ANNUAL REPORT Together Towards New Horizons

2017 ANNUAL REPORT Together Towards New Horizons

HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

ANNUAL FINANCIAL STATEMENTS

31 DECEMBER 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES VISION The Ghanaian Financial Institution of choice for our Staff, Customers and Shareholders. We set the standards of excellence in: ØØ Customer Satisfaction ØØ Employee Engagement ØØ Social Responsibility ØØ Shareholder Value ØØ While building successful communities MISSION To create wealth and a better life for our stakeholders CORE VALUES ØØ Integrity ØØ Professionalism ØØ Respect for the Individual ØØ Customer Focus ØØ Results Orientation

ANNUAL FINANCIAL STATEMENTS 2017 02 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

TABLE OF CONTENTS

04 NOTICE OF MEETING 06 CORPORATE INFORMATION 08 BOARD OF DIRECTORS 14 REPORT OF THE DIRECTORS 23 CORPORATE GOVERNANCE & SOCIAL RESPONSIBILITY 27 INDEPENDENT AUDITORS’ REPORT 32 STATEMENT OF COMPREHENSIVE INCOME 33 STATEMENT OF FINANCIAL POSITION 34 STATEMENT OF CHANGES IN EQUITY 36 STATEMENT OF CASH FLOWS 37 NOTES TO THE FINANCIAL STATEMENTS

03 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

NOTICE OF MEETING

NOTICE IS HEREBY GIVEN THAT the 27th Annual General Meeting of HFC Bank (Ghana) Limited (the “Company”) will be held at Accra City Hotel, Barnes Road, Accra at Eleven O’clock in the forenoon (11.00 am) on Thursday 26th April 2018 to transact the following business: AGENDA ORDINARY BUSINESS 1. To receive and adopt the Annual Report and Audited Financial Statements of the Company (and its Subsidiaries) for 2017 together with the Directors’ and Auditors’ Reports thereon. 2. To ratify / elect / re-elect Directors. 3. To authorize the Directors to raise capital under a Rights Issue. 4. To appoint KPMG as Auditors. 5. To authorize Directors to fix the remuneration of the Auditors for the year 2018.

SPECIAL BUSINESS 6. To amend the Company’s Regulations by Special Resolution in the following manner:- That Regulation 55 be deleted in its entirety and replaced with the following as a new Regulation 55:- Meetings shall be conducted in accordance with sections 166 to 173 of the Code. On a poll being validly demanded the Chairman of the meeting shall direct such poll in accordance with Section 170 of the Code;

NOTE: A Member who is unable to attend a General Meeting is entitled to appoint a proxy to attend and vote on his/her behalf. A proxy need not also be a member. A proxy form is attached herewith to enable you exercise your vote if you cannot attend. The form should be completed and deposited at the Company’s Registered Office at Ebankese, No. 35 6th Avenue, North Ridge, Accra, aforesaid or via email to [email protected] at any time prior to the commencement of the meeting in accordance with the Company’s Regulations. All relevant documents in connection with the meeting are available to shareholders from the date of this notice on the Company’s website (www.hfcbank.com.gh) and at the Company’s Registered Office aforesaid.

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

ANNUAL FINANCIAL STATEMENTS 2017 04 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

CORPORATE INFORMATION

05 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

CORPORATE INFORMATION

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

Secretary Beatrix Ama Amoah (Mrs.) Ebankese No.35 Sixth Avenue North Ridge, Accra P. O. Box CT 4603 Cantonments, Accra

Registered Office Ebankese No.35 Sixth Avenue North Ridge, Accra P. O. Box CT 4603 Cantonments, Accra

Auditors Ernst and Young Chartered Accountants G15. White Avenue Airport Residential Area P. O. Box 16009 Airport, Accra

Registrars Universal Merchant Bank Kwame Nkrumah Avenue Sethi Plaza, Accra

Holding Company Republic Financial Holdings Limited 9-17 Park Street Port of Spain Trinidad & Tobago

ANNUAL FINANCIAL STATEMENTS 2017 06 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

BOARD OF DIRECTORS

07 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

MR. CHARLES WILLIAM ZWENNES (BOARD CHAIRMAN

Mr. Charles William Zwennes is Documenting Oil and Gas Transac- a Barrister-at-Law of England & tions from the Centre for Energy Wales and a Barrister & Solicitor of & Mineral Policy Law (CEMPL), Uni- the Superior Courts of Ghana. versity of Dundee, Scotland.

He is currently a partner at Gaise Mr. Zwennes is a member of the Zwennes Hughes & Co, Private American Society of International Practitioners. Prior to joining Law (ASIL), Institute of Advanced Gaise Zwennes Hughes & Co, he Legal Studies (IALS), Chartered worked at the Chambers of Chris- Institute of Arbitrators, Common- tian Bevington QC, London and wealth Law Bulletin, Honoura- Messrs. Arnold Fooks Chadwick, ble Society of Gray’s Inn and the Solicitors, London. Ghana Bar Association.

Mr. Zwennes holds an LLB from Mr. Zwennes was appointed the University of Kent, UK and an Chairman of the HFC Bank Board LLM in Corporate & Commercial in April 2017. Law from the University of Lon- don, UK. He also holds a Certificate in Structuring, Negotiating and Zwennes

MR. ANTHONY JORDAN (MANAGING DIRECTOR)

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

Mr. Jordan is an experienced and highly respected corporate and commercial banker with 34 years’ service in the banking industry in Trinidad & Tobago and in Ghana. Mr. Jordan holds an EMBA and a BSc in Management from the University of the West Indies and is a member of the Chartered Institute of Bankers (UK).

Jordan

ANNUAL FINANCIAL STATEMENTS 2017 08 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

MR. DAVID DULAL-WHITEWAY

Mr. Dulal-Whiteway is the CEO of Mr. Dulal-Whiteway is a seasoned the University of the West Indies banker with over 25 years’ (UWI), Arthur Lok Jack Global School experience in banking. He holds of Business, Trinidad & Tobago. a BSc in Management Studies He was Managing Director of from the University of the West the Republic Bank Group until Indies (UWI) and an MBA from February 2016, a Director on the University of Western Ontario, several Boards of the Republic Canada. Mr. Dulal-Whiteway Bank Group and Chairman of The was appointed to the Board in Foundation for the Enhancement April 2013 as a representative of and Enrichment of Life (FEEL), a Republic Bank. non-profit organisation. Dulal-Whiteway

MR. NIGEL MARK BAPTISTE

Mr. Nigel Mark Baptiste, a Banker Bank in Barbados where he was for the past 25 years, holds the employed as a Country Economist. position of President and Chief Prior to assuming his current Executive Officer of Republic position of Managing Director, Financial Holdings Limited and he held the positions of Deputy Managing Director of Republic Managing Director, Executive Bank Limited, Trinidad & Tobago. Director, Managing Director of the Group’s subsidiary in Guyana Mr. Baptiste holds a BSc and MSc and General Manager, Human in Economics from the University Resources. of the West Indies and is a graduate of the Harvard Business Mr. Baptiste serves on the Boards School’s Advanced Management of Republic Financial Holdings Programme. He also holds a Limited, Republic Bank Limited Diploma with distinction from the (Trinidad and Tobago), Republic ABA Stonier Graduate School of Bank (Guyana) Limited and other Banking (USA) and is a member of entities within the Republic Group. the Chartered Institute of Bankers Mr. Baptiste was appointed to the (England). Board in September 2016 as a representative of Republic Bank. Mr. Baptiste joined Republic Bank in 1991, after spending two years at the Caribbean Development Baptiste

09 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

MR. PAUL KING ARYENE

Mr. Paul King Aryene served of Nairobi and a Diploma in as the Ambassador to the Investment Analysis from the Federal Republic of Germany Research Institute of Investment with concurrent accreditation to Analyses, Malaysia. Estonia, Latvia and Lithuania. He is a diplomat of high repute and has He was appointed to the Board of served in various positions at both HFC Bank in April 2015. the Ministry of Foreign Affairs and Overseas Missions.

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

MR. EBENEZER TETTEH TAGOE

Mr. Ebenezer Tetteh Tagoe was United Nations World Food Pro- the Board Chairman of the State gramme, Peat Marwick Mitchell Enterprises Audit Corporation (a (London) and Mobil Oil Ghana Ltd. corporation established to audit state organizations) until January Mr. Tagoe holds a BSc. Adminis- 2017. tration (Accounting) from the Uni- versity of Ghana. He is a Fellow (of He is a Board Member of Adisadel the) Chartered Association of Cer- College and Council Member of tified Accountants (FCCA). Accra Ridge Church. He was appointed to the HFC Mr. Tagoe has immense experi- Bank Board in April 2015. ence in Accounting and Adminis- tration and has served at various management positions with the Tagoe

ANNUAL FINANCIAL STATEMENTS 2017 10 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

MR. MICHAEL ADDOTEY ADDO

Mr. Michael Addotey Addo is Starwin Products Limited, Ghana currently the Deputy Director International Bank (London), First General responsible for Atlantic Bank and Prudential Bank. Administration & Finance at the Social Security and National Mr. Addo holds an MBA Finance Insurance Trust (SSNIT). from the Johnson Graduate School of Management, Cornell He was until recently the Executive University; an MSAT (Insurance) Director at Emex Oil Ndawta from Barney School of Business, Limited (Ghana & Nigeria). He has University of Hartford and BA also served as a General Manager, Economics from the Bates College, Investments & Development at all in the USA. SSNIT, Chief Operating Officer & Fund Manager at Databank Mr. Addo was appointed to the Agrifund Manager Limited and Board of HFC Bank in May 2017 as Deputy Managing Director at a representative of SSNIT. NTHC Limited.

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

11 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

MANAGEMENT

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MANAGEMENT

Executive Mr. Anthony Jordan Managing Director Management Mr. Benjamin Dzoboku General Manager, Finance & Strategy Mrs. Beatrix Ama Amoah Company Secretary Mr. Peter Larbi-Yeboa General Manager, HFC Investment Services Mr. Kofi Agyenim Boateng Managing Director, HFC Boafo Microfinance Mr. Charles Agyeman Bonsu General Manager, Tech. & Business Systems Support Ms. Paula Baldwin General Manager, Retail Banking Mr. Joseph Edward Nketsiah General Manager, Treasury & International Trade Ms. Frances Sallah-Brown Senior Manager, Human Resources Mr. Rodney N.A. Saint Acquaye Senior Manager, Corporate Banking Mr. Frank Yaovi Lawoe Senior Manager, Recoveries & Collections Mr. Joseph Laryea Ashong Internal Auditor

Ms. Amiel Adjorkor Codjoe Senior Manager, Compliance Senior Mr. Hans Abboud Awude Senior Manager, Legal Management & Department Heads Mr. Ferguson Ofori-Atta Senior Manager, Finance Mr. Emmanuel Fobri Manager, Credit Risk Mr. Alfred Noonoo Manager, Administration Mr. Randy Osei Pipim Manager, Enterprise Risk Management Ms. Nana Yaa Korang Faakye Manager, Institutional Banking Mr. Francis Adjepong Manager, Treasury Mr. George Teisika Leigh Manager, Credit Administration Mr. Louis Philips Abadoo Manager, International Trade Services Mr. Elvis Agyare-Boakye Manager, Strategic Planning & Research Mr. Elias Augustine Dey Manager, Custody Services

Zonal Managers Mr. Sa-Aadu Osman Abdallah Northern Zone (Retail Banking) Mr. Festus Tornam Habada Central Zone Mr. Daniel Obeng Tema Zone Ms. Jessica Benson Dzam Accra Zone Mr. Kwabena Sarfo Mainu Western Zone

13 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

REPORT OF THE DIRECTORS

The directors submit their report together with the RESULTS FROM OPERATIONS audited financial statements for the year ended The Bank The Group 31 December, 2017, which shows the state of affairs Profit before income of the Bank standing alone and its subsidiaries 56,645 69,445 tax for the year is (together called the “Group”). From which is deducted (2,832) (3,261) STATEMENT OF DIRECTORS’ RESPONSIBILITIES national stabilization levy of From which is deducted The directors are responsible for the preparation of (16,890) (19,690) financial statements for each financial year, which give income tax of a true and fair view of the state of affairs of the Group Giving a profit after income 36,923 46,494 and of the profit or loss and cash flows for that year. tax expense for the year of In preparing these financial statements, the directors From which is deducted a have selected suitable accounting policies and applied - (1,063) non-controlling interest of them consistently, made judgments and estimates that Leaving profit after non- are reasonable and prudent and followed International 36,923 45,431 Financial Reporting Standards (IFRS) and complied with controlling interest of the requirements of the Companies Act, 1963, (Act 179) To which is added balance and the Banks and Specialised Deposit–Taking Institutions brought forward on the Act, 2016 (Act 930). income surplus account of (47,682) (43,750)

The directors are responsible for ensuring that the Giving a balance before (10,759) 1,681 Group keeps proper accounting records that disclose distribution of with reasonable accuracy at any time the financial To which is added transfer 242 242 position of the Group. The directors are also responsible from revaluation surplus for safeguarding the assets of the Group and taking Out of which is transferred reasonable steps for the prevention and detection of (18,462) (18,462) fraud and other irregularities. to Statutory Reserve Out of which is transferred PRINCIPAL ACTIVITIES to regulatory credit (1,637) (1,637) risk reserve of The principal activities of the Group are: Out of which is deducted (1,877) (1,877) to carry on the business of universal banking; share issuance expense of to provide residential and commercial mortgages; Leaving a balance carried to provide brokerage services; forward on income (32,493) (20,053) surplus account of to provide microfinance services to provide fund and asset management services; to undertake venture capital activities.

ANNUAL FINANCIAL STATEMENTS 2017 14 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

REPORT OF THE DIRECTORS

SUBSIDIARIES

The Bank has the following subsidiaries: CORPORATE SOCIAL RESPONSIBILITY (CSR)

HFC Investment Services Limited, a wholly As a corporate entity, the Bank interacts with and impacts owned subsidiary of the Bank; its community in many ways. The Bank therefore ensures that as it works to deliver sustainable growth and HFC Realty Limited, a wholly owned Shareholder value, it contributes to the wider stakeholder subsidiary of the Bank; community by being a responsible corporate citizen, an HFC Brokerage Services Limited, a wholly owned employer of choice and a banker of choice. To this end, subsidiary of HFC Investment Services Limited; the Bank is committed to promoting and engaging in Boafo Microfinance Services Limited, a company projects that benefit and enhance the socio-economic in which the Bank has 51% equity holding; development of the Community and the country as a HFC Capital Partners Limited, a wholly whole. owned subsidiary of the Bank; The Bank’s main contributions in this area have been in UG-HFC, a company in which the sponsorship of education and youth development, health Bank has 60% equity holding. and the support of the underprivileged in society.

The results of these subsidiaries have been included in The Bank also promotes social communication and the Group’s financial statements. integration within different groups in the community by successfully organising sporting activities, including football competitions. GOING CONCERN

The Bank has a strong capital and liquidity position and a DIVIDENDS good business franchise. Its business remains profitable with competitive returns on equity. The directors No Dividend has been recommended by the Directors for therefore have a reasonable expectation that the Bank approval by the Shareholders (2016: Nil). has adequate resources to continue in operational existence for the foreseeable future. Thus we continue AUDITOR to adopt the going concern basis in preparing the annual In accordance with Section 134 (4) of the Companies financial statements. Act, 1963 (Act 179), it is proposed that Messrs KPMG be appointed as the new auditors of the Bank and its Subsidiaries.

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

15 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

CHAIRMAN’S REVIEW

Charles William Zwennes

INTRODUCTION Commodity prices resulted in a 23.5% jump in Ghana’s export revenue to US$13,752 million compared with On behalf of the Board of Directors, Management and US$11,137 million in 2016. The highest contributor to Staff of HFC Bank, I would like to welcome you all to the export revenue was gold (US$5,786 million), followed 27th Annual General Meeting of HFC Bank. I am delighted by oil (US$3,019 million), then cocoa (US$2,711 million). to report that your Bank returned to profitability at the Consequently, Ghana’s Gross International Reserves end of the financial year 2017 after two year’s successive closed the year at US$7,555 million), equivalent of 4.3 loss positions. months import cover.

GLOBAL ECONOMY Consumer price inflation at the end of December 2017 The global economy grew by 3.7% in 2017 compared to was 11.8%. This was higher than the Government’s year- the International Monetary Fund (IMF) forecasted growth end target of 11.2%, but lower than previous year rate of of 3.6%. The modest projected growth in the global 15.4%. In 2017, the Ghana Cedi depreciated by 4.9% against economy was mainly attributed to an incomplete recovery the U.S Dollar compared with 9.7% in 2016. The Bank of and below target inflation in most advanced economies. Ghana policy rate closed the year at 20% (25.50% in 2016). Growth was high in advanced economies particularly in The interbank weighted average rate ended the year investments, manufacturing and trading activities. at 19.34% (25.26% in 2016). The 91-Day Treasury Bill also decreased during the year closing at 13.33% compared to Global financing conditions remained favourable in 2017 16.81% in the previous year. amid improved global growth prospects and expectations of persistently low interest rates, despite the on-going GHANAIAN BANKING INDUSTRY policy normalization. During the year ending December 2017; Commodity prices, mainly crude oil and gold, performed Banking industry assets reached GHS93.2 billion, better than expected in 2017 on the back of production representing a year-on-year growth of 12.8%. cuts for crude oil and a flight to safety and stability for gold. Cocoa prices were generally weak throughout 2017 Industry deposits grew by 10.6% to GHS58.3 billion. driven by excess supply of the commodity in the West Loans and advances topped GHS37.7 African Sub-region. billion, a 5.9% increase. Capital Adequacy Ratio (CAR) decreased to 15.0% DOMESTIC ECONOMY compared with 18.0% in the previous year. Ghana’s economy grew by 9.3% in the third quarter of Non-Performing Loans (NPL) ratio was 2017, up from 4.5% in December 2016. The economic 22.7% compared with 17.3% in 2016. performance in 2017 was positively affected by better The banking industry was generally liquid and solvent than expected crude oil and gold prices which increased during the period. High loan impairments however by 17% and 10% respectively. Cocoa prices however remained the main source of risk to the sector. The declined in 2017 by 16%. industry also faced declining interest margins.

ANNUAL FINANCIAL STATEMENTS 2017 16 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

In August 2017, GCB Bank acquired Capital Bank and UT 28, 2017 and by the Securities and Exchange Commission Bank in a Purchase and Assumption Agreement. The on November 21, 2017. Approval for the listing of the new liquidation of UT and Capital Banks became necessary to shares was obtained from the Ghana Stock Exchange on protect depositors’ funds owing to the severe impairment November 13, 2017. The offer which begun on December of the capital of the two financial entities. 4, 2017 and ended on December 20, 2017, resulted in the increase of the Bank’s stated capital from GHS 96.19 In September 2017, the Bank of Ghana revised upward the million to GHS 146.19 million. The increase in stated capital minimum paid up capital requirement for existing banks was to ensure that the Bank met the Central Bank’s and new entrants from GHS120 million to GHS400 million. minimum capital requirement of GHS 120 million by the Banks would be required to meet the required minimum end of December 2017. capital through In compliance with the new minimum capital requirement Fresh capital injection of GHS 400 million by December 2018, the Bank is pursuing Capitalization of income surplus a GHS255 million rights issue to be executed in the 2018 A combination of fresh capital injection financial year. and capitalization of income surplus. Fellow Shareholders, we need to put our Bank on a All existing banks have up to December 31, 2018 to meet sound footing this year by raising additional capital. When the new minimum paid up capital requirement. the proposed rights issue comes up for voting I entreat you all to support the motion to enable us continue on RESULTS the journey of building a great Bank. HFC Bank (Ghana) Ltd and its subsidiaries recorded 10.7% rise in assets from GHS1.89 billion to GHS2.10 billion. CAPITAL ADEQUACY Deposits also increased by 10% in-line with the industry We ended the year with a Capital Adequacy Ratio (CAR) of average of 10.6%. On the back of strong recoveries in 23.14% (11.50%:2016), well above the regulatory minimum loans and advances, accounts management, and prudent level of 10% and Bank of Ghana’s comfort level of 12%. The investments, our Bank and its subsidiaries recorded profit improved CAR position was as a result of the increase in after tax of GHS 45.43 million after two successive years stated capital of GHS 50 million, and the profit recorded at of losses. the end of the year.

A full discussion on the aforementioned can be found in the Managing Director’s Discussion and Analysis. NAME CHANGE/REBRANDING The Shareholders at the Extraordinary General Meeting LIQUIDITY POSITION held on September 28, 2017 approved the proposal to change the name of the Bank from “HFC Bank (Ghana) The liquidity position of the Bank was considered very Limited” to “Republic Bank (Ghana) Limited” subject to healthy for normal banking operations. Management, statutory/regulatory approvals. Following regulatory in line with the Bank’s risk strategy, adopted effective approvals, HFC Bank has been rebranded to Republic Bank liquidity risk practices and kept a prudent level of liquidity (Ghana) Limited. It is expected that the name change will as indicated in the table below: help in easy identification and alignment to the ratings and core competencies of the Republic Financial Holdings DEC - 17 DEC - 16 Limited (RFHL) Group. Liquid Assets to Total Assets 54.03% 54.07% APPOINTMENT OF DIRECTORS Investments to Total Assets 34.49% 37.21% During the year, Professor Joshua Alabi, the immediate past Chairman of the Board, and a representative of Social Loan to Deposit 47.29% 41.09% Security and National Insurance Trust (SSNIT) retired from the Board. We thank him for steering the affairs of the The liquidity risk of the Bank was kept under firm control Bank through our restructuring to lay a solid foundation and the Bank was able to meet, on timely basis, its for growth and expansion. We wish him well in his future financial obligations as they fell due. endeavours.

RIGHTS ISSUE Ms. Rebecca Atswei Lomo, a representative of SSNIT The Board of Directors passed a resolution to increase also retired from the Board in July 2017. I wish to express the stated capital of the Bank by an additional GHS 50 our gratitude to her for providing sound guidance over million via a renounceable rights issue to Shareholders. the years, particularly in her role as Chairperson of the The rights issue was approved by the Shareholders of the Audit and Risk Committee. We wish her all the best in her Bank at its Extraordinary General Meeting on September retirement.

17 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Mr. Robert L. Le Hunte retired from the Board in August 2017 up in 2018 driven mainly by the recovery in commodity to take up a ministerial (cabinet level) appointment in Trinidad prices, sustained growth in China and India, end of and Tobago. We thank him for leading the Management recession in large emerging economies such as Russia Team to turnaround the fortunes of our Bank. We wish and Brazil, and a general pickup in global trade. honourable well in his cabinet ministerial role. It is expected that the IMF Extended Credit Facility Mr. Anthony Jordan was appointed Acting Managing programme will ensure more fiscal discipline in 2018. Director in August 2017, replacing Mr. Robert Le Hunte. Government revenue is also expected to increase with rising crude oil prices and the ramp up in oil and I wish to extend a hearty welcome to Mr. Anthony Jordan, gas production from the offshore Tweneboa Enyenra as Managing Director. Mr. Jordan has over 34 years of Ntomme (TEN) and Sankofa - Gye-Nyame fields. The IMF experience in the financial services sector. Prior to this therefore forecast Ghana’s 2018 GDP growth rate at 8.9%. appointment, he was responsible for Enterprise Wide Risk Management including Market, Credit, Operational, The banking sector continues to be resilient despite the Compliance, Information and Technology Risk in the marginal declines in some key financial indicators due to Bank. Prior to joining HFC Bank he was Assistant General global and domestic macroeconomic challenges. Manager-Corporate and Investment banking at Republic Bank Limited in Trinidad & Tobago with responsibility for This year has been challenging but rewarding for us as a all aspects of Business Development in both Corporate Bank. Coming into 2017, we were all uncomfortable with Banking and the Capital Markets. our two years of successive loss positions and there was a strong desire and commitment from all of us to turn During the year SSNIT appointed Mr. Michael Addotey Addo around the position. Thankfully, we posted a profit of to the Board of our Bank. Mr. Addo is currently the Deputy GHS45.43 million. In addition, the Bank can now boast of Director-General responsible for Finance & Administration having one of the highest cover ratios (i.e. provision to at SSNIT. He was until recently the Executive Director at non-performing loans) of about 58.81% which provides Emex Oil Ndawta Limited (Ghana & Nigeria). He has also the Bank with protection against future shocks. This previously served as a General Manager, Investments position signifies that we remain very strong as a Bank in & Development at SSNIT, Chief Operating Officer & Fund the face of challenging trends in the Banking sector. Manager at Databank Agrifund Manager Limited and Deputy Managing Director at NTHC Limited. We are confident that the momentum achieved in 2017 will continue in the years ahead as we remain committed DIVIDEND to achieving positive results for our Customers, Shareholders, Staff and all other Stakeholders. The Board of Directors is recommending no dividend payment as a result of the GHS255 million capital injection We look forward with optimism in 2018 as there are a being pursued by the Bank to meet the new minimum number of exciting opportunities on the horizon. We capital requirement of GHS 400 million in 2018. This new have set some ambitious targets for ourselves. We are capital will put us in a better position to build on a strong confident that with your continued support, and the foundation and our Bank will work hard at providing a leadership of the Management Team, our goals will be satisfactory return in 2018 and beyond. achieved.

