and Carols Night UMB Tug of Peace Competition UMB held the 45th Anniversary edition of its annual festival of The maiden edition of the event came off on Saturday, October Nine Lessons and Carols Night Service, at the forecourt of our 14, at the Burma Camp Sports Complex where UMB staff mem- head office at the SSNIT Emporium Building, Airport City - Accra. bers put their sporting skills to the test in various activities. The event was to lead our stakeholders into the Christmas sea- son and to sing praises to the Almighty God for how far He has brought the bank. UMB CEO Receives Young Professional Role Model Award On November 24, 2017, the CEO of UMB, John Awuah, was awarded the Young Professional Role Model Award in the Finance and Economic Empowerment category. Mr. Awuah was presented with the award at the 8th Young Professionals Transformation- al Leadership Conference organized by the Young Professional and Youth Coalition (Y.P.Y.C.) under the theme “Mentoring Africa’s Young Leaders for Africa’s Transformation”.

Cross-section of invited guest at the Festival of Nine Lessons and Carols Night service The nine scripture lessons taken from the Bible to herald the birth of Jesus Christ were read by UMB Staff from the books of Genesis, Isaiah, Luke, Mathew and John and each of the nine readings was preceded by carols from the One Voice Choir, Booster Boys and the Ghana Police Band. UMB CEO, Mr. John Awuah receiving his award

42 UNIVERSAL MERCHANT BANK | 2017 Annual Report At UMB we were groomed to “have a passion for excellence.”

Mr. Fred Apaloo, (Former UMB Sta Member and Former Managing Director of CDH Holdings) It’s been 45 years of creating great leaders For decades UMB has been the nancial bedrock of the corporate and private sector, supporting businesses, training banking professionals and enabling dreams. Our 45th anniversary isn’t just a celebration of our past achievements, but also the beginning of greater things to come.

Website: www.myumbbank.com MTN: 0800-100880 Airtel & Vodafone: 0800-10088 Other Lines: 0302-633988

UNIVERSAL MERCHANT BANK | 2017 Annual Report 43 Independent Auditor’s Report To The Members of Universal Merchant Bank Limited

Opinion Basis of opinion

We have audited the financial statements of Universal Merchant We conducted our audit in accordance with International Bank Limited (“the Bank”), which comprise the statement of Standards on Auditing (ISAs). Our responsibilities under those financial position at 31 December 2017, the statement of standards are further described in the Auditor’s Responsibilities comprehensive income, changes in equity and cash flows for the for the Audit of the Financial Statements section of our report. We year then ended, and the notes to the financial statements which are independent of the Bank in accordance with the International include a summary of significant accounting policies and other Ethics Standards Board for Accountants’ Code of Ethics for explanatory notes, as set out on pages 15 - 79. Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the financial In our opinion, these financial statements give a true and fair view statements in Ghana, and we have fulfilled our other ethical of the financial position of Universal Merchant Bank Limited at 31 responsibilities in accordance with these requirements and the December 2017, and of its financial performance and cash flows IESBA Code. We believe that the audit evidence we have obtained for the year then ended in accordance with International Financial is sufficient and appropriate to provide a basis for our opinion. Reporting Standards (IFRSs) and in the manner required by the Companies Act, 1963 (Act 179) and the Banks and Specialised Deposit-Taking Institutions ACT, 2016 (ACT 930). Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Impairment of loans and advances to customers GH¢80m Refer to Note 22b to the financial statements The key audit matter How the matter was addressed in our audit Impairment of loans and advances to customers Our principal audit procedures included the following: is a key audit matter due to the significance of the balances and the complexity and subjectivity • Evaluated the design and implementation and tested the operating effective- involved in estimating the timing and the amount ness of key controls over: the recording, monitoring and reporting of loans and of cash flow used in the computation. advances to customers as well as the Bank’s loan impairment process regarding Loans for which there is objective evidence that management’s review process over impairment calculations. an impairment event has occurred are assessed individually for impairment. If there is deemed to • Substantively validated the year end impairment models for collective and be no evidence that an impairment exists on an specific impairment by re-performing calculations and agreeing a sample of individual basis, loans are assessed collectively for data inputs to source documentation. We also assessed whether the data used impairment. in the models is complete and accurate through testing a sample of relevant The estimation of the impairment loss allowance data fields and their aggregate amounts against data in the source systems; on an individual basis requires management to make judgments to determine whether there is • Critically assessed and challenged the assumptions used by the Bank in their objective evidence of impairment and to make impairment models using our understanding of the Bank, the historical accu- assumptions about the financial conditions of racy of its estimates, current and past performance of the Bank’s loans and our the borrower and expected future cash flows. knowledge of the industry in respect of similar types of loans; The key judgment for individual provisions on these portfolios is the recoverable value of any • Undertook a detailed assessment of a sample of exposures for individual underlying collateral. impairment on corporate portfolios, taking a risk based approach to focus The collective impairment loss allowance relates on those with the greatest potential impact on the financial statements. Our to losses incurred but not yet identified on other assessment specifically challenged the Bank’s assumptions of expected future loans and advances. The two key judgments in cash flows including the valuation of realisable collaterals through inquiry with the collective provisioning assessment are the credit managers and inspecting correspondence and independent valuation likelihood of default and the emergence period. reports;

44 UNIVERSAL MERCHANT BANK | 2017 Annual Report • Critically assessed and analysed the assumptions and data used by the Bank in determining the likelihood of default and emergence period for collective impairment assessment; • Examined a sample of performing loans to evaluate if any indicators of impairment existed to test the completeness of individual impairment provisions; and • Considered the adequacy of the Bank’s disclosures in relation to impairment about changes in estimates occurring during the period and its sensitivity to key assumptions. Revenue (GH¢461 million) Refer to Note 7 to the financial statements The key audit matter How the matter was addressed in our audit Interest income is recognised using the effective Our principal audit procedures included the following: interest rates as opposed to the nominal rate. • Tested controls over the existence and accuracy of reported interest Determining the effective interest rate involves income some level of complexity which could lead to • Used Computer Assisted Audit Techniques to check and analyse various inaccurate interest recognition. In addition, revenue streams and computations to ensure their accuracy as well as there is a presumed risk that revenue may not be appropriateness of accounting treatment. appropriately recognised. • Agreed underlying data of interest income to details of Bank's general ledger and source document. • Performed cut-off procedures and other fraud related procedures to ascertain the appropriateness of revenue recognition.

Other information In preparing the financial statements, the Directors are responsible for assessing the Bank’s ability to continue as a going concern, The Directors are responsible for other information, the disclosing, as applicable, matters related to going concern and preparation of financial statements that give a true and fair view using the going concern basis of accounting unless the Directors in accordance with International Financial Reporting Standard. either intend to liquidate the Bank or to cease operations, or have The other information comprises the Report of the Directors as no realistic alternative but to do so. The Directors are responsible required by the Companies Act, 1963 (Act 179), the Banks and for overseeing the Bank’s financial reporting process. Specialised Deposit-Taking Institutions Act, 2016 (Act 930), but does not include the financial statements and our auditor’s report thereon. Auditor’s Responsibilities for the Audit of the Financial Statements Our opinion on the financial statements does not cover the other information and we do not express any form of assurance Our objectives are to obtain reasonable assurance about whether conclusion thereon. the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue In connection with our audit of the financial statements, our an auditor’s report that includes our opinion. Reasonable responsibility is to read the other information and, in doing so, assurance is a high level of assurance, but is not a guarantee that consider whether the other information is materially inconsistent an audit conducted in accordance with ISAs will always detect with the financial statements or our knowledge obtained in the a material misstatement when it exists. Misstatements can arise audit, or otherwise appears to be materially misstated. If, based on from fraud or error and are considered material if, individually or the work we have performed, we conclude that there is a material in the aggregate, they could reasonably be expected to influence misstatement of this other information, we are required to report the economic decisions of users taken on the basis of these that fact. We have nothing to report in this regard. financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional Responsibilities of the Directors for scepticism throughout the audit. We also: the Financial Statements • identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design The Directors are responsible for the preparation of financial and perform audit procedures responsive to those risks, and statements that give a true and fair view in accordance with obtain audit evidence that is sufficient and appropriate to International Financial Reporting Standards and in the manner provide a basis for our opinion. The risk of not detecting a ma- required by the Companies Act, 1963 (Act 179), and the Banks and terial misstatement resulting from fraud is higher than for one Specialised Deposit Taking Institutions Act, 2016 (Act 930), and for resulting from error, as fraud may involve collusion, forgery, such internal control as the Directors determine is necessary to intentional omissions, misrepresentations, or the override of enable the preparation of financial statements that are free from internal control. material misstatement, whether due to fraud or error.

UNIVERSAL MERCHANT BANK | 2017 Annual Report 45 Auditor’s Responsibilities for the Report on Other Legal and Audit of the Financial Statements Regulatory Requirements (cont’d) Compliance with the requirements of Section 133 of the Companies Act, 1963 (Act 179) and Section 85 of the Banks and • obtain an understanding of internal control relevant to the Specialised Deposit Taking Institutions Act, 2016 (Act 930). audit in order to design audit procedures that are appropriate We have obtained all the information and explanations, which • in the circumstances, but not for the purpose of expressing to the best of our knowledge and belief were necessary for the an opinion on the effectiveness of the Bank’s internal control. purpose of our audit. • evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. In our opinion, proper books of account have been kept, and the statements of financial position and comprehensive income are • conclude on the appropriateness of the Directors’ use of the in agreement with the books of account. going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists re- The Bank’s transactions were within its powers, except for the lated to events or conditions that may cast significant doubt single obligor breaches disclosed under the regulatory disclosure on the Bank’s ability to continue as a going concern. If we on page 93. The Bank generally complied with the relevant conclude that a material uncertainty exists, we are required provisions of the Banks and Specialised Deposit Taking Institutions to draw attention in our auditor’s report to the related disclo- Act, 2016 (Act 930). sures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based The Bank also generally complied with the Anti Money Laundering on the audit evidence obtained up to the date of our auditor’s Act, 2008 (Act 749), as amended by Anti Money Laundering Act, report. However, future events or conditions may cause the 2014 (Act 874), the Anti Terrorism Act, 2008 (Act 762) as amended Bank to cease to continue as a going concern. by Anti Terrorism Act, 2014 (Act 875), and the Regulations made • evaluate the overall presentation, structure and content of the under these enactments. financial statements, including the disclosures, and whether the financial statements represent the underlying transac- The engagement partner on the audit resulting in this independent tions and events in a manner that achieves fair presentation. auditor’s report is Anthony K. Sarpong (ICAG/P/1369).

We communicate with the Directors through the Audit and Compliance Committee of the Board regarding, among other matters, the planned scope and timing of the audit and significant ……………………………………… audit findings, including any significant deficiencies in internal control that we identify during our audit. FOR AND ON BEHALF OF: KPMG: (ICAG/F/2018/038) CHARTERED ACCOUNTANTS 13 YIYIWA DRIVE, ABELENKPE P O BOX GP 242 ACCRA

March 27, 2018

46 UNIVERSAL MERCHANT BANK | 2017 Annual Report You grow immensely when you nd yourself in an ever “evolving environment. ”

Mr. Kevin Cain (Director Consumer and Business Banking, UMB) It’s been 45 years of building great careers For decades UMB has been the nancial bedrock of the corporate and private sector, supporting businesses, training banking professionals and enabling dreams. Our 45th anniversary isn’t just a celebration of our past achievements, but also the beginning of greater things to come.

Website: www.myumbbank.com MTN: 0800-100880 Airtel & Vodafone: 0800-10088 Other Lines: 0302-633988 UNIVERSAL MERCHANT BANK | 2017 Annual Report 47 Statements of Comprehensive Income For The Year Ended 31 December 2017

2017 2016 Note GH¢000 GH¢000

Interest income 7 461,244 303,330 Interest expense 8 (246,769) (160,267) Net interest income 214,475 143,063

Fee and commission income 9 44,740 31,203 Fee and commission expense 10 (1,028) (1,983) Net fees and commission income 43,712 29,220

Net trading income 11 20,412 17,115 Other operating income 12 8,710 6,936 Net trading and other income 29,122 24,051

Total Revenue 287,309 196,334

Impairment expense 15 29,805 11,194 Personnel expense 14 63,620 50,316 Operating expense 13 107,135 91,435 Depreciation and amortisation 26(a) & 27 18,124 13,343 Operating income 68,625 30,046

Other income 16 31 341 (Loss) on derecognition of financial Assets at amortised cost 22(e) (3,000) Profit before tax 68,656 27,387

Share of Associate’s (loss) / profit 24 (151) 87 Taxation 17a (20,866) (7,030) Profit for the year 47,639 20,444

48 UNIVERSAL MERCHANT BANK | 2017 Annual Report Statements of Comprehensive Income For The Year Ended 31 December 2017

Note 2017 2016 GH¢000 GH¢000

Other Comprehensive Income

Items that are or may be reclassified to profit or loss Fair value gain / (loss) of Available for Sale equity investments 24 42 (37) Deferred tax (charge) on fair value gain 17d (10) -

Items that will never be reclassified to profit or loss Actuarial gain/ (loss) on defined benefit obligations 42 27 (1,434) Deferred tax (charge)/released on actuarial gain and revaluation gain 17d (7) 359

Total comprehensive income for the year 47,691 19,332

Basic earnings per share (in GH¢) 7.7161 3.3113

Diluted earnings per share (in GH¢) 7.7161 3.3113

The accompanying notes on pages 54 - 106 form an integral part of these financial statements.

UNIVERSAL MERCHANT BANK | 2017 Annual Report 49 Statements of Financial Position As At 31 December 2017

2017 2016 Note GH¢ ‘000 GH¢ ‘000 Assets Cash and cash equivalents 18 816,784 874,645 Investment securities 19 862,188 663,331 Loans and advances to banks 20 350,783 288,038 Investment in other securities 21 3,268 3,377 Loans and advances to customers 22a 730,961 752,906 Other assets 25 142,368 132,252 Property and equipment 26a 64,848 61,657 Intangible assets 27 14,305 13,735 Total Assets 2,985,505 2,789,941

Liabilities Deposits from customers 28 1,948,855 1,406,009 Borrowings 29 589,930 745,516 Other liabilities 30 229,503 467,345 Current taxation 17b 687 525 Deferred tax liability 17c 276 2,460 Employee benefit obligations 42 3,936 3,459 Total Liabilities 2,773,187 2,625,314

Shareholders’ Fund Stated capital 31 208,800 208,800 Credit risk reserve 33 44,623 39,415 Revaluation reserves 32 17,771 17,771 Income surplus (109,090) (127,702) Statutory reserve fund 34 50,245 26,426 Available for sale reserve 35 (8) (40) Other reserves 36 (23) (43) Total shareholders’ fund 212,318 164,627 Total liabilities and shareholders’ fund 2,985,505 2,789,941

John Awuah Ras Boateng Chief Executive Officer Board Chairman

The accompanying notes on pages 54 - 106 form an integral part of these financial statements.

50 UNIVERSAL MERCHANT BANK | 2017 Annual Report Statement of Changes In Equity For The Year Ended 31 December 2017

Statu- Available Deposit Credit tory for sale Stated for Revaluation Income Risk Reserve & Other Capital Shares reserves Surplus Reserve Fund Reserves Total GH¢000 GH¢000 GH¢000 GH¢000 GH¢000 GH¢000 GH¢000 GH¢000

Balance as at 1 Jan 2017 208,800 - 17,771 (127,702) 39,415 26,426 (83) 164,627

Total comprehensive income Net Profit/(loss) for the year - - 47,639 - - - 47,639 Other comprehensive income, net of tax Bank’s share of associate’s net fair value gains/ (loss) ------42 42 Actuarial loss on employee benefit obligations ------27 27 Deferred tax charge on actuarial loss on employee benefit obligations ------(7) (7) Deferred tax charge on fair value gains ------(10) (10) Total other comprehensive income ------52 52

Total comprehensive income - - - 47,639 - - 52 47,691

Statutory Transfers Transfer from income surplus - - - (29,027) 5,208 23,819 - -

Balance as at 31 Dec 2017 208,800 - 17,771 (109,090) 44,623 50,245 (31) 212,318

The accompanying notes on pages 54 - 106 form an integral part of these financial statements.