OUTLOOK Finally, I wish to thank my fellow Directors for their unwavering support. My sincere gratitude also goes to The outlook is for a continued robust expansion in 2018 our Customers, Shareholders and Staff for their dedication and 2019, with global growth revised up to 3.9 percent for and loyalty throughout the year. both years. According to the IMF World Economic Outlook January 2018 update, the forecast reflects expectations Thank you. that favourable financing conditions and strong sentiments will help maintain the recent acceleration Charles William Zwennes / BOARD CHAIRMAN in demand, especially in investments, with a noticeable impact on growth in economies with large exports. Growth in emerging economies is also projected to pick

ANNUAL FINANCIAL STATEMENTS 2017 18 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

MANAGING DIRECTOR’S DISCUSSION AND ANALYSIS

Ant hony Jordan

INTRODUCTION Asset Creation The year 2017 marked a new beginning for HFC Bank The asset creation initiative was to grow the loans and as our results reflected both a healthy and resilient advances portfolio by booking quality loans. A decision business dedicated towards creating value for customers, was taken at the beginning of the year 2017 to focus on shareholders and stakeholders. The Bank and its accounts monitoring and management with the view subsidiary businesses performed exceptionally well in to ensuring that performing loans do not deteriorate, as delivering positive results in profit from a consecutive loss well as recovering delinquent loans. The Bank’s decision position over the prior two years. These achievements to focus on accounts monitoring and management are largely due to the work towards achieving the five adversely affected the size of the loan book which shrunk strategic initiatives of Deposit Mobilization, Asset Creation, from GHS919.44 million in 2016 to GHS0.81million in 2017. Improving Recoveries, Cost Management and Culture Revitalization, which were agreed on three years ago. Deposits were channelled into investments in Government Expounded below are some of activities and impact of the and related investment securities to generate income. key strategic initiatives undertaken throughout the year: In the course of the year, interest rates and spreads on Government securities begun to decline prompting the Deposit Mobilization need to refocus attention on asset creation. As part of our efforts to maintain the momentum gained A Christmas Loan Sale Campaign (CLC) was launched in from the deposit mobilization drive which commenced in November 2017. The campaign offered loan packages January 2016, a Susu Plus campaign was launched at the targeting Government workers, private sector salaried beginning of the year 2017. Susu Plus is one of the seven workers, senior and middle level Managers. The loan unique deposit products which was introduced into the package included a number of loan products such as market to increase “Top of Mind Awareness” (TOMA) of the vehicle, salary advances, mortgage and consumer loans. HFC Bank brand; to drive traffic to the banking halls and to mobilise cheaper deposits. The Campaign yielded positive Improving Recoveries and Impairment Levels results in deposit growth as total deposits continued to The implementation of proactive management of carrying expand. As at the end of the year 2017, total deposits grew costs associated with Non-Performing Loans (NPL), by 9.9% to GHS1.7bn from GHS1.6bn recorded in 2016. expediting mutual settlements and agreed payment It is worth noting that there was a significant improvement terms with customers; and aggressive collection on in the cheaper components of deposits, specifically mortgage loans, were the main focus areas under this current deposit, which increased by 31.9% while the initiative. expensive component i.e. time deposit, decreased by As at the end of December 2017, total loans recovered 7.4%. This, together with Management’s continuous effort amounted to GHS84.63 million. The recoveries included at re-pricing maturing fixed deposits in line with general GHS16.92 million from the Bulk Oil Distribution Companies reduction in interest re-pricing of deposit products, (BDC’s) in the last quarter of 2017 from proceeds of the resulted in 0.44% reduction in interest expense. recent energy bond.

19 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

During the twelve months under review, a sum of A Branch Clustering System was introduced in June GHS0.022 million was charged for credit losses compared to 2017 in an effort to reduce staffing costs and improve GHS72.78 million charged in 2016. The cumulative Provision management efficiency. As a result, six (6) Clusters were therefore stood at GHS140.53 million as at December 2017 created in four (4) of the five (5) Zones across the Branch compared to GHS140.55 million as at December 2016. The network. The Clustering System was implemented for aggregate amount represents 58.81% of the NPL portfolio. Branches which fell within a distance that did not exceed a two - hour commute. The introduction of the system led Cost Management to the collapse of certain roles with total cost savings to the Bank of GHS0.73million. The Bank continues to be prudent in cost management by encouraging a cost savings culture. Our cost management Culture Revitalisation initiative sought to improve costs by streamlining employment and managing replacements emanating The notion behind this initiative was to transform the from normal staff attrition; subjecting all projects to Bank’s culture into a more performance driven and rigorous cost-benefit analysis before implementation; and customer focused Bank. Over the past three years, various encouraging a cost savings culture in the Bank. events such as the formation of a culture revitalization team to drive a positive culture shift and training sessions Operating Expense (including personnel, lease, on service delivery and excellence have been initiated depreciation and amortisation, and other expenses) for towards achieving this goal. In 2017 however, priority the period increased slightly by 5.6% to GHS203.33 million was placed on staff training. For this reason, an Exchange from GHS192.60 million recorded in 2016. Personnel Programme was created between HFC Bank and Republic expenses witnessed a 3.8% year-on-year decline from Financial Holdings Limited (RFHL) to facilitate knowledge GHS97.77 million in 2016 to GHS94.10 million in 2017. transfer. This led to four (4) employees of HFC Bank spending Generally operating expenses were kept low as compared extensive periods working at Republic Bank Limited (RBL) to the 20.4% year-on-year surge witnessed between the particularly with the Credit Risk and International Trade years 2016 and 2015. Services. Four (4) RBL staff also assumed various roles in HFC including Internal Audit, Credit Risk and Retail Banking. All figures in GHS Million 2017 2016 Change

Personal Expenses 94.10 97.77 -3.80%

Operating lease 9.04 7.98 13.2% Expenses Depreciation and 13.95 13.00 7.3% Amortization

Other Expenses 86.24 73.85 16.8%

TOTAL 203.33 192.60 5.6%

ANNUAL FINANCIAL STATEMENTS 2017 20 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

HIGHLIGHTS OF CONSOLIDATED STATEMENT OF INCOME

Net Interest Income Profit After Tax The Group’s Net Interest Income from loans and A strong growth in operating income and a substantial investments for the year 2017 was GHS165.61 million. This reduction in impairment led to a 197.4% rise in profit after represents 26.2% year-on-year increase driven partly by tax to GHS46.49 million from a loss position of GHS47.72 a strong growth in income from Investments, improving million in 2016. Our two subsidiaries, HFC Investment by 66% from GHS85.55 million in 2016 to GHS142.16 million Services and HFC Boafo Microfinance contributions to the in 2017. Group’s net profit was GHS5.02 million and GHS1.97 million respectively. All figures in GHS Million 2017 2016 Change LABOUR UNION Net Interest Income 165.61 131.19 26.2% During the period under review, the Bank became Net Free and 43.41 35.04 23.9% Commission unionised with workers’ membership in the Industrial Commercial Workers Union, Ghana. The Bank contracted Operation Income 272.75 201.60 35.3% the services of Gamey & Gamey, Industrial Relations Specialists to assist the Bank manage the relationship with Operation Expenses (203.33) (192.60) 5.6.% the Union. Profit/ Loss After 46.49 (47.73) 197.4% Taxation CONCLUSION The year 2017 has charted the path for extraordinary Fees and Commissions achievements and renewed commitment in creating In light of declining interest rates in the market, greater wealth and a better life for all stakeholders including our focus was put on improving non-interest income during customers, staff and shareholders. the year. The net fee and commission income from retail banking customers expanded by 23.9% from GHS35.04 I seize this opportunity to thank our customers and million to GHS43.41 million. shareholders for their continued interest and loyalty to the Bank. I also thank the Board Members for their invaluable The other non-interest income items such as trading counsel and support in moving the Bank to greater income, other operating income and other income also heights. improved within the year. Net trading income registered a 30.1% growth; other operating income (mainly from Most of all, my sincere gratitude to the staff and property sales) recorded 181.4% growth; and other income management team of HFC Bank and its subsidiaries for (which includes bad debt recovery, profit on disposal of investing efforts and energies in improving the profitability asset and valuation gains) increased by 21.5%. and image of the Bank as a healthy and strong business with the potential for continuous growth. Your hard work and commitment will continue to be the foundation of the Bank’s future feats.

ANTHONY JORDAN / MANAGING DIRECTOR

21 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

CORPORATE GOVERNANCE & SOCIAL RESPONSIBILITY

ANNUAL FINANCIAL STATEMENTS 2017 22 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

CORPORATE GOVERNANCE

HFC Bank acknowledges the pivotal role corporate The two institutional Directors from SSNIT retired from governance plays in the sustained success of any the Board in April and July respectively. A new Non- organisation. To this end, the Board of Directors (“the Executive Director from SSNIT, Mr. Michael Addo, was Board”) is committed to ensuring that best practice in appointed in May 2017. Additionally, the Managing corporate governance remains a fundamental part of Director retired from the Board in August 2017 and the culture and business of the Bank and its Subsidiaries, was replaced by a new substantive Managing Director whilst ensuring adequate levels of Shareholder effective 1st December 2017. participation and protection. The Directors collectively possess strong functional The Bank’s policies, systems and procedures are knowledge, expertise, experience and relevant skills to therefore geared towards promoting and enhancing make valuable contributions to the Bank. the corporate governance principles of accountability, integrity, transparency, robustness, fairness and social Conflicts of Interest responsibility, whilst maximising long term Shareholder The Directors are expected to avoid any action, position value. These principles, which are compliant with or interest that may conflict or appear to conflict with any regulatory and international guidelines, underpin all areas of the Bank’s interests. Any Director who has a material of the Bank’s business. personal interest in a matter relating to the Bank’s affairs Key aspects of the Bank’s Corporate Governance is expected to notify the other Directors of that interest. Framework are outlined below. Meetings’ Calendar THE BOARD OF DIRECTORS The Board’s annual meetings calendar, showing the The role of the Board is to provide effective leadership, scheduled dates for meetings of the Board and Board strategic direction, governance, enterprise and good Committees, is circulated to Directors at the beginning of judgement in guiding the Management to achieve growth each year. In 2017 the Full Board had six (6) meetings. and deliver long term sustainable Shareholder value. Board Committees The Bank’s Core Values of Customer Focus, Integrity, To assist the Board in its functions and thereby increase Respect for the Individual, Professionalism and Results its effectiveness, the Board has entrusted specific Orientation are set by the Board to ensure that the Bank’s responsibilities to three (3) standing Committees. These obligations to its Shareholders, Employees, Customers are the Finance and Credit Committee, the Remuneration and the Communities it serves are met. and Nominations Committee and the Audit and Enterprise Risk Committee. Composition

For the first part of the year, the Board of HFC Bank Finance and Credit Committee comprised a Non-Executive Chairman, six (6) other The Finance and Credit Committee is appointed by the Non-Executive Directors, (two (2) of whom represent Board. In the year 2017, the Committee was made up the minority Shareholders and the public interest in of the Executive Director and four (4) Non-Executive accordance with the Bank’s Regulations). The Non- Directors, namely Mr. Charles Zwennes (Chairman), Ms. Executive Directors are independent of Management and Rebecca Lomo, Mr. Ebenezer Tagoe and Mr. Nigel Baptiste. free from management constraints which could interfere Mr. Le Hunte and Ms. Lomo retired from the Committee in with the exercise of their objective and independent the course of the year 2017. judgment. There was one (1) Executive Director who was the Managing Director. The duties of the Finance and Credit Committee are to assist the Board to review all credit and finance related policies and issues of the Bank, to review credit within the limits set for the Committee by the Board and to recommend to the Board credit facilities above their limit. The Committee had six (6) meetings in 2017.

23 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Remuneration and Nominations Committee SYSTEMS OF INTERNAL CONTROL The Remuneration and Nominations Committee is The Board is ultimately responsible for the integrity and appointed by the Board and is composed of all the Non- adequacy of the Bank’s Internal Control Systems and Executive Directors. The Chairman of the Committee is towards this end promotes the independence, credibility the Board Chairman. and robustness of the internal control function. Under the Board’s direction, the Bank operates a dedicated and The duties of the Remuneration and Nominations well-established internal control system for identifying, Committee are to assist the Board establish a transparent managing and monitoring risks. The Head of the Internal structure for developing policy on executive and staff Audit Department who reports directly to the Board also compensation; to advise the Board on appropriate plays a pivotal role in providing an independent and compensation for Directors, Management and Staff; and objective view to ensure the continuing assessment of to consider nominations and appointments of Directors the robustness and effectiveness of the control systems and Executive Management. The Remuneration and in the Bank. Nominations Committee did not sit in 2017; however all related matters were dealt with directly by the Board of RISK MANAGEMENT FRAMEWORK Directors. The Committee is scheduled to meet in the first quarter of 2018. The Board oversees the Risk Management Framework of the Bank. The Enterprise Risk Management Division advises the Board and Management on areas of risk faced The Audit and Enterprise Risk Committee by the Bank and the adequacy of controls throughout the The Audit and Enterprise Risk Committee is appointed Bank. The Bank continually reviews the integrity and by the Board. In the year 2017 the following were the adequacy of its procedures to ensure, to the greatest members of the Committee, namely Ms. Rebecca Lomo extent possible, the protection of the Bank’s assets (Chairperson), Mr. Robert Le Hunte, Mr. Ebenezer Tagoe, and Shareholders’ investments. To this end, enterprise Mr. Paul Aryene and Mr. David Dulal-Whiteway. Mr. Le risk management remains firmly rooted in the Bank’s Hunte and Ms. Lomo retired from the Committee in the management systems. course of the year 2017 and Mr. Tagoe took over the chairmanship of the Committee. COMPLIANCE & ANTI-MONEY LAUNDERING POLICIES During the course of the year the Committee, previously HFC Bank has in place policies, procedures and systems for named Audit & Risk Committee was re-named, Audit & the successful implementation of the Bank’s Anti Money Enterprise Risk Committee, to take into consideration the Laundering (AML) compliance program, which is designed expansion of its mandate. to comply with all the relevant laws and regulations. It is the policy of the Bank to take all reasonable and The duties of the Audit and Enterprise Risk Committee appropriate steps to prevent persons engaged in money include reviewing the scope and findings of all audits laundering, fraud, or other financial crime, including the (internal and external), as well as the independence and financing of terrorists or terrorist operations, from utilizing objectivity of the Auditors. The Committee also monitors the Bank’s products and services/platforms to launder the adequacy, integrity and effectiveness of critical money. Compliance with both the letter and the spirit of systems and internal financial controls; compliance with the anti-money laundering regulatory regime of Ghana legal obligations; safe-guarding of assets and the review and the International Community is one of the ways the of all activities to control the Bank’s risk exposure. The Bank works to achieve this policy. Committee had seven (7) meetings in 2017.

ANNUAL FINANCIAL STATEMENTS 2017 24 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

CORPORATE SOCIAL RESPONSIBILITY (CSR) Ghana National Trust Fund to provide grants to As part of the Bank’s vision statement which is to build brilliant but needy children successful communities, the Bank undertook various Catholic Organization for Social and Religious Corporate Social Responsibility and Staff Volunteerism Advancement (COSRA) towards the annual blood initiatives for the year 2017. As the Bank works to deliver donation exercise to replenish the Korle Bu Blood sustainable growth and shareholder value, it also Bank contributes to the wider community by being a responsible Infanta Malaria Prevention Foundation, building of corporate citizen, a Bank with a heart and an employer of CHPS Compound in Nyanshegu, Tamale choice. The Bank is therefore committed to promoting Worm Free Project in partnership with Cradle to and engaging in activities that benefit and enhance the Crayon at Chorkor, Accra. socio-economic development of the Community and the country as a whole. Under the Staff Volunteerism Program (SVP), staff were encouraged to identify, finance and execute their own The Bank’s main CSR drive in the year 2017 was in the community initiatives through voluntary contributions. area of institutional and business capacity development The following initiatives were undertaken in 2017:- and youth development. The Bank engaged in providing Donation to Women in Prison as part of the support to major educational and health institutions Mother’s Day Celebrations and also developing local content in the Oil and Gas Sector. Under the youth development program, the Nationwide Clean Up Exercise as part of the Bank’s Bank supported the Ghana Education Service in the Clean Ghana Campaign development of youth athletics by sponsoring the 2017 Donation of Incubator to the Keta General Hospital National Youth Athletics Festival for Second Cycle Schools. by HFC Investments Construction of a Borehole for the People of The Bank also made donations and sponsored several Manchie – funded by HFC Investments. activities including:- Outlook for 2018 National Partnership For Children’s Trust (NPCT) SOS Children’s Village Ghana The Bank will continue the creation of positive Top of Mind Awareness (TOMA) in communities within which University of Ghana – Needy Students it operates and Ghana as a whole. The spotlight will Institute of African Studies, University of Ghana continue to be on youth athletics development, health towards the second Kwame Nkrumah Cultural and and education. Intellectual Festival Ministry of the Future towards the Historical Staff will also intensify enhanced volunteerism projects to Citizenship Workshop - University of Ghana derive value for the Bank’s stakeholders. Soft Landscaping Project - University of Ghana Beatrix Ama Amoah (Mrs.) / COMPANY SECRETARY Local Content Seminars in the Oil and Gas Sector Citi FM Easter Orphan Project Latifa – Child with Eye Cancer Rebecca Akuffo-Addo Foundation towards rehabilitation of the Maternity Block of the Komfo Anokye Teaching Hospital

25 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

INDEPENDENT AUDITOR’S REPORT

ANNUAL FINANCIAL STATEMENTS 2017 26 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

TO THE SHAREHOLDERS OF HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Report on the Audit of the Financial Statements

Opinion Standards Board for Accountants (IESBA Code) and other independence requirements applicable to performing We have audited the consolidated and separate financial audits of HFC Bank (Ghana) Limited and it’s subsidiaries. We statements of HFC Bank (Ghana) Limited, (the Bank) and have fulfilled our other ethical responsibilities in accordance its subsidiaries (collectively ‘’the Group’’) set out on pages with the IESBA Code, and in accordance with other ethical 36 to 111 which comprise the consolidated and separate requirements applicable to performing the audits of HFC statements of financial position as at 31 December Bank (Ghana) Limited and it’s subsidiaries. We believe that 2017, and the consolidated and separate statements of the audit evidence we have obtained is sufficient and comprehensive income, the consolidated and separate appropriate to provide a basis for our opinion. statements of changes in equity and the consolidated and separate statements of cash flows for the year then ended, and notes to the consolidated and separate Key Audit Matters financial statements, including a summary of significant Key audit matters are those matters that, in our accounting policies. professional judgement, were of most significance in our audit of the consolidated financial statements of In our opinion, the consolidated and separate financial the current period. These matters were addressed in statements present fairly, in all material respects, the the context of our audit of the consolidated financial consolidated and separate financial position of the Group statements as a whole, and in forming our opinion as at 31 December 2017, and its consolidated and separate thereon, and we do not provide a separate opinion on financial performance and consolidated and separate these matters. For each matter below, our description of cash flows for the year then ended in accordance with how our audit addressed the matter is provided in that International Financial Reporting Standards and in the context. manner required by the Companies Act, 1963 (Act 179) and The Banks and Deposit-Taking Institutions Act, 2016 We have fulfilled the responsibilities described in the (Act 930). Auditor’s responsibilities for the audit of the financial statements section of our report, including in relation Basis for Opinion to these matters. Accordingly, our audit included the performance of procedures designed to respond to our We conducted our audit in accordance with International assessment of the risks of material misstatement of the Standards on Auditing (ISAs). Our responsibilities under financial statements. The results of our audit procedures, those standards are further described in the Auditor’s including the procedures performed to address the Responsibilities for the Audit of the Consolidated Financial matters below, provide the basis for our audit opinion on Statements section of our report. We are independent the accompanying financial statements. of the Group in accordance with the International Ethics

27 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Key Audit Matter How the matter was addressed in the audit

Impairment of loans and advances in line with IFRS

Total impairment formed about 15% of gross loans We assessed and tested the design and operating however, the impairment for the year decreased effectiveness of the controls over individual and collective marginally resulting to a write back of impairment (note impairment calculations including the quality of underlying 21g). The net loans and advances of the Group provision data and systems. for the year formed about 39% (note 21d) of total assets.

This involves the application of significant estimates, For loan loss provisions calculated on an individual basis, judgements and assumptions by management. we tested the assumptions underlying the main triggers Determination of the impairment loss provision is for specific impairment assessment. The process for an inherently uncertain process involving various estimating impairment loss included forecasts of future assumptions and factors including the financial cash flows, valuation of underlying collateral mainly by condition of the counterparty, expected future cash reviewing and discussing some of the valuation reports flows, estimated time to realisation of collaterals and with the Specialists. We also considered the estimated expected net selling price. This process therefore period to realisation and estimates of recovery on default. required significant audit attention as changes in these judgements and assumptions could produce significantly For loan loss provisions calculated on a collective basis, different estimates of loan loss provisions. we tested the underlying assumptions and compared to industry norms.

Adequacy of regulatory credit risk provisioning

Regulatory Credit Risk Reserve is governed by Bank We assessed the accounting systems and related controls of Ghana specific regulatory provisioning rules aside instituted by management to ensure the accurate the IFRS impairment provision. Unlike IFRS impairment determination of these provisions. rules however, regulatory provision rules are more deterministic and triggered mainly by the number of days We reviewed the process for aging and categorisation of a facility has been in default. the various loan buckets and the application of related regulatory provision rates. The excess of regulatory provision over IFRS provision is recognised directly in equity as credit risk reserves. The We tested a sample of these provisions based on our balance on this account as at 31 December 2017 was overall risk assessment of this account. GHS4.0million. Regulatory credit risk provisions represent a key risk area for the bank as misstatements in the carrying amount of this balance could have significant impact on the bank’s financial statements including the accuracy of its capital adequacy computations and other key industry performance indicators. Regulatory Credit Risk Provision has been disclosed in note 36 of these financial statements.

ANNUAL FINANCIAL STATEMENTS 2017 28 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Other Information Auditor’s responsibilities for the audit of the financial statements The Directors are responsible for the other information. The other information comprises corporate information Our objectives are to obtain reasonable assurance about (Directors, Officials and Registered Office), report of the whether the financial statements as a whole are free from Directors and statement of directors’ responsibilities. Other material misstatement, whether due to fraud or error, information does not include the consolidated financial and to issue an auditor’s report that includes our opinion. statements and our auditor’s report thereon. Our opinion Reasonable assurance is a high level of assurance, but is on the consolidated financial statements does not cover not a guarantee that an audit conducted in accordance the other information and we do not express an audit with ISAs will always detect a material misstatement opinion or any form of assurance conclusion thereon. when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in In connection with our audit of the financial statements, the aggregate, they could reasonably be expected to our responsibility is to read the other information and, influence the economic decisions of users taken on the in doing so, consider whether the other information is basis of these financial statements. materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise As part of an audit in accordance with ISAs, we exercise appears to be materially misstated. If, based on the work professional judgement and maintain professional we have performed on the other information obtained scepticism throughout the audit. We also: prior to the date of this auditor’s report, we conclude that Identify and assess the risks of material there is a material misstatement of this other information, misstatement of the consolidated financial we are required to report that fact. We have nothing to statements, whether due to fraud or error, design report in this regard. and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient Responsibilities of the Directors for the financial and appropriate to provide a basis for our opinion. statements The risk of not detecting a material misstatement The Directors are responsible for the preparation and fair resulting from fraud is higher than for one resulting presentation of the consolidated financial statements from error, as fraud may involve collusion, forgery, in accordance with International Financial Reporting intentional omissions, misrepresentations, or the Standards and the requirements of the Companies Act, override of internal control. 1963 (Act 179) and the and the Banks and Specialised Obtain an understanding of internal controls Deposit-Taking Institutions Act, 2016 (Act 930), and for such relevant to the audit in order to design internal control as the Directors determine is necessary audit procedures that are appropriate in the to enable the preparation of consolidated financial circumstances, but not for the purpose of statements that are free from material misstatement, expressing an opinion on the effectiveness of the whether due to fraud or error. Group’s internal control. Evaluate the appropriateness of accounting policies In preparing the consolidated financial statements, the used and the reasonableness of accounting Directors are responsible for assessing the Group’s ability estimates and related disclosures made by the to continue as a going concern, disclosing, as applicable, Directors. matters related to going concern and using the going Conclude on the appropriateness of the Directors’ concern basis of accounting unless the directors either use of the going concern basis of accounting and intend to liquidate the Group or to cease operations, or based on the audit evidence obtained, whether have no realistic alternative but to do so. a material uncertainty exists related to events or Those charged with governance are responsible for conditions that may cast significant doubt on the overseeing the Group’s financial reporting processes. Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based

29 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

on the audit evidence obtained up to the date Report on other legal requirements of our auditor’s report. However, future events The Companies Act, 1963 (Act 179) requires that in carrying or conditions may cause the Group to cease to out our audit we consider and report on the following continue as a going concern. matters. We confirm that: Evaluate the overall presentation, structure and We have obtained all the information and content of the consolidated financial statements, explanations which to the best of our knowledge including the disclosures, and whether the and belief were necessary for the purposes of our consolidated financial statements represent the audit; underlying transactions and events in a manner that achieves fair presentation. In our opinion proper books of account have been kept by the Group, so far as appears from our Obtain sufficient appropriate audit evidence examination of those books; regarding the financial information of the entities or business activities within the Group to express an Proper returns adequate for the purpose of our opinion on the consolidated financial statements. audit have been received from branches not We are responsible for the Direction, supervision visited by us; and and performance of the Group’s audit. We remain The balance sheet (statement of financial position) solely responsible for our audit opinion. and the profit or loss account (profit or loss section of the statement of profit or loss and other We communicate with the Directors regarding, among comprehensive income) are in agreement with the other matters, the planned scope and timing of the audit books of account. and significant audit findings, including any significant deficiencies in internal controls that we identify during The Banks and Specialised Deposit-Taking Institutions Act, our audit. 2016 (Act 930) under section 85(2) requires that we report on certain matters. Accordingly, we state that; We also provide the Directors with a statement that we have complied with relevant ethical requirements The accounts give a true and fair view of the regarding independence, and to communicate with them statement of affairs of the bank and the results of all relationships and other matters that may reasonably operations for the year under review; be thought to bear on our independence, and where We were able to obtain all the information and applicable, related safeguards. explanation required for the efficient performance of our duties; From the matters communicated with the Directors, we The transactions of the Bank are generally within determine those matters that were of most significance the powers of the bank; in the audit of the consolidated financial statements of the The Bank has generally complied with the current period and are therefore the key audit matters. provisions of the Anti-Money Laundering Act, 2008 We describe these matters in our auditor’s report unless (Act 749), the Anti-Terrorism Act, 2008 (Act 762) and law or regulation precludes public disclosure about the regulations made under these enactments; matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in The Bank has generally complied with the our report because the adverse consequences of doing provisions of the Banks and Specialised Deposit- so would reasonably be expected to outweigh the public Taking Institutions Act, 2016 (Act 930). interest benefits of such communication.

Pamela Des Bordes (ICAG/P/1329) For and on behalf of Ernst & Young (ICAG/F/2018/126) Chartered Accountants Accra, Ghana Date: 23rd February 2018.

ANNUAL FINANCIAL STATEMENTS 2017 30 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

FINANCIALS

31 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

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

2017 2016 In thousands of GHS Note Bank Group Bank Group

Interest income 8 310,598 321,313 276,012 287,572 Interest expense 9 (155,701) (155,701) (156,383) (156,383) Net interest income 154,897 165,612 119,629 131,189 Fee and commission income 10a 24,307 44,606 20,096 35,768 Fee and commission expense 10b (1,198) (1,198) (729) (729) Net fee and commission income 23,109 43,408 19,367 35,039

Net trading income 11 14,964 14,964 11,503 11,503 Other operating income 12a 5,263 34,782 2,372 12,359 Other income 12b 9,503 13,987 19,990 11,510 Operating income 207,736 272,753 172,861 201,600 Net impairment gain / (loss) on financial asset 21e 21 21 (69,781) (72,781) Personnel expenses 13 (79,829) (94,103) (84,264) (97,770) Operating lease expenses 14 (8,288) (9,038) (6,870) (7,981) Depreciation and amortization 15 (12,858) (13,951) (11,957) (12,999) Other expenses 16 (50,137) (86,237) (56,984) (73,851) Profit / (loss) before income tax for the period 56,645 69,445 (56,995) (63,782) National Stabilization Levy 17 (2,832) (3,261) - (393) Tax expense 17 (16,890) (19,690) 18,389 16,446 Profit / (loss) for the period 36,923 46,494 (38,606) (47,729) Other comprehensive income /(loss), net of income tax - - - - Total comprehensive income /(loss) for the period 36,923 46,494 (38,606) (47,729) Profit / (loss) attributable to: Controlling Equity holders of the bank 36,923 45,431 (38,606) (47,982) Non-controlling interest - 1,063 - 253

Profit / (loss) for the period 36,923 46,494 (38,606) (47,729) Total comprehensive income/ (loss) attributable to: Controlling Equity holders of the bank 36,923 45,431 (38,606) (47,982) Non-controlling interest - 1,063 - 253

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

Basic earnings per share (Ghana pesewas) 47 12.30 15.49 (12.98) (16.13) Diluted earnings per share (Ghana pesewas) 10.40 12.79 (10.96) (13.62)

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

ANNUAL FINANCIAL STATEMENTS 2017 32 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Consolidated Statement Of Financial Position as at 31 December 2017

2017 2016 In thousands of GHS Note The Bank The Group The Bank The Group

Assets Cash and cash equivalents 18 842,923 844,104 638,851 642,944 Non-Pledged assets 19 216,071 216,071 68,607 68,607 Pledged assets 19 38,000 38,000 22,300 22,300 Other investments 20 39,667 37,156 42,838 28,376 Loans and advances to customers 21 809,926 809,736 919,964 919,436 Investment securities 22 8,303 17,393 8,612 26,225 Current income tax assets 23 - - 25,111 25,275 Deferred tax assets 24 19,941 19,949 15,199 15,263 Intangible asset 25 5,789 5,952 6,512 6,685 Other assets 26 33,756 44,567 45,200 76,900 Property, plant and equipment 27 64,720 67,250 62,977 65,545 Total assets 2,079,096 2,100,178 1,856,171 1,897,556

Liabilities and equity Deposits from banks 28 - - - - Deposits from customers 29 1,712,646 1,712,646 1,558,210 1,558,210 Borrowing 30 14,719 14,719 41,845 41,845 Current income tax 23 2,256 2,132 - - Other liabilities 31 123,280 128,482 114,967 149,903 Total liabilities 1,852,901 1,857,979 1,715,022 1,749,958

Equity Stated capital 32 146,191 146,191 96,191 96,191 Income surplus 33 (32,493) (20,053) (47,682) (43,750) Revaluation reserve 34 32,051 32,051 32,293 32,309 Statutory reserve fund 35 75,665 75,665 57,203 57,203 Regulatory credit risk reserve 36 4,037 4,037 2,400 2,400 Housing development assistance reserve 37 744 744 744 744 Total equity attributable to equity holders of the Bank 226,195 238,635 141,149 145,097 Non-controlling interest 38 - 3,564 - 2,501 Total equity 226,195 242,199 141,149 147,598 Total liabilities and equity 2,079,096 2,100,178 1,856,171 1,897,556

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

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

33 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

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

The Bank-2017 Housing Income development Regulatory Stated surplus Statutory Revaluation assistance credit risk Total Capital account reserve reserve reserve reserve Equity

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

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

Profit for the year - 36,923 - - - 36,923 - Issue of ordinary shares 50,000 - - - - - 50,000 Shares issuance cost - (1,877) - - - - (1,877) Transfer from comprehensive - (18,462) 18,462 - - - - income to statutory reserve

Transfer from revaluation surplus - 242 - (242) - - - Movement from regulatory - (1,637) - - - 1,637 - credit risk reserve

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

The Bank-2016 Housing Income development Regulatory Stated surplus Statutory Revaluation assistance credit risk Total Capital account reserve reserve reserve reserve Equity

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

Balance at 1 January 2016 96,191 (13,475) 57,203 32,819 744 6,273 179,755 Loss for the year (38,606) - - - - (38,606) Transfer from revaluation surplus - 526 - (526) - - - Movement from regulatory - 3,873 - - - (3,873) - credit risk reserve

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

ANNUAL FINANCIAL STATEMENTS 2017 34 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

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

The Group-2017 Housing Income development Regulatory Non- Stated surplus Statutory Revaluation assistance credit risk controlling Total Capital account reserve reserve reserve reserve interest Equity (Note In thousands of GHS (Note 32) (Note 35) (Note 34) (Note 37) (Note 36) (Note 38) 33)

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

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

Issue of ordinary shares 50,000 ------50,000 Shares issuance cost - (1,877) - - - - - (1,877) Transfer from comprehensive income - (18,462) 18,462 - - - - - to statutory reserve

Transfer from - 242 - (258) - - - (16) capital surplus Transfer from regulatory - (1,637) - - - 1,637 - - credit risk reserve

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

The Group-2016 Housing Income development Regulatory Non- Stated surplus Statutory Revaluation assistance credit risk controlling Total Capital account reserve reserve reserve reserve interest Equity

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

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

(Loss) /profit for the year (47,982) - - - 253 (47,729) - - Transfer from - 526 - (526) - - - - capital surplus

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

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

35 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

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

2017 2016 In thousands of GHS Note Bank Group Bank Group

Cash flows from Operating activities Cash generated from operations 40 331,513 331,867 274,425 275,247 Interest paid-long term bonds and borrowing 30/31a (9,612) (9,612) (17,454) (17,454) Tax paid 23 (4,028) (6,941) (11,377) (13,456) National stabilization levy paid 23b (3,501) (3,721) (2,119) (2,527) Tax refund – Corporate tax 23 6,530 6,530 - - Tax refund – National stabilization levy 23b 3,902 3,902 - - Net cash generated from operating activities 324,804 322,025 243,475 245,435

Cash flows from investing activities Purchase of property, plant and equipment 27 (13,090) (14,251) (14,103) (15,265) Purchase of Intangible asset- software 25b (1,091) (1,091) (742) (785) Proceeds from sale of property, plant and equipment 27 590 706 740 935 Purchase of government securities (8,662,479) (8,662,479) (4,394,445) (4,394,531) Sale of government securities 8,515,015 8,518,515 4,385,804 4,385,815 Purchase of other investments (3,000) (3,000) (5,000) (5,000) Purchase of other short-term investments 20 - (5,659) - - Sale of other investments 20(a) 8,580 3,128 - 5,136 Sale / (purchase) of investment securities 2,478 11,001 6,134 (10,984) Investment in venture capital fund (2,169) (2,169) 913 18,200

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

Cash flows from financing activities Redemption of bonds 31a (4,524) (4,524) (16,766) (16,766) Borrowings repaid 30 (25,554) (25,554) (32,902) (32,902) Proceeds from borrowings 30 - - 43,245 43,245 Proceeds from ordinary shares issued 30 50,000 50,000 - - Ordinary shares issuance cost (1,877) (1,877) - - Net cash generated from/ (used in) financing activities 18,045 18,045 (6,423) (6,423)

Increase in cash and cash equivalents 187,683 184,771 216,353 218,908 Net foreign exchange difference 16,389 16,389 10,578 10,578 At 1 January 638,851 642,944 411,920 413,458

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

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

ANNUAL FINANCIAL STATEMENTS 2017 36 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

1. Reporting entity Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and HFC Bank (Ghana) Limited (the “Bank”) is a limited liability when the Group has less than a majority of the voting company incorporated and domiciled in Ghana. The or similar rights of an investee, the Group considers all address of the Bank’s registered office is Ebankese No. 35 relevant facts and circumstances in assessing whether it Sixth Avenue, North Ridge, Accra. The financial statements has power over an investee, including: as at and for the twelve months ended 31 December 2017 comprise the Bank’s stand alone and its subsidiaries The contractual arrangement with the (together referred to as the “Group”). The Group’s principal other vote holders of the investee activities are in investment banking, corporate banking, Rights arising from other retail banking, mortgage banking, asset management contractual arrangements services and property management and development. The Bank is listed on the Ghana Stock Exchange. The Group’s voting rights and potential voting rights 2. Basis of preparation The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there The financial statements have been prepared in are changes to one or more of the three elements of accordance with International Financial Reporting control. Consolidation of a subsidiary begins when the Standards (IFRS) as issued by the International Accounting Group obtains control over the subsidiary and ceases Standards Boards (IASB), the Banking Act and the Ghana when the Group loses control of the subsidiary. Assets, companies Act. liabilities, income and expenses of a subsidiary acquired or The financial statements have been prepared under disposed of during the year are included in the statement the historical cost basis except where the fair value of comprehensive income from the date the Group gains measurement of certain financial instruments is required control until the date the Group ceases to control the or permitted under IFRS and set out in the relevant subsidiary. accounting policies below. The financial statements are Profit or loss and each component of other comprehensive presented in Ghana cedis (GHS) and rounded to the income (OCI) are attributed to the equity holders of the nearest thousand. parent of the Group and to the non-controlling interests, The preparation of financial statements in conformity even if this results in the non-controlling interests having with IFRS requires the use of certain critical accounting a deficit balance. When necessary, adjustments are made estimates. It also requires management to exercise to the financial statements of subsidiaries to bring their its judgment in the process of applying the Group’s accounting policies into line with the Group’s accounting accounting policies. The areas involving a higher degree policies. All intra-group assets and liabilities, equity, of judgment or complexity, or areas where assumptions income, expenses and cash flows relating to transactions and estimates are significant to the financial statements between members of the Group are eliminated in full on are disclosed in Note 7. consolidation.

A change in the ownership interest of a subsidiary, 3. Basis of consolidation without a loss of control, is accounted for as an equity The consolidated financial statements comprise the transaction. If the Group loses control over a subsidiary, it: financial statements of the Group and its subsidiaries Derecognises the assets (including as at 31 December 2017. Control is achieved when the goodwill) and liabilities of the subsidiary Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to Derecognises the carrying amount affect those returns through its power over the investee. of any non-controlling interests Specifically, the Group controls an investee if and only if Derecognises the cumulative translation the Group has: differences recorded in equity

Power over the investee (i.e. existing rights that Recognises the fair value of the give it the current ability to direct the relevant consideration received activities of the investee) Recognises the fair value of any Exposure, or rights, to variable returns from its investment retained involvement with the investee, and Recognises any surplus or deficit in profit or loss The ability to use its power over the investee to affect its returns

37 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

Reclassifies the parent’s share of components Translation differences related to changes in the previously recognised in OCI to profit or loss or amortised cost are recognised in the profit or loss, and a. retained earnings, as appropriate, other changes in the carrying amount, except impairment, as would be required if the Group are recognised in other comprehensive income. All had directly disposed of the differences arising on non–trading activities are taken to other operating income in profit or loss. b. related assets or liabilities

The Bank accounts for investments in subsidiaries, 5.2 Segment reporting joint ventures and associates in its separate financial statements at costs. Any dividend from a subsidiary, a Operating segments are reported in a manner consistent joint venture or an associate is recognised in profit or with the internal reporting provided to the Asset and loss in its separate financial statements when its right to Liabilities Committee (ALCO) and the Board of Directors. receive the dividend is established. The Board allocates resources to and assesses the performance of the operating segments of the entity. All transactions between operating segments are conducted 4 Statement of compliance on an arm’s length basis, with intra-segment revenue The consolidated financial statements of the Bank have and costs being eliminated in head office. Income and been prepared in accordance with IFRS as issued by the expenses directly associated with each segment are IASB. included in determining operating segment performance.

5. Summary of significant accounting policies The Group has the following reporting segments: retail banking, corporate banking, microfinance and mortgage 5.1 Foreign currency translation banking

(a) Functional and presentation currency 5.3 Sale and repurchase agreements Items included in the Group’s financial statements are Securities sold subject to repurchase agreements (‘repos’) measured by each group entity using the e currency are reclassified in the financial statements as pledged of the primary economic environment in which that assets when the transferee has the right by contract or entity operates (‘the functional currency’). custom to sell or repledge the collateral; the counterparty liability is included in deposits from banks or deposits from The financial statements are presented in customers, as appropriate. Securities purchased under Ghana Cedis, which is the Bank’s functional and agreements to resell (‘reverse repos’) are recorded as loans presentation currency. and advances to other banks or customers, as appropriate.

(b) Transactions and balances The difference between sale and repurchase price is Transactions in foreign currencies are initially treated as interest and accrued over the life of the recorded at the spot rate of exchange ruling at the agreements using the effective interest method. date of the transaction. Securities lent to counterparties are also retained in the financial statements. Monetary assets and liabilities denominated in foreign currencies are retranslated at the spot rate of exchange 5.4 Financial assets and liabilities at the reporting date. The spot rate used for foreign currency translation is the Ghana Association of Bankers’ 5.4.1. Date of recognition interbank average rate. All financial assets and liabilities are initially recognised on the trade date, i.e., the date that the Non–monetary items that are measured in terms of bank becomes a party to the contractual provisions historical cost in a foreign currency are translated using of the instrument. This includes “regular way the spot exchange rates as at the date of recognition. trades”: purchases or sales of financial assets that Non–monetary items measured at fair value in a foreign require delivery of assets within the time frame currency are translated using the spot exchange rates at generally established by regulation or convention in the date when the fair value was determined. the market place. All foreign exchange gains and losses recognised in the profit or loss are presented net within the corresponding 5.4.2. Initial measurement of financial instruments item. Foreign exchange gains and losses on other The classification of financial instruments at initial comprehensive income items are presented in other recognition depends on the purpose and the comprehensive income within the corresponding item. management’s intention for which the financial

ANNUAL FINANCIAL STATEMENTS 2017 38 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

instruments were acquired and their characteristics. (b) Loans and receivables All financial instruments are measured initially at Loans and receivables are non-derivative financial their fair value plus transaction costs, except in assets with fixed or determinable payments that the case of financial assets and financial liabilities are not quoted in an active market, other than: recorded at fair value through profit or loss. c. those that the Group intends to sell All financial assets and liabilities – have to be immediately or in the short term has recognised in the statement of financial position and not been designated as financial assets measured in accordance with their assigned category. at fair value through profit or loss;

“Day 1” profit or loss d. those that the Group upon initial recognition designates as available for sale; or When the transaction price differs from the e. those for which the holder may not recover fair value of other observable current market substantially all of its initial investment, transactions in the same instrument, or based other than because of credit deterioration. on a valuation technique whose variables include only data from observable markets, the bank Loans and receivables are initially recognised at immediately recognises the difference between fair value plus transaction costs and measured the transaction price and fair value (a “Day 1” profit subsequently at amortised cost using the effective or loss) in “net trading income”. In cases where interest method. Loans and receivables are fair value is determined using data which is not reported in the statement of financial position observable, the difference between the transaction as loans and advances to banks or customers. price and model value is only recognised in profit or Interest on loans is included in the statement of loss when the inputs become observable, or when comprehensive income and is reported as ‘Interest the instrument is derecognised. income’. In the case of impairment, the impairment loss is reported as a deduction from the carrying 5.4.3 Financial assets value of the loan and recognised in profit or loss within the statement of comprehensive income as The Group classifies its financial assets in the following ‘loan impairment charges’. categories: financial assets at fair value through profit or loss; loans and receivables; held-to-maturity (c) Held-to-maturity investments investments; and available-for-sale financial assets. Management determines the classification of its Held-to-maturity investments are non-derivative financial assets at initial recognition. financial assets with fixed or determinable payments and fixed maturities that the Group’s (a) Financial assets at fair value through management has the positive intention and ability profit or loss to hold to maturity, other than: This category comprises two sub-categories: a. those that the Group upon initial financial assets classified as held for trading, and recognition designates as at fair financial assets designated by the Group as at value through profit or loss; fair value through profit or loss. A financial asset b. those that the Group designates is classified as held for trading if it is acquired or available for sale; and incurred principally for the purpose of selling or c. those that meet the definition repurchasing it in the near term or if it is part of a of loans and receivables. portfolio of identified financial instruments that are managed together and for which there is evidence These are initially recognised at fair value including of a recent actual pattern of short-term profit- direct and incremental transaction costs and taking. Derivatives are also classified as held for measured subsequently at amortised cost, using trading and measured at fair value. The group has the effective interest method. not designated any financial assets as at fair value through profit or loss. Interest on held-to-maturity investments is included in profit or loss within the statement of Financial instruments classified as fair value through comprehensive income and reported as ‘Interest profit or loss are recognised initially at fair value; income’. In the case of impairment, the impairment transaction costs are taken directly to the profit or loss is been reported as a deduction from the loss. Gains and losses arising from changes in fair carrying value of the investment and recognised in value are included directly in profit or loss as part of profit or loss within the statement of comprehensive ‘other operating income’. income.