UNIVERSAL MERCHANT BANK | 2017 Annual Report 51 Statement of Changes In Equity For The Year Ended 31 December 2017

Statu- Deposit Revalua- Credit tory for sale Stated for tion Income Risk Reserve & Other Capital Shares reserves Surplus Reserve Fund Reserves Total GH¢000 GH¢000 GH¢000 GH¢000 GH¢000 GH¢000 GH¢000 GH¢000

Balance as at 1 Jan 2016 195,200 13,600 17,771 (108,820) 10,473 16,042 1,029 145,295

Total comprehensive income Net Profit/(loss) for the year - - - 20,444 - - - 20,444 Other comprehensive income, net of tax Bank’s share of associate’s net fair value gains/ (loss) ------(37) (37) Actuarial loss on employee - benefit obligations - - - - - (1,434) (1,434) Deferred tax released on - actuarial loss on employee benefit obligations - - - - - 359 359

Total other comprehensive - income - - - - - (1,112) (1,112)

Total comprehensive - income - - 20,444 - - (1,112) 19,332

Transaction with Shareholders Deposit for shares - (13,600) - - - - - (13,600) Proceeds from issue of shares 13,600 ------13,600

Statutory Transfers Transfer from income surplus - - - (39,326) 28,942 10,384 - -

Balance as at 31 Dec 2016 208,800 - 17,771 (127,702) 39,415 26,426 (83) 164,627

The accompanying notes on pages 54 - 106 form an integral part of these financial statements

52 UNIVERSAL MERCHANT BANK | 2017 Annual Report Statement of Cash Flow For The Year Ended 31 December 2017

Note 2017 2016 GH¢000 GH¢000

Profit before taxation 68,656 27,387

Adjustments for: Depreciation & amortisation 26a-&-27 18,124 13,343 (Gain)/loss on disposal of property and equipment 26b (1) - (Gain)/loss on disposal of de recognition of financial assets 22e - 3,000 Allowance for Employee benefit 42 895 - Property and Equipment adjustment 26a (171) - Profit before working capital changes 87,503 43,730

(Increase)/decrease in investment securities 19 (198,857) (405,999) (Increase)/decrease in loan and advances to banks 20 (62,745) (288,038) (Increase)/decrease in loans & advances to customers 22 21,945 (112,813) (Increase)/decrease in other assets accounts 25 (10,116) 2,838 Increase/(decrease) in deposits from customers 28 542,846 507,789 Increase/(decrease) in borrowings 29 (155,586) 578,139 Increase/(decrease) in other liabilities 30 (237,842) 262,216 Employee benefit paid 42 (391) (232) Cash generated from/(used in)operations (13,243) 587,630 Corporate tax paid 17 (22,905) (4,800) Net Cash used in operating activities (36,148) 582,830

Investing activities Purchase of property and equipment 26a (17,427) (23,000) Purchase of intangible asset 27 (4,410) (13,082) Proceeds from sale of assets 26b 124 -

Net cash used in investing activities (21,713) (36,082)

Increase/ (decrease) in cash and cash equivalents (57,861) 546,748 Cash and cash equivalents at 1 January 874,645 329,699 Effect of exchange rate fluctuations - (1,802)

Cash and cash equivalents at 31 December 816,784 874,645

The accompanying notes on pages 54 - 106 form an integral part of these financial statements

UNIVERSAL MERCHANT BANK | 2017 Annual Report 53 Notes to the Financial Statements For The Year Ended 31 December 2017

property and equipment measured at revalued cost and the 1.0 Reporting Entity measurement of defined benefit obligations. Universal Merchant Bank Limited is a Bank incorporated in Ghana. The Bank operates with a universal banking license and i. Impairment of financial instruments undertakes all banking services. Assets accounted for at amortised cost are evaluated for impairment on the basis described below. 2.0 Basis Of Accounting The individual components of the total allowance for impairment applies to financial assets evaluated a. Statement of Compliance individually for impairment and is based on The financial statements have been prepared in accordance management’s best estimate of the present value with International Financial Reporting Standards (IFRS) and of cash flows that are expected to be received. In in a manner required by the Companies Act, 1963 (Act 179) estimating these cash flows, management makes and the Banks and Specialised Deposit Taking Institutions Act, judgments about a debtor’s financial situation and 2016 (Act 930). the net realizable value of any underlying collateral. Each impaired asset is assessed on its merits and the b. Basis of Measurement workout strategy. Estimates of cash flows considered The financial statements have been prepared under the recoverable are independently approved by the historical cost convention, except for the following material Credit Risk Function. items: A collective component of the total allowance is • Defined benefit obligations measured at the present value established for: of future benefit to employees, net of the fair value of fund assets. • Banks of homogeneous loans that are not considered individually significant; and • Available for sale financial assets measured at fair value • Banks of assets that are individually significant but • Land and Buildings are measured at revalued cost that were not found to be individually impaired (loss ‘incurred but not reported’ or IBNR). c. Functional and Presentation Currency The collective allowance for Banks of homogeneous The financial statements are presented in Ghana cedis, which loans is established using a formula approach based is the Bank’s functional currency. All financial information on historical loss rate experience. presented in Ghana cedis have been rounded to the nearest thousands, except where otherwise indicated. IBNR allowance covers credit losses inherent in portfolios of loans and advances, and held to d. Use of Judgements and estimates maturity investment securities with similar credit In preparing these financial statements, Management has risk characteristics when there is objective evidence made judgements, estimates and assumptions that affect the to suggest that they contain impaired items but the application of the Bank’s accounting policies and reported individual impaired items cannot yet be identified. amounts of assets, liabilities, income and expenses. Actual The accuracy of the allowance depends on the model results may differ from these estimates. assumptions and parameters used in determining the Estimates and underlying assumptions are reviewed on collective allowance. an ongoing basis. Revisions to accounting estimates are ii. Defined Benefit obligation recognised prospectively. Key actuarial assumptions used in the measurement • Judgements of defined benefit obligations are disclosed in note 42. Information about judgements made in applying accounting policies that have the most significant effects on the amounts recognised in the financial statements is included in note 4. iii. Revaluation of property and equipment e. Assumptions and estimation uncertainties Assumptions used in the measurement of property Information about assumptions and estimation uncertainties and equipment recognised at revalued amounts are that have a significant risk of resulting in a material adjust- disclosed in note 42. ment in the year ending 31 December 2017 is set out below. These relate to the impairment of financial instruments,

54 UNIVERSAL MERCHANT BANK | 2017 Annual Report 3.0 Significant Accounting Policies • Interest on financial assets and liabilities at amortised cost The accounting policies set out below have been applied calculated on an effective interest rate basis consistently to all periods presented in these financial statements, • Interest on available for sale investment securities on an and have been applied consistently by the Bank. effective interest basis

3.1 Foreign Currency Translation Interest income on all trading assets and liabilities are considered Transactions in foreign currencies are translated into the respective to be incidental to the Bank’s trading operations and are presented functional currency of the Bank’s entities using exchange rates together with all other changes in the fair value of trading assets prevailing at the dates of the transactions. and liabilities in net trading income. Monetary assets and liabilities denominated in foreign currencies a. Fees and Commissions at the reporting date are translated to the functional currency at Fees and commission income and expenses that are integral spot exchange rates at that date. The foreign currency gain or to the effective interest rate on a financial asset or financial loss on monetary items is the difference between the amortised liability are included in the measurement of the effective cost in the functional currency at the beginning of the year, interest rate. adjusted for effective interest and payments during the year, and the amortised cost in the foreign currency translated at the spot Other fees and commission income, including account exchange rate at the end of the year. servicing fees, investment management fees, placement fees and syndication fees, facility management fees, fees on Non monetary assets and liabilities that are measured at fair value Letters of Credit and fees on Guarantees are recognised as in a foreign currency are translated into the functional currency the related services are performed. Loan commitment fees at the spot exchange rate at the date on which the fair value is for loans that are not likely to be drawn down are recognised determined. Non monetary items that are measured based on upfront, together with related direct costs. historical cost in a foreign currency are translated using the spot exchange rate at the date of the transaction. b. Net Trading Income Net trading income comprises gains less losses related to Foreign currency differences arising on retranslation are generally trading assets and liabilities, and includes all realised and recognised in profit or loss. However, foreign exchange gains and unrealised fair value changes, interest, dividends and foreign losses arising from the translation of items recognised in other exchange differences. Net trading income is recognised comprehensive income are presented in other comprehensive when earned. income. c. Dividends Dividends are recognised in profit and loss when the Bank’s 3.2 Interest right to receive payment is established. Dividends are Interest income and expenses are recognised in profit or loss using presented in other revenues. the effective interest method. The ‘effective interest rate’ is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability (or, where appropriate, a shorter period) to the carrying amount 3.3 Income Tax of the financial asset or liability. Income tax expense comprises current and deferred tax. It is recognised in profit or loss except to the extent that it relates When calculating the effective interest rate, the Bank estimates to items recognised directly in equity or OCI. future cashflows considering all contractual terms of the financial instrument, but not future credit losses. a. Current Tax Current tax comprises the expected tax payable or receivable The calculation of the effective interest rate includes on the taxable income or loss for the year and any adjustments transaction costs and fees and points paid or received that are an to the tax payable or receivable in respect of previous years. integral part of the effective interest rate Transaction costs include The amount of current tax payable or receivable is the best incremental costs that are directly attributable to the acquisition estimate of the tax amount expected to be paid or received or issue of a financial asset or financial liability. that reflects uncertainty related to income taxes, if any. It is measured using tax rates enacted or substantively enacted Interest income and expenses presented in the statement of at the reporting date. Current tax also includes any tax arising profit or loss and OCI include: from dividends.

UNIVERSAL MERCHANT BANK | 2017 Annual Report 55 Notes to the Financial Statements For The Year Ended 31 December 2017 b. Deferred Tax different useful lives, then they are accounted for as separate Deferred tax is recognised in respect of temporary differences items (major components) of property and equipment. Any between the carrying amounts of assets and liabilities for gain or loss on disposal of an item of property and equipment financial reporting purposes and the amounts used for is recognised within other income in profit or loss. taxation purposes. Deferred tax is recognised for: Leasehold and freehold buildings are carried at revalued amounts less subsequent accumulated depreciation • temporary differences on the initial recognition of assets and and subsequent accumulated impairment losses. Any liabilities in a transaction that is not a business combination accumulated depreciation at the date of revaluation is and that affects neither accounting nor taxable profit eliminated against the gross carrying amount of the asset and the net amount restated to the revalued amount of the • temporary differences related to investments in subsidiaries asset. to the extent that it is probable that they will not reverse in the foreseeable future and An increase in the carrying amount of leasehold/freehold buildings as a result of a revaluation is recognised in other • taxable temporary differences arising on the initial recognition comprehensive income and accumulated in equity under of goodwill revaluation surplus. However, the increase is recognised in profit or loss to the extent that it reverses a revaluation Deferred tax assets are recognised for unused tax losses, unused decrease of the same asset previously recognised in profit or tax credits and deductible temporary differences to the extent loss. that it is probable that future taxable profits will be available A revaluation decrease is recognised in profit or loss. However, against which they can be used. Deferred tax assets are reviewed the decrease is recognised in other comprehensive income at each reporting date and are reduced to the extent that it is no to the extent of any credit balance existing in the revaluation longer probable that the related tax benefit will be realised. surplus in respect of that asset.

Unrecognised deferred tax assets are reassessed at each reporting Other items of property, plant and equipment are stated at date and recognised to the extent that it becomes probable that cost less accumulated depreciation and any accumulated future taxable profits will be available against which they can be impairment losses. used. The cost of self constructed assets includes the cost of materials and direct labour and any other costs directly Deferred tax is measured at the tax rates that are expected to be attributable to bringing the asset to a working condition for applied to temporary differences when they reverse, using tax its intended use. Purchased software that is integral to the rates enacted or substantively enacted at the reporting date. functionality of the related equipment is capitalised as part of that equipment. The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Bank expects, at the reporting date, to recover or settle the carrying amount of its b. Subsequent Expenditure assets and liabilities. Subsequent expenditure is capitalised only when it is probable that the future economic benefits of the expenditure will Additional taxes that arise from the distribution of dividend by flow into the entity the Bank are recognised at the same time as the liability to pay the related dividend is recognised. These amounts are generally c. Depreciation recognised in profit or loss because they generally relate to income arising from transactions that were originally recognised Depreciation is recognised in the statement of comprehensive in profit or loss. income on a straight line basis over the estimated useful lives of property and equipment. Leased assets are depreciated over the shorter of the lease term and the useful life of the 3.4. Property and Equipment asset if the asset will not revert back to the Bank. The estimated depreciation rates for the current and a. Recognition and Measurement comparative periods are as follows: Items of property and equipment are measured at cost, which includes capitalised borrowing costs, less accumulated depreciation and any accumulated impairment loss. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. If significant parts of an item of property or equipment have

56 UNIVERSAL MERCHANT BANK | 2017 Annual Report Office Furniture and Equipment 20% Subsequent expenditure on software is capitalised only when it increases future economic benefits embodied in the specific Motor Vehicles 20% asset to which it relates. All other expenditure is expensed as Building 3% incurred. Leasehold Land Lease period Software is amortised on a straight line basis in profit or loss over Computers Hardware 33.3% its estimated useful life, from the date that it is available for use. The estimated useful life of software for the current and comparative periods is three years. Depreciation methods, useful lives and residual values are reassessed at each reporting date and adjusted if appropriate. Amortisation methods, useful lives and residual values are Freehold land is not depreciated as it is deemed to have an reviewed at each reporting date and adjusted, if appropriate. indefinite life. At the end of each reporting period, intangible assets are d. Capital work in progress reviewed for indications of impairment or changes in estimated future economic benefits. If such indications exist, the intangible Property and equipment under construction is stated at initial assets are analysed to assess whether their carrying amount is cost and depreciated from the date the asset is made available fully recoverable. An impairment loss is recognised if the carrying for use over its estimated useful life. Assets are transferred from amount exceeds the recoverable amount. capital work in progress to an appropriate category of property and equipment when commissioned and ready for its intended use. 3.6 Impairment of Non Financial e. Dual use property Assets Properties that are part used for own use activities and part for The carrying amounts of the Bank’s non financial assets other rental activities are considered dual use properties. This would than deferred tax assets are reviewed at each reporting date result in the property being considered to be classified as part to determine whether there is any indication of impairment. If property and equipment and the other part as investment any such indication exists then the asset’s recoverable amount property. If a significant portion of the property is used for is estimated. An impairment loss is recognised if the carrying own use and the portion rented out cannot be sold or leased amount of an asset or its cash generating unit (CGU) exceeds its out separately under a finance lease, then the entire property is recoverable amount. classified as property and equipment. The Bank considers an own use portion above 95% of the measure as significant. The recoverable amount is the greater of its value in use and its fair value less cost to sell. In assessing value in use, the estimated f. Disposal future cash flows are discounted to their present value using pre An item of property, plant and equipment is derecognised upon tax discount rates that reflect current market assessments of the disposal or when no future economic benefits are expected time value of money and the risk specific to the asset. to arise from the continued use of the asset. Gains and losses on disposals are included in the statement of comprehensive A previously recognised impairment loss is reversed where there income. has been a change in circumstances or in the basis of estimation used to determine the recoverable value, but only to the extent g. Impairment that the asset’s net carrying amount does not exceed the carrying Impairment tests are carried out on property, plant and amount of the asset that would have been determined, net of equipment when there is an indicator of impairment, and where depreciation or amortisation, if no impairment loss had been the carrying amounts are more than the recoverable amounts, recognised. they are written down to the recoverable amounts. 3.7 Fiduciary Activities 3.5 Intangible Assets Computer The Bank acts as trustees and in other fiduciary capacities that Software result in the holding or placing of assets on behalf of individuals, trusts, retirement benefit plans and other institutions. The assets Intangible assets comprise computer software licenses. Software and incomes arising thereon are excluded from these financial acquired by the Bank is measured at cost less accumulated statements, as they are not assets of the Bank. amortisation and any accumulated impairment losses.

UNIVERSAL MERCHANT BANK | 2017 Annual Report 57 Notes to the Financial Statements For The Year Ended 31 December 2017

3.8 Employee Benefits The calculation of defined benefit obligations is performed annually by a Qualified Actuary using the projected unit credit a. Defined Contribution Plans method. Re measurements of the net defined benefit liability, which comprise actuarial gains and losses is recognised A defined contribution plan is a post employment benefit plan immediately in other comprehensive income. under which an entity pays fixed contributions to a separate entity and has no legal or constructive obligation to pay further The Bank determines the net interest expense (income) on the amounts. Obligations for contributions to defined contribution defined benefit liability for the period by applying the discount pension plans are recognised as personnel expenses in profit or rate used to measure the defined benefit obligation at the loss in the period during which related services are rendered. The beginning of the annual period to the defined benefit liability at Bank has the following defined contribution schemes: the period end, taking into account any changes in the defined benefit liability during the period as a result of contributions and • Provident Fund benefit payments.

This is a defined contribution scheme managed by a Board of Net interest expense and other expenses related to defined trustees on behalf of the Bank. All contributions are charged to benefit plans are recognised in personnel expenses in statement profit and loss as incurred and included in staff costs. Employees of comprehensive income. When the benefits of a plan are contribute 5% of their basic salary to the Fund whilst the Bank changed or when a plan is curtailed, the resulting change in contributes 11.5%. Obligations under the plan are limited to benefits that relate to past service or the gain or loss on curtailment the relevant contributions which have been recognised in the is recognised immediately in statement of comprehensive financial statements and are settled on due dates to the fund income. The Bank recognises gains and losses on the settlement manager. of a defined benefit plan when the settlement occurs.

• End of Service Benefit • Defined Benefit Plans (cont’d)

This is a defined contribution scheme managed by the Bank`112. The Bank has the following defined benefit plans: All contributions are charged to the statement of profit and loss • Other post employment benefit as incurred and included in staff costs. Employees contribute 2.5% of their basic salary to the Fund whilst the Bank contributes 6%. Obligations under the plan are limited to the relevant • Long Service Award contributions which have been recognised in the financial Long service awards accrue to employees based on graduated statements and are settled on due dates to the fund manager. periods of uninterrupted service. This is the amount of future benefit that employees have earned in return for their service • Social Security Contributions in the current and prior periods. These awards accrue over the service life of employees. Re measurements made are recognised

in profit or loss in the period in which they arise. The Bank makes a defined contribution of 13% of employees’ basic salary as Social Security, a mandatory defined contribution plan These awards accrue over the service life of employees and are managed by Social Security and National Insurance Trust (SSNIT). paid at achievement of set milestones as outlined below: This is charged to the statement of comprehensive income as incurred and included in staff costs. The Bank’s obligation is limited to the relevant contributions, which have been recognised in No of Years USD GH¢ (equivalent) the financial statements. The pension liabilities and obligations, 10 600 2,649 however, rest with SSNIT. 15 1,600 7,065 • Defined Benefit Plans 20 3,400 15,013 25 8,500 37,533 The Bank’s obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of 30 9,500 41,949 future benefits that employees have earned in the current and prior periods, discounting that amount and deducting the fair The Bank pays for post retirement medical care of the Bank’s staff value of any plan assets. for two years after retirement.