39 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

5.4.4 Financial liabilities a. the bank has transferred substantially all the risks and rewards of the asset, or The Group’s financial liabilities includes deposits from customers, banks and other financial institutions, b. the bank has neither transferred nor retained bonds, borrowings, short term borrowings and substantially all the risks and rewards of the derivatives. Except for derivatives, all other asset, but has transferred control of the financial liabilities are measured at amortised cost. asset. Derivatives are measured at fair value with gains When the bank has transferred its rights to receive and losses recognised in profit or loss. cash flows from an asset or has entered into a pass– through arrangement, and has neither transferred 5.4.5 Determination of fair value nor retained substantially all the risks and rewards For financial instruments traded in active markets, of the asset nor transferred control of the asset, the determination of fair values is based on quoted the asset is recognised to the extent of the bank’s market prices. continuing involvement in the asset. In that case, the bank also recognises an associated liability. The A financial instrument is regarded as quoted in transferred asset and the associated liability are an active market if quoted prices are readily and measured on a basis that reflects the rights and regularly available from an exchange, industry obligations that the bank has retained. group, regulatory agency, and those prices represent actual and regularly occurring market (ii) Financial liabilities transactions on an arm’s length basis. If the above A financial liability is derecognised when the criteria are not met, the market is regarded as being obligation under the liability is discharged or inactive. Indicators that a market is inactive are cancelled or expires. Where an existing financial when there is a wide bid-offer spread or significant liability is replaced by another from the same increase in the bid-offer spread or there are few lender on substantially different terms, or the recent transactions. terms of an existing liability are substantially For all other financial instruments, fair value modified, such an exchange or modification is is determined using valuation techniques. In treated as a derecognition of the original liability these techniques, fair values are estimated from and the recognition of a new liability. The difference observable data in respect of similar financial between the carrying value of the original financial instruments, using models to estimate the present liability and the consideration paid is recognised in value of expected future cash flows or other profit or loss. valuation techniques. 5.4.7 Offsetting financial instruments The Group uses widely recognised valuation models Financial assets and financial liabilities are offset for determining fair values of non-standardised and the net amount reported in the statement of financial instruments of lower complexity, such as financial position if, and only if, there is a currently options or interest rate and currency swaps. For enforceable legal right to offset the recognised these financial instruments, inputs into models are amount and there is an intention to settle on a net generally market-observable. basis or to realise the asset and settle the liability simultaneously. This is not generally the case with 5.4.6 Derecognition of financial assets and financial master netting agreements, therefore, the related liabilities assets and liabilities are presented gross in the statement of financial position. (i) Financial assets A financial asset (or, where applicable a part of a 5.5 Interest income and expense financial asset or part of a group of similar financial Interest income and expense for all interest-bearing assets) is derecognised when: financial instruments are recognised within ‘interest income’ and ‘interest expense’ in profit or loss within a. The rights to receive cash flows from the the statement of comprehensive income using the asset have expired. original effective interest rate. b. The bank has transferred its rights to receive cash flows from the asset or has assumed an The effective interest method is a method of obligation to pay. calculating the amortised cost of a financial asset The received cash flows in full without material or a financial liability and of allocating the interest delay to a third party under a ‘pass–through’ income or interest expense over the relevant arrangement; and either: period. The effective interest rate is the rate that ANNUAL FINANCIAL STATEMENTS 2017 40 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

exactly discounts estimated future cash payments one or more events that occurred after the initial or receipts through the expected life of the financial recognition of the asset (a ‘loss event’) and that loss instrument or, when appropriate, a shorter period event (or events) has an impact on the estimated to the net carrying amount of the financial asset future cash flows of the financial asset or group of or financial liability. When calculating the effective financial assets that can be reliably estimated. interest rate, the Group estimates cash flows considering all contractual terms of the financial The criteria that the Group uses to determine that instrument (for example, prepayment options) but there is objective evidence of an impairment loss does not consider future credit losses. include:

The calculation includes all fees paid or received (a) significant financial difficulty of the issuer or between parties to the contract that are an integral obligor; part of the effective interest rate, transaction costs (b) a breach of contract, such as a default or and all other premiums or discounts. delinquency in interest or principal payments; (c) the lender, for economic or legal reasons Once a financial asset or a group of similar financial relating to the borrower’s financial difficulty, assets has been written down as a result of an granting to the borrower a concession that the impairment loss, interest income is recognised lender would not otherwise consider; using the rate of interest used to discount the (d) it becomes probable that the borrower will future cash flows for the purpose of measuring enter financial reorganisation; the impairment loss. (e) the disappearance of an active market for that 5.6 Fee and commission income financial asset because of financial difficulties; or Fees and commissions are generally recognised on an accrual basis when the service has been (f) observable data indicating that there is a provided. Loan commitment fees for loans that measurable decrease in the estimated future are likely to be drawn down are deferred (together cash flows from a portfolio of financial assets with related direct costs) and recognised as an since the initial recognition of those assets, adjustment to the effective interest rate on the loan. although the decrease cannot yet be identified Loan syndication fees are recognised as revenue with the individual financial assets in the when the syndication has been completed and the portfolio, including: Group has retained no part of the loan package for (i) adverse changes in the payment status of itself or has retained a part at the same effective borrowers in the portfolio; and (ii) national or local economic conditions that interest rate as the other participants. Commission correlate with defaults on the assets in and fees arising from negotiating or participating the portfolio. in the negotiation of, a transaction for a third party – such as the arrangement of the acquisition The estimated period between a loss occurring and of shares or other securities are recognised on its identification is determined by local management completion of the underlying transaction. Portfolio for each identified portfolio. In general, the periods and other management advisory and service fees used vary between 3 and 12 months; in exceptional are recognised based on the applicable service cases, longer periods are warranted. contracts, usually on a time-apportionate basis. The Group first assesses whether objective evidence Asset management fees related to investment of impairment exists individually for financial assets funds are recognised over the period in which the that are individually significant, and individually service is provided. The same principle is applied or collectively for financial assets that are not for custody services that are continuously provided individually significant. If the Group determines over extended period of time. that no objective evidence of impairment exists for 5.7 Impairment of financial assets an individually assessed financial asset, whether significant or not, it includes the asset in a group of (a) Assets carried at amortised cost financial assets with similar credit risk characteristics and collectively assesses them for impairment. The Group assesses at each reporting date whether Assets that are individually assessed for impairment there is objective evidence that a financial asset and for which an impairment loss is or continues or group of financial assets is impaired. A financial to be recognised are not included in a collective asset or a group of financial assets is impaired assessment of impairment. and impairment losses are incurred only if there is objective evidence of impairment as a result of 41 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

The amount of the loss is measured as the When a loan is uncollectible, it is written off difference between the asset’s carrying amount against the related allowance for loan impairment. and the present value of estimated future cash Such loans are written off after all the necessary flows (excluding future credit losses that have not procedures have been completed and the amount been incurred) discounted at the financial asset’s of the loss has been determined. Impairment original effective interest rate. The carrying amount charges relating to loans and advances to banks of the asset is reduced through the use of an and customers are classified in loan impairment allowance account and the amount of the loss is charges whilst impairment charges relating to recognised in the profit or loss. If a loan or held- investment securities (held to maturity and loans to-maturity investment has a variable interest rate, and receivables categories) are classified in ‘Net the discount rate for measuring any impairment gains/(losses) on investment securities’. loss is the current effective interest rate determined under the contract. If, in a subsequent period, the amount of the impairment loss decreases and the decrease The calculation of the present value of the estimated can be related objectively to an event occurring future cash flows of a collateralised financial after the impairment was recognised (such as an asset reflects the cash flows that may result from improvement in the debtor’s credit rating), the foreclosure less costs for obtaining and selling the previously recognised impairment loss is reversed collateral, whether or not foreclosure is probable. by adjusting the allowance account. The amount of the reversal is recognised in the profit or loss. For the purposes of a collective evaluation of impairment, financial assets are grouped on the Assets are reviewed for impairment whenever basis of similar credit risk characteristics (that is, events or changes in circumstances indicate that on the basis of the Group’s grading process that the carrying amount may not be recoverable. considers asset type, industry, geographical location, An impairment loss is recognised for the amount collateral type, past-due status and other relevant by which the asset’s carrying amount exceeds its factors). Those characteristics are relevant to the recoverable amount. The recoverable amount estimation of future cash flows for groups of such is the higher of an asset’s fair value less costs to assets by being indicative of the debtors’ ability to sell and value in use. In assessing value in use, pay all amounts due according to the contractual the estimated future cash flows are discounted to terms of the assets being evaluated. their present value using a pre–tax discount rate that reflects current market assessments of the Future cash flows in a group of financial assets time value of money and the risks specific to the that are collectively evaluated for impairment are asset. In determining fair value less costs to sell, estimated on the basis of the contractual cash an appropriate valuation model is used. These flows of the assets in the group and historical loss calculations are corroborated by valuation multiples, experience for assets with credit risk characteristics quoted share prices for publicly traded subsidiaries similar to those in the group. Historical loss or other available fair value indicators. experience is adjusted on the basis of current observable data to reflect the effects of current For the purposes of assessing impairment, assets conditions that did not affect the period on which are grouped at the lowest levels for which there are the historical loss experience is based and to separately identifiable cash flows (cash-generating remove the effects of conditions in the historical units). The impairment test also can be performed period that do not currently exist. on a single asset when the fair value less cost to sell or the value in use can be determined reliably. Estimates of changes in future cash flows for groups of assets should reflect and be directionally Goodwill is tested for impairment annually and when consistent with changes in related observable circumstances indicate that the carrying value may data from period to period (for example, changes be impaired. Impairment is determined for goodwill in unemployment rates, property prices, payment by assessing the recoverable amount of each CGU status, or other factors indicative of changes in to which the goodwill relates. When the recoverable the probability of losses in the Bank and their amount of the CGU is less than its carrying amount, magnitude). The methodology and assumptions an impairment loss is recognised. Impairment losses used for estimating future cash flows are reviewed relating to goodwill cannot be reversed in future regularly by the Group to reduce any differences periods. Intangible assets with indefinite useful lives between loss estimates and actual loss experience. are tested for impairment annually at the CGU level, as appropriate, and when circumstances indicate that the carrying value may be impaired.

ANNUAL FINANCIAL STATEMENTS 2017 42 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

Non- financial assets that suffered impairment are valuers, less subsequent depreciation for buildings. reviewed for possible reversal of the impairment at Any accumulated depreciation at the date of each reporting date. revaluation is eliminated against the gross carrying amount of the asset and the net amount is 5.8 Cash and cash equivalents restated to the revalued amount of the asset. All other property, plant and equipment are stated at Cash and cash equivalents as referred to in the historical cost less depreciation and impairment. cash flow statement comprises cash on hand, non– Historical cost includes expenditure that is directly restricted current accounts with central banks and attributable to the acquisition of the items. amounts due from banks on demand or with an original maturity of three months or less. Subsequent expenditures are included in the asset’s carrying amount or are recognised as a separate 5.9 Leases asset, as appropriate, only when it is probable The determination of whether an arrangement is that future economic benefits associated with the (or contains) a lease is based on the substance of item will flow to the Bank and the cost of the item the arrangement at the inception of the lease. The can be measured reliably. The carrying amount of arrangement is, or contains, a lease if fulfilment the replaced part is derecognised. All other repair of the arrangement is dependent on the use of and maintenance costs are charged to profit or a specific asset or assets and the arrangement loss during the financial period in which they are conveys a right to use the asset or assets, even if that incurred. right is not explicitly specified in an arrangement. Land is not depreciated. Depreciation of other Group as a lessee assets is calculated using the straight-line method to allocate their cost to their residual values over A lease is classified at the inception date as a finance their estimated useful lives, as follows: lease or an operating lease. A lease that transfers substantially all the risks and rewards incidental to % ownership to the Group is classified as a finance lease. – Buildings 2 – Computers 33.3 Finance leases are capitalised at the commencement – Furniture and Equipment 20 of the lease at the inception date fair value of the – Motor Vehicle 20 leased property or, if lower, at the present value The assets’ residual values and useful lives are of the minimum lease payments. Lease payments reviewed and prospectively adjusted if appropriate, are apportioned between finance charges and at the end of each reporting period. Assets are reduction of the lease liability so as to achieve a reviewed for impairment whenever events or constant rate of interest on the remaining balance changes in circumstances indicate that the carrying of the liability. Finance charges are recognised in amount may not be recoverable. finance costs in the profit or loss. An asset’s carrying amount is written down A leased asset is depreciated over the useful life immediately to its recoverable amount if the asset’s of the asset. However, if there is no reasonable carrying amount is greater than its estimated certainty that the Group will obtain ownership by recoverable amount. the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the The recoverable amount is the higher of the asset’s asset and the lease term. fair value less costs to sell and value in use. No property and equipment were impaired as at 31 An operating lease is a lease other than a finance December 2017 (2016; nil). lease. Operating lease payments are recognised as an operating expense in the profit or loss on a Increases in the carrying amount arising on straight-line basis over the lease term. revaluation of buildings are credited to other comprehensive income and shown as capital 5.10 Property, plant and equipment surplus in the shareholders’ equity. Decreases that offset previous increases of the same asset Land and buildings comprise mainly branches are charged in other comprehensive income and and offices and are shown at fair value, based debited against capital surplus directly in equity; all on periodic, valuations by external independent other decreases are charged to the profit or loss.

43 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

The revaluation surplus included in equity in respect However, deferred tax liabilities are not recognised of an item of property, plant and equipment is if they arise from the initial recognition of goodwill; transferred directly to retained earnings when the deferred income tax is not accounted for if it arises asset is derecognised. This may involve transferring from initial recognition of an asset or liability in a the whole of the surplus when the asset is retired transaction other than a business combination or disposed of. that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred Property, plant and equipment is derecognised income tax is determined using tax rates (and laws) on disposal or when no future economic benefits that have been enacted or substantially enacted by are expected from its use. Any gain or loss arising the reporting date and are expected to apply when on derecognition of the asset (calculated as the the related deferred income tax asset is realised or difference between the net disposal proceeds and the deferred income tax liability is realised. the carrying amount of the asset) is recognised in ‘Other operating income’ in profit or loss in the year The carrying amount of a deferred tax asset is the asset is derecognised. reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient 5.11 Income tax taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised (a) Current income tax deferred tax assets are reassessed at each reporting The tax expense for the period comprises current date and are recognised to the extent that it has and deferred income tax. Tax is recognised in the become probable that future taxable profits will profit or loss, except to the extent that it relates to allow the deferred tax asset to be recovered. items recognised in other comprehensive income Deferred tax assets and liabilities are measured or directly in equity. In this case, the tax is also at the tax rates that are expected to apply in the recognised in other comprehensive income or year when the asset is realised or the liability is directly in equity respectively. The current income settled, based on tax rates (and tax laws) that tax charge is calculated on the basis of tax laws have been enacted or substantively enacted at enacted or substantively enacted at the reporting the reporting date. date. Management periodically evaluates positions taken in tax returns with respect to situations 5.12 Provisions in which applicable tax regulation is subject to interpretation. It establishes provisions where Provisions are recognised when the Bank has a appropriate on the basis of amounts expected to present obligation (legal or constructive) as a result be paid to the tax authorities. of a past event, and it is probable that an outflow of resources embodying economic benefits will (b) Deferred income tax be required to settle the obligation and a reliable estimate can be made of the amount of the Deferred tax is provided using the liability method obligation. The expense relating to any provision on temporary differences between the tax bases of is presented in the statement of comprehensive assets and liabilities and their carrying amounts for income net of any reimbursement. financial reporting purposes at the reporting date. Provisions are measured at the present value of Deferred tax liabilities are recognised for all taxable the expenditures expected to be required to settle temporary differences, except: the obligation using a pre-tax rate that reflects When the deferred tax liability arises from the current market assessments of the time value of initial recognition of goodwill or an asset or money and the risks specific to the obligation. The liability in a transaction that is not a business increase in the provision due to passage of time is combination and, at the time of the transaction, recognised as interest expense. affects neither the accounting profit nor taxable Contingent liabilities are possible obligations whose profit or loss existence will be confirmed only by uncertain future In respect of taxable temporary differences events or present obligations where the transfer of associated with investments in subsidiaries, economic benefit is uncertain or cannot be reliably associates and interests in joint ventures, when measured. Contingent liabilities are not recognised the timing of the reversal of the temporary but are disclosed unless they are remote. differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future

ANNUAL FINANCIAL STATEMENTS 2017 44 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

5.13 Convertible bonds 5.15 Comparatives The liability component and the equity component Except when a standard or an interpretation permits of convertible bonds if any are presented separately: or requires otherwise, all amounts are reported or disclosed with comparative information. The Bank’s obligation to make scheduled payments of interest and 5.16 Share based payments principal is a financial liability that exists as long as the instrument is The bank engages in equity settled share-based not converted. On initial recognition, the payment transactions in respect of services fair value of the liability component is received from certain of its employees. All options the present value of the contractually are exercised in the year. The exercise price of the determined stream of future cash flows share options is equal to the market price of the discounted at the rate of interest for an underlying shares on the date of grant. The share equivalent non-convertible bond. options vest if and when the bank’s budgeted profit is exceeded. 30% of the exceeded profit is The equity instrument is an embedded offered as share to those employees. The cost of option to convert the liability into equity-settled transactions is determined by the equity of the Bank. The fair value at the date when the grant is made fair value of the option comprises its using an appropriate valuation model. That cost is time value and its intrinsic value. recognised, together with a corresponding increase Interest, losses and gains relating to the in other capital reserves in equity, over the period financial liability component of the convertible in which the performance and/or service conditions bonds are recognised in the profit or loss. are fulfilled in employee staff cost or expense.

5.14 Stated capital 5.17 Intangible assets Dividends on ordinary shares are recognised as Intangible assets acquired separately are measured a liability and deducted from equity when they on initial recognition at cost. The cost of intangible are approved by the bank’s shareholders. Interim assets acquired in a business combination is their dividends are deducted from equity when they are fair value at the date of acquisition. Following initial declared and no longer at the discretion of the bank. recognition, intangible assets are carried at cost less Dividends for the year that are approved after the accumulated impairment losses. statement of financial position date are disclosed as an event after the statement of financial position Intangible assets with indefinite useful lives are not date. amortised, but are tested for impairment annually, either individually or at the cash-generating unit Treasury shares and contracts on own shares level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life Own equity instruments of the group which are continues to be supportable. If not, the change acquired by it or by any of its subsidiaries (treasury in useful life from indefinite to finite is made on a shares) are deducted from equity and accounted prospective basis. for at weighted average cost. Consideration paid or received on the purchase, sale, issue or cancellation Gains or losses arising from de-recognition of an of the bank’s own equity instruments is recognised intangible asset are measured as the difference directly in equity. No gain or loss is recognised between the net disposal proceeds and the carrying in profit or loss on the purchase, sale, issue or amount of the asset and are recognised in profit or cancellation of own equity instruments. loss when the asset is derecognised. When the bank holds own equity instruments on behalf of its clients, those holdings are not included 5.18 Business combinations and goodwill in the group’s statement of financial position. Business combinations are accounted for using Contracts on own shares that require physical the acquisition method. The cost of an acquisition settlement of a fixed number of own shares for is measured as the aggregate of the consideration a fixed consideration are classified as equity and transferred measured at acquisition date fair value added to or deducted from equity. Contracts on and the amount of any non-controlling interests own shares that require net cash settlement or in the acquiree. For each business combination, provide a choice of settlement are classified as the Group elects whether to measure the non- trading instruments and changes in the fair value controlling interests in the acquiree at fair value or at are reported in profit or loss.

45 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

the proportionate share of the acquiree’s identifiable amount of the operation when determining the net assets. Acquisition-related costs are expensed as gain or loss on disposal. Goodwill disposed in these incurred and included in administrative expenses. circumstances is measured based on the relative values of the disposed operation and the portion of When the Group acquires a business, it assesses the the cash-generating unit retained. financial assets and liabilities assumed for appropriate Classification and designation in accordance with 5.19 Employee benefits the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This For defined contribution schemes, the Bank includes the separation of embedded derivatives in recognises contributions due in respect of the host contracts by the acquiree. accounting period in profit or loss. Any contributions unpaid at the reporting date are included as a If the business combination is achieved in stages, liability. any previously held equity interest is re-measured at its acquisition date fair value and any resulting gain Short-term employee benefits, such as salaries, or loss is recognised in profit or loss. Any contingent paid absences, and other benefits, are accounted consideration to be transferred by the acquirer will for on an accruals basis over the period which be recognised at fair value at the acquisition date. employees have provided services in the year. Contingent consideration classified as an asset or Bonuses are recognised to the extent that the Bank liability that is a financial instrument and within the has a present obligation to its employees that can scope of IAS 39 Financial Instruments: Recognition be measured reliably. and Measurement, is measured at fair value with All expenses related to employee benefits are changes in fair value recognised either in either recognised in profit or loss in staff costs, which is profit or loss or as a change to OCI. If the contingent included within operating expenses. consideration is not within the scope of IAS 39, it is measured in accordance with the appropriate IFRS. Contingent consideration that is classified as equity 5.19.1 Other employee benefits - loans at concessionary is not re-measured and subsequent settlement is rate accounted for within equity. The Bank grants facilities to staff of the Bank on concessionary terms. The Bank recognises such Goodwill is initially measured at cost, being the offerings as part of employee benefits on the excess of the aggregate of the consideration basis that such facilities are granted to staff on the transferred and the amount recognised for non- assumption of their continued future service to controlling interests, and any previous interest the Bank and not for their past service. The Bank’s held, over the net identifiable assets acquired and Lending Rate adjusted for risk not associated with liabilities assumed. If the fair value of the net assets the Bank’s staff is applied to fair value such facilities. acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has Any discount arising there from it is recognised as correctly identified all of the assets acquired and all of a prepaid staff benefit which is amortised through the liabilities assumed and reviews the procedures profit or loss over the shorter of the life of the used to measure the amounts to be recognised at related facilities and expected average remaining the acquisition date. If the reassessment still results working lives of employees. in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then 5.20 Financial guarantee contracts the gain is recognised in profit or loss. After initial recognition, goodwill is measured at cost less any Financial guarantee contracts issued by the Group accumulated impairment losses. For the purpose of are those contracts that require a payment to be impairment testing, goodwill acquired in a business made to reimburse the holder for a loss it incurs combination is, from the acquisition date, allocated because the specified debtor fails to make a to each of the Group’s cash generating units that payment when due in accordance with the terms of are expected to benefit from the combination, a debt instrument. Financial guarantee contracts are irrespective of whether other assets or liabilities of recognised initially as a liability at fair value, adjusted the acquiree are assigned to those units. for transaction costs that are directly attributable to the issuance of the guarantee. Subsequently, Where goodwill has been allocated to a cash- the liability is measured at the higher of the best generating unit and part of the operation within estimate of the expenditure required to settle the that unit is disposed of, the goodwill associated with present obligation at the reporting date and the the disposed operation is included in the carrying amount recognised less cumulative amortisation.

ANNUAL FINANCIAL STATEMENTS 2017 46 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

6. Standards issued but not yet effective under IFRS 9. Therefore, reclassification for these instruments is not required. The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Bank’s (b) Impairment financial statements are disclosed below. The Group intends to adopt these standards, if applicable, when they Overview become effective. IFRS 9 will also fundamentally change the loan loss impairment methodology. The standard will replace FRS 9 Financial Instruments IAS 39’s incurred loss approach with a forward-looking In July 2014, the IASB issued the final version of IFRS 9 expected credit loss (ECL) approach. The Group will be Financial Instruments that replaces IAS 39 Financial required to record an allowance for expected losses for Instruments: Recognition and Measurement and all all loans and other debt financial assets not held at FVPL, previous versions of IFRS 9. together with loan commitments and financial guarantee contracts. The allowance is based on the expected credit IFRS 9 brings together all three aspects of the accounting losses associated with the probability of default in the for financial instruments project: classification and next twelve months unless there has been a significant measurement, impairment and hedge accounting. IFRS increase in credit risk since origination, in which case, the 9 is effective for annual periods beginning on or after 1 allowance is based on the probability of default over the January 2018, with early application permitted. Except for life of the asset. hedge accounting, retrospective application is required but providing comparative information is not compulsory. The Group has established a policy to perform an For hedge accounting, the requirements are generally assessment at the end of each reporting period applied prospectively, with some limited exceptions. whether credit risk has increased significantly since initial recognition by considering the change in the risk of The Group plans to adopt the new standard on the default occurring over the remaining life of the financial required effective date and will not restate comparative instrument. information. During 2017, the Group has performed a detailed impact assessment on the adoption of IFRS 9. This To calculate ECL, the Group will estimate the risk assessment is based on currently available information of a default occurring on the financial instrument and may be subject to changes arising from further during its expected life. ECLs are estimated based reasonable and supportable information being made on the present value of all cash shortfalls over the available to the Group in 2018 when the Group will adopt remaining expected life of the financial asset, i.e., IFRS 9. Overall, the Group expects a significant impact the difference between: the contractual cash flows on its statement of financial position and equity mainly that are due to the Group under the contract, and resulting from the effect of applying the impairment The cash flows that the Bank expects to receive, requirements of IFRS 9. The Group expects an increase discounted at the effective interest rate of the loan. in the loss allowance resulting in a negative impact on In comparison to IAS 39, the Bank expects the impairment equity as discussed below. In addition, the Group will charge under IFRS 9 to be more volatile than under IAS implement changes in classification of certain financial 39 and to result in an increase in the total level of current instruments. impairment allowances. (a) Classification and measurement The Bank groups its loans into Stage 1, Stage 2 and Stage The Group does not expect a significant impact on its 3, based on the applied impairment methodology, as balance sheet or equity in applying the classification described below: and measurement requirements of IFRS 9. It expects to continue measuring at fair value all financial assets Stage 1 – Performing loans: when loans are first currently held at fair value through profit or loss however, recognised, the Bank recognises an allowance unquoted equity shares currently held at cost will be based on 12-month expected credit loss. reclassified as fair value through other comprehensive Stage 2 – Underperforming loans: when a loan income and be measured as fair value. Debt securities are shows a significant increase in credit risk, the Bank expected to continue to be measured at amortised cost. records an allowance for the lifetime expected credit loss. Loans and advances to customers are held to collect Stage 3 – Impaired loans: the Group recognises the contractual cash flows and are expected to give rise to lifetime expected credit losses for these loans. cash flows representing solely payments of principal and In addition, in Stage 3 the Group accrues interest interest. The Group analysed the contractual cash flow income on the amortised cost of the loan net of characteristics of those instruments and concluded that allowances. they meet the criteria for amortised cost measurement 47 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

The Group will record impairment for FVOCI debt securities, For revolving facilities such as overdrafts, the Group depending on whether they are classified as Stage 1, 2, measures ECLs by determining the period over which it or 3, as explained above. However, the expected credit expects to be exposed to credit risk, taking into account losses will not reduce the carrying amount of these the credit risk management actions that it expects to financial assets in the statement of financial position, take once the credit risk has increased and that serve to which will remain at fair value. mitigate losses.

Instead, an amount equal to the allowance that would The Group intends to apply a policy that if the transfer into arise if the asset were measured at amortised cost will be Stage 2 had been initially triggered by indicators other than recognised in OCI as an accumulated impairment amount, the movement in the probability of default, the loan can with a corresponding charge to profit or loss. only return to Stage 1 after a probation period of two years

For ‘low risk’ FVOCI debt securities, the Bank intends to Forward looking information apply a policy which assumes that the credit risk on the instrument has not increased significantly since initial The Group will incorporate forward-looking information in recognition and will calculate ECL. Such instruments will both the assessment of significant increase in credit risk generally include Ghana Government and Bank of Ghana and the measurement of ECLs. Treasury bills which the borrower has a strong capacity The Group considers forward-looking information such to meet its contractual cash flow obligations in the near as macroeconomic factors (e.g., unemployment and GDP term and adverse changes in economic and business growth) and economic forecasts. To evaluate a range conditions in the longer term may, but will not necessarily, of possible outcomes, the Group intends to formulate reduce the ability of the borrower to fulfil its contractual three scenarios: a base case, a worse case and a better cash flow obligations. case. The base case scenario represents the more likely The Group will not consider instruments to have low credit outcome resulting from the Group’s normal financial risk simply because of the value of collateral. Financial planning and budgeting process, while the better and instruments are also not considered to have low credit worse case scenarios represent more optimistic or risk simply because they have a lower risk of default than pessimistic outcomes. For each scenario, the Group will the Bank’s other financial instruments. derive an ECL and apply a probability weighted approach to determine the impairment allowance. When estimating lifetime ECLs for undrawn loan commitments, the Bank will: The Group will use internal information coming from internal economic experts, combined with published Estimate the expected portion of the loan external information from government and other global commitment that will be drawn down over the organisations the world Bank and IMF. Both the Risk and expected life of the loan commitment And Finance management teams will need to approve the Calculate the present value of cash shortfalls forward-looking assumptions before they are applied for between the contractual cash flows that are due different scenarios to the entity if the holder of the loan commitment draws down that expected portion of the loan and (c) Hedge accounting the cash flows that the entity expects to receive if The Group determined that it does not have any hedging that expected portion of the loan is drawn down relationships hence this may not have any impact on the For financial guarantee contracts, the Group will Group. estimate the lifetime ECLs based on the present value of the expected payments to reimburse the holder for a credit loss that it incurs less any Other adjustments amounts that the guarantor expects to receive In addition to the adjustments described above, on from the holder, the debtor or any other party. If adoption of IFRS 9, other items of the primary financial a loan is fully guaranteed, the ECL estimate for the statements such as deferred taxes, will be adjusted as financial guarantee contract would be the same as necessary. the estimated cash shortfall estimate for the loan subject to the guarantee. In summary, the impact of IFRS 9 adoption is expected to be, as follows:

ANNUAL FINANCIAL STATEMENTS 2017 48 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

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

In thousands of GHS Adjustments Amount Assets Loans and advances to customers Decrease 11,536 Investments including pledged and non-pledged assets Decrease 3,846 Deferred Tax Increase 2,884

Liabilities Provisions for off balance sheet items Increase 830

Net impact on equity, Including Retained earnings Decrease 8,481 Regulated Risk Reserve Decrease 4,037

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

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

In thousands of GHS Values after Values prior impact to impact assessment assessment Impact Profit before impairment charge and tax 56,624 56,624 Nil Impairment write-back /(charge) (16,191) 21 Increase Profit before income tax 40,433 56,645 Decrease

National Stabilization Levy 2,022 2,832 Decrease Corporate tax expense 14,006 16,890 Decrease Profit after tax for the period 24,405 36,923 Decrease

Impact on Capital Adequacy Ratio as of 31 December 2017:

In thousands of GHS Values after Values prior impact to impact assessment assessment Impact Share capital 146,191 146,191 Nil Disclosed Reserves 37,969 47,209 Decrease Total Tier 1 Capital 150,640 156,084 Decrease

Total Tier 2 Capital 86,549 86,549 Nil Total Regulatory Capital 238,189 242,63 Decrease

On Financial Position 994,349 1,005,572 Decrease Off Financial Position 43,170 43,170 Nil Total risk weighted assets 1,037,519 1,048,742 Decrease

Capital adequacy ratio 22.96% 23.14% Decrease

49 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

IFRS 15 Revenue from Contracts with Customers A few scope exceptions will apply. The overall objective of IFRS 17 is to provide an accounting model for insurance In May 2014, the IASB issued IFRS 15 Revenue from contracts that is more useful and consistent for insurers. Contracts with Customers, effective for periods beginning In contrast to the requirements in IFRS 4, which are largely on 1 January 2018 with early adoption permitted. IFRS based on grandfathering previous local accounting 15 defines principles for recognising revenue and will policies, IFRS 17 provides a comprehensive model for be applicable to all contracts with customers. However, insurance contracts, covering all relevant accounting interest and fee income integral to financial instruments aspects. The core of IFRS 17 is the general model, and leases will continue to fall outside the scope of IFRS supplemented by: 15 and will be regulated by the other applicable standards (e.g., IFRS 9, and IFRS 16 Leases). A specific adaptation for contracts with direct participation features (the variable fee approach) Revenue under IFRS 15 will need to be recognised as goods and services are transferred, to the extent that the A simplified approach (the premium allocation transferor anticipates entitlement to goods and services. approach) mainly for short-duration contracts. The standard will also specify a comprehensive set of IFRS 17 is effective for reporting periods beginning on or disclosure requirements regarding the nature, extent after 1 January 2021, with comparative figures required. and timing as well as any uncertainty of revenue and Early application is permitted, provided the entity also corresponding cash flows with customers. applies IFRS 9 and IFRS 15 on or before the date it first applies IFRS 17. This standard is not applicable to the Group. The Group does not expect any significant impact on its revenue on the adoption of this standard. Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor IFRS 16 Leases and its Associate or Joint Venture The IASB issued the new standard for accounting for The amendments address the conflict between IFRS 10 leases - IFRS 16 Leases in January 2016. The new standard and IAS 28 in dealing with the loss of control of a subsidiary does not significantly change the accounting for leases that is sold or contributed to an associate or joint venture. for lessors. However, it does require lessees to recognise The amendments clarify that the gain or loss resulting most leases on their balance sheets as lease liabilities, from the sale or contribution of assets that constitute a with the corresponding right-of-use assets. Lessees business, as defined in IFRS 3, between an investor and must apply a single model for all recognised leases, but its associate or joint venture, is recognised in full. Any gain will have the option not to recognise ‘short-term’ leases or loss resulting from the sale or contribution of assets and leases of ‘low-value’ assets. Generally, the profit or that do not constitute a business, however, is recognised loss recognition pattern for recognised leases will be only to the extent of unrelated investors’ interests in similar to today’s finance lease accounting, with interest the associate or joint venture. The IASB has deferred and depreciation expense recognised separately in the the effective date of these amendments indefinitely, statement of profit or loss. but an entity that early adopts the amendments must IFRS 16 is effective for annual periods beginning on apply them prospectively. The Group will apply these or after 1 January 2019. Early application is permitted amendments when they become effective. provided the new revenue standard, IFRS 15, is applied on IFRS 2 Classification and Measurement of Share-based the same date. Lessees must adopt IFRS 16 using either Payment Transactions — Amendments to IFRS 2 The a full retrospective or a modified retrospective approach. IASB issued amendments to IFRS 2 Share-based Payment In 2018, the Group will continue to assess the potential that address three main areas: the effects of vesting effect of IFRS 16 on its financial statements. conditions on the measurement of a cash-settled share- based payment transaction; the classification of a share- IFRS 17 Insurance Contracts based payment transaction with net settlement features for withholding tax obligations; and accounting where a In May 2017, the IASB issued IFRS 17 Insurance Contracts modification to the terms and conditions of a share-based (IFRS 17), a comprehensive new accounting standard payment transaction changes its classification from cash for insurance contracts covering recognition and settled to equity settled. measurement, presentation and disclosure. Once effective, IFRS 17 will replace IFRS 4 Insurance Contracts On adoption, entities are required to apply the (IFRS 4) that was issued in 2005. IFRS 17 applies to all types amendments without restating prior periods, but of insurance contracts (i.e., life, non-life, direct insurance retrospective application is permitted if elected for all and re-insurance), regardless of the type of entities that three amendments and other criteria are met. The issue them, as well as to certain guarantees and financial amendments are effective for annual periods beginning instruments with discretionary participation features. on or after 1 January 2018, with early application permitted.

ANNUAL FINANCIAL STATEMENTS 2017 50 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

This is not expected to impact the Group. permitted. If an entity applies those amendments for an earlier period, it must disclose that fact. These Transfers of Investment Property amendments are not applicable to the Group. — Amendments to IAS 40 The amendments clarify when an entity should transfer FRIC Interpretation 22 Foreign Currency property, including property under construction or Transactions and Advance Consideration development into, or out of investment property. The The Interpretation clarifies that, in determining the amendments state that a change in use occurs when spot exchange rate to use on initial recognition of the the property meets, or ceases to meet, the definition of related asset, expense or income (or part of it) on the investment property and there is evidence of the change derecognition of a non-monetary asset or non-monetary in use. A mere change in management’s intentions for the liability relating to advance consideration, the date of use of a property does not provide evidence of a change in the transaction is the date on which an entity initially use. Entities should apply the amendments prospectively to recognises the non-monetary asset or non-monetary changes in use that occur on or after the beginning of the liability arising from the advance consideration. If there are annual reporting period in which the entity first applies the multiple payments or receipts in advance, then the entity amendments. An entity should reassess the classification must determine the transaction date for each payment or of property held at that date and, if applicable, reclassify receipt of advance consideration. Entities may apply the property to reflect the conditions that exist at that date. amendments on a fully retrospective basis. Alternatively, Retrospective application in accordance with IAS 8 is only an entity may apply the Interpretation prospectively to all permitted if it is possible without the use of hindsight. assets, expenses and income in its scope that are initially Effective for annual periods beginning on or after 1 January recognised on or after: 2018. Early application of the amendments is permitted and must be disclosed. (i) The beginning of the reporting period in which the entity first applies the interpretation or The Group does not expect any impact when the standard (ii) The beginning of a prior reporting period become effective. presented as comparative information in the IAS 28 Investments in Associates and Joint Ventures - financial statements of the reporting period in Clarification that measuring investees at fair value through which the entity first applies the interpretation. profit or loss is an investment-by-investment choice The Interpretation is effective for annual periods beginning on or after 1 January 2018. Early application The amendments clarify that: of interpretation is permitted and must be disclosed. However, since the Group’s current practice is in line with An entity that is a venture capital organisation, the Interpretation, the Group does not expect any effect or other qualifying entity, may elect, at on its financial statements. initial recognition on an investment- by-investment basis, to measure its investments in associates and joint ventures IFRIC Interpretation 23 Uncertainty at fair value through profit or loss. over Income Tax Treatment If an entity, that is not itself an investment The Interpretation addresses the accounting for income entity, has an interest in an associate or joint taxes when tax treatments involve uncertainty that venture that is an investment entity, the entity affects the application of IAS 12 and does not apply to may, when applying the equity method, elect taxes or levies outside the scope of IAS 12, nor does it to retain the fair value measurement applied specifically include requirements relating to interest and by that investment entity associate or joint penalties associated with uncertain tax treatments. The venture to the investment entity associate’s Interpretation specifically addresses the following: or joint venture’s interests in subsidiaries. Whether an entity considers uncertain tax This election is made separately for each treatments separately investment entity associate or joint venture, at the later of the date on which: (a) the The assumptions an entity makes about the investment entity associate or joint venture examination of tax treatments by taxation is initially recognised; (b) the associate or authorities joint venture becomes an investment entity; How an entity determines taxable profit (tax loss), and (c) the investment entity associate or tax bases, unused tax losses, unused tax credits joint venture first becomes a parent. and tax rates The amendments should be applied retrospectively and How an entity considers changes in facts and are effective from 1 January 2018, with earlier application circumstances

51 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

An entity must determine whether to consider each from observable data in respect of similar financial uncertain tax treatment separately or together with one instruments or using models. Where market observable or more other uncertain tax treatments. The approach inputs are not available, they are estimated based on that better predicts the resolution of the uncertainty appropriate assumptions. Where valuation techniques should be followed. The interpretation is effective for (for example, models) are used to determine fair values, annual reporting periods beginning on or after 1 January they are validated and periodically reviewed by qualified 2019, but certain transition reliefs are available. The personnel independent of those that sourced them. All Group will apply interpretation from its effective date. models are certified before they are used, and models In addition, the Group may need to establish processes are calibrated to ensure that outputs reflect actual data and procedures to obtain information that is necessary to and comparative market prices. To the extent practical, apply the Interpretation on a timely basis. models use only observable data; however, areas such as credit risk (both own credit risk and counterparty risk), 7. Critical accounting estimates and judgements volatilities and correlations require management to make estimates. Additional disclosures where required, are The Group’s financial statements and its financial result provided in the individual notes relating to the assets and are influenced by accounting policies, assumptions, liabilities whose fair values were determined. Fair value estimates and management judgement, which hierarchy is provided in Note 46 (v). necessarily have to be made in the course of preparation of the financial statements. The Group makes estimates Held-to-maturity investments and assumptions that affect the reported amounts of assets and liabilities within the next financial year. All In accordance with guidance, the Group classifies some estimates and assumptions required in conformity with non-derivative financial assets with fixed or determinable IFRS are best estimates undertaken in accordance with payments and fixed maturity as held to maturity. This the applicable standard. Estimates and judgements are classification requires significant judgement. In making evaluated on a continuous basis, and are based on past this judgement, the Group evaluates its intention and experience and other factors, including expectations with ability to hold such investments to maturity. If the Group regard to future events. were to fail to keep these investments to maturity other than for the specific circumstances – for example, selling Impairment losses on loans and advances an insignificant amount close to maturity – the Group is required to reclassify the entire category as available for (a) Impairment losses on loans and advances sale. Accordingly, the investments would be measured at The Group reviews its loan portfolios to assess fair value instead of amortised cost. impairment at least on a quarterly basis. In determining whether an impairment loss should be recorded in Income taxes the profit or loss, the Group makes judgements as to Significant estimates are required in determining the whether there is any observable data indicating an provision for income taxes. There are many transactions impairment trigger followed by measurable decrease in and calculations for which the ultimate tax determination the estimated future cash flows from a portfolio of loans is uncertain. The Bank recognises liabilities for anticipated before the decrease can be identified with that portfolio. tax audit issues based on estimates of whether additional This evidence may include observable data indicating that taxes will be due. Where the final tax outcome of these there has been an adverse change in the payment status matters is different from the amounts that were initially of borrowers in a bank, or national or local economic recorded, such differences will impact the income tax and conditions that correlate with defaults on assets in the deferred tax provisions. Bank. Management uses estimates based on historical loss experience for assets with credit risk characteristics Revaluation of property, plant and equipment and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The Group’s buildings were revalued in 2013 year by The methodology and assumptions used for estimating independent valuers. (Assenta Properties Consulting). both the amount and timing of future cash flows are Valuations were made on the basis of recent market reviewed regularly to reduce any differences between transactions. The revaluation surplus net of applicable loss estimates and actual loss experience. deferred income tax was credited to other comprehensive income and is shown in Capital surplus in shareholders’ Fair value of financial instruments equity. Capital surplus is a non-distributable reserve. The fair values of financial instruments where no None of the property, plant and equipment has active market exists or where quoted prices are not been placed as collateral for liabilities and there is no otherwise available are determined by using valuation contractual commitment for the acquisition of property techniques. In these cases, the fair values are estimated and equipment.

ANNUAL FINANCIAL STATEMENTS 2017 52 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

Share-based payments Going Concern The Group measures the cost of equity-settled The Board and Management of the Bank have made an transactions with employees by reference to the fair assessment of the ability of the Bank to continue as a value of the equity instruments at the date at which going concern and is satisfied that it has the resources they are granted. Estimating fair value for share-based to continue in business in the foreseeable future. payment transactions requires determination of the most Furthermore, the Board is not aware of any material appropriate valuation model, which is dependent on the uncertainties that may cast significant doubt upon the terms and conditions of the grant. This estimate also bank’s ability to continue as a going concern. Therefore, requires determination of the most appropriate inputs the financial statements continue to be prepared on the to the valuation model including the expected life of the going concern basis. share option, volatility and dividend yield and making assumptions about them.

8. Interest income

In thousands of GHS 2017 2016 The Bank The Group The Bank The Group Cash and cash equivalent 88,257 88,273 43,149 43,149 Loans and advances to customers 179,157 179,157 202,022 202,022 Investment securities 43,184 53,883 30,841 42,401 310,598 321,313 276,012 287,572

9. Interest expense

In thousands of GHS 2017 2016 The Bank The Group The Bank The Group Deposit from banks 2,647 2,647 1,683 1,683 Deposit from customers 133,096 133,096 127,694 127,694 Debts securities issued 9,828 9,828 14,786 14,786 Others 10,130 10,130 12,220 12,220 Total interest expense 155,701 155,701 156,383 156,383

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

10. Net fees and commission income In thousands of GHS 2017 2016 The Bank The Group The Bank The Group 10A. Fees and commission income Retail banking customer fees 24,307 44,606 20,096 35,768 Total fee and commission income 24,307 44,606 20,096 35,768 10B. Fees and commission expense Others 1,198 1,198 729 729 Total fees and commission expense 1,198 1,198 729 729 Net fee and commission income 23,109 43,408 19,367 35,039

11. Net trading income 2017 2016 In thousands of GHS The Bank The Group The Bank The Group

Foreign exchange 16,389 16,389 10,578 10,578 Other (1,425) (1,425) 925 925 Net trading income 14,964 14,964 11,503 11,503

53 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

12a. Other Operating Income 2017 2016 In thousands of GHS The Bank The Group The Bank The Group

Rental income - 2,061 - - Property sales - 29,519 - 6,453 Others 5,263 5,263 2,372 3,845

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

12b. Other income 2017 2016 The Bank The Group The Bank The Group Profit /(loss) on disposal of Asset 287 287 (229) (198) Sundry Income 4,175 5,011 7,220 7,614 Bad debt recovered 194 194 - - Upfront fees / spread - 3,648 - 4,094 Valuation gain 4,847 4,847 - - Dividend Received - - 12,999 -

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

13. Personnel Expense 2017 2016 In thousands of GHS The Bank The Group The Bank The Group Salaries 45,328 54,809 39,859 48,196 Contributions to defined Contribution Plan 6,990 5,496 5,221 6,346 Other Staff Cost 27,511 33,798 39,184 43,228

Total 79,829 94,103 84,264 97,7 70

Other staff cost includes

In thousands of GHS 2017 2016 The Bank The Group The Bank The Group Rent allowance 2,431 2,690 2,055 2,219 Car maintenance and fuel 7,748 8,352 7,410 7,960 Medical & dental expense 3,013 3,416 2,927 3,027 Severance package 1,704 1,704 6,977 6,977 Clothing expense 3,854 4,257 3,899 4,243 Sundry staff expense 8,761 13,379 15,916 18,802

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

ANNUAL FINANCIAL STATEMENTS 2017 54 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

14. Operating lease expense

2017 2016 In thousands of GHS The Bank The Group The Bank The Group Rent 8,288 9,038 6,870 7,981

15. Depreciation and amortization 2017 2016 In thousands of GHS The Bank The Group The Bank The Group Depreciation- Property, plant and Equipment 11,044 12,127 8,075 9,006 Amortisation- Intangible asset 1,814 1,824 3,882 3,993 12,858 13,951 11,957 12,999

16. Other Expenses 2017 2016 In thousands of GHS The Bank The Group The Bank The Group Other expenses is made up of the following; Software licensing and other ICT costs 9,388 9,630 6,050 6,069 Auditors’ remuneration 375 675 483 785 Others 40,374 75,932 50,451 66,997

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

Other expenses includes:

2017 2016 In thousands of GHS The Bank The Group The Bank The Group Marketing and advertisement 2,475 3,121 4,374 4,881 Electricity and water 5,291 6,476 4,876 5,749 Printing and stationery 1,535 1,674 1,693 1,830 Equipment repairs and maintenance 3,747 4,026 2,606 2,898 Consultancy fees 2,575 2,796 1,836 2,645 Travelling and transport 2,152 2,399 1,961 2,153 General expense 5,820 37,533 18,450 26,112 Cash collection expenses 3,377 3,377 3,344 3,344 Other expenses 13,402 14,530 11,311 17,385

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

55 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

17. Income tax expense

In thousands of GHS 2017 2016 The Bank The Group The Bank The Group Current tax (Note 23) 21,632 24,376 - 1,943 Deferred tax (Note 24) (4,742) (4,686) (18,389) (18,389)

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

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

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

Income tax expense / (income) reconciliation

In thousands in of GHS 2017 2016 The Bank The Group The Bank The Group

Profit / (loss) before income tax 56,645 69,445 (56,995) (63,782) Tax using the domestic corporate tax rate of 25% 14,161 17,361 (14,249) (15,946) Tax effect of non-deductible expenses 6,960 6,562 (4,140) (500) Tax effect of income exempted from tax (4,231) (4,233) - -

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

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

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

18. Cash and cash equivalents

In thousands of GHS 2017 2016 The Bank The Group The Bank The Group Cash and bank balances with banks 181,829 183,010 161,506 165,599 Balances with Central Banks 95,704 95,704 15,353 15,353 Mandatory balance with central Bank 128,701 128,701 122,706 122,706 Money market placement 436,689 436,689 339,286 339,286 Total cash and cash equivalents 842,923 844,104 638,851 642,944

19. Pledged and non-pledged assets

In thousands of GHS 2017 2016 Non Non Pledged Pledged Total Pledged Pledged Total

Government bonds - 97,937 97,937 - 8,300 8,300 Treasury bills 38,000 118,134 156,134 22,300 60,307 82,607

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

ANNUAL FINANCIAL STATEMENTS 2017 56 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

Pledged assets are the carrying amount of Government The pledged assets could not be used for any other Securities (Treasury bills) used as collateral for short term trading until the payment is done and the pledged assets funds borrowed from banks and non-bank financial are released by Central Security Depository. institutions. These transactions are conducted under terms that are In the event that, the entity fails to make good the usual and customary to securities borrowing and lending payment as and when it falls due, the collateral will not activities. It is at a rate of 91 day treasury bill plus a spread be released back to the entity. of 1%.

20. Other investments

In thousands of GHS 2017 2016 Bank Group Bank Group

Investment in Unit Trust 26,262 26,262 20,013 23,141 - Investments in subsidiaries 13,405 22,825 - Other short term-investments - 10,894 - 5,235 39,667 37,156 42,838 28,376

20a. Investment in Unit Trust

In thousands of GHS 2017 2016 Bank Group Bank Group

Opening balance 20,013 23,141 11,886 14,516 Additional Investment 3,000 3,000 5,000 5,000 Disinvestment - (3,128) - - Fair value appreciation 3,249 3,249 3,127 3,625

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

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

20b. Investments in subsidiaries

(i). Investment balances 2017 2016 In thousands of GHS Bank Group Bank Group

HFC Investment Services Limited 2,535 - 2,535 - HFC Realty Limited 1,930 - 1,930 - Boafo Microfinance Services Limited 503 - 503 - UG-HFC 289 - 289 - HFC Brokerage Services Limited 75 - 75 - HFC Capital Partners 51 - 51 - HFC Venture Capital Fund 8,022 - 17,442 -

13,405 - 22,825 -

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

57 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

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

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

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

Subsidiaries Holding Country of Relationship Nature of business 2017 2016 Incorporation % % A wholly owned Investment HFC Investment Services Limited 100 100 Ghana subsidiary of the bank management A wholly owned Property HFC Realty Limited 100 100 Ghana subsidiary of the bank management Boafo Microfinance A company in which the Bank 51 51 Ghana Microfinance Services Limited has 51% equity holding A company in which the bank Asset UG-HFC 60 60 Ghana has 60% equity holding management A wholly owned HFC Capital Partners 100 100 Ghana Venture capitalist subsidiary of the bank A wholly owned HFC Venture Capital Fund 100 100 Ghana Venture capitalist subsidiary of the bank

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

21. Loans and advances to customers

In thousands of GHS 2017 2016 Bank Group Bank Group

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

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

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

21b. Loans and advances to customers at amortized cost

In thousands of GHS 2017 2016 Bank Group Bank Group Financial institution lending 50,709 50,709 64,605 64,605 Individuals 245,513 245,513 229,940 229,940 Private / public enterprises 648,991 648,801 759,188 758,660 Staff 5,246 5,246 6,785 6,785 Gross loans and advances 950,459 950,269 1,060,518 1,059,990 Less provision for impairment: Specific impairment (123,285) (123,285) (123,016) (123,016) Collective impairment (17,248) (17,248) (17,538) (17,538) Net loans and advances 809,926 809,736 919,964 919,436

ANNUAL FINANCIAL STATEMENTS 2017 58 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

78% of the loans and advances portfolio are backed by collateral and this covers in full all collateralized balances. (2016: 78%). Collaterals held as security and other credit enhancements, were largely in the form of landed properties and fixed and floating charge over the assets of the borrowing entities amounted to GHS1,417,650,344.08 (2016: GHS1,264,073,000) Included in the loans and advances balance at the Bank level is the sum of GHS190,010 which relates to the loan balance to Boafo Microfinance Services Limited, a subsidiary of the Bank. This has been eliminated at the Group level.