58 UNIVERSAL MERCHANT BANK | 2017 Annual Report • Termination Benefits c. Regulatory Credit Risk Reserve This is a reserve created to set aside the excess or shortfalls The Bank recognises termination benefits as an expense when it is between amounts recognised as impairment loss on loans and demonstrably committed to either terminating the employment advances based on provisions made for bad and doubtful loans of current employees according to a detailed formal plan or and advances calculated in accordance with IFRS and the Bank of providing termination benefits as a result of an offer made to Ghana’s prudential guidelines. encourage voluntary redundancy. If benefits are not expected to be wholly settled within 12 months of the reporting date, then they are discounted. 2017 2016 GH¢000 GH¢000 • Short term Employment benefits Impairment (Bank of Ghana’s 124,605 89,941 prudential guidelines) Short term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is Impairment (IFRS) (79,982) (50,526) provided. A provision is recognised for the amount expected to Transferred to credit risk 44,623 39,415 be paid under short term cash bonus or profit sharing plans, if reserve the Bank has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. 3.10. Financial Assets and Liabilities All financial assets and liabilities are recognised in the statement • Provision for Employee Leave Days Outstanding of financial position and measured in accordance with their assigned category. A provision is made for the estimated liability from cumulating annual leave accrued at the statement of financial position date. The Bank initially recognises loans and receivables on the date when they are originated. All other financial assets and financial liabilities are initially recognised on the trade date, which is the

3.9 Stated Capital and Reserves date on which the Bank becomes a party to the contractual provisions of the instrument. a. Share Capital The Bank classifies capital and equity instruments in accordance The Bank initially recognises loans and receivables on the date with the contractual terms of the instrument. Incremental costs when they are originated. All other financial assets and financial that are directly attributable to the issue of an equity instrument liabilities are initially recognised on the trade date, which is the are deducted from the initial measurement of the equity date on which the Bank becomes a party to the contractual instruments. provisions of the instrument.

Dividends on ordinary shares are recognised in the period in a. Financial Assets which they are approved by the shareholders. Dividend proposed which is yet to be approved by shareholders, is disclosed by way The Bank classifies its financial assets in the following categories: of notes. held to maturity, loans and receivables and available for sale financial assets. Management determines the classification of its financial assets at initial recognition. b. Statutory Reserves Statutory reserves are based on the requirements of section 34 i. Held to maturity of the Banks and Specialised Deposit Taking Institutions Act, 2016 The Bank classifies investments in securities as held to (Act 930). Transfers into statutory reserves are made in accordance maturity. with the relationship between the Bank’s reserve fund and it’s Held to maturity investments are non derivative paid up capital, which determines the proportion of profits for assets with fixed or determinable payments and the period that should be transferred. fixed maturity that the Bank has the positive intent and ability to hold to maturity and which are not (i) Where the reserve fund is less than 50% of the stated capital designated at fair value through profit or loss or then an amount not less than 50% of net profit for the year is available for sale. transferred to the reserve fund. Held to maturity assets are initially measured at fair (ii) Where the reserve fund is more than 50% but less than 100% value plus incremental direct transaction costs, and of the stated capital, then an amount not less than 25% of net subsequently measured at amortised cost using the profit is transferred to the reserve fund. effective interest method. Any sale or reclassification of a significant amount (iii) Where the reserve is equal to 100% of the stated capital, then of held to maturity asset not close to their maturity an amount not less than 12.5% of the net profit for the year is would result in the reclassification of all held to transferred to the reserve fund.

UNIVERSAL MERCHANT BANK | 2017 Annual Report 59 Notes to the Financial Statements For The Year Ended 31 December 2017

maturity assets as available for sale, and would prevent available for sale investments are measured at fair the Bank from classifying investment securities as value after initial recognition. held to maturity for the current and the following Interest income is recognised in profit or loss using two financial years. Differences between the carrying the effective interest method. Dividends on available amount (amortised cost) and the fair value on the for sale equity instruments are recognised in profit date of the reclassification are recognised in other or loss in dividend income when the Bank’s right to comprehensive income. receive payment is established. Other fair value changes, other than impairment i. Loans and Receivables losses are recognised in other comprehensive

income and presented in the fair value reserve within Loans and receivables comprises cash and cash equity. When the investment is sold, the gain or loss equivalents, advances to Banks, loans and advances accumulated in equity is reclassified to profit or loss. to customers and other assets. Loans and receivables are non derivative financial b. Financial Liabilities assets with fixed or determinable payments that are not quoted in an active market, and that the Bank The Bank classifies its financial liabilities, other than financial does not intend to sell immediately or in the near guarantees and loan commitments, as measured at amortised term. cost. Loans and receivables are initially recognised at fair value plus incremental direct transaction costs, and • Other liabilities Measured At Amortised Cost subsequently measured at amortised cost using the effective interest method less any impairment losses. Financial liabilities that are not classified at fair value through profit or loss fall into this category and are measured at amortised cost. iii. Available For Sale Financial Assets Financial liabilities measured at amortised cost include Available for sale financial assets are financial assets deposits from customers, other liabilities and borrowings for that are intended to be held for an indefinite period which the fair value option is not applied. of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or c. Derecognition equity prices that are not classified as held to maturity investments, financial assets at fair value through • Financial Assets profit or loss or loans and receivables. The Bank derecognises a financial asset when the contractu- Available for sale investments comprise investment in al rights to the cash flows from the asset expire, or it transfers equity securities. the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of Unquoted equity securities whose fair value cannot ownership of the financial asset are transferred, or it neither be measured reliably are carried at cost. All other transfers nor retains substantially all of the risk and rewards of available for sale investments are measured at fair ownership and does not retain control over the transferred value after initial recognition. asset. Any interest in such derecognised financial asset that Interest income is recognised in profit or loss using is created or retained by the Bank is recognised as a separate the effective interest method. Dividends on available asset or liability. for sale equity instruments are recognised in profit On derecognition of a financial asset, the difference between or loss in dividend income when the Bank’s right to the carrying amount of the asset and the consideration receive payment is established. received is recognised in profit or loss. Any interest in Other fair value changes, other than impairment transferred financial assets that qualify for derecognition that losses are recognised in other comprehensive is created or retained by the Bank is recognised as a separate income and presented in the fair value reserve within asset or liability. equity. When the investment is sold, the gain or loss accumulated in equity is reclassified to profit or loss. ii. Financial Liabilities Available for sale investments comprise investment in equity securities. The Bank derecognises a financial liability when its contractual Unquoted equity securities whose fair value cannot obligations are discharged or cancelled, or expire. This is mainly be measured reliably are carried at cost. All other made up of customer deposits accounts, overnight placements

60 UNIVERSAL MERCHANT BANK | 2017 Annual Report by other banks and other financial institutions and medium The fair value of a demand deposit is not less than the amount term borrowings. They are measured initially at fair value and payable on demand, discounted from the first date on which subsequently at amortised cost. the amount could be required to be paid. The Bank recognises transfers between levels of the fair value d. Offsetting hierarchy as of the end of the reporting period during which Financial assets and liabilities are offset and the net amount the change has occurred. presented in the statement of financial position when, and only when, the Bank has a legal right to set off the amounts f. Cash and Cash Equivalents and it intends either to settle them on a net basis or to realise Cash and cash equivalents include notes and coins on hand, the asset and settle the liability simultaneously. balances held with Bank of Ghana, other bank balances and Income and expenses are presented on a net basis only highly liquid financial assets with original maturities of three when permitted under applicable accounting standards, or months or less from the date of acquisition that are subject for gains and losses arising from a Bank of similar transactions to an insignificant risk of changes in their fair value, and such as in the Banks’ trading activity. are used by the Bank in the management of its short term commitments. e. Fair Value Measurement Fair value is the price that would be received to sell an asset g. Impairment of Financial Assets or paid to transfer a liability in an orderly transaction between i. Assets carried at Amortised Cost market participants at the measurement date in the principal or, in its absence, the most advantageous market to which The Bank assesses whether there is objective evidence that a the Bank has access at that date. The fair value of a liability financial asset or Bank of financial assets is impaired at each reflects its non performance risk. reporting date. A financial asset or a Bank of financial assets is considered impaired only if there is objective evidence of When available, the Bank measures the fair value of an impairment as a result of one or more events that occurred instrument using the quoted price in an active market for that after initial recognition of the asset (a ‘loss event’) and that instrument. A market is regarded as active if transactions for loss event (or events) has an impact on estimated future cash the asset or liability take place with sufficient frequency and flows of the financial asset or Bank of financial assets that can volume to provide pricing information on an ongoing basis. be reliably estimated. If there is no quoted price in an active market, then the Bank The criteria used to determine whether there is objective uses valuation techniques that maximise the use of relevant evidence of an impairment loss include: observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of 1. significant financial difficulty faced by the issuer or obligor. the factors that market participants would take into account 2. a breach in the form of default or delinquency in interest or in pricing a transaction. principal payments. The best evidence of the fair value of a financial instrument 3. granting the borrower, as a result of financial difficulty, a at initial recognition is normally the transaction price i.e. the concession that the lender would not otherwise consider. fair value of the consideration given or received. If the Bank 4. a likely probability that the borrower will enter Bankruptcy or determines that the fair value at initial recognition differs from other financial reorganisation. the transaction price and the fair value is evidenced neither 5. the disappearance of an active market for that financial asset by a quoted price in an active market for an identical asset because of financial difficulties and or liability nor based on a valuation technique that uses only data from observable markets, then the financial instrument 6. observable data indicating that there is a measurable is initially measured at fair value, adjusted to defer the decrease in the estimated future cash flows from a Bank of difference between the fair value at initial recognition and the financial assets since their initial recognition, although the transaction price. Subsequently, that difference is recognised decrease cannot yet be identified with the individual assets in profit or loss on an appropriate basis over the life of the in the Bank. instrument but no later than when the valuation is wholly The Bank assesses whether objective evidence of impairment supported by observable market data or the transaction is exists individually for financial assets that are individually closed out. significant and individually or collectively for financial assets If an asset or a liability measured at fair value has a bid price that are not individually significant. If the Bank determines that and an ask price, then the Bank measures assets and long no objective evidence of impairment exists for an individually positions at a bid price and liabilities and short positions at assessed financial asset, whether significant or not, it includes an ask price. the asset in a Bank of financial assets with similar credit risk characteristics and collectively assesses them for impairment.

UNIVERSAL MERCHANT BANK | 2017 Annual Report 61 Notes to the Financial Statements For The Year Ended 31 December 2017

Assets that are individually assessed for impairment and for which If, in a subsequent period, the amount of the impairment loss an impairment loss is or continues to be recognised are not decreases and the decrease can objectively be related to an included in a collective assessment of impairment. event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously The amount of loss is measured as the difference between the recognised impairment loss is reversed by adjusting the allowance asset’s carrying amount and the present value of estimated future account. The amount of the reversal is recognised in profit or loss. cash flows discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through ii. Assets Classified As Available For Sale the use of an allowance account and the amount of loss is recognised in profit or loss. If a loan or held to maturity investment The Bank assesses whether there is objective evidence that a has a variable interest rate, the discount rate for measuring any financial asset or a Bank of financial assets is impaired at each impairment loss is the current effective interest rate determined reporting date. In the case of equity investments classified as under the contract. available for sale, a significant or prolonged decline in the fair value of the security below its cost is objective evidence of impairment The calculation of the present value of estimated future cash flows resulting in the recognition of an impairment loss. In general, the of a collateralised financial asset reflects cash flows that may result Bank considers a decline of 20% to be significant and a period of from foreclosure less costs for obtaining and selling the collateral, nine months to be prolonged. However, in specific circumstances whether or not foreclosure is probable. a smaller decline or a shorter period may be appropriate.

For the purposes of a collective evaluation of impairment, financial Impairment losses are recognised by reclassifying the losses assets are Banked on the basis of similar credit risk characteristics accumulated in the fair value reserve in equity to profit or loss. (that is, on the basis of the Bank’s grading process that considers The cumulative loss that is reclassified from equity to profit or loss asset type, industry, geographical location, collateral type, past is the difference between the acquisition cost, net of any principal due status and other relevant factors). Those characteristics are repayment and amortisation, and the current fair value, less any relevant to the estimation of future cash flows for Banks of such impairment loss on that financial asset previously recognised in assets by being indicative of the debtors’ ability to pay all amounts profit or loss. due according to the contractual terms of the assets being evaluated. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can Future cash flows in Banks of financial assets that are collectively objectively be related to an event occurring after the impairment evaluated for impairment are estimated on the basis of the loss was recognised in profit or loss, the impairment loss is contractual cash flows of assets in the Bank and historical loss reversed through other comprehensive income. experience for assets with credit risk characteristics similar to those in the Bank. Historical loss experience is adjusted on the iii. Renegotiated Loans basis of current observable data to reflect the effects of current conditions that did not affect the period on which historical loss If the terms of a financial asset are renegotiated or modified or experience is based and to remove the effects of conditions in the an existing financial asset is replaced with a new one due to historical period that do not currently exist. financial difficulties of the borrower, then an assessment is made of whether the financial asset should be derecognised. If the cash Estimates of changes in future cash flows for Banks of assets should flows of the renegotiated asset are substantially different, then reflect and be directionally consistent with changes in related the contractual rights to cash flows from the original financial observable data from period to period including property prices, asset is derecognised and the new financial asset is recognised at payment status and other factors indicative of changes in the fair value. The impairment loss before an expected restructuring probability of losses and their magnitude. The methodology and is measured as follows: assumptions used for estimating future cash flows are reviewed regularly by the Bank to reduce any differences between loss • If the expected restructuring will not result in derecognition of estimates and actual loss experience. the existing asset, then the estimated cash flows arising from the modified financial asset are included in the measurement When a loan is uncollectible, it is written off against the related of the existing asset based on their expected timing and allowance for loan impairment. Such loans are written off after all amounts discounted at the original effective interest rate of necessary procedures have been completed and the amount of the existing financial asset. loss has been determined. Impairment charges relating to loans • If the expected restructuring will result in derecognition of and advances are recognised in loan impairment charges whilst the existing asset, then the expected fair value of new asset is impairment charges relating to investment securities (held to treated as the final cash flow from the existing financial asset maturity and loans and receivables categories) are recognised in at the time of its derecognition. This amount is discounted ‘Net gains/(losses) on investment securities.

62 UNIVERSAL MERCHANT BANK | 2017 Annual Report from the expected date of derecognition to the reporting by a customer to third parties. The Bank will only be required date using the original effective interest rate of the existing to meet these obligations in the event of the customer’s default. financial asset. These obligations are accounted for as off statement of financial position transactions and disclosed as contingent liabilities. 3.11 Leases a. Lease Payments - Lessee 3.14 Events after the Statement of Payments made under operating leases are recognised in Financial Position Date profit or loss on a straight line basis over the term of the lease. Lease incentives received are recognised as an integral part of Events after the statement of financial position date are reflected the total lease expense, over the term of the lease. in the financial statements only to the extent that they relate to the year under consideration and the effect is material. Minimum lease payments made under finance lease are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated 3.15 Financial Guarantees and Loan to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance Commitments of the liability. Financial guarantee contracts are contracts that require the Bank Contingent lease payments are accounted for by revising the to make specified payments to reimburse the holder for a loss it minimum lease payments over the remaining term of the incurs because a specified debtor fails to make payments when lease when the lease adjustment is confirmed. due, in accordance with the terms of a debt instrument. Loan commitments are firm commitments to provide credit under pre b. Lease Assets - Lessee specified terms and conditions. Assets held by the Bank under leases that transfer to the Bank substantially all of the risks and rewards of ownership are classified as finance leases. The leased asset is initially meas- 4. Financial Risk Management ured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. 4.1 Introduction and Overview Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that The Bank’s activities expose it to a variety of operational and asset. financial risks and those activities involve the analysis, evaluation, Assets held under other leases are classified as operating acceptance and management of some degree of risk or leases and are not recognised in the Bank’s statement of combination of risks. Taking risk is core to the Bank’s business, financial position. and the operational risks are an inevitable consequence of being in business. The Bank’s aim is therefore to achieve an appropriate c. Lease assets - Lessor balance between risk and return and minimise potential adverse effects on its financial performance. The most important types of Where significant portions of the risks and rewards of ownership or leases are retained by the lessor, such leases are • Credit Risk classified as operating leases. • Liquidity Risk Lease income from operating leases are recognised in other • Market Risk (includes currency, interest rate and other price risk) income on a straight line basis over the period of the lease. • Operational Risk 4.1.1 Risk Management Framework 3.12 Provisions The Board of Directors has overall responsibility for the Provisions are recognised, if as a result of past events, the Bank establishment and oversight of the Bank’s risk management has a present legal or constructive obligation that can be framework. The Board has established a Risk Oversight estimated reliably, and it is probable that an outflow of economic Committee and a Risk Department to assist in the discharge of benefits will be required to settle the obligation. this responsibility.