2017 2016 The Bank The Group The Bank The Group Financial institution lending 50,709 50,709 64,605 64,605 Agriculture, Forestry & Fishing 513 513 2,718 2,718 Manufacturing 75,183 75,183 58,495 58,495 Construction 69,400 69,400 48,196 48,196 Electricity, Gas & Water 93,575 93,575 184,091 184,091 Commerce & Finance 180,367 180,177 274,707 274,179 Mortgage loans 245,513 245,513 229,940 229,940 Transport, Storage & Communication 25,489 25,489 33,034 33,034 Services 127,513 127,513 82,692 82,692 Miscellaneous 82,197 82,197 82,040 82,040 Gross loans and advances to Customers 950,459 950,269 1,060,518 1,059,990 Identified impairment (123,285) (123,285) (123,016) (123,016) Unidentified impairment (17,248) (17,248) (17,538) (17,538) Net loans and advances to customers 809,926 809,736 919,964 919,436

Miscellaneous is mainly personal and retail loans.

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

In thousands of GHS 2017 2016 Bank Group The Bank The Group Financial institution lending 50,709 50,709 64,605 64,605 Commercial loans 613,848 613,658 724,541 724,013 Retail loans 35,143 35,143 34,647 34,647 Mortgage loans 245,513 245,513 229,940 229,940 Staff 5,246 5,246 6,785 6,785 Gross loans and advances 950,459 950,269 1,060,518 1,059,990 Less provision for impairment: Specific impairment (123,285) (123,285) (123,016) (123,016) Collective impairment (17,248) (17,248) (17,538) (17,538) Net loans and advances 809,926 809,736 919,964 919,436

The impairment relates to all categories of loans.

59 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

21e. Movement in impairment balance

The movement in impairment of loans is as follows: Identified Unidentified In thousands in of GHS Total credit risk credit risk The Bank

At 1 January 2017 123,016 17,538 140,554 Charge to profit or loss 269 (290) (21) At 31 December 2017 123,285 17,248 140,533

At 1 January 2016 111,382 15,463 126,845 Charge to profit or loss 67,706 2,075 69,781 Bad debt written-off (56,072) - (56,072) At 31 December 2016 123,016 17,538 140,554

Identified Unidentified In thousands in of GHS Total credit risk credit risk Group

At 1 January 2017 123,016 17,538 140,554 Charge to profit or loss 269 (290) (21) At 31 December 2017 123,285 17,248 140,533

At 1 January 2016 108,382 15,463 123,845 Charge to profit or loss 70,706 2,075 72,781 Bad debt written-off (56,072) - (56,072) At 31 December 2016 123,016 17,538 140,554

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

2017 The Bank The Group In thousands in of GHS NPL Impairment NPL Impairment Manufacturing 20,180 2,670 20,180 2,670 Construction 34,999 6,991 34,999 6,991 Electricity, Gas & Water 34,049 32,843 34,049 32,843 Commerce & Finance 38,040 27,578 38,040 27,578 Mortgage loans 79,912 29,581 79,912 29,581 Transport, Storage & Communication 6,748 7,212 6,748 7,212 Services 14,953 4,629 14,953 4,629 Miscellaneous 10,095 11,781 10,095 11,781

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

ANNUAL FINANCIAL STATEMENTS 2017 60 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

2016 The Bank The Group In thousands in of GHS NPL Impairment NPL Impairment Agriculture, Forestry & Fishing 296 296 296 296 Manufacturing 2,967 2,378 2,967 2,378 Construction 14,262 5,931 14,262 5,931 Electricity, Gas & Water 61,191 42,114 61,191 42,114 Commerce & Finance 40,818 24,910 40,818 24,910 Mortgage loans 77,304 26,347 77,304 26,347 Transport, Storage & Communication 6,424 6,424 6,424 6,424 Services 9,689 4,123 9,689 4,123 Miscellaneous 17,801 10,493 17,801 10,493 As at 31 December 230,752 123,016 230,752 123,016

21g. Impairment expense

In thousands in of GHS 2017 2016 Bank Group The Bank The Group

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

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

21h. Loans and advances ratios

In thousands in of GHS 2017 2016 Bank Group The Bank The Group % % % % Loan loss provision ratio 14.79 14.79 13.25 13.36 Gross non-performing loans ratio 25.14 25.15 21.75 21.77 Ratio of 50 largest exposures 46.93 46.95 58.50 58.53

In thousands in of GHS 2017 2016 Interest rate charge Bank Group The Bank The Group % % % % Commercial loan 24 – 30 24 – 30 28 – 31 28 - 31 Consumer loans 15 – 24 15 – 24 29 – 32 29 - 32 Mortgage loans – dollar 12 – 14 12 – 14 12 – 14 12 - 14 Mortgage loans – Cedi 20 - 28 20 – 28 28 - 31 28 - 31 Staff loans – dollar 3 - 4 3 – 4 3 - 4 3 - 4 Staff loans – Cedi 6 - 12 6 – 12 6 - 12 6 - 12

22. Investment securities

In thousands in of GHS 2017 2016 Bank Group The Bank The Group

Held-to-maturity investment securities 3,000 12,090 5,478 23,091 Investment securities at amortised cost 5,303 5,303 3,134 3,134 8,303 17,393 8,612 26,225

61 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

22b. Investment securities - held-to-maturity

In thousands in of GHS 2017 2016 Bank Group The Bank The Group

At 1 January 5,478 23,091 11,612 12,107 Purchases 6,059 17,849 5,478 23,096 Interest earned 794 3,348 1,027 1,029 Interest received (841) (3,745) (986) (986) Exchange difference - - 608 608 Redemption (8,490) (28,453) (12,261) (12,763)

At 31 December 3,000 12,090 5,478 23,091 These are fixed deposits with other financial institutions that would mature within one year. The Cedi investments attract an average interest rate of 25% (2016: 28%) per annum whilst the dollar attracts 6% (2016: 6%) per annum. The investments were not impaired at the end of the year and no provision was made.

22c. Investment securities at amortised cost

In thousands in of GHS 2017 2016 Bank Group The Bank The Group Ebankese Venture Capital Fund 5,303 5,303 3,134 3,134 5,303 5,303 3,134 3,134

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

23. Current income tax

The Bank Payments Tax refund Balance at Charge for during during Balance at In thousands in of GHS 1/1/2017 the year the year the year 31/12/17

Up to 2016 (21,209) 14,679 - 6,530 - 2017 - 6,953 (4,028) - 2,925

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

National Fiscal Stabilization Levy

The Bank Payments Tax refund Balance at Charge for during during Balance at In thousands in of GHS 1/1/2017 the year the year the year 31/12/17

Up to 2016 (3,902) - - 3,902 - 2017 - 2,832 (3,501) - (669) Assets (3,902) 2,832 (3,501) 3,902 (669)

Total Current income tax liability including National Stabilisation Levy- Bank

The Bank Payments Tax refund Balance at Charge for during during Balance at In thousands in of GHS 1/1/2017 the year the year the year 31/12/17

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

ANNUAL FINANCIAL STATEMENTS 2017 62 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

The Group Payments Tax refund Balance at Charge for Balance at during during 1/1/2017 the year 31/12/17 In thousands in of GHS the year the year

Up to 2016 (21,350) 14,679 - 6,530 (141) 2017 - 9,697 (6,941) - 2,756

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

The Group National Fiscal Stabilization Levy (Note 23b)

Payments Tax refund Balance at Charge for Balance at In thousands in of GHS during during 1/1/2017 the year 31/12/17 the year the year

Up to 2016 (3,925) - (23) 3,902 2017 - 3,261 (3,721) - (460) Assets (3,925) 3,261 (3,721) 3,902 (483)

Total Current income tax liability including National Stabilisation Levy- Group

Payments Tax refund Balance at Charge for Balance at In thousands in of GHS during during 1/1/2017 the year 31/12/17 the year the year

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

The Bank

In thousands in of GHS Payments Balance at Charge for during Balance at Current tax -2016 1/1/2016 Adjustment the year the year 31/12/16

Up to 2010 (779) - - - (779) 2011 154 - - - 154 2012 (324) - - - (324) 2013 (168) - - - (168) 2014 1,280 - - - 1,280 2015 (9,993) (9,993 2016 - (2) - (11,377) (11,379) Assets 180 (97) - (11,377) (21,209)

National Fiscal Stabilization levy

Balance at Charge for Balance at In thousands in of GHS 1/1/2016 Adjustment the year Payment 31/12/16

Up to 2015 (1,783) - - (1,783) 2016 - - - (2,119) (2,119) (1,783) - - (2,119) (3,902)

Total current tax asset (25,111)

63 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

23a. Corporate tax – The Group

Current tax Payments Balance at Charge for during Balance at In thousands in of GHS 1/1/2016 Adjustment the year the year 31/12/2016

Up to 2010 (734) - - - (734) 2011 330 - - - 330 2012 (198) - - - (198) 2013 421 - - - 421 2014 1,260 - - - 1,260 2015 (10,819) - - - (10,819) 2016 - (97) 1,943 (13,456) (11,610) Assets (9,740) (97) 1,943 (13,456) (21,350)

National Fiscal Stabilization Levy (Note 23b)

Balance at Charge for Balance at 1/1/2016 Adjustment the year Payment 31/12/16 In thousands in of GHS

Up to 2015 (1,777) - - (1,777) 2016 - (14) 393 (2,527) (2,148) (1,777) (14) 393 (2,527) (3,925)

Total current tax asset (25,275)

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

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

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

2017 2016 In thousands in of GHS Bank Group The Bank The Group

At 1 January (15.199) (15,263) 3,189 3,098 Charge to profit or loss (note 17) (4,742) (4,686) (18,388) (18,361) - - - - Adjustment

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

ANNUAL FINANCIAL STATEMENTS 2017 64 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

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

2017 2016

In thousands in of GHS Bank Group The Bank The Group

Accelerated capital allowances - - 1,239 1,239 Loan impairment (20,571) (20,571) (4,373) (4,373) Unutilized capital allowance 7,801 7,793 (5,312) (5,312) Carried forward losses - - (14,082) (14,146) Revaluation of building (7,171) (7,171) 7,329 7,329

(19,941) (19,949) (15,199) (15,263)

25. Intangible Asset

2017 2016 In thousands in of GHS Bank Group The Bank The Group

Goodwill 3,931 3,931 3,931 3,931 Software 1,858 2,021 2,581 2,754

5,789 5,952 6,512 6,685

25a. Goodwill

2017 2016 In thousands in of GHS Bank Group The Bank The Group

Goodwill 3,931 3,931 3,931 3,931

Impairment testing For the purpose of annual impairment testing, goodwill is allocated to the operating segments expected to benefit from the synergies of the business acquisition in which the goodwill arises, as follows:

Carrying amount of goodwill as allocated to each of the CGUs

In thousands in of GHS Retail Total Goodwill 3,931 3,931

The recoverable amount of the retail segment was determined based on value-in-use calculations, covering a detailed five-year forecast, followed by an extrapolation of expected cash flows for the remaining useful lives using a declining growth rate determined by management. The recoverable amount of the retail segment is set out below:

In thousands in of GHS Retail Total Goodwill 24,411 24,411

The present value of the expected cash flows of the retail segment is determined by applying a suitable discount rate reflecting current market assessments of the time value of money and risks specific to the segment.

Growth rate Discount rate Retail 4% 13.5%

65 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

Key assumptions used in value in use calculations

Growth rates The growth rates reflect the long-term average growth rates for the retail segments (all publicly available). The growth rate for online retailing exceeds the overall long-term average growth rates for Ghana because this sector is expected to continue to grow at above-average rates for the foreseeable future.

Discount rates The discount rates reflect appropriate adjustments relating to market risk and specific risk factors of the retail segment.

Cash flow assumptions

Retail segment Management’s key assumptions include stable profit margins, based on past experience in this market. The Group’s management believes that this is the best available input for forecasting this mature market. Cash flow projections reflect stable profit margins achieved immediately before the budget period. No expected efficiency improvements have been taken into account and prices and wages reflect publicly available forecasts of inflation for the industry.

25b. Software

In thousands in of GHS 2017 2016 Bank Group The Bank The Group Cost Opening balance 11,967 12,556 11,225 11,771 Additions 1,091 1,091 742 785

At 31 December 13,058 13,647 11,967 12,556

Accumulated depreciation Opening balance 9,386 9,802 5,502 5,809 Charge for the year 1,814 1,824 3,884 3,993

At 31 December 11,200 11,626 9,386 9,802

Net Book Value 1,858 2,021 2,581 2,754

Total carrying amount of Intangible asset

2017 2016 In thousands in of GHS Bank Group The Bank The Group

Goodwill 3,931 3,931 3,931 3,931 Software 1,858 2,021 2,581 2,754 5,789 5,952 6,512 6,685

26. Other assets

In thousands in of GHS 2017 2016 Bank Group The Bank The Group

Prepayments 15,943 15,943 17,508 17,508 Other receivables 17,813 28,624 27,692 59,392

33,756 44,567 45,200 76,900

ANNUAL FINANCIAL STATEMENTS 2017 66 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

Other receivables includes the following:

2017 2016 In thousands in of GHS Bank Group The Bank The Group

Interest receivable 7,928 7,928 4,207 4,207 Receivable from Realty 1,349 - 16,439 - Inventory - 4,421 - 15,061 Sundry account receivable 5,974 10,619 1,669 22,577 Others 2,562 5,656 5,377 17,547 17,813 28,624 27,692 59,392

27. Property, plant and equipment

The Bank – 2017

Furniture In thousands in of GHS Land and and Motor Capital Work Building Computers Equipment Vehicles In Progress Total Cost/valuation At 1 January 38,100 16,687 22,718 8,635 8,241 94,381 Additions 5,926 138 654 1,128 5,244 13,090 Disposals (322) - - (380) - (702) Transfers 526 4,888 4,258 - (9,672) - At 31 December 44,230 21,713 27,630 9,383 3,813 106,769

Accumulated Depreciation At 1 January 2,345 8,677 15,517 4,865 - 31,404 Charge for the year 591 5,730 3,156 1,567 - 11,044 Disposals (27) - - (372) - (399) At 31 December 2,909 14,407 18,673 6,060 - 42,049

Net Book Value 41,321 7,306 8,957 3,323 3,813 64,720

If land and buildings were measured using the cost model, the carrying amounts would be, as follows:

In thousands in of GHS 2017 2016

Cost 17,060 11,134 Accumulated depreciation (2,125) (1,784) Net carrying amount 14,935 9,350

67 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

The Bank - 2016

Furniture Capital In thousands in of GHS Land and and Motor Work In Building Computers Equipment Vehicles Progress Total Cost/valuation At 1 January 38,736 11,170 21,848 7,681 2,281 81,716 Additions 67 5,517 1,395 1,164 5,960 14,103

Disposals (703) - (525) (210) - (1,438) At 31 December 38,100 16,687 22,718 8,635 8,241 94,381

Accumulated Depreciation At 1 January 1,788 5,592 12,901 3,516 - 23,797 Charge for the year 622 3,085 2,898 1,470 - 8,075

Disposals (65) - (282) (121) - (468) At 31 December 2,345 8,677 15,517 4,865 - 31,404

Net Book Value 35,755 8,010 7,201 3,770 8,241 62,977

Profit on disposal of property and equipment

In thousands in of GHS 2017 2016 Bank Group The Bank The Group

Gross book value 702 1,300 1,438 1,835 Accumulated depreciation (399) (881) (469) (702) Net book value 303 419 969 1,133 Sale proceeds 590 706 740 935

(Loss) / profit on disposal 287 287 (229) (198)

The Group 2017

Furniture Capital In thousands in of GHS Land and and Motor Work In Building Computers Equipment Vehicles Progress Total Cost/valuation At 1 January 38,100 17,639 25,552 10,506 8,241 100,038 Additions 5,926 251 779 2,051 5,244 14,251 Disposals (322) (89) (309) (580) (1,833) Transfers 526 4,888 4,258 - (9,672) 0 At 31 December 44,230 22,689 30,280 11,977 3,813 112,989

Accumulated Depreciation At 1 January 2,345 9,388 16,949 5,811 - 34,493 Charge for the year 591 5,999 3,617 1,920 - 12,127 Disposals (27) (83) (207) (564) - (881)

AT 31 December 2,909 15,304 20,359 7,167 - 45,739

Net Book Value 41,321 7,385 9,921 4,810 3,813 67,250

ANNUAL FINANCIAL STATEMENTS 2017 68 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

The Group - 2016 Furniture Capital In thousands in of GHS Land and and Motor Work In Building Computers Equipment Vehicles Progress Total Cost/valuation At 1 January 38,736 12,060 24,353 9,179 2,281 86,609 Additions 67 5,597 1,725 1,916 5,960 15,265

Disposals (703) (18) (526) (589) - (1,836) At 31 December 38,100 17,639 25,552 10,506 8,241 100,038

Accumulated Depreciation At 1 January 1,788 6,124 13,827 4,446 - 26,185 Charge for the year 622 3,271 3,403 1,710 - 9,006

Disposals / adjust. (65) (7) (281) (345) - (699) At 31 December 2,345 9,388 16,949 5,811 - 34,493

Net Book Value 35,755 8,251 8,603 4,695 8,241 65,545

The Group has entered into operating leases on certain buildings for their branches, with lease terms between three and Ten years. The Group has the option, under some of its leases, to lease the assets for additional terms of three to five years.

The future lease rental have been prepaid and recognised under other assets as disclosed in “Note 26 Other Assets”.

28. Deposits from banks

In thousands in of GHS 2017 2016 Bank Group The Bank The Group

Money market deposits - - - -

29. Deposits from customers

In thousands in of GHS 2017 2016 Bank Group The Bank The Group Retail customers: Term deposits 421,158 421,158 416,506 416,506 Current deposits 679,494 679,494 522,263 522,263 Others 337,631 337,631 301,214 301,214 Corporate customers; Term deposit 246,300 246,300 303,990 303,990 Current deposit 28,063 28,063 14,237 14,237 1,712,646 1,712,646 1,558,210 1,558,210

29a. Analysis of deposits from customers

In thousands in of GHS 2017 2016 Bank Group The Bank The Group

Current 1,045,188 1,045,188 948,500 948,500 Non-current 667,458 667,458 609,710 609,710 Total 1,712,646 1,712,646 1,558,210 1,558,210

The ratio of the 20 largest deposits to total deposits for the current financial year is 38.84% (2016: 33%)

69 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

30. Borrowings

In thousands in of GHS 2017 2016 Bank Group The Bank The Group Proparco (ii) 14,719 14,719 19,601 19,601 Ghana International Bank (GHIB) (i) - - 22,244 22,244 14,719 14,719 41,845 41,845

The movement on borrowings is as follow: At 1 January 41,845 41,845 28,463 28,463 Addition - - 43,245 43,245 Interest charged 2,596 2,596 10,224 10,224 Repayment (25,554) (25,554) (32,902) (32,902) Interest paid (4,168) (4,168) (7,185) (7,185)

At 31 December 14,719 14,719 41,845 41,845 Current 5,895 5,895 28,911 28,911 Non-current 8,824 8,824 12,934 12,934

14,719 14,719 41,845 41,845

(i) Ghana International Bank

The GHIB loan was an unsecured medium term loan of GHS22.24 million (US$5.296 million) (2016:GHS22.24 – US$ 5.296 million) contracted for on-lending. The facility was for a 10 months period and attracts interest at Libor plus 3.75%. The interest was payable monthly. The loan was paid off on May 1, 2017.

(ii) Proparco

The Proparco loan represents an unsecured term loan of US$10 million contracted for seven and a half years at an interest rate of 6%. Maturity date for the loan falls on April 30, 2020. The amount outstanding at the end of the year is GHS 14.7 million (US$3.33 million); (2016, GHS 19.6 million or US$5.33 million).

31. Other liabilities

2017 2016 In thousands in of GHS Bank Group The Bank The Group

Bonds 53,754 53,754 53,894 53,894 Other liabilities 69,526 74,728 61,073 96,009

123,280 128,482 114,967 149,903

ANNUAL FINANCIAL STATEMENTS 2017 70 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

31a. Bonds

In thousands in of GHS 2017 2016 Bank Group The Bank The Group

At 1 January 53,894 53,894 68,096 68,096 Interest charged 8,829 8,829 10,093 10,093 Inflation adjustment 999 999 2,740 2,740 63,722 63,722 80,929 80,929 Redemptions (4,524) (4,524) (16,766) (16,766) Interest paid (5,444) (5,444) (10,269) (10,269) At 31 December 53,754 53,754 53,894 53,894

Analysis by type of bond:

In thousands in of GHS 2017 2016 Bank Group The Bank The Group

SSNIT Bonds – Inflation linked 31,754 31,754 28,480 28,480 SSNIT Bonds – Treasury linked 22,000 22,000 22,000 22,000 HFC 2016 Bonds - - 3,414 3,414 Total Ghana cedi bonds 53,754 53,754 53,894 53,894 At 31 December 53,754 53,754 53,894 53,894

Pilot Scheme Social Security and National Insurance Trust (SSNIT) lent the sum of GHS50.48million to the Bank for the implementation of Home Mortgage Finance Pilot Scheme. The bonds currently stand at 53.75million.

This is made up of Treasury linked bonds and inflation linked bonds. The Treasury linked bonds are issued for a tenor of 20years at a coupon rate of 2year Government of Ghana Treasury note rate plus a spread of 2.5% per annum whiles the inflation linked bonds are indexed to the Consumer Price Index and attracts interest at 1% per annum for a tenor of 20years.

31b. Other liabilities

In thousands in of GHS 2017 2016 Bank Group The Bank The Group

Creditors 69,517 74,719 61,029 95,965 Escrow funds - - 35 35 Dividend payable (Note 39) 9 9 9 9

69,526 74,728 61,073 96,009

71 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

The creditors balance includes the following:

In thousands in of GHS 2017 2016 Bank Group The Bank The Group

Interest payable 25,549 25,549 35,479 35,479 Payment order 5,837 5,837 5,693 5,693 Deferred commission & fees 5,544 5,544 4,877 4,877 Other account payable 16,150 19,078 9,062 14,808 Custody settlement 13,695 13,695 - - Sundry payable 2,751 5,025 5,918 35,109

Creditors are non-interest bearing, non-secured and current liabilities. The escrow funds represent amounts held in trust for a financial institution.

In thousands in of GHS 2017 2016 The Bank The Group The Bank The Group

Current 65,294 70,496 57,243 80,343 Non-current 4,232 4,232 3,830 15,666 69,526 74,728 61,073 96,009

32. Stated capital The Bank has authorised shares of 1,000,000,000 (2016: 1,000,000,000) out of which 388,330,009 (2016:297,420,918) have been issued. The movement in stated capital is as follows:

In thousands in of GHS 2017 2016 No of shares Proceeds No of shares Proceeds

At 1 January 297,421 96,191 297,421 96,191 Ordinary shares issued 90,909 50,000 - - 31 December 388,330 146,191 297,421 96,191

During the year, a renounceable right issue for 90,909,054 ordinary shares were offered for a total consideration of GHS50 million. The shares were fully subscribed and there is no unpaid liability on any shares. There are no calls or instalments unpaid. There are no treasury shares (2016: nil).

33. Income surplus account

In thousands in of GHS 2017 2016 The Bank The Group The Bank The Group

At 1 January (47,682) (43,750) (167) (13,475)

Profit / (loss) for the year 36,923 45,431 (47,982) (38,606)

Transfer from capital surplus 242 242 526 526

Movement from regulatory credit risk reserve (1,637) (1,637) 3,873 3,873 Transfer to statutory reserve (18,462) (18,462) - - Shares issuance cost (1,877) (1,877) - - At 31 December (32,493) (20,053) (47,682) (43,750)

ANNUAL FINANCIAL STATEMENTS 2017 72 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

34. Revaluation reserve The revaluation reserve relates to the unrealised surplus on the revaluation of buildings which is non-distributable.

35. Statutory reserve fund Statutory reserve represents the cumulative amounts set aside from annual net profit after tax as required by Section 34 of the Banks and Specialised Deposit–Taking Institutions Act, 2016 (Act 930). The proportion of net profits transferred to this reserve ranges from 12.5% to 50% of net profit after tax depending on the ratio of existing statutory reserve fund to paid up capital.

36. Regulatory credit risk reserve Regulatory credit risk reserve represents differences in loan loss provisioning resulting from the application of IFRS impairment rules and the credit loss provisioning rules of the Bank of Ghana.

Regulatory credit risk reserve reconciliation

In thousands in of GHS 2017 2016 Movement

Provision under BoG principles 144,570 142,954 1,616 Provision under IFRS 140,533 140,554 (21) Regulatory credit risk reserve 4,037 2,400 1,637

37. Housing development assistance reserve

In thousands in of GHS 2017 2016 The Bank The Group The Bank The Group

At 31 December 744 744 744 744

The housing development assistance reserve has been set up by management to fund housing related research and new technologies when the need arises and is as such not available for distribution to shareholders.