The Bank’s risk management policies are established to identify 3.13 Contingent Liabilities and analyse the risks faced by the Bank, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Letters of credit, acceptances, guarantees and performance Risk management policies and systems are reviewed regularly bonds are generally written by the Bank to support performance

UNIVERSAL MERCHANT BANK | 2017 Annual Report 63 Notes to the Financial Statements For The Year Ended 31 December 2017

to reflect changes in market conditions, products and services (i) Collateral offered. The Bank, through its training and management In order to proactively respond to credit deterioration, the standards and procedures, aims to develop a disciplined and Bank employs a range of policies and practices to mitigate constructive control environment, in which all employees credit risk. The most traditional of these is the taking of understand their roles and obligations security for funds advanced, which is common practice. Collateral is held to mitigate credit risk exposures. Collateral The Bank’s Risk Committee is responsible among other things types that are eligible for risk mitigation include: cash for authorising the scope of the risk management function and residential, commercial and industrial property, property and renewing and assessing the integrity of the risk control systems, equipment such as motor vehicles, plant and machinery and ensuring that the risk policies and strategies are effectively Bank guarantees. managed. The risk mitigation policy prescribes the frequency of valuation for different collateral types, based on the level of 4.2 Credit Risk price volatility of each type of collateral and the nature of the underlying product or risk exposure. Where appropriate, Credit risk is the potential for financial loss due to the failure collateral values are adjusted to reflect current market of counterparties to meet obligations to pay the Bank in conditions. Longer term finance and lending to corporate accordance with agreed terms. Credit risk is the most important entities are generally secured while individual credit risk for the Bank’s business. Management carefully manages facilities are generally unsecured. In addition, in order to its exposure to credit risk. Credit risk is attributed to both on minimise credit loss, the Bank seeks additional collateral from balance sheet financial instruments such as loans, overdrafts, counterparties as soon as impairment indicators are noticed debt securities and other bills, investments, and acceptances for relevant individual loans and advances. and credit equivalent amounts related to off balance sheet financial items. The Bank’s approach to credit risk management (ii) Monitoring preserves the independence and integrity of risk assessment, while being integrated into business management processes. • Early Alerts Credit risk is managed through a framework that sets out policies Corporate Banking, Personal Banking and Business Banking and procedures covering the identification, measurement and (Small and Medium Scale Enterprise (SME)) accounts are management of credit risk. The goal of credit risk management placed on early alert status when they display signs of is to evaluate and manage credit risk in order to further enhance weakness. Such accounts and portfolios are subject to a a strong credit culture. dedicated process of oversight involving Senior Risk Officers and Remedial Officers in the Loans Recovery Unit. The a. Concentration Risk approach to Early Alerts monitoring include but not limited Credit concentration risk is the risk of loss to the Bank to: arising from excessive concentration of exposure to a single • Deterioration of the customer’s financial position counterparty, industry sector, product or geographic area. Large exposure limits have been established under the Bank’s • Delays by customers in settling their dues credit policy in order to avoid excessive losses from any single • Overdraft balances exceeding approved limits counter party who is unable to fulfil its payment obligations. These risks are monitored on an ongoing basis and subject • Clear indications of the customer not being able to to annual or more frequent reviews when considered settle commitments on due dates necessary. Customer payment plans are re evaluated and remedial actions agreed and monitored until delinquency situations b. Credit Mitigation are resolved. Remedial actions include, but are not limited to, Potential credit losses from any given account, customer exposure reduction, security enhancement and movement or portfolio are mitigated using a range of tools such as of the account to the Loans Recovery Unit. collateral, credit insurance, other guarantees and monitoring. • Risk grading of Loans and advances The reliance that can be placed on these mitigants is carefully assessed in the light of issues such as legal certainty and The Bank has a loan grading system that reflects the strength enforceability, market valuation and counterparty risk of the of the qualities of the loan book. guarantor. Risk mitigation policies determine the eligibility of Grade ‘A’ shows the strongest qualities of the loan book collateral types. whiles Grade ‘E’ shows the weakest qualities of same.

64 UNIVERSAL MERCHANT BANK | 2017 Annual Report c. Credit Related Commitments Documentary and commercial letters of credit are written undertakings by the Bank on behalf of a customer authorising a third party to draw drafts on the Bank up to a stipulated amount under specific terms and conditions. The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby letters of credit carry less risk than direct loans. These arrangements are collateralised by the underlying shipments of goods. The likelihood of loss amounts is far less than the entire commitment as most commitments to extend credit of this nature are contingent upon the customer maintaining specific cash in margin accounts. The Bank monitors the term to maturity of credit commitments because longer term commitments generally have a greater degree of credit risk than shorter term commitments. d. Maximum Exposure to Credit Risk The table below represents the maximum credit risk exposure to the Bank at 31 December 2017, without taking into account any collateral held or other credit enhancements attached.

2017 2016 On Balance Sheet Items (Net Carrying Amount) GH¢000 GH¢000

Cash and cash equivalents 816,784 744,335 Investment securities 862,188 663,331 Loans and advances to banks 350,783 288,038 Loans and advances to customers 730,961 752,906 Other assets 119,374 101,864 2,880,090 2,550,474

Off Balance Sheet Items Letters of credit 190,368 137,128 Guarantees and indemnities 105,059 83,412 Unrecognised loan commitment 42,769 117,256 338,196 337,796

UNIVERSAL MERCHANT BANK | 2017 Annual Report 65 Notes to the Financial Statements For The Year Ended 31 December 2017 e. Credit Quality Analysis The tables below set out information about the credit quality of financial assets and the allowance for impairment held by the Bank against those assets: Lending Loans & Loans Cash & & financial advances & advances Investment Cash guarantees to customers to banks securities equivalents commitments 2017 MAXIMUM EXPOSURE GH¢000 GH¢000 GH¢000 GH¢000 GH¢000 Gross carrying amount 810,943 350,783 862,188 816,784 - Amount committed / guaranteed - - - - 338,196

At amortised cost Grade A 618,191 - - - - Grade B 54,828 - - - - Grade C 15,014 - - - - Grade D 24,152 - - - - Grade E 98,758 - - - - Total gross amount 810,943 - - - - Allowance for impairment (79,982) - - - - Net carrying amount 730,961 350,783 862,188 816,784 338,196

Off Balance Sheet Current: Lending commitments - - - - 190,368 Current: Financial guarantees - - - - 105,059 Current: Unrecognised loan - - - - 42,769 commitments Total exposure - - - - 338,196

Lending Loans & Loans Cash & & financial advances & advances Investment Cash guarantees to customers to banks securities equivalents commitments 2016 MAXIMUM EXPOSURE GH¢000 GH¢000 GH¢000 GH¢000 GH¢000 Gross carrying amount 803,584 288,038 663,331 874,645 - Amount committed / guaranteed - - - - 337,796

At amortised cost Grade A 700,139 - - - - Grade B 17,481 - - - - Grade C 4,067 - - - - Grade D 3,056 - - - - Grade E 78,841 - - - - Total gross amount 803,584 - - - - Allowance for impairment (50,678) - - - - Net carrying amount 752,906 288,038 663,331 874,645 337,796

Off Balance Sheet Current: Lending commitments - - - - 137,127 Current: Financial guarantees - - - - 83,412 Current: Unrecognised loan - - - - 117,257 commitments Total exposure - - - - 337,796

66 UNIVERSAL MERCHANT BANK | 2017 Annual Report f. Credit Quality Analysis – Impaired and Unimpaired Loans

Lending Loans & Loans Cash & & financial advances & advances Investment Cash guarantees to customers to banks securities equivalents commitments 2017 GH¢000 GH¢000 GH¢000 GH¢000 GH¢000 Neither past due nor impaired 30 days and below: 618,191 350,783 862,188 816,784 338,196 - - - - - Past due but not impaired 30 90 days 41,790 - - - - 90 180 days 8,609 - - - - 180 days + 39,015 - - - - 707,605 - - - - Specifically impaired Grade B 13,039 - - - - Grade C 6,405 - - - - Grade D 14,212 - - - - Grade E 69,682 - - - - 103,338 - - - - Total Exposure 810,943 - - - - Allowance for impairment Individual 65,158 - - - - Collective 14,824 - - - - Total allowance for impairment 79,982 - - - -

Lending Loans & Loans Cash & & financial advances & advances Investment Cash guarantees to customers to banks securities equivalents commitments 2016 GH¢000 GH¢000 GH¢000 GH¢000 GH¢000 Neither past due nor impaired 30 days and below: 700,139 288,038 663,331 874,645 337,796 - - - - - Past due but not impaired 30 90 days 17,482 - - - - 90 180 days 2,007 - - - - 180 days + 8,125 - - - - 27,614 - - - -

Specifically impaired Grade C 2,060 - - - - Grade D 2,871 - - - - Grade E 70,751 - - - - 75,682 - - - - Allowance for impairment Individual 43,205 - - - - Collective 7,474 - - - Total allowance for impairment 50,679 -

UNIVERSAL MERCHANT BANK | 2017 Annual Report 67 Notes to the Financial Statements For The Year Ended 31 December 2017 g. Past due but not impaired deterioration of the customer. An existing loan whose terms These are loans and advances that are past due and have have been modified may be derecognised and the renegotiated been assessed for impairment. However, these loans and loan recognised as a new loan at fair value in accordance with the advances are supported by significant collaterals and cash accounting policy set out above. flows from agreed repayment terms. The present value of these estimated cash flows exceed the carrying amounts of The Bank renegotiates loans to customers in financial difficulties the loans and advances. (referred to as ‘forbearance activities’) to maximise collection opportunities and minimise the risk of default. Under the Bank’s As shown above, 37%(2016: 50%) of the total maximum forbearance policy, loan forbearance is granted on a selective exposure is derived from loans and advances to banks and basis if the debtor is currently in default on its debt or if there is loans and advances to customers whiles investments held in a high risk of default and there is evidence that the debtor made investment securities represents 27% (2016: 23%). all reasonable efforts to pay under the original contractual terms Management is confident in its ability to continue controlling and the debtor is expected to be able to meet the revised terms. and sustaining minimal exposure to credit risk arising from both its loans and advances portfolio and investment The revised terms usually include extending the maturity, securities. changing the timing of interest payments, modifying and extending payment arrangements and approving external h. Financial assets neither past due nor impaired management plans. Corporate loans are subject to forbearance activities. Loans and advances to customers The credit quality of the portfolio of loans and advances to For the purposes of disclosures in these financial statements, customers that were neither past due nor impaired is assessed ‘loans with renegotiated terms’ are defined as loans that have by reference to an internal rating system adopted by the Bank. been restructured due to a deterioration in the borrower’s Loans graded as current loans are considered as neither past due financial position, for which the Bank has made concessions by nor impaired. agreeing to terms and conditions that are more favourable for the borrower than the Bank had provided initially and that it would Cash and cash equivalents not otherwise consider. A loan continues to be presented as part of loans with renegotiated terms until maturity, early payment or Included in the Bank’s cash and cash equivalents are balances write off. held with the Bank of Ghana and other financial institutions. None of these balances were impaired at the reporting date and Irrespective of whether loans with renegotiated terms have been at 31 December 2016. derecognised, they remain disclosed as impaired until there is sufficient evidence to demonstrate a significant reduction in the Investment securities risk of non payment of future cash flows and there are no other The Bank’s investments comprise investment in investment indicators of impairment. securities. None of these investments were impaired at the reporting date and at 31 December 2016. k. Write Off Policy Advances to Banks The Bank writes off a loan/security balance (and any related These are the Bank’s overnight placements with other Banks and allowances for impairment losses) when the Credit Risk financial institutions. None of these placements were impaired at department determines that the loans cannot be collected and the reporting date and at 31 December 2016. a Board and Bank of Ghana approval is given. This determination is reached after considering information such as the occurrence of significant changes in the borrower’s financial position such i. Loans and advances past due but not impaired that the borrower can no longer pay the obligation, or that Loans and advances less than 90 days past due are not discounted proceeds from collateral will not be sufficient to pay considered impaired, unless other information is available to back the entire exposure. indicate the contrary. Loans that are aged more than 90 days are tested individually for impairment but may be determined as not l. Concentrations of Credit Risk impaired due to the values of collaterals held. Such loans are also considered as past due but not impaired. The Bank monitors concentrations of credit risk by industry, product and type of customer. An analysis of concentrations of credit risk from loans and advances, lending commitments, j. Loans and advances renegotiated financial guarantees and investment securities is shown as The contractual terms of a loan may be modified for a number follows: of reasons including market conditions, customer retention and other factors not related to a current or potential credit

68 UNIVERSAL MERCHANT BANK | 2017 Annual Report • Concentrations by Sector

Lending Loans & Loans Cash & & financial advances & advances Investment Cash guarantees to customers to banks securities equivalents commitments GH¢000 GH¢000 GH¢000 GH¢000 GH¢000 2017 Gross carrying amount 810,943 350,783 862,188 816,784 - Amount committed / guaranteed - - - - 338,196

Concentration by sector: Agriculture, forestry & fishing 463 - - - - Mining & quarrying 495 - - - - Manufacturing 91,739 - - - - Construction 67,814 - - - - Electricity, gas & water 63,413 - - - - Commerce & finance 369,890 - - - - Transport, storage & 28,088 - - - - communication Services 188,215 - - - - Miscellaneous 826 - - - - Total gross amount 810,943 350,783 862,188 816,784 338,196 Allowance for impairment (79,982) - - - - Net carrying amount 730,961 350,783 862,188 816,784 338,196

2016 Gross carrying amount 803,584 288,038 663,331 874,645 - Amount committed / guaranteed - - - - 337,796

Concentration by sector: Agriculture, forestry & fishing 18 - - - - Mining & quarrying 346 - - - - Manufacturing 60,889 - - - - Construction 39,797 - - - - Electricity, gas & water 334,292 - - - - Commerce & finance 263,258 - - - - Transport, storage & 24,845 - - - - communication Services 74,037 - - - - Miscellaneous and staff 6,102 - - - - Total gross amount 803,584 288,038 663,331 874,645 337,796 Allowance for impairment (50,678) - - - - Net carrying amount 752,906 288,038 663,331 874,645 337,796

UNIVERSAL MERCHANT BANK | 2017 Annual Report 69 Notes to the Financial Statements For The Year Ended 31 December 2017

• Concentration by Product

Loans & Lending advances Loans Cash & & financial to & advances Investment Cash guarantees customers to banks securities equivalents commitments GH¢000 GH¢000 GH¢000 GH¢000 GH¢000 2017 Gross carrying amount 810,943 350,783 862,188 816,784 - Amount committed / guaranteed - - - - 338,196

Concentration by product: Term loans 361,957 - - - - Overdrafts 436,510 - - - - Staff Loans 12,476 - - - - Letters of credit - - - - 190,368 Guarantees and indemnities - - - - 105,059 Unrecognised loan commitments - - - - 42,769 810,943 350,783 862,188 816,784 338,196 Allowance for impairment (79,982) - - - - Net carrying amount 730,961 350,783 862,188 816,784 338,196

2016 Gross carrying amount 803,584 288,038 663,331 874,645 - Amount committed / guaranteed - - - - 337,796

Concentration by product: Term loans 469,165 - - - - Overdrafts 324,648 - - - - Leasing 368 - - - - Staff Loans 9,403 - - - - Letters of credit - - - - 137,128 Guarantees and indemnities - - - - 83,411 Unrecognised loan commitments - - - - 117,257 803,584 288,038 663,331 874,645 337,796 Allowance for impairment (50,678) - - - - Net carrying amount 752,906 288,038 663,331 874,645 337,796

70 UNIVERSAL MERCHANT BANK | 2017 Annual Report iv. Concentration by Type of Customer

Concentration by type of customer: Public enterprises 57,374 81,751 862,188 - 21,605 Private enterprises 753,557 269,032 - 816,784 316,591 Staff 12 - - - - 810,943 350,783 862,188 816,784 338,196 Allowance for impairment (79,982) - - - - Net carrying amount 730,961 350,783 862,188 816,784 338,196

2016 Gross carrying amount 803,584 288,038 663,331 874,645 - Amount committed / - - - - 337,796 guaranteed

Concentration by type of customer: Public enterprises 311,753 102,247 663,331 197,299 69,853 Private enterprises 482,428 185,791 - 677,346 267,943 Staff 9,403 - - - - 803,584 288,038 663,331 874,645 337,796 Allowance for impairment (50,678) - - - - Net carrying amount 752,906 288,038 663,331 874,645 337,796

UNIVERSAL MERCHANT BANK | 2017 Annual Report 71 Notes to the Financial Statements For The Year Ended 31 December 2017 iv. Concentration by Location

Concentration by location: Within Ghana 810,943 250,072 862,188 816,784 338,196 Outside Ghana - 100,711 - - - 810,943 350,783 862,188 816,784 338,196 Allowance for impairment (79,982) - - - - Net carrying amount 730,961 350,783 862,188 816,784 338,196

2016 Gross carrying amount 803,584 288,038 663,331 874,645 - Amount committed / - - - - 337,796 guaranteed

Concentration by location: Within Ghana 803,584 288,038 663,331 725,614 - Outside Ghana - - - 119,031 337,796 803,584 288,038 663,331 844,645 337,796 Allowance for impairment (50,678) - - - - Net carrying amount 752,906 288,038 663,331 844,645 337,796

72 UNIVERSAL MERCHANT BANK | 2017 Annual Report m. Collateral held and other credit enhancements, and their financial effect The Bank holds collateral and other credit enhancements against certain types of its credit exposures. The table below sets out the principal types of collateral held against different types of financial assets.

• Type of exposure

Percentage of exposure that is Principal type of subject to collateral requirement collateral held December 2017 December 2016 Loans and advances to customer’s 16% 122% Legal mortgage debenture /fixed deposits/cash/t’bills/ vehicles

Corporate term loans and overdraft 18% 107% Legal mortgage/ debentures

SME 3% 320% Legal mortgage debenture /fixed deposits/t’bills/

Personal loans 2% 118% Fixed deposits/ cash/t’bills

Staff loans 129% 70% Motor Vehicles

Loans and advances to customers The general creditworthiness of a customer tends to be the most relevant indicator of credit quality of a loan extended to it. However, collateral provides additional security and the Bank generally requests that borrowers provide it. The Bank may take collateral in the form of a first charge over real estate, floating charges over all assets and other liens and guarantees.

Because of the Bank’s focus on customers’ creditworthiness, the Bank does not routinely update the valuation of collateral held against all loans and advances to customers. Valuation of collateral is updated in a three year cycle for loans whose credit risk has deteriorated significantly and are being monitored more closely.

Other types of collateral and credit enhancements In addition to collaterals obtained for loans, the Bank also holds other types of collateral and credit enhancements such as second and floating charges for which specific values are not generally available.

Assets obtained by taking possession of collateral Repossessed items are expected to be sold within one year of repossession. Repossessed items are not recognised in the Bank’s books. Proceeds from their sale are used to reduce related outstanding indebtedness. The Bank did not hold any financial and non financial assets resulting from taking possession of collateral held as security against loans and advances at the reporting date.