38. Non-controlling interest

In thousands in of GHS 2017 2016 The Group The Group

At 1 January 2,501 2,248 Share of net profit 1,063 253

At 31 December 3,564 2,501

39. Dividend

In thousands in of GHS 2017 2016 The Bank The Group The Bank The Group

At 1 January 9 9 9 9 Approved Dividend - - Dividend paid in the year - - - -

At 31 December 9 9 9 9

The payment of dividend is subject to the deduction of withholding tax at a rate of 8% for residents and non-residents (2016: 8%).

73 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

40. Cash generated from operations

Notes 2017 2016 In thousands in of GHS The Bank The Group The Bank The Group

Profit before tax 56,645 69,445 (56,995) (63,782) Depreciation 25b/27 12,858 13,951 11,957 12,999 Loss / (profit) on disposal of property and equipment 27 (287) (287) 229 198 Increase /(decrease) in impairment for credit losses 21e (21) (21) 13,709 16,709 Interest expense on long term bonds and borrowings 30/31a 11,425 11,425 20,317 20,317 Inflation adjustment on long term bonds 31a 999 999 2,740 2,740 Fair value appreciation – Other investments 20a (3,249) (3,249) (3,127) (3,625) Impairment of investment in subsidiary 840 - - - Net foreign exchange difference (16,389) (16,389) (10,578) (10,578) Cash generated from operations before 62,821 75,874 (21,748) (25,022) changes in operating assets and liabilities Decrease / (increase) in loans and advances to customers 110,060 109,722 (8,938) (45,255) Decrease / (increase) in interest receivable and other assets 6,913 27,857 (27,257) (3,350) Increase in deposits from customers 154,436 154,436 368,756 368,756

Changes in pledge assets (15,700) (15,700) - - Increase in interest payables and other liabilities 12,983 (20,322) (36,388) (19,882) Cash generated from operations 331,513 331,867 274,425 275,247

41. Analysis of cash and cash equivalents as shown in the cash flow statement For the purposes of the statement of cash flows, cash and cash equivalents comprise the following balances with less than 90 days maturity:

2017 2016 The Bank The Group The Bank The Group In thousands of GHS

Cash and bank balances with banks 181,829 183,010 161,506 165,599 Balances with Central Banks 95,704 95,704 15,353 15,353 Mandatory balance with central Bank 128,701 128,701 122,706 122,706 Money market placement 436,689 436,689 339,286 339,286 Total cash and cash equivalents 842,923 844,104 638,851 642,944

Restricted balance with central Banks represents 10% of customer deposits which are assessable when customer deposits are drawn down.

ANNUAL FINANCIAL STATEMENTS 2017 74 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

42. Value Added Statements for the year ended 31 December 2017

2017 2016 In thousands in of GHS The Bank The Group The Bank The Group

Interest earned and other operating income 349,869 380,883 307,611 334,843 Direct cost of services (156,899) (156,899) (157,112) (157,112)

Value added by banking services 192,970 223,984 150,499 17 7,731

Non-banking income 14,766 48,769 22,362 23,869 Impairment (charge) /write-back 21 21 (69,781) (72,781)

Value added 207,757 272,774 103,080 128,819 Distributed as follows To employees: Non-executive directors 873 1,290 684 1,011 Executive directors 603 603 1,185 1,185 Other employees 78,353 92,210 82,396 95,574

To Government: Income tax 19,722 22,951 18,389 16,053

To shareholders: Dividends to shareholders - - - -

To expansion and growth: Depreciation 11,044 12,127 8,073 8,940 Amortisation 1,814 1,824 3,884 3,993 Other operating expenses 58,425 95,275 63,854 81,898 To retained earnings 36,923 46,494 (38,606) (47,729)

43. Contingent liabilities and commitments The Bank conducts business involving acceptances, guarantees and performance bonds. The majority of these facilities are offset by corresponding obligations of third parties. The table below shows outstanding commitments at the reporting date:

The Bank The Bank In thousands in of GHS 2017 2016

Letters of credit 13,786 13,434 Guarantees and bonds without cash collateral 29,384 57,051

43,170 70,485

All contingent liabilities and commitments are current. There were no instruments or commitments pending drawdown as at the end of December, 2017.

Nature of commitments An acceptance is an undertaking to pay a bill of exchange drawn on a customer. The Bank expects most acceptances to be presented, but reimbursement by the customer is normally immediate.

Letters of credits commit the bank to make payments to third parties, on production of documents, which are subsequently reimbursed by customers. Guarantees are generally written by the Bank to support performance by a customer to third parties. The Bank will only be required to meet these obligations in the event of the customers default.

75 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

Legal Proceedings There were a number of legal proceedings outstanding against the Group as at 31 December 2016. No provision has been made as professional advice indicates that it is unlikely that any significant loss will arise.

The above information also relates to the group.

44. Related party transactions A number of transactions are entered into with related parties in the normal course of business. These include mortgages and deposits. The outstanding balances at the year end and related expense and income for the year are as follows:

Type of related party

(i) Relationship with related party

Republic Bank Financial Holdings Ltd Parent Company of HFC Bank (Gh) Ltd HFC Investment Services Limited wholly owned subsidiary HFC Realty Limited wholly owned subsidiary HFC Brokerage Services Limited wholly owned subsidiary of HFC Investments Services Ltd Boafo Microfinance Services Limited 51% equity holding HFC Capital Partners Limited wholly owned subsidiary UG-HFC 60% equity holding Social Security National Insurance Trust Minority Shareholder St. Patrick Estate Ltd Indirect control Syndication CAL CENIT Non-investment relation

( i ) Loan and Advances to Directors

Loans to Directors 2017 2016 In thousands in of GHS The Bank The Group The Bank The Group

Loans outstanding at January 1 - - 1,626 1,626 Loans Issued during the year - - - - Interest Income Earned - - 44 44 Loan receipts during the year - - (1,670) (1,670)

Loans Outstanding at December 31 - - - -

Loans to directors were mainly mortgage loans at a rate of 14% (USD loans) for 15 years and secured by mortgage properties. These transactions are at arm’s length. There were no disbursements during the year.

(ii) Deposits from directors

In thousands in of GHS 2017 2016 The Bank The Group The Bank The Group

Deposit at January 1 514 514 861 861 Deposit received during the year 1,013 1,013 1,843 1,843 Withdrawal during the year (1,121) (1,121) (2,190) (2,190)

Deposit at December 31 406 406 514 514

ANNUAL FINANCIAL STATEMENTS 2017 76 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

(iii) Loans to other related parties ( Boafo Micro Finance) In addition to transactions with key management, the Bank entered into transactions with entities whose by virtue of their relationship with the Bank, directly or indirectly could have influenced decision making. In all such transactions with balances as shown below, businesses were conducted on an arm’s length basis. The table below shows the outstanding balances and corresponding interest during the year. The loans were denominated in cedis and attracts an interest rate of 23% ( 2016: 28%) per annum.

2017 2016 In thousands in of GHS The Bank The Bank

Loans outstanding at 1 January 597 36,846 Loans issued during the year - - Interest income earned 57 88 Loan repayments during the year (464) (36,337) Loans outstanding at 31 December 190 597 iv) Receivable from HFC Realty Limited

2017 2016 The Bank The Bank

Receivable 1,349 16,439 v) Deposits from related parties (HFC Realty, Boafo Micro Finance, Investment Services Limited and Brokerage Services Limited, Directors and Key Management)

2017 2016 In thousands in of GHS The Bank The Group The Bank The Group

Deposit at 1 January 39,965 39,233 2,663 1,931 Deposit received during the year 558,180 558,912 489,978 489,978 Interest income earned 13,153 13,153 6,238 6,238 Withdrawals during the year (580,483) (580,483) (458,914) (458,914) Deposit at 31 December 30,815 30,815 39,965 39,233 v) Directors, other key management persons and connected persons

2017 2016 In thousands in of GHS The Bank The Group The Bank The Group

Salaries and other short term benefits 1,940 2,385 1,830 2,367 Employer Social Security charges 209 292 216 280 2,149 2,677 2,046 2,647 vi) Share options The share option is exercised after 31st December of each year end. There was no share options granted during the 2017 and 2016 financial years.

77 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

45. Country analysis The amount of total assets and liabilities held by the Bank inside and outside Ghana are analysed below:

Bank 2017 2016 In thousands of GHS In Ghana Outside Ghana In Ghana Outside Ghana

Cash and cash equivalents 821,584 21,339 602,445 36,406 Non-Pledged assets 216,071 - 68,607 - Pledged assets 38,000 - 22,300 - Other investments 26,262 - 20,013 - Investment in subsidiaries 13,405 - 22,825 - Loans and advances to customers 809,926 - 919,964 - Investment securities 8,303 - 8,612 - Current income tax assets - - 25,111 - Deferred tax assets 19,941 - 15,199 - Intangible asset - Goodwill 3,931 - 3,931 - Intangible asset – Software 1,858 - 2,581 - Other assets 33,756 - 45,200 - Property, plant and equipment 64,720 - 62,977 - Total assets 2,057,757 21,339 1,819,765 36,406

Liabilities 2017 2016 In Ghana Outside Ghana In Ghana Outside Ghana Deposits from banks - - - - Deposits from customers 1,712,646 - 1,558,210 - Bonds 53,754 53,894 - Borrowings - 14,719 - 41,845 Current income tax liabilities 2,256 - - - Other liabilities 69,526 - 61,073 - Total liabilities 1,838,182 14,719 1,673,177 41,845

ANNUAL FINANCIAL STATEMENTS 2017 78 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

Group 2017 2016 In thousands of GHS In Ghana Outside Ghana In Ghana Outside Ghana

Cash and cash equivalents 822,765 21,339 606,538 36,406 Non-Pledged assets 216,071 - 68,607 - Pledged assets 38,000 - 22,300 - Other investments 37,156 - 28,376 - Loans and advances to customers 809,736 - 919,436 - Investment securities 17,393 - 26,225 - Current income tax assets - - 25,275 - Deferred tax assets 19,949 - 15,263 - Intangible asset – Goodwill 3,931 - 3,931 - Intangible asset – Software 2,021 - 2,754 - Other assets 44,567 - 76,900 - Property, plant and equipment 67,250 - 65,545 - Total assets 2,078,839 21,339 1,861,150 36,406

Liabilities 2017 2016 In Ghana Outside Ghana In Ghana Outside Ghana Deposits from banks - - - - Deposits from customers 1,712,646 - 1,558,210 - Bonds 53,754 53,894 - Borrowings - 14,719 - 41,845 Current income tax liabilities 2,132 - - - Other liabilities 74,728 - 96,009 - Total liabilities 1,843,260 14,719 1,708,113 41,845

46. Financial risk management

The Group’s activities expose it to a variety of financial profitable banking opportunities while avoiding excessive, risks and those activities involve the analysis, evaluation, unnecessary and uncontrollable risk exposures. Risk acceptance and management of some degree of risk or is an inherent feature in the business activities of the combination of risks. Taking risk is core to the financial Group and therefore the Group has put in place various services business, and the operational risks are an mitigating measures to prevent their occurrence. inevitable consequence of being in business. The Group’s aim is therefore, to achieve an appropriate balance The Board of directors is the ultimate authority for between risk and return and minimise potential adverse approving large credit exposures. It has delegated certain effects on the Group’s financial performance. limits in amounts for approval to the Finance and Credit committee. The Group’s risk management policies are designed to identify and analyse these risks, to set appropriate Finance and credit committee of the Board risk limits and controls, and to monitor the risks and The Finance and credit committee is chaired by a non- adherence to limits by means of reliable and up-to- executive director. It is vested with power to approve date information systems. The Risk Management credits facility which is above the limit of the credit and Compliance Department regularly reviews its risk committee. In addition, this committee of the Board management policies and systems to reflect changes in ensures that the Group’s risk taking is consistent with markets, products and emerging best practice. shareholders’ expectations and the Group’s strategic plan. The objective of the Risk Management and Compliance The Credit committee, chaired by the Managing director, Department is to ensure that the Group’s operations are approves credit exposures with ceilings established by carried out in a manner to ensure that risks are balanced the Board of directors. Credit exposures are evaluated in with rewards. The Risk Management and Compliance line with the Group’s strategic plan. Department ensures that the Group complies with all prudential and regulatory guidelines in the pursuit of

79 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

Assets and Liabilities Committee (ALCO) Risk types The Assets and liabilities committee (ALCO), chaired by the Through its risk management structure the Group seeks Managing Director, monitor, compile and analyse market to manage efficiently the core risks: credit, liquidity and interest rates, exchange rates and inflation rate. ALCO market risk. These arise directly through the Group’s analyse and report on trends in volumes and volatility of commercial activities whilst compliance and regulatory advances, deposits and investments. risk, operational risk and reputational risks are normal consequences of any business undertaking. ALCO also considers gap analysis and capital maturity reports by Treasury Department, with its Internal audit recommendations. The Group’s policy is that risk management processes The committee also monitors the Group’s liquidity throughout the Group are audited by the internal position and mandates the treasurer to undertake any audit function, which examines both the adequacy of necessary measures for changing the Group’s liquidity the procedures and the Group’s compliance with the position, if necessary. Decisions about repricing of interest procedures. Internal Audit discusses the results of all rate charged out are undertaken to align the Group’s risk assessments with management, and reports its findings and return. and recommendations to the Audit committee.

Credit risk Risk management framework The Group takes on exposure to credit risk, which is the risk The Risk management and compliance department is that counterparty will cause a financial loss for the Group guided by a set of policy and procedure manuals which by failing to discharge an obligation. Credit risk is the most have been instituted by the Board of directors and important risk for the Group’s business; management management. A comprehensive departmental manual therefore manages its exposure to credit risk carefully. has established a framework within which management Credit exposures arise principally in lending activities that effectively manages and controls risks. Tasks involved in lead to loans and advances, and investment activities the risk management functions are to identify, define, that bring debt securities and other bills into the Group’s measure, control, monitor and mitigate potential events asset portfolio. There is also credit risk in off- statement of that could impair the ability of the Group to generate stable financial position instruments, such as loan commitments. and sustainable financial results from its operations. The credit risk management and control are centralised in credit risk management team of the Group treasury Risk identification department and report to the Board of directors. All risks are qualitatively evaluated on a recurring basis and, where appropriate, evaluation including quantitative In addition to direct financial loss, credit risk is viewed analysis is made. Management understands the degree in the context of economic exposures, taking into and nature of risk exposures on decisions regarding consideration opportunity costs, mark-to-market re- allocation of resources. Risk assessment is validated by valuations, transaction costs and expenses associated the risk department which also tests the effectiveness of with recovering a non-performing asset over and risk management activities and makes recommendations above the accounting losses. Credit risk is mitigated for remedial action. The Group also identifies risk by by appropriate risk-based pricing, case-by-case loan evaluating the potential impact of internal and external structuring, collateralisation and contingencies to protect factors business transactions and positions. Once the the Group’s position. risks are identified various mitigating measures are put in In evaluating credit risk, the Group consistently assesses place to regulate the degree of risks involved. three principal components: portfolio at risk, expected default frequency and loss in the event of default. Risk monitoring, control and reporting The Risk Management and Compliance department The exposure to any one borrower including banks is monitors, on a continuous basis, the Group’s risks. further restricted by sub-limits covering on and off- Management is regularly updated on the risks likely to statement of financial position exposures and daily impact on the Group operations. The findings are reported delivery risk limits in relation to trading items such as at ALCO meetings and appropriate remedial actions are forward foreign exchange contracts. Actual exposure taken to control the risks identified. against limits is monitored daily.

Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing lending limits where appropriate.

ANNUAL FINANCIAL STATEMENTS 2017 80 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

(i) Credit risk measurement The Group assesses the probability of default of individual counterparties using internal rating tools Loans and advances (including loan commitments tailored to the various categories of counterparty. and guarantees) They have been developed internally and combine In measuring credit risk of loan and advances to statistical analysis with credit officer judgment and customers and to banks at a counterparty level, the are validated, where appropriate, by comparison Group reflects three components (i) the ‘probability with externally available data. Customers of the of default’ by the client or counterparty on its Group are segmented into five rating classes. The contractual obligations; (ii) current exposures to the Group’s rating scale, which is shown below, reflects counterparty and its likely future development, from the range of default probabilities defined for each which the Group derive the ‘exposure at default’; rating class. This means that, in principle, exposures and (iii) the likely recovery ratio on the defaulted migrate between classes as the assessment of their obligations (the ‘loss given default’). probability of default changes. The rating tools are kept under review and upgraded as necessary. The internal rating scale is as follows:

Group’s rating Description of the grade Average number of months of delinquency 1 Current Less than 1 month 2 Olem 1 - 3 months 3 Sub-standard 4 - 6 months 4 Doubtful 7 - 12 months 5 Loss 12 months and above

Risk limit control and mitigation policies In contrast, impairment provisions are recognised for financial reporting purposes only for losses that The Group manages limits and controls have been incurred at the financial position date concentrations of credit risk wherever they are based on objective evidence of impairment. Due to identified in particular, to individual counterparties the different methodologies applied, the amount of and industries. incurred credit losses provided for in the financial Exposure to credit risk is also managed through statements are usually lower than the amount regular analysis of the ability of borrowers and determined from the expected loss model that is potential borrowers to meet interest and capital used for internal operational management and repayment obligations and by changing these banking regulation purposes. lending limits where appropriate. The impairment provision shown in the financial The Group’s main control and mitigation measures position at year-end is derived from each of the five to credit risk exposure is through the use of collateral. internal rating grades.

The Group employs a range of policies and practices (ii) Impairment and provisioning policies to mitigate credit risk. The most traditional of these The internal rating tool assists management is the taking of security for funds advances, which is to determine whether objective evidence of common practice. The Group implements guidelines impairment exists based on the following criteria on the acceptability of specific classes of collateral or set out by the Group: credit risk mitigation. The principal collateral types for loans and advances are: Delinquency in contractual payments of principal or interest; Mortgages over residential properties; Cash flow difficulties experienced by Charges over business assets such as the borrower (e.g. equity ratio, net premises, inventory and accounts receivable; income percentage of sales); Charges over financial instruments such Breach of loan covenants or conditions; as debt securities and equities; and Deterioration of the borrower’s Hypothetication of stock. competitive position; and The internal and external rating systems described Deterioration in the value of collateral. above focus more on credit-quality mapping from the inception of the lending and investment activities.

81 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

Collateral and security The Bank routinely obtains collateral and security to mitigate credit risk.

The Bank ensures that any collateral held is sufficiently liquid, legally effective, enforceable and regularly reassessed. Before attaching value to collateral, businesses holding approved classes of collateral must ensure that they are legally perfected devoid of encumbrances. Before reliance is placed on third party protection in the form of bank, government or corporate guarantees or credit derivative protection from financial intermediary counterparties, a credit assessment is undertaken. Security structures and legal covenants are subject to regular review, at least annually, to ensure that they remain fit for purpose and remain consistent with accepted local market practice.

Maximum exposure to credit risk before collateral held

In thousands of GHS 2017 2016 Bank Group Bank Group

Cash and cash equivalents 774,888 776,069 638,851 642,944 Non-Pledged assets 216,071 216,071 68,607 68,607 Pledged assets 38,000 38,000 22,300 22,300 Other investments 26,262 37,156 20,013 28,376 Loans and advances to customers 809,926 809,736 919,964 919,436 Investment securities 8,303 17,393 8,612 26,225 Other assets(excluding prepayments) 17,813 28,624 27,692 59,392 1,891,263 1,923,049 1,706,039 1,767,280

Off Financial position 2017 2016 In Thousands of GHS Bank Group Bank Group Letters of credits 13,786 13,786 13,434 13,434 Guarantees commitments 29,384 29,384 57,051 57,051 43,170 43,170 70,485 70,485

Total Exposure 1,934,433 1,966,219 1,776,524 1,837,765

The above table represents a worst-case scenario of credit risk exposure to the Bank and Group at 31 December 2017 and 31 December 2016, without taking account of any collateral held or other credit enhancements attached. For on-financial position assets, the exposures set out above are based on net carrying amounts as reported in the statement of financial position.

As shown above, 41% of the total maximum exposure is derived from loans and advances to banks and customers (2016: 50%) at the Group level

Management is confident in its ability to continue to control and sustain minimal exposure of credit risk to the Bank resulting from both its loan and advances portfolio and debt securities based on the following:

72% of the loans and advances portfolio is categorised in the top two grades of the internal rating system (2016: 78%); 86 % of the loans and advances portfolio are considered to be neither past due nor impaired (2016: 91%);

ANNUAL FINANCIAL STATEMENTS 2017 82 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

Loans and advance Loans and advances are summarised as follows:

2017 2016 In thousands of GHS Loans and Loans and Loans and Loans and advances to advances advances to advances customers to banks customers to banks The Bank – Commercial and Mortgage Neither past due nor impaired 660.775 50,709 765,678 64,605 Past due but not impaired 63,719 - 71,858 - Individually impaired 175,256 - 158,377 - Gross 899,750 50,709 995,913 64,605 Less: allowance for impairment 140,533 0 140,554 0 Net 759,217 50,709 855,359 64,605

2017 2016

Loans and Loans and Loans and Loans and In thousands of GHS advances to advances advances to advances customers to banks customers to banks The Bank – Mortgage loan Neither past due nor impaired 165,601 - 149,873 - Past due but not impaired 21,024 - 18,894 - Individually impaired 58,888 - 61,173 - Gross 245.513 - 229,940 - Less: allowance for impairment 35,547 - 32,310 - Net 209,966 - 197,630 -

The Group 2017 2016 Loans and Loans and Loans and Loans and advances to advances advances to advances Commercial and Mortgage customers to banks customers to banks Neither past due nor impaired 660,585 50,709 765,150 64,605 Past due but not impaired 63,719 - 71,858 - Individually impaired 175,256 - 158,377 - Gross 899,560 50,709 995,385 64,605 Less: allowance for impairment 140,533 - 140,554 - Net 759,027 50,709 854,831 64,605

83 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

Credit quality per class of financial assets The credit quality of the financial assets is managed by the Group using the internal credit ratings. The table below shows the credit quality by class of financial asset. The security values presented are made up of lien over investments / cash balances and mortgaged properties. The mortgage properties are presented at their forced sale values.

Gross Security Sub maximum against The Bank Current Olem standard Doubtful Loss exposures impaired loans In thousands of GHS At 31 December 2017 Loans and advances to banks 50,709 - - - - 50,709

Loans and advances to customers 479,825 15,349 60,716 19,606 78,741 654,237 (303,290) Mortgage lending 150,748 14,852 51,462 20,628 7,823 245,513

Gross loans and advances 681,282 30,201 112,178 40,234 86,564 950,459

Gross Security The Bank Sub maximum against Current Olem standard Doubtful Loss exposures impaired loans In thousands of GHS At 31 December 2016 Loans and advances to banks 64,605 - - - - 64,605 Loans and advances to customers 552,836 87,516 12,098 44,660 68,863 765,973 (227,117) Mortgage lending 129,451 20,422 42,288 33,067 4,712 229,940

Gross loans and advances 746,892 107,938 54,386 77,727 73,575 1,060,518

Gross Security The Group Sub maximum against Current Olem standard Doubtful Loss exposures impaired loans In thousands of GHS At 31 December 2017 Loans and advances to banks 50,709 - - - - 50,709

Loans and advances to customers 479,444 15,349 60,716 19,606 78,741 653,856 (303,290) Mortgage lending 150,748 14,852 51,462 20,628 7,823 245,513

Gross loans and advances 680,901 30,201 112,178 40,234 86,564 950,078

Gross Security The Group Sub maximum against Current Olem standard Doubtful Loss exposures impaired loans In thousands of GHS At 31 December 2016 Loans and advances to banks 64,605 - - - - 64,605 Loans and advances to customers 552,836 87,516 12,098 44,660 68,863 765,973 (227,117) Mortgage lending 129,451 20,422 42,288 33,067 4,712 229,940

Gross loans and advances 746,892 107,938 54,386 77,727 73,575 1,060,518

ANNUAL FINANCIAL STATEMENTS 2017 84 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

Concentration risk The following table shows the Group’s credit exposure as categorised by industry sectors.