UNIVERSAL MERCHANT BANK | 2017 Annual Report 73 Notes to the Financial Statements For The Year Ended 31 December 2017

• Offsetting financial assets and financial liabilities

The Bank did not hold any financial assets and financial liabilities that are off set in the statement of financial position at the reporting date. p. Impaired loans and advances

Set out below is an analysis of the gross and net (of allowance for impairment) amounts of individually impaired loans and advances by risk grade. i. Loans and Advances to customers

Impairment Gross Allowance Net 2017 GH¢000 GH¢000 GH¢000 Grade 4–5: Watch list 13,038 4,563 8,475 Grade 6: Substandard 6,405 4,386 2,019 Grade 7: Doubtful 14,213 1,237 12,976 Grade 8: Loss 69,683 56,392 13,291 103,339 66,578 36,761

2016 Grade 6: Substandard 2,060 2,004 56 Grade 7: Doubtful 2,871 2,749 122 Grade 8: Loss 70,751 38,303 32,448 75,682 43,056 32,626 4.3 Liquidity Risk

Liquidity risk is the risk that the Bank will encounter difficulty in meeting obligations from its financial liabilities. The risk arises from mismatches in cash flows. a. Management of Risk The Bank’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Bank’s reputation.

Treasury Department maintains a portfolio of short term liquid assets, largely made up of short term liquid investment securities, loans and advances to Banks and other inter Bank facilities, to ensure that sufficient liquidity is maintained within the Bank as a whole.

All liquidity policies and procedures are subject to review and approval by the Asset and Liability Committee (ALCO), which is responsible for ensuring compliance with both statutory and prudential liquidity requirements. These responsibilities are managed through various policies and procedures which include the following: i. Control of Cash flow The day to day funding is managed by monitoring future cash flows including undrawn commitments to ensure that requirements are met at all times. ii. Management of Portfolio of Liquid Assets The Bank maintains a portfolio of highly marketable assets that can easily be liquidated to raise funds in the event of unforeseen disruption to the Bank’s cash flow.

74 UNIVERSAL MERCHANT BANK | 2017 Annual Report iii. Monitoring of Liquidity Ratios Liquidity ratios are monitored against internal guidelines as well as regulatory and statutory requirements to ensure that the Bank is compliant at all times. Details of the reported Bank ratio of net liquid assets to deposits from customers at the reporting date and during the reporting period were as follows:

2017 2016 % % Liquidity ratio At reporting date 71 60 Average for the period 56 119 Maximum for the period 79 187 Minimum for the period 44 87

The monitoring and reporting takes the form of a daily, weekly and monthly cash flow measurements and projections. The starting point for these projections is the analysis of the contractual and behavioural maturities of the Assets and Liabilities.

Compliance with Regulatory Liquidity Requirements The Bank complied with all regulatory liquidity requirements in 2017. iv. Maturity Gap Management The maturity profiles of assets and liabilities is provided as follows:

Maturity Analysis for Financial Assets and Liabilities

Below 3 3 to 6 6 to 12 Over One Total Months Months Months Year 2017 GH¢000 GH¢000 GH¢000 GH¢000 GH¢000 Financial Assets Cash and cash equivalents 816,784 816,784 - - - Investment securities 862,188 281,801 38,791 163,076 378,520 Loans and advances to banks 350,783 81,943 268,840 - - Loans and advances to customers 729,540 422,920 28,088 62,504 216,028 Other assets 119,374 119,374 - - - Investment in other securities 3,268 - - - 3,268 2,881,937 1,722,822 335,719 225,580 597,816

Financial Liabilities Deposits from customers 1,948,855 1,679,206 214,772 54,833 44 Borrowings 589,930 537,727 52,203 - - Other liabilities 229,502 227,754 72 351 1,325 Employee Benefit Obligation 3,936 - - - 3,936

Off Balance Sheet Items Letters of credit 190,367 7,551 155,320 5,891 21,605 Financial Guarantees 105,059 4,625 24,731 74,546 1,157 Unrecognised Loan commitments 42,769 42,769 - - - 3,110,418 2,499,632 447,098 135,621 28,067

Net liquidity gap (228,481) (776,810) (111,379) 89,959 569,749

UNIVERSAL MERCHANT BANK | 2017 Annual Report 75 Notes to the Financial Statements For The Year Ended 31 December 2017

Below 3 3 to 6 6 to 12 Over One Total Months Months Months Year 2016 GH¢000 GH¢000 GH¢000 GH¢000 GH¢000 Financial Assets - - - - - Cash and cash equivalents 874,645 874,645 - - - Investment securities 663,331 256,714 280,468 93,345 32,804 Loans and advances to banks 288,038 - 255,325 32,713 - Loans and advances to customers 752,906 277,872 14,946 27,114 432,974 Other assets 101,864 101,864 - - - Investment in other securities 3,377 - - - 3,377 2,684,161 1,511,095 550,739 153,172 469,155

Financial Liabilities Deposits from customers 1,406,010 1,259,651 129,042 17,289 28 Borrowings 715,516 715,516 - - - Other liabilities 467,346 453,677 50 13,619 - Employee Benefit Obligation 3,459 - - - 3,459

Off Balance Sheet Items Letters of credit 137,128 61,439 43,190 - 32,499 Financial Guarantees 83,411 6,344 21,769 52,611 2,687 Unrecognised Loan commitments 117,257 117,257 - - - 2,930,127 2,613,884 194,051 83,519 38,673 Net liquidity gap (245,966) (1,102,789) 356,688 69,653 430,482 v. Financial assets available to support future funding In the normal course of business, assets are sometimes pledged for specific purposes. The table below sets out the availability of the Bank’s financial assets to support future funding.

Encumbered Unencumbered Pledged as Available as Collateral collateral Other** Total 2017 GH¢000 GH¢000 GH¢000 GH¢000 Cash and cash equivalents - 816,783 - 816,783 Investment securities 263,771 598,417 - 862,188 Loans and advances to banks - 350,783 - 350,783 Loans and advances to customers - - 730,961 730,961 Other assets - 119,374 - 119,374

Total assets 263,771 1,885,357 730,961 2,880,089 2016 Cash and cash equivalents - 874,645 - 874,645 Investment securities 212,102 451,229 - 663,331 Loans and advances to banks - 288,038 - 288,038 Loans and advances to customers - - 752,906 752,906 Investment in other securities - - 3,377 3,377 Other assets - 101,864 - 101,864

Total assets 212,102 1,715,776 756,283 2,684,161

** Represents assets that are not restricted for use as collateral, but the Bank would not consider them as readily available to secure funding in the normal course of business.

In addition, the Bank has not received collateral that it is permitted to sell or re pledge in the absence of default.

76 UNIVERSAL MERCHANT BANK | 2017 Annual Report 4.4 Market Risks

Market risk is the risk that changes in market prices such as interest rate, equity prices, foreign exchange rates and credit spreads (not relating to changes in the obligor’s / issuer’s credit standing) will affect the bank’s income or the value of its holdings of financial instruments. The objective of the Bank’s market risk management is to manage and control market risk exposures within acceptable parameters to ensure the Bank’s solvency while optimising the return on risk.

The Bank’s exposure to market risk arises principally from customer driven transactions and pension obligations. The Bank does not engage in proprietary trading. a. Management of Market Risks Overall responsibility for management of market risk rests with Assets and Liability Committee (ALCO). The Risk Department is responsible for the development of detailed market risk management policies (subject to review and approval by ALCO) and for the day to day implementation of those policies. b. Foreign Exchange Risk The Bank operates wholly within Ghana and its assets and liabilities are carried in local and foreign currency. The Bank maintains trade with correspondent Banks and takes deposits and lends in foreign currencies. Assets and Liabilities denominated in foreign currencies are translated to cedis at the reporting date inter Bank rate. Gains and losses resulting from foreign currency transactions and translations are included in the profit for the year. The Bank is exposed to the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. The exchange rates used for translating the major foreign currency balances at the reporting date were as follows:

Average Rate Reporting Rate 2017 2016 2017 2016 GH¢ to GH¢ GH¢ GH¢ GH¢ USD 4.3562 3.9298 4.4157 4.2349 EUR 4.9629 4.3550 5.2964 4.4617 GBP 5.6657 5.3501 5.9669 5.2096 ZAR 0.3284 0.2678 0.3580 0.2460 CNY 0.6469 0.5931 0.6789 0.6094

Currency exposure at year end in cedi equivalent of the following major currencies

The table below summarises the Bank’s exposure to foreign currency exchange rate risk at balance sheet date.

Total USD GBP EURO Others 2017 GH¢000 GH¢000 GH¢000 GH¢000 GH¢000 Assets Cash and cash equivalents 154,339 122,414 14,527 16,473 925 Investment Securities 22,264 22,264 - - - Loans and advances to banks 100,741 100,741 - - - Loans and advances to customers 159,453 147,210 - 12,243 - Other assets 9,291 9,291 - - - Total assets 446,088 401,920 14,527 28,716 925

Liabilities Deposits from customers 340,042 296,729 12,745 30,568 - Borrowings 273,165 273,165 - - - Other liabilities 21,995 19,082 12 2,901 - Total liabilities 635,202 588,976 12,757 33,469 -

Net on balance sheet position (189,114) (187,056) 1,770 (4,753) 925

Off balance sheet credit commitments 217,193 211,793 - 5,400

UNIVERSAL MERCHANT BANK | 2017 Annual Report 77 Notes to the Financial Statements For The Year Ended 31 December 2017

Total USD GBP EURO Others 2016 GH¢000 GH¢000 GH¢000 GH¢000 GH¢000 Assets Cash and cash equivalents 85,676 77,298 4,788 3,073 517 Loans and advances to banks 121,362 102,285 3,379 15,524 174 Loans and advances to customers 256,369 243,486 1 12,882 - Leasing debtors - - - - - Other assets 68,744 67,596 1,148 - - Total assets 532,151 490,665 9,316 31,479 691

Liabilities Deposits from customers 355,139 314,373 9,995 30,771 - Due to Banks and other institutions - - - - - Borrowings 172,997 172,997 - - - Other liabilities 5,657 4,317 10 1,330 - Total liabilities 533,793 491,687 10,005 32,101 -

Net on balance sheet position (1,642) (1,022) (689) (622) 691

Off balance sheet credit commitments 145,865 123,620 3,482 18,763 - c. Foreign Exchange Sensitivity The following table shows the effect of a strengthening or weakening of GH¢ against all other currencies on profit or loss. This sensitivity analysis indicates the potential impact on profit or loss based on foreign currency exposures recorded at 31 December. (See “currency risk” above).

It does not represent actual or future gains or losses. The sensitivity analysis is based on the percentage difference between the highest daily exchange rate and the average exchange rate per currency recorded in the course of the respective financial year.

A strengthening/weakening of the GH¢, by the rates shown in the table, against the following currencies at 31 December would have impacted equity and profit or loss by the amounts shown below:

This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2016.

As of December 2017 2016 in GH¢ ’000 Profit or loss Equity Profit or loss Equity impact: impact: impact: impact: % Change Strengthening Strengthening % Change Strengthening Strengthening USD 7% 13,078,804 13,078,804 9% 6,126,211 6,126,211 EUR 10% 486,965 486,965 5% 30,636 30,636 GBP 8% 146,244 146,244 8% 148,207 148,207 CNY 7% 45,891 45,891 5% 31,842 31,842 ZAR 11% 28,351 28,351 15% 15,097 15,097

78 UNIVERSAL MERCHANT BANK | 2017 Annual Report d. Interest Rate Risk The principal risk to which the Bank’s non trading portfolios are exposed is the risk of loss from fluctuations in the future cash flows or fair values of financial instrument because of a change in market interest rates. The maturities of asset and liabilities and the ability to replace at an acceptable cost, interest bearing liabilities as they mature, are important factors in assessing the Bank’s exposure to changes in interest rates and liquidity.

Interest rate risk is managed principally through monitoring interest rate gaps and by having pre approved limits for repricing bands.

Interest rates on advances to customers and other risk assets are pegged to the Bank’s base lending rate. The base rate is adjusted from time to time to reflect the cost of funds.

The Assets and Liability Committee closely monitors the interest rate trends to minimise the potential adverse impact of interest rate changes. A summary of the Bank’s interest rate gap position on non trading portfolios is as follows:

Up to 1 mth 1- 3 mths 3-12 mths Over 1 yr Total Total Months Months Months Year 2017 GH¢000 GH¢000 GH¢000 GH¢000 GH¢000 Assets Cash and cash equivalents 224,303 107,717 - - 332,020 Investment securities 269,999 11,801 201,867 378,520 862,187 Loans and advances to banks 44,486 37,457 268,840 - 350,783 Loans and advances to customers 391,882 32,460 90,592 216,027 730,961 Total financial assets 930,670 189,435 561,299 594,547 2,275,951

Liabilities Interest bearing deposits 1,353,583 325,623 269,605 44 1,948,855 Borrowings 344,214 193,513 52,203 - 589,930 Total financial liabilities 1,697,797 519,136 321,808 44 2,538,785

Interest rate gap (767,127) (329,701) 239,491 594,503 (262,834)

Up to 1 mth 1 -3 mths 3 -12 mths Over 1 yr Total Total Months Months Months Year 2016 GH¢000 GH¢000 GH¢000 GH¢000 GH¢000 Assets Cash and cash equivalents 428,006 - - - 428,006 Investment securities 256,714 280,468 93,345 32,804 663,331 Loans and advances to banks - 255,325 32,713 - 288,038 Loans and advances to customers 390,791 16,676 46,225 294,999 748,691 Total financial assets 1,075,511 552,469 172,283 327,803 2,128,066

Liabilities Interest bearing deposits 65,280 205,222 141,457 27 411,986 Borrowings 304,000 385,997 - - 689,997 Total financial liabilities 369,280 591,219 141,457 27 1,101,983

Interest rate gap 706,231 (38,750) 30,826 327,776 1,026,083

UNIVERSAL MERCHANT BANK | 2017 Annual Report 79 Notes to the Financial Statements For The Year Ended 31 December 2017

Analysis of Bank’s sensitivity to market interest Standard scenarios that are considered on a monthly basis include a 100 and 50 basis point (bp) parallel fall or rise in market interest rates. A change of a 100 or 50 basis points in interest rates at the reporting date would have impacted equity and profit or loss by the amounts shown below:

Increase Decrease Increase Decrease 100bp 100bp 50bp 50bp Parallel Parallel Parallel Parallel 2017 GH¢000 GH¢000 GH¢000 GH¢000 At 31 December 26,757 21,892 25,541 23,108 Average for the period 19,626 16,058 18,734 16,950 Maximum for the period 26,757 21,892 25,541 23,108 Minimum for the period 14,688 12,017 14,020 12,685

2016 At 31 December 20,259 16,576 19,339 17,497 Average for the period 13,029 10,660 12,436 11,252 Maximum for the period 20,259 16,576 19,339 17,497 Minimum for the period 9,008 7,370 8,598 7,779 e. Market Risk Monitoring and Control The Bank’s Treasury department is responsible for monitoring the Bank’s exposure to market risk. The analysis of impact of unlikely but plausible events by means of scenario analysis enables management to gain a better understanding of risks that the Bank is potentially exposed to under adverse conditions. f. Compliance and Regulatory Risk Compliance and Regulatory risk includes the risk of non compliance with regulatory requirements. The Bank’s Compliance Unit is responsible for establishing and maintaining an appropriate framework of the Bank’s compliance policies and procedures. Compliance with such policies and procedures is the responsibility of all managers. However, the Compliance Unit monitors and reports on compliance to Executive Management and the Board. The Bank generally complied with regulatory requirements.

4.5 Operational Risks

Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Bank’s processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the Bank’s operations and are faced by all business entities. a. Management of Operational Risks The Bank’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Bank’s reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity.

The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management within each business unit. This responsibility is supported by the development of overall Bank standards for the management of operational risk in the following areas:

• requirements for appropriate segregation of duties, including the independent authorisation of transactions • requirements for the reconciliation and monitoring of transactions • compliance with regulatory and other legal requirements

80 UNIVERSAL MERCHANT BANK | 2017 Annual Report • documentation of controls and procedures Capital adequacy and the use of regulatory capital are monitored • requirements for the periodic assessment of operational daily by management, employing techniques based on risks faced, and the adequacy of controls and procedures to guidelines developed by the Basel Committee as implemented address the risks identified by Bank of Ghana for supervisory purposes. The required information is filed with Bank of Ghana on a monthly basis. Bank • requirements for the reporting of operational losses and of Ghana requires each bank to: proposed remedial action • development of contingency plans • Hold a minimum regulatory capital of GH¢120 million; and • training and professional development • Maintain a ratio of total regulatory capital to risk weighted • ethical and business standards assets plus risk weighted off balance sheet assets above a required minimum of 10%. • risk mitigation, including insurance where this is effective. The Bank generally complied with the minimum regulatory Compliance with the Bank’s standards is supported by a program of capital of GH¢120 million and met the minimum capital periodic reviews undertaken by Internal Audit division. The results adequacy ratio of 10% at the reporting date. of Internal Audit reviews are discussed with the management of the business unit to which they relate, with summaries submitted ii. Capital Adequacy to the Audit Committee and senior management of the Bank. Relevant rules and ratios of the Basel Accord on Banking 4.6 Capital Management supervision, which have been adopted by the Bank of Ghana are used in monitoring the adequacy of the Bank’s capitals. The The Bank of Ghana sets and monitors capital requirements for Capital Adequacy Ratio (CAR) at the reporting date is shown the Bank. The Bank’s objectives when managing capital are: below:

• To safeguard the Bank’s ability to continue as a going concern 2017 2016 so that it can continue to provide returns for the shareholders GH¢000 GH¢000 and benefits for the other stakeholders. Stated capital 208,800 208,800 • To maintain a strong capital base to support the current and future development needs of the business. Disclosed reserves 50,245 26,426 • To comply with the capital requirements set by the Bank of Income surplus (109,090) (127,702) Ghana. 149,955 107,524 Capital adequacy and use of regulatory capital are monitored by Deduct: management employing techniques based on the guidelines Intangibles/other assets (22,994) (10,742) developed by the Bank of Ghana for supervisory purposes. The required information is filed with the Bank of Ghana on a monthly Investment in subsidiaries and (1,118) (1,227) basis and the capital adequacy ratio on quarterly basis. associates Investment in capital of other (806) (806) i. Regulatory Capital Banks and financial institutions The Bank’s regulatory capital is analysed into two tiers: Net tier 1 capital 125,037 94,749 • Tier 1 capital includes Stated Capital, Disclosed Reserves and Permanent Non-Cumulative Reserves. Tier 2 capital • Tier 2 capital includes Revaluation Reserves and Subordinated Other reserves (31) (43) Term Debts Revaluation reserves 17,771 17,771 Non risk weighted assets are classified as cash on hand, claims Subordinated Term Debt 30,000 30,000 on government and claims on the Bank of Ghana. Risk weighted assets are determined according to specified requirements that 47,740 47,728 seek to reflect the varying levels of risk attached to assets and off Total regulated capital 172,777 142,477 balance sheet exposures.

The Bank’s policy is to maintain a strong capital base so as to Risk weighted assets maintain investor, creditor and market confidence and to sustain On balance sheet 1,227,823 1,052,888 future development of the business. The impact of the level of Off balance sheet 295,427 220,539 capital on shareholders’ return is also recognised and the Bank recognises the need to maintain a balance between the higher 50% of net open position 3,447 2,409 returns that might be possible with greater gearing and the 100% of previous 3 years 166,856 130,044 advantages and security afforded by a sound capital position. average annual gross income Various limits are applied to elements of the capital base. Total risk weighted assets 1,693,553 1,405,880 Qualifying tier 2 capital cannot exceed tier 1 capital; and qualifying term subordinated loan capital may not exceed 50 percent of tier 1 capital. Capital Adequacy Ratio (CAR) 10.20 10.13

UNIVERSAL MERCHANT BANK | 2017 Annual Report 81 Notes to the Financial Statements For The Year Ended 31 December 2017

New Minimum Capital Requirement 5. Fair Values Of Financial In September 2017, the Bank of Ghana announced a new Instruments minimum capital requirement, as part of a holistic financial sector reform plan to further develop, strengthen, and modernize the The fair values of financial assets and financial liabilities that are financial sector to support the government’s economic vision traded in active markets are based on quoted market prices or and transformational agenda. dealer price quotations. For all other financial instruments, the Bank determines fair values using other valuation techniques. In line with the above, and in accordance with Section 28 (1) of the Banks and Specialised Deposit Taking Institutions Act, 2016 For financial instruments that trade infrequently and have (Act 930), the Bank of Ghana (BOG) increased the minimum little price transparency, fair value is less objective, and capital requirement for commercial Banks from GHS 120 million requires varying degrees of judgment depending on to GHS 400 million. liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument. The Directive required all Banks to comply with the new capital requirement by the end of December 2018. Non compliance The Bank’s land and buildings are measured using the with the new minimum paid up capital requirement shall be dealt revaluation model. The revalued amounts are determined using with in accordance with section 33 of the Banks and Specialised open market values. Deposit Taking Institutions Act, 2016 (Act 930). i. Valuation models Banks are required to meet the new capital requirements using either of the following methods: The Bank measures fair values using the following fair value hierarchy, which reflects the significance of inputs used in making • Fresh capital injection; the measurements. • Capitalisation of income surplus; and • Level 1: inputs that are quoted market prices (unadjusted) in active markets for identical instruments. • A combination of fresh capital injection and capitalisation of income surplus. • Level 2: inputs other than quoted prices included within Level 1 that are observable either directly (i.e. as prices) or indirectly Universal Merchant Bank is considering renounceable right issue (i.e. derived from prices). This category includes instruments of shares to raise up to GHS300 million or merger/acquisition of valued using: quoted market prices in active markets for another Bank, as possible sources of funds to ensure compliance similar instruments quoted prices for identical or similar with the new requirement by December 2018. instruments in markets that are considered less than active or other valuation techniques in which all significant inputs are Basel directly or indirectly observable from market data. Bank of Ghana (BoG), in its bid to ensure the stability of the • Level 3: inputs that are unobservable. This category includes Ghanaian Banking Sector and keep pace with global develop- all instruments for which the valuation technique includes ment and growth in risk management practices rolled out, in inputs not based on observable data and the unobservable October 2017, a Capital Requirement Directive (CRD) which inputs have a significant effect on the instrument’s valuation. require banks to implement Pillar 1 principles of Basel II. BoG re- This category includes instruments that are valued based on quires banks to commence the implementation of the directive quoted prices for similar instruments for which significant from 1 January 2018 with an effective compliance date of 1 July unobservable adjustments or assumptions are required to 2018. reflect differences between the instruments. The Capital Requirement Directive has four main parts. The Valuation techniques include net present value and discounted first part provides principles for capital management and the cash flow models, comparison with similar instruments for which constituents of eligible regulatory capital. The second, third and market observable prices exist and other valuation models. fourth parts provide guidance on the role of the board in the Assumptions and inputs used in valuation techniques include management of credit, operational and market risk respectively. risk free and benchmark interest rates, credit spreads and other Guidelines for the computation of credit risk weighted asset, premiums used in estimating discount rates and foreign currency operational and market risk capital charges are also detailed in exchange rates and expected price volatilities and correlations. the CRD document. The objective of valuation techniques is to arrive at a fair value It is expected that the implementation of Basel principles will measurement that reflects the price that would be received to sell have a significant impact on the overall risk culture of banks the asset or paid to transfer the liability in an orderly transaction and will ultimately enhance the risk and capital management of between market participants at the measurement date. banks.

82 UNIVERSAL MERCHANT BANK | 2017 Annual Report i. Valuation models The Bank uses widely recognised valuation models for determining the fair value of common and more simple financial instruments that use only observable market data and require little management judgment and estimation. Availability of observable market prices and model inputs reduces the need for management judgement and estimation and also reduces the uncertainty associated with determining fair values. Availability of observable market prices and inputs varies depending on the products and markets and is prone to changes based on specific events and general conditions in the financial markets. ii. Valuation framework The objective of a fair value measurement is to estimate the price at which an orderly transaction to sell the asset or transfer the liability would take place between market participants at the measurement date under current market conditions. A fair value measurement requires an entity to determine all the following: a) The particular asset or liability that is the subject of measurement (consistently with the unit of account). b) The principal (or most advantageous) market for the asset or liability. c) The valuation technique(s) appropriate for the measurement, considering the availability of data with which to develop inputs that represent the assumptions that market participants would use when pricing the asset or liability and the level of the fair value hierarchy within which the inputs are categorised. The Bank has an established control framework with respect to the measurement of fair values. This framework includes a Valuation Support function which is in the Finance Unit but independent of the Financial Reporting function and reports to the Director of Finance and Administration that has overall responsibility for independently verifying the results of trading and investment operations and all significant fair value measurements. Specific controls include:

• Verification of observable pricing. • Re performance of model valuations. • A review and approval process for new models and changes to existing models involving both Finance and Risk management Departments. • Half yearly calibration and back testing of models against observed market transactions. • Analysis and investigation of significant daily valuation movements and • Review of significant unobservable inputs, valuation adjustments and significant changes to the fair value measurement of Level 3 instruments compared with the previous month, by Senior Finance and Risk management personnel. When third party information, such as broker quotes or pricing services, is used to measure fair value, the Finance Unit assesses and documents, the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS.

This includes:

Verifying that the broker or pricing service is approved by the Bank for use in pricing the relevant type of financial instrument.

Understanding how the fair value has been arrived at and the extent to which it represents actual market transactions.

Where prices for similar instruments are used to measure fair value, how these prices have been adjusted to reflect the characteristics of the instrument subject to measurement and

If a number of quotes for the same financial instrument have been obtained, how fair value has been determined using those quotes.

Significant valuation issues are reported to the Board Audit Committee. iii. Level 3 fair value measurements At the reporting date, the Bank had financial instruments on its statement of financial position whose fair value measurement were included in level 3 of the fair value hierarchy. f. Financial instruments not measured at fair value The following table sets out the fair values of financial instruments not measured at fair value in the statement of financial position, analysed by reference to levels in the fair value hierarchy into which each fair value measurement is categorised:

UNIVERSAL MERCHANT BANK | 2017 Annual Report 83 Notes to the Financial Statements For The Year Ended 31 December 2017

Total Fair Carrying 2017 Level l Level 2 Level 3 Value Amount Assets GH¢000 GH¢000 GH¢000 GH¢000 GH¢000 Cash and cash equivalents - 816,783 - 816,783 816,783 Investment securities - 862,188 - 862,188 862,188 Loans and advances to banks - 350,783 - 350,783 350,783 Loans and advances to customers - 730,961 - 730,961 730,961 Investment in other securities - 1,117 2,149 3,266 3,266 Other assets - 119,374 - 119,374 119,374 Total assets - 2,881,206 2,149 2,883,355 2,880,817

Liabilities Deposits from customers - 1,948,855 - 1,948,855 1,948,855 Borrowings - 589,930 - 589,930 589,930 Other liabilities - 233,438 - 233,438 233,438 - 2,772,223 - 2,772,223 2,772,223

2016 Assets Cash and cash equivalents - 874,645 - 874,645 874,645 Investment securities - 637,834 - 637,834 663,331 Loans and advances to banks - 288,038 - 288,038 288,038 Loans and advances to customers - 752,906 - 752,906 752,906 Investment in other securities - 1,227 2,150 3,377 3,377 Other assets - 101,864 - 101,864 101,864 Total assets - 2,656,514 2,150 2,658,664 2,690,985

Liabilities Deposits from customers - 1,406,009 - 1,406,009 1,406,009 Borrowings - 745,392 - 745,392 745,516 Other liabilities - 467,346 - 467,346 467,346 - 2,618,747 - 2,618,747 2,618,871

The fair value of investment securities is based on market prices or broker/dealer price quotations. Where this information is not available, fair value is determined using quoted market prices for securities with similar credit, maturity and yield characteristics.

Where applicable, the fair value of loans and advances to customers is based on observable market transactions. Where observable market transactions are not available, fair value is estimated using valuation models such as discounted cash flow techniques which represents the discounted amount of estimated future cash flows expected to be received. Expected cash flows are discounted at current market rates to determine the fair value. For collateral dependent impaired loans, the fair value is measured based on the value of the underlying collateral.

The fair value of advances due to and from Banks is based on discounted cash flow techniques applying the rates of similar maturities and terms.

84 UNIVERSAL MERCHANT BANK | 2017 Annual Report The fair value of term deposits by customers is estimated using discounted cash flow techniques, applying the rates that are offered for deposits of similar maturities and terms. The fair value of deposits payable on demand is the amount payable at the reporting date.

Fair values of borrowings are estimated using discounted cash flow techniques, applying rates that are offered for borrowings of similar maturities and terms.

No fair value disclosures are provided for investments in other equity securities that are measured at cost less any impairment losses because their fair values cannot be measured reliably. These investments are unquoted equity investments with no observable market data. There is no active market for these investments and the Bank does not intend to dispose off these investments in the foreseeable future.

6. Social Responsibilities 2017 2016 GH¢000 GH¢000 The Bank spent the following amounts in fulfilling Social responsibilities 67 212

Osu Night Market - 30 UG Alumni Association - 20 Korle - Bu Teaching Hospital - 10 SME Financing Fair - 10 3 laptops for 2017 UMB WAEC Distinction Awards 17 - Evelyn Dzivenu 50 - Others - 142

7. Interest Income 2017 2016 GH¢000 GH¢000 Financial assets measured at amortised cost Placements 169,579 70,082 Loans and advances 189,577 164,501 Leasing 21 89 Investment securities 102,067 68,658 461,244 303,330

Included in Interest Income from Loans and Advances for the year ended 31 December 2017 is a total of GH¢ 3 million (2016: GH¢ 3 million) accrued on impaired financial assets.

8. Interest Expense Financial liabilities measured at amortised cost 2017 2016 GH¢000 GH¢000 Deposits from customers 154,052 104,440 Borrowings 92,717 55,827 246,769 160,267

UNIVERSAL MERCHANT BANK | 2017 Annual Report 85 Notes to the Financial Statements For The Year Ended 31 December 2017

9. Fee and Commission Income 2017 2016 GH¢000 GH¢000 Financial assets measured at amortised cost Retail banking customer fees 35,723 23,752 Corporate banking 9,017 7,451 44,740 31,203 10. Fee and Commission Expense Financial assets measured at amortised cost Interbank transaction fees 1,028 1,983

11. Net Trading Income Foreign exchange 20,087 16,986 Others 325 129 20,412 17,115

12. Other Operating Income Bad debt recovered specific 57 15 Others 8,653 6,921 8,710 6,936

13. Operating Expenses Auditor’s remuneration 190 144 Administrative expenses 102,381 90,433 Advertisements 2,187 826 Donation 2,377 32 107,135 91,435

14. Personnel Expenses Salaries and emoluments 23,546 18,603 Contributions to defined contribution plans 5,505 3,859 End of Service Benefit contribution 1,284 874 Training expenses 776 718 Other allowances 29,442 22,869 Medical expenses 2,174 2,484 Director’s fees 893 909 63,620 50,316

The average number of persons employed during the period was 516 466

86 UNIVERSAL MERCHANT BANK | 2017 Annual Report 15. Impairment Expense 2017 2016 GH¢000 GH¢000 Specific (Note 22c) 21,956 7,457 Collective (Note 22d) 7,353 3,128 Leasing specific (5) (4) Write off - - Other Bad debts 501 613 At 31 December 29,805 11,194

16. Other Income Profit on sale of asset (Note 26b) 1 - Miscellaneous income/Others 30 341 31 341

17. Income Tax

17a . Tax Charged to Statement Of Comprehensive Income Current income tax (note 17b) 19,634 5,074 National stabilisation levy (note 17b) 3,433 - Deferred tax income(note 17c) (2,201) 1,956 Total 20,866 7,030

17b. Movement on Income Tax Balance Payments Charge for Balance 1/1/2017 during year the year/ 12/31/2017 GH¢000 adjustment GH¢000 GH¢000

Year of assessment Up to 2016 1,068 - - 1,068 2017 - (19,532) 19,634 102 1,068 (19,532) 19,634 1,170

National Stabilisation Levy

Year of assessment Up to 2016 (543) - - (543) 2017 - (3,373) 3,433 60 (543) (3,373) 3,433 (483)

Total 525 (22,905) 23,067 687

UNIVERSAL MERCHANT BANK | 2017 Annual Report 87 Notes to the Financial Statements For The Year Ended 31 December 2017

The tax positions up to the 2016 year of assessment have been agreed with the tax authorities. The tax position for the 2017 year of assessment is yet to be agreed with the tax authorities. The National Fiscal Stabilisation Levy Act, 2013 (862) was introduced in 2013 and is effective prospectively from July 2013 with an eighteen (18) months tenure. On 31 December 2014, Act (862) was amended by Act (882) to extend the date of expiration of the national fiscal stabilisation levy and to provide for related matters. Under the amendment Act, the levy is payable in respect of profit before tax for the 2013 to 2017 years of assessment. 17c. Deferred Tax 2017 2016 GH¢000 GH¢000 Balance at 1 January 2,460 863 (Release)/ Charge for the year (2,184) 1,597 Balance at 31 December 276 2,460 17d. Deferred Tax breakdown Balance Movements Balance 1/1/2017 during year 12/31/2017 GH¢000 GH¢000 GH¢000 Recognised in Profit and Loss Accelerated depreciation 3,128 1,633 4,761 Impairment on loans and advances (1,868) (1,838) (3,706) Other items in profit and loss (1,104) (1,996) (3,100) 156 (2,201) (2,045) Recognised in OCI Actuarial gains 85 7 92 Revaluation gain on land & building 2,219 - 2,219 Fairvalue gain or loss - 10 10 2,304 17 2,321

Net deferred tax liability/(asset) 2,460 (2,184) 276

Balance Movements Balance 1/1/2016 during year 12/31/2016 GH¢000 GH¢000 GH¢000 Recognised in Profit and Loss Accelerated depreciation (4,310) 4,310 - Impairment on loans and advances (1,086) (782) (1,868) Impairment on leasing (1) 1 - Other items in profit and loss 3,597 (1,573) 2,024 (1,800) 1,956 156 Recognised in OCI Actuarial gains 444 (359) 85 Revaluation gain on land & building 2,219 - 2,219 2,663 (359) 2,304

Net deferred tax liability 863 1,597 2,460 A reconciliation of the tax charge that would result from applying the corporation tax rate in Ghana to profit before tax to tax charge for the year is given as follows:

88 UNIVERSAL MERCHANT BANK | 2017 Annual Report 17e. Reconciliation of Effective Tax Rate 2017 2016 GH¢000 GH¢000 Profit/(Loss) before tax 68,656 27,387

Income tax using the domestic tax rate (25%) 17,164 6,847 Non deductible expenses 7,375 9,098 Tax exempt income (735) (9,056) Income subjected to tax at a different rate 1,731 (188) Tax Incentive (4,669) - 20,866 6,701 Effective Tax Rate 0.30 0.24

18. Cash and Cash Equivalents 2017 2016 GH¢000 GH¢000 Cash on hand 129,524 70,330 Balances with Bank of Ghana 219,557 197,299 Items in the course of collection 19,204 59,980 Other nostro balances 116,479 119,031 Cash and Bank balances 484,764 446,640 Short term placements 332,020 428,005 Cash and cash equivalents 816,784 874,645

19. Investment Securities 2017 2016 GH¢000 GH¢000 Treasury bills/notes 862,188 663,331

At 1 January 663,331 257,332 Additions 838,206 643,923 Redeemed on maturity (663,331) (257,332) Accrued income 23,982 19,408 At 31 December 862,188 663,331 Maturing within 90 days of acquisition 249,720 444,336 Maturing after 90 days but within 182 days 40,460 142,475 Maturing after 182 days of acquisition 572,008 76,520 862,188 663,331 There was no indication of impairment of investment securities held at the reporting date and similar date at prior year.

UNIVERSAL MERCHANT BANK | 2017 Annual Report 89 Notes to the Financial Statements For The Year Ended 31 December 2017

20. Loans and Advances to Banks 2017 2016 GH¢000 GH¢000 Placement with other Banks & other financial institutions 350,783 288,038

Maturing within 12 months 350,783 288,038

21. Investment in Other Securities 2017 2016 GH¢000 GH¢000 Comprising Unlisted equity securities 2,150 2,150 Associates (note 24) 1,118 1,227 3,268 3,377 The Bank has investments in the following entities:

Country of Percentage Name Nature of Business Incorporation Interest i. City Car Park Limited To implement and manage multi storey car Ghana 14.80% park in Central Accra

ii. West African Guarantee Fund (GARI) To support private sector through the Togo 0.83% provision of partial guarante

22a. Loans and Advances to Customers 2017 2016 GH¢000 GH¢000 Term Loans 374,303 478,568 Overdrafts 436,493 324,648 Leasing debtors (note 23) 147 368 810,943 803,584 Impairment allowance (note 22b) (79,982) (50,678) Net loans and advances 730,961 752,906

a. Loans and advances to customers and staff 810,796 803,216 b. 50 largest exposures to total exposures 75% 87%

90 UNIVERSAL MERCHANT BANK | 2017 Annual Report 22b. Movement in Impairment Allowance 2017 2016 GH¢000 GH¢000 Balance at 1 January 50,527 40,193 Amounts written off against impairment (251) Increase in impairment 29,309 10,585 Balance at 31 December 79,836 50,527

22c. Specific Allowance for Impairment 2017 2016 GH¢000 GH¢000 Balance at 1 January 43,056 35,850 Amounts written off against impairment - (251) Increase in impairment 21,956 7,457 Balance at 31 December 65,012 43,056

22d. Collective Allowance for Impairment

Balance at 1 January 7,471 4,343 Increase in impairment 7,353 3,128 Balance at 31 December 14,824 7,471

22e. Gain/ (Loss) on de recognition The Bank in 2016 derecognised some loans whose terms were significantly modified as a result of restructuring arrangement. The analysis of the gains/ (loss) from the de recognition are shown below: 2017 2016 GH¢000 GH¢000 Gross loans and advances Gross loans and advances - 127,949 Impairment allowance - (14,296) Net loans and advances - 113,653 Restructured amount - (110,653) Loss on derecognition - 3,000

UNIVERSAL MERCHANT BANK | 2017 Annual Report 91 Notes to the Financial Statements For The Year Ended 31 December 2017

23. Leasing Debtors 2017 2016 GH¢000 GH¢000 Leasing debtors 147 368 Gross leasing debtors 147 368

Impairment allowance – Specific (147) (149) - Collective (2) Released on disposals - - Allowance for impairment (147) (151)

Net leasing debtors - 217

24. Investment In Associates

At 1 January 1,227 1,177 Share of associates’ fair value gain/(loss) 42 (37) Share of associates’ profit/(loss) (151) 87 At 31 December 1,118 1,227

The Bank has three associates that are equity accounted for. They are UMB Investment Holdings Limited (UMBIHL); UMB Stockbrokers Limited (UMBSL) and Strategic Debt Solutions Limited (SDSL).

UMB Investment UMB Stockbrokers Limited Strategic Debt Solutions Holdings Limited Limited (SDSL) The relationship with the Common control, no direct Common control, no direct Common control, no direct Bank relationship to the Bank’s relationship to the Bank’s relationship to the Bank’s operations operations operations Principal place of business/ Accra, Ghana Accra, Ghana Accra, Ghana country of incorporation Ownership interest/voting 25% 25% 25% rights

92 UNIVERSAL MERCHANT BANK | 2017 Annual Report 24. Investment In Associates (Cont’d)

Extract from the Financial Statements of Associates UMBIHL UMBSL SDSL Total 2017 2016 2017 2016 2017 2016 2017 2016 GH¢000 GH¢000 GH¢000 GH¢000 GH¢000 GH¢000 GH¢000 GH¢000

Revenue 10,198 5,992 509 311 1,647 786 12,354 7,089

Profit/Loss from continuing operations 372 791 37 (361) (1,013) (83) (604) 347 Other comprehensive income /(Loss) 104 (117) 63 (32) - - 167 (149) Total comprehensive income/Loss 476 674 100 (393) (1,013) (83) (437) 198 Attributable to investee’s shareholders 476 674 100 (393) (1,013) (83) (437) 198

Total assets 10,061 16,057 2,848 1398 867 384 13,776 17,839 Total Liabilities (5,026) (11,320) (1,289) (909) (2,027) (417) (8,342) (12,646) Net Asset 5,035 4,737 1,559 489 (1,160) (33) 5,434 5,193 Attributable to 5,035 4,737 1,559 489 (1,160) (33) 5,434 5,193 investee’s shareholders

Banks interest in net 1,200 1,032 35 132 (8) 13 1,227 1,177 assets at 1 January Total comprehensive 119 168 25 (97) (253) (21) (109) 50 income/loss to the Bank Bank’s interest at 31 1,319 1,200 60 35 (261) (8) 1,118 1227 December

UNIVERSAL MERCHANT BANK | 2017 Annual Report 93 Notes to the Financial Statements For The Year Ended 31 December 2017

25. Other Assets 2017 2016 GH¢000 GH¢000 Account receivable 114,039 114,685 Prepaid expenses 28,329 17,567 142,368 132,252 26a. Property and Equipment Land and Office Motor Capital Total Building Furniture & Vehicle Work In Equipment Progress Cost/Revalued amount GH¢000 GH¢000 GH¢000 GH¢000 GH¢000 Balance at 1 January 2017 14,500 73,521 6,516 9,332 103,869 Additions 5,644 12,536 1,003 (1,756) 17,427 Disposal/Transfers - - (168) - (168) Balance at 31 December 2017 20,144 86,057 7,351 7,576 121,128

Depreciation Balance at 1 January 2017 830 39,555 1,827 - 42,212 Charge for the year 508 12,520 1,256 - 14,284 Adjustment - (171) - - (171) Disposal - - (45) - (45) Balance at 31 December 2017 1,338 51,904 3,038 - 56,280

Net book value At 31 December 2017 18,806 34,153 4,313 7,576 64,848 At 31 December 2016 13,670 33,966 4,689 9,332 61,657

There was no indication of impairment of property and equipment held by the Bank at 31 December 2017 (2016: nil). None of the property and equipment of the Bank had been pledged as securities for liabilities and there were no restrictions on the title of any of the Bank’s property and equipment at the reporting date and at the end of the previous year.

Contractual commitment for the acquisition of property and equipment.

There was no contractual commitments for the acquisition of property and equipment in 31 December 2017 and 31 December 2016.

26b. Disposal of Property and Equipment 2017 2016 GH¢000 GH¢000 Cost 168 - Accumulated depreciation 45 - Net book value 123 - Sales proceeds (124) - Gain on disposal (1) -

94 UNIVERSAL MERCHANT BANK | 2017 Annual Report 27. Intangible Assets 2017 2016 GH¢000 GH¢000 Cost/valuation Balance at 1 January 19,745 6,678 Additions 4,410 13,082 Adjustment - (15) Balance at 31 December 24,155 19,745

Amortisation Balance at 1 January 6,010 3,568 Charge for the year 3,840 2,442 Balance at 31 December 9,850 6,010

Net book value 14,305 13,735

Intangible Assets represent Computer Software. There was no indication of impairment of intangible assets held by the Bank at the reporting date and at the end of the previous year.

28. Deposits From Customers 2017 2016 GH¢000 GH¢000 Current accounts 1,051,540 863,166 Savings accounts 146,115 109,326 Time deposits 751,200 433,517 1,948,855 1,406,009

Analysis by Type of Depositor:

Individuals and private enterprises 1,264,976 716,187 Public enterprises 308,331 418,695 Financial institutions 375,548 271,127 1,948,855 1,406,009

Maturing within 12 months 1,948,811 1,405,981 Maturing after 12 months 44 28 1,948,855 1,406,009 a. 20 largest depositors to total deposit ratio 48% 42%

UNIVERSAL MERCHANT BANK | 2017 Annual Report 95 Notes to the Financial Statements For The Year Ended 31 December 2017

29. Borrowings 2017 2016 GH¢000 GH¢000 Loans from banks 343,172 529,740 Due to other institutions 216,758 185,776 Subordinated debt 30,000 30,000 589,930 745,516 Loans from banks represents borrowings of GHS 150 million, GHS 20 million, GHS 10 million among others from Bank of Ghana, National Investment Bank and ARP Apex Bank. These loans have a tenor of 91 days, 365 days and 4 days respectively and may be renewed on expiry. Interest for these facilities, are at the rate of 21%, 20% and 19.21% per annum respectively. Principal plus any outstanding interest are payable on maturity.

Loans from other institutions represent borrowings of GHS 85 million and USD 29 million obtained from Social Security and National Insurance Trust (SSNIT) and Ghana National Petroleum Company (GNPC) respectively. Interest rates charged on these loans were 17.5% and 6% respectively. Both loans are for a period of 14 days and 91 days respectively and may be renewed on expiry. Principal plus any outstanding interest are payable on maturity.

Subordinated debt represents a convertible debt of GHS 30 million, obtained from Fortiz Private Equity Fund for a period of 5 years. Interest rate on this facility is at 18% per annum. The instrument could be converted at any time at a mutually agreed price between the borrower and the lender.

30. Other Liabilities 2017 2016 GH¢000 GH¢000 Creditors & Accruals 38,541 38,568 Bills Payable 19,645 21,150 Cash margins 49,366 19,048 Funds held in trust 121,951 388,579 229,503 467,345 Funds held in trust represents funds that the Bank has received for custody on behalf of other parties

31. Stated Capital 2017 2016 Number of Shares Number of Shares Authorised: Number of Ordinary Shares of no par value 20,000,000 20,000,000

Issued: 2017 2016 2017 2016 Number of Number of GH¢000 GH¢000 Shares Shares Issued for cash 5,948,169 5,948,169 140,005 140,005 Capitalisation issue 98,750 98,750 24,995 24,995 Amount paid other than cash 127,264 127,264 43,800 43,800 6,174,183 6,174,183 208,800 208,800 a. There is no unpaid liability on any share and there is no share in treasury.

96 UNIVERSAL MERCHANT BANK | 2017 Annual Report 32. Revaluation Reserves 2017 2016 GH¢000 GH¢000 Balance at 1 January 17,771 17,771 Balance at 31 December 17,771 17,771

33. Credit Risk Reserve 2017 2016 GH¢000 GH¢000 Balance at 1 January 39,415 10,473 Transfer from income surplus 5,208 28,942 Balance at 31 December 44,623 39,415

This represents a transfer from / to income surplus of an amount representing the excess of provision made under Bank of Ghana prudential norms over the impairment allowance made under IFRS impairment principles.

34. Statutory Reserve Fund 2017 2016 GH¢000 GH¢000 Balance at 1 January 26,426 16,042 Transfers from income surplus 23,819 10,384 Balance at 31 December 50,245 26,426

This represents amounts set aside as a non distributable reserve from annual profits in accordance with section 34 of the Banks and Specialised Deposit Taking Institution Act, 2016 (Act 930).

35. Available For Sale Reserve 2017 2016 GH¢000 GH¢000 Balance at 1 January (40) (3) Share of fair value loss in associates 42 (37) Deferred tax (10) (8) (40)

36. Other Reserves 2017 2016 GH¢000 GH¢000 Balance at 1 January (43) 1,032 Actuarial gain/(loss) 27 (1,434) Deferred Tax (7) 359 Balance at 31 December (23) (43) Other reserves represent actuarial gains and losses on pension obligations recognised through other comprehensive income.

UNIVERSAL MERCHANT BANK | 2017 Annual Report 97 Notes to the Financial Statements For The Year Ended 31 December 2017

37. Contingencies And Commitments

Off balance sheet items As part of normal banking practice, the Bank engages in business activities involving acceptances, performance bonds and indemnities. The majority of these facilities are offset by corresponding obligations of third parties, the nominal amounts of which are not reflected in the statements of financial position.

Nature of instruments An acceptance is an undertaking by a Bank 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.

Other contingent liabilities include transactions related customs and performance bonds and are generally short term commitments to third parties.

Commitments to lend to a customer in the future are made subject to certain conditions. Such commitments are either made for a fixed period or agreed maturity dates but are cancellable by the lender subject to notice requirements. Documentary credits commit the Bank to make payments to third parties on the production of documents, which are usually reimbursed immediately by customers.

Customers are required to deposit cash in a margin account in respect of documentary and commercial letters of credit.

The following summarise the nominal principal amounts of contingent liabilities and commitments with off balance sheet risks. 2017 2016 GH¢000 GH¢000 Letters of credit 194,823 148,062 Guarantees and indemnities 107,216 85,929 Gross Exposure 302,039 233,991 Cash cover (6,612) (13,451) Net Exposure 295,427 220,540 Unrecognised loan commitments 42,769 117,257 338,196 337,797

Legal proceedings There were a number of legal proceedings pending against the Bank at 31 December 2017 and 2016. Some of these cases have been brought against the Bank by former employees, customers and others. Potential liabilities that may arise should the cases be decided against the Bank are estimated at GH¢85m (2016: 103m).

38. Related Parties

• Transactions with Executive Directors and key management personnel Key management personnel are defined as those persons having authority and responsibility for planning, directing and controlling the activities of the Bank (directly or indirectly) and comprise the Directors and senior management of Universal Merchant Bank Limited.

There were no material transactions with companies in which a Director or other members of key management personnel (or any connected person) is related.

No provisions have been made in respect of loans to Directors or other members of key management personnel (or any connected person).

98 UNIVERSAL MERCHANT BANK | 2017 Annual Report Remuneration of Executive Directors and other key management personnel 2017 2016 GH¢000 GH¢000 Salaries and other short term benefits 7,159 6,248

2017 2016 GH¢000 GH¢000 Loans Loans outstanding at 1 January 417 451 Net movement during the year 319 (34) Loans outstanding at 31 December 736 417

Deposit Deposits at 1 January 123 362 Net movement during the year 18 (239) Deposits at 31 December 141 123

Loans to Executive Directors and key management personnel include car and other personal loans which are given under terms that are no more favourable than those given to other staff. Interest rates charged on balances outstanding from related parties are a tenth of the rates that would be charged in an arm’s length transaction. All other transactions with related parties are at an arm’s length.

No impairment has been recognised in respect of loans granted to Executive Directors and key management personnel at 31 December 2017 and 2016. The car loans are secured by the underlying assets. All other loans are unsecured.

No loans were advanced to non executive Directors during the year. There were no balances outstanding on account of loans due from non executive Directors at the reporting date. b. Transactions with Parent Company:

The transactions between the Bank and its parent, Fortiz Private Equity Fund Limited, during the year were as follows: Amount due from Fortiz represents outstanding balances in relation to assets sold by the Bank to Fortiz in 2015 2017 2016 GH¢000 GH¢000 Subordinated Debt 30,000 30,000 Amount receivable from Fortiz 60,437 60,437

• Transactions with other related parties are shown below: TV3 and Parkway are companies that are related to the Bank through common ownership. Amount due from Parkway Developers Limited represents outstanding balances in relation to assets sold by the Bank to Fortiz in 2015

2017 2016 Advances including the following amounts were lent to Related Parties: GH¢000 GH¢000 Other Shareholders (SIC Life) 64 2,506 TV3 29,524 22,064 Parkway Developers Ltd 13,008 9,569 Officers and other employees 11,010 15,809 53,606 49,948

Maximum amount due from officers of the company 12,476 16,227

Amount due from other related parties Amount due from Parkway 15,878 17,346

UNIVERSAL MERCHANT BANK | 2017 Annual Report 99 Notes to the Financial Statements For The Year Ended 31 December 2017

40. Provision for Employee Leave Days Outstanding 2017 2016 GH¢000 GH¢000 Balance at 1 January 1,963 1,142 Additional provision during the year - 821 Payments during the year (473) - Write back - - Balance at 31 December 1,490 1,963

41. Details Of Shareholding Holding Number of Shares 2017 2016 2017 2016 Name of Shareholder a. Fortiz Private Equity Fund Limited 96% 96% 5,927 5,927 b. Social Security And National Insurance Trust (SSNIT) 3.59% 3.59% 222 222 c. SIC Life Company Limited 0.41% 0.41% 25 25 Number of shares in thousands 100% 100% 6,174 6,174

42. Employee Benefits

Post employment and long term benefit plan Apart from the legally required social security scheme, the Bank contributes to the following post employment defined benefit plans.

• Plan A long service awards accrue to employees based on graduated periods of uninterrupted service. • Plan B The Bank also pays post retirement medical care of its staff for two years after retirement or voluntary exit These defined benefit plans expose the Bank to actuarial risks, such as longevity risk, interest rate risk and market (investment risk).

2017 2016 Movement in defined benefit liability GH¢000 GH¢000 Balance at 1 January 3,459 1,231 Included in profit and loss Current service cost 212 218 Interest cost 683 808 Included in other comprehensive income Re measurement of loss (gain) Actuarial loss (gain) arising from: - - Experience (27) 1,434 Benefit paid (391) (232) Balance at 31 December 3,936 3,459

100 UNIVERSAL MERCHANT BANK | 2017 Annual Report Actuarial assumptions 2017 2016 % % Discount rate 19.75 19.10 Future salary growth 10.00 11.00 Medical inflation 11.75 16.50

Sensitivity Analysis Reasonably possible changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligation by the amounts shown below. Increase Decrease GH¢000 GH¢000 Discount rate (1% movement) 3,768 3,441 Medical inflation (1% movement) 297 374 Although the analysis does not take into account the full distribution of cash flows expected under the plans, it does provide an approximation of the sensitivity of the assumptions shown.

43. Classification of Financial Instruments

Designated Held to Available Loans & Financial Total at Fair Value Maturity for Receivables Liabilities Profit or Sale Amortised Loss at Cost Assets GH¢000 GH¢000 GH¢000 GH¢000 GH¢000 GH¢000 Cash and cash equivalents - - - 816,784 - 816,784 Investment securities - 862,188 - - - 862,188 Loans and advances - - - 350,783 - 350,783 Investment in other securities - 2,150 1,118 - - 3,268 Loans and advances to - - - 730,961 - 730,961 customers Other assets - - - 119,374 - 119,374 Total at 31 Dec 2017 - 864,338 1,118 2,017,902 - 2,883,358

Liabilities Deposits from customers - - - - 1,948,855 1,948,855 Borrowings - - - - 589,930 589,930 Other liabilities - - - - 229,503 229,503 Employee benefit obligations - - - - 3,936 3,936 Total at 31 Dec 2017 - - - - 2,772,224 2,772,224

Assets Cash and cash equivalents - - 874,645 - 874,645 Investment securities - 663,331 - - - 663,331 Loans and advances - - - 288,038 - 288,038 Investment in other securities - 2,150 1,227 - - 3,377 Loans and advances to - - - 752,906 - 752,906 customers Other assets - - - 101,864 - 101,864 Total at 31 Dec 2016 - 665,481 1,227 2,017,453 - 2,684,161

UNIVERSAL MERCHANT BANK | 2017 Annual Report 101 Notes to the Financial Statements For The Year Ended 31 December 2017

43. Classification Of Financial Instruments (Cont’d)

Designated Held to Available Loans & Financial Total at Fair Value Maturity for Receivables Liabilities Profit or Sale Amortised Loss at Cost Liabilities Deposits from customers - - - - 1,406,009 - Borrowings - - - - 715,516 - Other liabilities - - - - 471,991 - Employee benefit obligations - - - - 3,459 - Total at 31 Dec 2016 - - - - 2,596,975 -

44. New Standards And Interpretations Not Yet Adopted

A number of new standards and amendments to standards are effective for annual periods beginning on or after 31 December 2017 and have not been applied in preparing the financial statements. Those which may be relevant to the Bank are set out below. The Bank does not plan to adopt these standards early. These will be adopted in the period that they become mandatory unless otherwise indicated:

Effective for the financial year commencing 1 January 2018

• IFRS 15 Revenue from Contracts with Customers • IFRS 9 Financial Instruments • Classification and Measurement of Share based Payment Transactions (Amendments to IFRS 2) • Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (Amendments to IFRS 4) • Transfers of Investment property (Amendments to IAS 40) • IFRIC 22 Foreign Currency Transactions and Advance Considerations

Effective for the financial year commencing 1 January 2019

• IFRS 16 Leases • IFRIC 23 Uncertainty over Income Tax Treatments • Prepayment Features with Negative Compensation (Amendments to IFRS 9) • Long term Interests in Associates and Joint Ventures (Amendment to IAS 28) Effective for the financial year commencing 1 January 2021

• IFRS 17 Insurance Contracts All Standards and Interpretations will be adopted at their effective date except for those Standards and Interpretations that are not applicable to the entity.

Amendments to IFRS 2, 4, 40 and IFRS 17 are not applicable to the business of the Bank and will therefore have no impact on future financial statements. The directors are of the opinion that the impact of the application of the remaining Standards and Interpretations will be as follows:

IFRS 9 Financial Instruments

On 24 July 2014, the IASB issued the final IFRS 9 Financial Instruments Standard, which replaces earlier versions of IFRS 9. IFRS 9 is effective for annual periods beginning on or after 1 January 2018 with early adoption permitted. The Bank currently plans to apply IFRS 9 initially on 1 January 2018.

102 UNIVERSAL MERCHANT BANK | 2017 Annual Report IFRS 9 impairment strategy

The Bank’s IFRS 9 implementation process is governed by an implementation Committee whose members include representatives from Risk, Finance, Internal audit, Treasury and IT functions. The implementation committee meets at least fortnightly or as agreed by committee members. The terms of reference of the committee include;

• Ensuring that the Bank implements IFRS 9 successfully • Identifying gaps (systems, tools, processes, etc) in the Bank’s current set up and proffer solutions on how to bridge the gap • Identify knowledge and skill gaps and propose training and development programmes • Liaise with the Bank of Ghana, auditors and other stakeholders towards meeting the requirements of IFRS 9 • Provide updates on IFRS 9 project to the Board and Executive Management • Any other activities that will ensure a smooth implementation of IFRS 9 The Bank has completed the preliminary impact assessment and most of the accounting analysis and has commenced work on the design and build models, processes and controls.

IFRS 9 impairment strategy

The Bank will apply IFRS 9 as issued in July 2014 initially on 1 January 2018. Based on the assessments undertaken to date, the total estimated adjustment (net of tax) of the adoption of IFRS 9 on the opening balance of the Bank’s equity at 1 January 2018 is approximately GHS 10.76m representing about 5% change.

The above assessment is preliminary because not all transition work has been finalised. The actual impact of adopting IFRS 9 on 1 January 2018 may change because:

• IFRS 9 will require the Bank to revise its accounting processes and internal controls and these changes are not yet complete • Although parallel runs were carried out in the last quarter of 2017, the new system has not been operational for a more extended period • The Bank has not finalised the testing and assessment of controls over changes in its governance framework • The Bank is refining and finalising its models for ECL calculation • The new accounting policies, assumptions, judgements and estimation techniques are subject to change until the Bank finalises its first financial statements that include the date of initial application. Impact Assessment

The most significant impact on the Bank’s financial statements from the implementation of IFRS 9 is expected to result from the new impairment requirements. Impairment losses will increase and become more volatile for financial instruments in the scope of the IFRS 9 impairment model.

The Bank has estimated that, on the adoption of IFRS 9 at 1 January 2018, the impact of the increase in loss allowance (before tax) will be approximately be GHS 18m.

Estimated Impact on adoption of IFRS 9

As at 31 Estimated adjustment on Estimated adjusted December 2017 adoption of IFRS 9 opening balance at 1 January 2018 GH¢000 GH¢000 GH¢000 Income surplus (109,090) 7,024 (102,066) Statutory Reserve 50,245 (11,738) 38,507 Statutory credit risk reserve 44,623 (18,764) 25,859 Available for sale reserve (8) - (8) Other Reserve (23) - (23)

UNIVERSAL MERCHANT BANK | 2017 Annual Report 103 Notes to the Financial Statements For The Year Ended 31 December 2017

Classification – Financial Assets Assessment of whether contractual cash flows are solely payments of principal and interest IFRS 9 contains a new classification and measurement approach for financial assets that reflects the business model in which assets For the purpose of this assessment, “principal” is defined as the are managed and their cash flow characteristics. fair value of the financial asset on initial recognition. ‘Interest’ is defined as consideration for the time value of money, for the IFRS 9 contains three principal classification categories for credit risk associated with the principal amount outstanding financial assets: measured at amortised cost, fair value through during a particular period of time and for other basic lending risks other comprehensive income (FVOCI) and fair value through and cost (eg liquidity risk and administrative costs), as well as a profit or loss (FVTPL). The standard eliminates the existing IAS 39 profit margin. categories of held to maturity, loans and receivables and available for sale. In assessing whether contractual cash flows are solely payments of principal and interest, the Bank will consider the contractual A financial asset is measured at amortised cost if it meets both the terms of the instrument. This will include assessing whether the following conditions and is not designated as at FVTL: financial asset contains a contractual term that could change the timing or amounts of contractual cash flows such that it would • It is held within a business model whose objective is to hold not meet this condition. assets to collect contractual cash flows; • Its contractual terms give rise on specified dates to cash flows The Bank has the ability to change the interest rates on variable that are solely payments of principal and interest (SPPI) on the rate loans at its discretion. The discretionary rate compensates for principal amount outstanding. basic lending costs and allows the Bank to remain competitive in the industry. In this case the Bank will assess whether discretionary A financial asset is measured at FVOCI only if it meets both of the feature is consistent with the SPPI criterion by considering a following conditions and is not designated as at FVTPL: number of factors, including: • It is held within a business model whose objective is achieved • The borrowers ability to repay the loans without significant by both collecting contractual cash flows and selling financial penalties assets; and • The market conditions ensures that interest rates are • Its contractual terms give rise on specified dates to cash flows consistent between banks; and that are solely payments of principal and interest on the principal amount outstanding • Any regulatory or customer protection framework is in place that requires Banks to treat customers fairly. Some of the Bank’s loans contain prepayment features. The Financial assets not classified as measured at amortised cost or borrower has the ability to early prepay (without paying any fees) FVOCI as described above are measured at FVTPL. In addition, on and refinance the loan with another lender if they find these rates initial recognition the Bank may irrevocably designate a financial uncompetitive. asset that otherwise meets the requirements to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates A prepayment feature is consistent with the SPPI criterion if the or significantly reduces an accounting mismatch that would prepayment amount substantially represents unpaid amounts of otherwise arise. principal and interest on the principal amount outstanding, which may include reasonable compensation for early termination of A financial asset is classified into one of these categories on initial the contract. recognition. Impact Assessment Business Model assessment: The standard will affect classification and measurement of The Bank will make an assessment of the objective of the business financial assets held at 1 January 2018 as follows: model in which a financial asset is held at a portfolio level because • Trading assets, which are classified as held for trading and this best reflects the way the business is managed and information measured at FVTL under IAS 39, will also be measured at is provided to management. FVTPL under IFRS 9. Financial assets that are held for trading and those that are • Loans and advances to Banks and to customers that are managed and whose performance is evaluated on a fair value classified as loans and receivables and measured at amortised basis will be measured at FVTL because they are neither held to cost under IAS 39 will in general be measured at amortised collect contractual cash flows nor held both to collect contractual cost under IFRS 9 cash flows and to sell financial assets.

104 UNIVERSAL MERCHANT BANK | 2017 Annual Report • Held to maturity securities (Government of Ghana bills) Impact on Capital planning measured at amortised cost under IAS 39 will in general be measured at amortised cost under IFRS 9. BoG recommended that Banks should compare CET1 capital • Investment securities designated as at FVTPL under IAS 39 based on the opening statement of financial position using ECL would in general continue to be so designated under IFRS 9. accounting with CET1 capital based on the closing statement of financial position (ie the day prior to the opening day) under the • Equity Securities classified as available-for-sale under IAS 39 existing incurred loss accounting approach. Where this shows would generally be measured at FVTPL under IFRS 9. a reduction in CET1 capital due to an increase in provisions, net Impairment – Financial assets, loan commitments and of tax effect, the decline in CET1 capital would be spread for financial guarantee contracts regulatory purposes over two years.

IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with a forward The Bank has estimated that on adoption of IFRS 9, the impact on looking ‘expected credit loss’ model. This will require considerable regulatory capital will be approximately GH¢171m. judgement over how changes in economic factors affect ECLs, which will be determined on a probability weighted basis. IFRS 15 Revenue from contracts with customers

The new impairment model applies to the following financial This standard replaces IAS 11 Construction Contracts, IAS 18 instruments that are not measured at FVTPL: Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfer • Financial assets that are debt instruments of Assets from Customers and SIC 31 Revenue – Barter of • Loan commitments and financial guarantee contracts issued Transactions Involving Advertising Services. IFRS 9 requires a loss allowance to be recognised at an amount The standard contains a single model that applies to contracts equal to either 12 month ECLs or lifetime ECLs. Lifetime ECLs with customers and two approaches to recognising revenue: at are the ECLs that result from all possible default events over the a point in time or over time. The model features a contract based expected life of a financial instrument, whereas 12 month ECLs five step analysis of transactions to determine whether, how are the portion of ECLs that result from default events that are much and when revenue is recognised. possible within the 12 months after the reporting date. This new standard will most likely have a significant impact on the The Bank will recognise loss allowance at an amount equal to Bank, which will include a possible change in the timing of when lifetime ECLs, except in the following cases, for which the amount revenue is recognised and the amount of revenue recognised. recognised will be 12 month ECLs: The Bank has not assessed the potential impact of the new • Debt investment securities that are determined to have low standard on the financial statements. credit risk at the reporting date IFRIC 22 Foreign Currency Transactions and Advance • Other financial instruments for which credit risk has not Considerations increased significantly since initial recognition. The impairment requirements of IFRS 9 are complex and When foreign currency consideration is paid or received in require management judgements, estimates and assumptions, advance of the item it relates to – which may be an asset, an particularly in the following areas: expense or income – IAS 21. The Effects of Changes in Foreign Exchange Rates is not clear on how to determine the transaction • Assessing whether the credit risk of an instrument has date for translating the related item. This has resulted in diversity increased significantly since initial recognition in practice regarding the exchange rate used to translate the • Incorporating forward looking information into the related item. IFRIC 22 clarifies that the transaction date is the measurement of ECLs. date on which the company initially recognises the prepayment or deferred income arising from the advance consideration. Classification – Financial Liabilities For transactions involving multiple payments or receipts, each payment or receipt gives rise to a separate transaction date. IFRS 9 largely retains the existing requirements in IAS 39 for the classification of financial liabilities. IFRS 16 Leases Disclosure IFRS 16 was published in January 2016. It sets out the principles for the recognition, measurement, presentation and disclosure IFRS 9 will require extensive new disclosures, in particular about of leases for both parties to a contract, i.e. the customer (‘lessee’) credit risk and ECLs. and the supplier (‘lessor’). IFRS 16 replaces the previous leases Standard, IAS 17 Leases, and related Interpretations. IFRS 16

UNIVERSAL MERCHANT BANK | 2017 Annual Report 105 Notes to the Financial Statements For The Year Ended 31 December 2017

includes a single model for lessees which will result in almost all Prepayment Features with Negative Compensation leases being included in the Statement of Financial Position. No (Amendments to IFRS 9) significant changes have been included for lessors. IFRS 16 also includes extensive new disclosure requirements for both lesees The amendments clarify that financial assets containing and lessors. prepayment features with negative compensation can now be measured at amortised cost or at fair value through other The Bank has begun assessing the potential impact of IFRS 16 on comprehensive income (FVOCI) if they meet the other relevant the financial statements. requirements of IFRS 9. The amendments apply for annual periods beginning on or after 1 January 2019 with retrospective The standard is effective for annual periods beginning on or after application, early adoption is permitted. 1 January 2019, with early adoption permitted only if the entity also adopts IFRS 15. Long term Interests in Associates and Joint Ventures (Amendment to IAS 28) IFRIC 23 Uncertainty over Income Tax Treatments The amendments clarify that an entity applies IFRS 9 to long term IFRIC 23 clarifies the accounting for income tax treatments that interests in an associate and joint venture that form part of the have yet to be accepted by tax authorities. Specifically, IFRIC 23 net investment in the associate or joint venture but to which the provides clarity on how to incorporate this uncertainty into the equity method is not applied. measurement of tax as reported in the financial statements. IFRIC 23 does not introduce any new disclosures but reinforces the The amendments apply for annual periods beginning on or after need to comply with existing disclosure requirements about: 1 January 2019. Early adoption is permitted. • judgments made; • assumptions and other estimates used; and 45. Comparatives • the potential impact of uncertainties that are not reflected. Except when a standard or an interpretation permits or • IFRIC 23 applies for annual periods beginning on or after 1 requires otherwise, all amounts are reported or disclosed with January 2019. Earlier adoption is permitted. comparative information.

106 UNIVERSAL MERCHANT BANK | 2017 Annual Report My experience at UMB has greatly enhanced my ability to “execute my responsibilities with excellence.”

Mrs. Nelly Abotchie (Director Corporate Banking, UMB) It’s been 45 years of building great careers For decades UMB has been the nancial bedrock of the corporate and private sector, supporting businesses, training banking professionals and enabling dreams. Our 45th anniversary isn’t just a celebration of our past achievements, but also the beginning of greater things to come.

Website: www.myumbbank.com MTN: 0800-100880 Airtel & Vodafone: 0800-10088 Other Lines: 0302-633988 Universal Merchant Bank Limited SUPPLEMENTARY INFORMATION

Value Added Statement 2017 2016 GH¢000 GH¢000 Interest earned and other operating income 513,118 339,486 Direct cost of Services (347,018) (255,221) Value added by banking services 166,100 84,265

Non banking Income 20,470 17,130 Impairments (29,805) (11,194) Value Added 156,765 90,201

Distributed as follows: To Employees: Directors (without executives) 1,062 909 Executive Directors - - Other employees 69,074 48,475

To Government: Income tax 20,866 7,030

To providers of capital: Dividends to shareholders - -

To expansion and growth: Depreciation 14,284 10,901 Amortisation 3,840 2,442 Retained earnings 47,639 20,444

B. Regulatory Disclosures

Quantitative Disclosures

Capital Adequacy Ratio (CAR) 10.20% 10.30% Liquidity ratio 71% 60% Non performing loans ratio 17% 10.6%

Regulatory breaches

Capital Adequacy Ratio (CAR) None 2 times Single Obligor 11 times 7 times Liquidity None None

108 UNIVERSAL MERCHANT BANK | 2017 Annual Report For the rst time in my career I get full ownership of my ideas “ from start to nish. ””

Ms. Catherine Ekar (Relationship Manager - Private Banking, UMB) It’s been 45 years of nurturing bright futures For decades UMB has been the nancial bedrock of the corporate and private sector, supporting businesses, training banking professionals and enabling dreams. Our 45th anniversary isn’t just a celebration of our past achievements, but also the beginning of greater things to come.

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Website: www.myumbbank.com MTN: 0800-100880 Airtel & Vodafone: 0800-10088 SpeedApp Other Lines: 0302-633988 Digibank, let’s go!