2017 2016 In thousands of GHS Bank Group Bank Group

Financial Institution lending 50,709 50,709 64,605 64,605 Agriculture, Forestry & Fishing 513 513 2,718 2,718 Manufacturing 75,183 75,183 58,495 58,495 Construction 69,400 69,400 48,196 48,196 Electricity, Gas & Water 93,575 93,575 184,091 184,091 Commerce & Finance 180,367 180,177 274,707 274,179 Mortgage loans 245,513 245,513 229,940 229,940 Transport, Storage & Communication 25,489 25,489 33,034 33,034 Services 127,513 127,513 82,692 82,692 Miscellaneous 82,197 82,197 82,040 82,040 Gross loans and advances to Customers 950,459 950,269 1,060,518 1,059,990

The following table shows the Group’s credit exposure as categorised by contingent products;

Guarantees, acceptances Guarantees, acceptances Bank and other financial facilities and other financial facilities

In thousands of GHS 2017 2016 At 31 December Letters of Credit 15,951 13,434 Banks guarantee 12,889 19,683 Advance Payment Guarantee 9,366 30,503 Bid Security 1,020 3,000 Tender security 2,432 195 Performance Bond 1,512 3,670 43,170 70,485 Group At 31 December Letters of Credit 15,951 13,434 Banks guarantee 12,889 19,683 Advance Payment Guarantee 9,366 30,503 Bid Security 1,020 3,000 Tender security 2,432 195 Performance Bond 1,512 3,670 43,170 70,485

85 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

Market risk Market risk is managed through the Group’s treasury operations where the primary objective is to minimise both interest rate risk and foreign exchange loss. On a trading basis, investments in Government of Ghana Securities and Commercial Paper are restricted to the highest grade issues. The Group does not engage in speculative operations, either in Ghana or overseas.

Speculative operations are those operations which create short term open risk positions to the Group. Investment in equity instruments for trading purposes is not permitted, except with the approval of the Board of Directors.

(i) Interest rate risk Interest rate risk refers to the Group’s exposure to interest rate changes in the economy that could impact on the Group’s earning capacity and capital. This risk is composed of the following sub-risks:

(ii) Re-pricing risk, arising from timing differences or mismatches in maturity and re-pricing of the Group’s assets (mainly loans, overdrafts, advances and investments) and liabilities (primarily customer deposits);

(iii) Basis risk, arising from imperfect correlation in the adjustment of rates earned and paid on different instruments with otherwise similar re-pricing characteristics; and

The tables below summarise the Bank and the Group’s exposure to interest rate risks. Included in the tables are the Bank and the Group’s assets and liabilities at carrying amounts (non-derivatives), categorised by the earlier of contractual repricing or maturity dates. The Bank and the Group does not bear interest rate risk on off statement of financial position items.

Sensitivity analysis

Increase in Sensitivity of net Sensitivity 2017 policy rate Interest income of Equity

In thousands of GHS

Interest rate 2% 493 345

Increase in Sensitivity of net Sensitivity 2016 policy rate Interest income of Equity

In thousands of GHS

Interest rate 2% 557 591

In 2017 or 2016, a 2% increase in interest rate will have a positive or negative impact on net interest income by the value indicated; likewise the same percentage increase will have a negative of positive impact on equity by the value indicated.

ANNUAL FINANCIAL STATEMENTS 2017 86 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

Bank

2017 Non Up to 1 2- 3 4-12 Over 5 interest In thousands of GHS month months months 1-5 years years bearing Total

Financial asset Cash and cash equivalents 671,063 3,422 - - - 168,438 842,923 Government securities - 4,445 151,689 97,937 - 254,071 (including pledged assets) Loans and advances to 2,790 122,429 124,565 300,470 259,671 - 809,926 customers and bank Other Assets (excluding prepayments) 17,813 17,813

Investment securities 3,000 - - - - 8,303 5,303 Other short term investments 14,650 1,391 52 2,925 7,244 - 26,262 Total financial assets 691,503 127,242 129,062 455,084 370,155 186,251 1,959,298

Deposits from customers 129,876 580,113 209,743 349,079 443,835 - 1,712,646 Creditors - - - - - 69,526 69,526 Bonds - - - - 53,754 - 53,754 Borrowings - - 5,888 8,831 - - 14,719 Total financial liabilities 129,876 580,113 215,631 357,910 497,589 69,526 1,850,645 (contractual maturity dates)

Total Interest re-pricing gap 561,627 (452,871) (86,569) 97,174 (127,434) 116,725 108,683

Bank

2016 Non Up to 1 2- 3 4-12 Over 5 interest In thousands of GHS month months months 1-5 years years bearing Total

Financial asset Cash and cash equivalents 444,051 4,011 - - - 190,789 638,851 Government securities 22,095 68,812 - - - 90,907 (including pledged assets) Loans and advances to 3,151 138,261 114,699 365,300 298,553 - 919,964 customers and bank Other Assets (excluding prepayments) 27,692 27,692 Investment securities 5,478 - - - 3,134 - 8,612 Other short term investments 11,164 1,060 40 2,229 5,520 - 20,013 Total financial assets 463,844 165,427 183,551 367,529 307,207 218,481 1,706,039

Deposits from customers 351,877 173,995 422,628 333,103 276,607 - 1,558,210 Creditors - - - - - 61,073 61,073 Bonds - - - - 53,894 - 53,894 Borrowings - - 17,234 24,611 - - 41,845 Total financial liabilities 351,877 173,995 439,862 357,714 330,501 61,073 1,715,022 (contractual maturity dates)

Total Interest re-pricing gap 111,967 (8,568) (256,311) 9,815 (23,294) 157,408 8,983

87 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

GROUP

2017 Non Up to 1 2- 3 4-12 Over 5 interest In thousands of GHS month months months 1-5 years years bearing Total

Financial asset Cash and cash equivalents 671,063 3,422 - - - 169,619 844,104 Government securities - - 4,445 151,689 97,937 - 254,071 (including pledged assets) Loans and advances to 2,790 122,238 124,565 300,470 259,605 - 809,668 customers and bank

Other Assets (excluding prepayments) 28,624 28,624

Investment securities 12,090 - - 5,303 - 17,393 Other short term investments 14,912 1,416 9,590 3,587 7,651 - 37,156 Total financial assets 700,855 127,076 138,600 455,746 370,564 198,243 1,991,084

Deposits from customers 129,876 580,113 209,743 349,079 443,835 - 1,712,646

Creditors - - - - - 74,728 74,728 Bonds - - - - 53,754 - 53,754 Borrowings - - 5,888 8,831 - - 14,719 Total financial liabilities 129,876 580,113 215,631 357,910 497,589 74,728 1,855,847 (contractual maturity dates)

Total Interest re-pricing gap 570,979 (453,037) (77,031) 97,836 (127,025) 123,5315 135,237

GROUP

2016 Non Up to 1 2- 3 4-12 1-5 Over 5 interest In thousands of GHS month months months years years bearing Total

Financial asset Cash and cash equivalents 441,158 6,904 - - - 194,882 642,944 Government securities (including - 22,095 68,812 - - - 90,907 pledged assets) Loans and advances to customers and bank 3,151 137,733 114,699 365,300 298,553 - 919,436 Other Assets (excluding prepayments) 59,392 59,392 Investment securities 5,478 - - - 3,134 17,613 26,225 Other short term investments 11,164 1,060 8,403 2,229 5,520 - 28,376 Total financial assets 460,951 167,792 191,914 367,529 307,207 271,887 1,767,280

Deposits from customers 351,877 173,995 422,628 333,103 276,607 - 1,558,210 Creditors - - - - - 96,009 96,009 Bonds - - - 53,894 - 53,894 Borrowings - - 17,234 24,611 - - 41,845 Total financial liabilities 351,877 173,995 439,862 357,714 330,501 96,009 1,749,958 (contractual maturity dates) Total Interest repricing gap 109,074 (6,203) (247,948) 9,815 (23,294) 175,878 17,322

ANNUAL FINANCIAL STATEMENTS 2017 88 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

(ii) Foreign exchange rate risk Foreign exchange rate risk arises from changes in foreign exchange rates that affect the value of assets (primarily loans, overdrafts, advances and investments), liabilities (primarily, customer deposits) and off- statement of financial position transactions denominated in foreign currencies. Management developed procedures, instruments and control mechanisms designed to protect the value of the Group’s equity without endangering other business priorities.

(iii) Concentration of currency risk-on-and off- statement of financial position financial instruments The Group takes on exposure to effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The Board sets limits on the level of exposure by currency and in total for both overnight and intra-day positions, which are monitored daily. The table below summarises the Group’s exposure to foreign currency exchange rate at 31 December 2017. Included in the table are the Group’s assets and liabilities at carrying amounts categorised by currency:

The Bank

At 31 December 2017 EUR USD GBP CEDI Total In thousands of GHS Assets Cash and balance with central bank 12,671 26,117 6,549 797,586 842,923 Non-pledged assets - 5,967 210,104 216,071 Pledged assets 38,000 38,000 Other investments - 6,624 - 19,638 26,262 Investment in subsidiaries - - - 13,405 13,405 Loans and advances to customers 1,534 270,856 431 537,105 809,926 Investment securities - - - 8,303 8,303 Deferred tax assets - - - 19,941 19,941 Intangible asset – Goodwill - - - 3,931 3,931 Intangible asset – Software - - - 1,858 1,858 Other assets - 1,620 205 31,931 33,756 Property, plant and equipment - - - 64,720 64,720 Total assets 14,205 305,217 13,152 1,746,522 2,079,096

Liabilities Deposits from customers 13,881 273,510 13,068 1,412,187 1,712,646 Bonds - - - 53,754 53,754 Short term borrowings - 14,719 - 14,719 Current income tax liabilities 2,256 2,256 Other liabilities 38 12,118 - 57,370 69,526 Total liabilities 13,919 300,347 13,068 1,525,567 1,852,901

Net on statement of financial position 286 4,870 84 220,955 226,195

At 31 December, 2016 Total assets 9,333 304,423 11,578 1,530,837 1,856,171 Total liabilities 10,170 323,090 11,239 1,370,523 1,715,022

Net on statement of financial position (837) (18,667) 339 160,314 141,149

89 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

The Group

At 31 December 2017 EUR USD GBP CEDI Total In thousands of GHS Assets Cash and balance with central bank 12,671 26,117 6,549 798,767 844,104 Non-pledged assets - - 5,967 210,104 216,071 Pledged assets - - - 38,000 38,000 Other investments - 6,624 - 30,532 37,156 Investment in subsidiaries - - - - - Loans and advances to customers 1,534 270,856 431 536,915 809,736 Investment securities - - - 17,393 17,393 Current income tax assets - - - - - Deferred tax assets - - - 19,949 19,949 Intangible asset – Goodwill - - - 3,931 3,931 Intangible asset – Software - - - 2,021 2,021 Other assets - 1,620 205 42,742 44,567 Property, plant and equipment - - - 67,250 67,250 Total assets 14,205 305,217 13,152 1,767,604 2,100,178

Liabilities Deposits from customers 13,881 273,510 13,068 1,412,187 1,712,646 Bonds - - - 53,754 53,754 Short term borrowings - 14,719 - 14,719 Current income tax liabilities 2,132 2,132 Other liabilities 38 -12,118 - 62,572 74,728 Total liabilities 13,919 300,347 13,068 1,531,342 1,858,677

Net on statement of financial position 286 4,870 84 236,261 241,501

At 31 December, 2016 Total assets 9,333 304,423 11,578 1,572,222 1,897,556 Total liabilities 10,170 323,090 11,239 1,405,459 1,749,958

Net on statement of financial position (837) (18,667) 339 166,763 147,598

(c) Sensitivity analysis Sensitivity of Change in Sensitivity net Interest currency of Equity income In thousands of GHS Currency USD 2% 557 591 EUR 2% 528 559 GBP 2% 450 477

A 2% change in the various currencies will have a positive or negative impact on net interest income by the values indicated; likewise the same percentage change in the currencies will have a negative of positive impact on equity by the values indicated.

ANNUAL FINANCIAL STATEMENTS 2017 90 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

(c) Liquidity risk Liquidity risk is the risk that the Group is unable to meet its payment obligations associated with its financial liabilities when they fall due and to replace funds when they are withdrawn. The consequence may be the failure to meet obligations to repay depositors and fulfil commitments to lend.

The Group regularly and without delay meets its obligations and liabilities on maturity dates during its everyday activity, and maintain business flow as usual without any strains on its payment capability.

The Group manages this risk by striving to maintain a well-diversified customer depositor base and satisfactory access to a variety of funding sources. Particular attention is paid to marketability of assets, whose availability for sale or as collateral for refinance is evaluated under different market scenarios.

The Group’s liquidity management process, as carried out within the individual entities in the Group and monitored by a separate team in the Group treasury department, includes:

Day-to-day funding, managed by monitoring future cash flows to ensure that requirements can be met. This includes replenishment of funds as they mature or is borrowed by customers;

Maintaining a portfolio of highly marketable assets that can easily be liquidated as protection against any unforeseen interruption to cash flow;

Monitoring statement of financial position liquidity ratios against internal and regulatory requirements; and

Managing the concentration and profile of debt maturities.

A key measure used by the bank and Group for managing liquidity risk is the ratio of net liquid assets to deposits from customers. Details of the reported bank and Group liquid ratio of net liquid assets to current deposits at the reporting date and during the reporting period were as follows:

2017 2016 In thousands of GHS Bank Group Bank Group

At 31 December 119.13% 119.30% 119.08% 119.84% Average for the period 133.49% 133.99% 99.27% 99.95% Maximum for the period 158.45% 159.06% 124.99% 125.93% Minimum for the period 112.01% 112.80% 79.36% 79.69%

Liquidity risk management process The Group is exposed to daily calls on its available cash resources from overnight deposits, current accounts, maturing deposits, and calls on cash to settle contingencies. The Group does not maintain cash resources to meet all of these needs as experience shows that a minimum level of reinvestment of maturing funds can be predicted with a high level of certainty. The Board sets limits on the minimum proportion of maturing funds available to meet such call and on the minimum level of inter-bank and other borrowing facilities that should be in place to cover withdrawals at unexpected levels of demand.

The matching and controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to the management of the Group. It is unusual for banks ever to be completely matched since business transacted is often of uncertain terms and of different types. An unmatched position potentially enhances profitability, but can also increase the risk of losses.

(ii) Funding approach Sources of liquidity are regularly reviewed by a separate team in Bank Treasury to maintain a wide diversification by currency, provider, product and term.

91 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

The table below analyses financial assets and liabilities into relevant maturity groupings based on the remaining period at 31 December 2017 to the contractual maturity date. The Bank

Up to 1 2- 3 4-12 1-5 Over 5 In thousands of GHS month months months year(s) years Total 2017 Financial asset Cash and cash equivalents 856,278 3,644 - - - 859,922

Government securities (incl. pledged assets) - - 250,287 171,390 426,699 5,023 Loans and advances to customers 2,860 130,387 140,759 495,776 454,425 1,224,206 Other assets (excluding prepayment) 13,949 - - 3,864 - 17,813 Investment securities 3,075 - - - 9,280 12,355 Other short term investments 15,016 1,481 59 4,826 12,676 34,059 891,178 135,513 145,841 754,753 647,7 7 1 2,575,055

In thousands of GHS Up to 1 2- 3 4-12 1-5 Over 5 2017 month months months year(s) years Total Financial liabilities Deposits from customers 131,824 600,417 226,522 411,913 550,355 1,921,032 Creditors 60,117 - 4,431 4,978 69,526 Bonds - - - - 66,655 66,655 Borrowings - - 6,359 10,421 - 16,780 Total financial liabilities 191,237 600,417 232,881 426,765 621,988 2,073,993 (contractual maturity dates) The Group

Up to 1 2- 3 4-12 1-5 Over 5 In thousands of GHS month months months year(s) years Total 2017 Financial asset Cash and cash equivalents 857,527 3,644 - - - 861,171 Government securities (incl. pledged assets) - - 5,023 250,287 171,390 426,699 Loans and advances to customers 2,860 130,158 140,759 495,776 454,425 1,223,977 Other assets (excluding prepayment) 24,760 - 3,864 28,624 Investment securities 12,392 - - - 9,280 21,673 Other short term investments 15,285 1,508 10,837 5,919 13,389 46,937 912,824 135,310 156,618 755,845 648,484 2,609,082

Bonds - - - - 66,187 66,187

Borrowings - - 6,359 10,421 - 16,780 Total financial liabilities 197,143 600,417 232,881 426,765 621,521 2,078,727 (contractual maturity dates)

ANNUAL FINANCIAL STATEMENTS 2017 92 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

The Bank

Up to 1 4-12 1-5 Over 5 In thousands of GHS month 2- 3 months months year(s) years Total 2016 Financial asset Cash and cash equivalents 643,467 4,116 - - - 647,583 Government securities - 22,785 81,707 - - 104,492 (incl. pledged assets) Loans and advances to customers 3,216 143,943 142,981 1,114,807 101,491 1,506,438 Other assets (excluding prepayment) 20,222 177 1,116 576 225 22,316 Investment securities 5,478 - - - - 5,478 Other short term investments 11,164 1,060 40 2,229 5,520 20,013 683,547 172,081 225,844 1,117,612 107,236 2,306,320

In thousands of GHS

2016 Up to 1 4-12 1-5 Over 5 month 2- 3 months months year(s) years Total Financial liabilities Deposits from customers 354,567 176,569 425,858 512,520 425,594 1,895,108 Creditors 33,913 14,702 8,728 211 - 57,554 Bonds 82,923 82,923 Borrowings - - 17,322 32,935 - 50,257 Total financial liabilities 388,480 191,271 451,908 545,666 508,517 2,085,842 (contractual maturity dates)

The Group

Up to 1 4-12 1-5 Over 5 In thousands of GHS month 2- 3 months months year(s) years Total 2016 Financial asset Cash and cash equivalents 644,683 7,086 - - - 651,769 Government securities - 22,785 197,764 - - 220,549 (including pledged assets)

Loans and advances to customers 3,216 143,393 142,981 1,114,807 2,780,491 4,184,888

Other asset (excluding prepayment) 20,222 31,877 1,116 576 225 54,016

Investment securities 5,478 17,613 - - - 23,091 Other investments 11,164 1,060 40 2,229 5,520 20,013 Total financial assets 684,763 223,814 341,901 1,117,612 2,786,236 5,154,326

In thousands of GHS

2016 Up to 1 4-12 1-5 Over 5 month 2- 3 months months year(s) years Total Financial liabilities Deposits from customers 354,567 176,569 425,858 512,520 425,594 1,895,108 Creditors 33,913 37,702 8,728 211 - 80,554 Bonds - - - - 82,923 82,923 Borrowings - - 17,322 2,935 - 50,257 Total financial liabilities 388,480 214,271 451,908 545,666 508,517 2,108,842 (contractual maturity dates)

93 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017 iii) Assets held for managing liquidity risk (iii) Investment securities The Bank holds a diversified portfolio of cash and The fair value for investment securities and held-to- high-quality highly-liquid securities to support maturity financial assets is based on market prices. payment obligations and contingent funding in a Where this information is not available, fair value is stressed market environment. The Bank’s assets estimated using quoted market prices for securities held for managing liquidity risk comprise: with similar credit, maturity and yield characteristics. Cash and balances with central banks; The estimated fair value of fixed interest-bearing Certificates of deposit; deposits not quoted in an active market is based on Government bonds and other securities that is discounted cash flows using interest rates for new readily acceptable in repurchase agreements with debts with similar remaining maturity. the central banks. (iv) Fair value of hierarchy

Fair value of financial assets and liabilities IFRS 13 specifies a hierarchy of valuation techniques (a) Financial instruments not measured at fair based on whether the inputs to those valuation value techniques are observable or unobservable. Observable inputs reflect market data obtained The carrying values of the Group’s financial assets from independent sources; unobservable inputs and liabilities approximate their fair values both for reflect the Group’s market assumptions. These two the current and period financial years. types of inputs have created the following fair value hierarchy: (iv) Deposits from banks and due to customers Level 1 – Quoted prices (unadjusted) in active The estimated fair value of deposits with no stated markets for identical assets or liabilities. This maturity, which includes non-interest-bearing level includes listed equity securities and debt deposits, is the amount repayable on demand. instruments on exchanges (for example, The Ghana Stock Exchange). (i) Loans and advances to banks Level 2 – Inputs other than quoted prices included Loans and advances to banks include inter-bank within Level 1 that are observable for the asset or placements and items in the course of collection. liability, either directly (that is, as prices) or indirectly (that is, derived from prices). This level includes the The carrying amount of floating rate placements and majority of Bank of Ghana’s securities and other overnight deposits is a reasonable approximation of investments which are valued by reference to fair value. Bank of Ghana rates and the use of discounted cash flow techniques. The estimated fair value of fixed interest bearing Level 3 – inputs for the asset or liability that are not deposits is based on discounted cash flows using based on observable market data (unobservable prevailing money-market interest rates for debts inputs). This level includes equity investments and with similar credit risk and remaining maturity. debt instruments with significant unobservable (ii) Loans and advances to customers components. This hierarchy requires the use of observation market data when available. The Loans and advances are net of charges for Group considers relevant and observable market impairment. The estimated fair value of loans prices in its valuation when possible. As at 31 and advances represents the discounted amount December 2017 and 31 December 2016, the Bank of estimated future cash flows expected to be held level 2 and 3 financial assets and/or liabilities. received. Expected cash flows are discounted at current market rates to determine fair value.

ANNUAL FINANCIAL STATEMENTS 2017 94 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

The Bank Level 2 Level 3 Total The Bank The Bank The Bank The Bank The Bank The Bank In thousands of GHS 2017 2016 2017 2016 2017 2016

Land and Building - - 60,973 55,046 60,973 55,046 Other investments - Unit trust 26,262 20,013 - 26,262 20,013

The Group Level 2 Level 3 Total The Bank The Bank The Bank The Bank The Bank The Bank In thousands of GHS 2017 2016 2017 2016 2017 2016

Land and Building - - 60,973 55,046 60,973 55,046 Other investments - Unit trust 26,262 20,013 - 25,925 20,013

The Group invests in Unit trust,, which are not quoted in an active market and The Group considers the valuation techniques and inputs used in valuing these investments as part of its due diligence prior to investing, to ensure they are reasonable and appropriate and therefore the NAV of unit trust may be used as an input into measuring their fair value. In measuring this fair value, the NAV of the unit trust is adjusted, as necessary, to reflect restrictions on redemptions, future commitments, and other specific factors of the Trust.

The fair values of the office buildings are estimated using a valuation work done by an independent valuer. The most significant inputs, all of which are unobservable, are the estimated rental v) Financial instruments by category

Financial liabilities

Financial liabilities at fair value through Other financial liabilities In thousands of GHS profit or loss at amortised cost Total

The Bank 2017 Deposits from banks - - -

Deposits from customers - 1,712,646 1,712,646

Bonds - 53,754 53,754

Borrowings - 14,719 14,719 Other liabilities - 69,526 72,215

- 1,850,645 1,853,334

Financial liabilities at fair value through Other financial liabilities Financial Liabilities profit or loss at amortised cost Total

The Bank 2016 Deposits from banks - - -

Deposits from customers - 1,558,210 1,558,210

Bonds - 53,894 53,894

Borrowings - 41,845 41,845 Other liabilities - 61,029 61,029

- 1,715,022 1,715,022

95 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

Financial liabilities at fair Other financial liabilities Financial Liabilities value through profit or loss at amortised cost Total In thousands of GHS The Group 2017 Deposits from banks - - -

Deposits from customers - 1,712,646 1,712,646

Bonds - 53,754 53,754

Borrowings - 14,719 14,719 Other liabilities - 74,728 76,934 - 1,855,847 1,858,053

Financial liabilities at fair Other financial liabilities Financial Liabilities value through profit or loss at amortised cost Total The Group 2016 Deposits from banks - - -

Deposits from customers - 1,558,210 1,558,210

Bonds - 53,894 53,894

Borrowings - 41,845 41,845 Other liabilities - 96,009 96,009 - 1,749,958 1,749,958

Loans and Financial assets at fair Held to Financial assets Total receivables value through profit or loss maturity

In thousands of GHS The Bank 2017 Cash and Cash Equivalent 168,438 - 674,485 842,923

Non-Pledged Assets 216,071 216,071 - Pledged assets - 38,000 38,000 Other investments 26,262 0 26,262 Loans and advances to banks 809,926 - - 809,926 Investment securities - 8,303 8,303 Other assets (excluding prepayments) 17,813 - - 16,813 996,177 26,262 936,859 1,959,298

Loans and Financial assets at fair Held to Financial assets Total receivables value through profit or loss maturity

In thousands of GHS The Bank 2016

Cash and Cash Equivalent - 638,851 299,565 339,286

Non-Pledged Assets - 68,607 - 68,607

Pledged assets - 22,300 22,300 Other investments 20,013 20,013

Loans and advances to banks - - 919,964 919,964

Investment securities - 8,612 8,612 Other assets (excluding prepayments) 27,692 - - 27,692

1,247,221 20,013 438,805 1,706,039

ANNUAL FINANCIAL STATEMENTS 2017 96 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

Financial assets at fair Loans and value through Held to Financial assets receivables profit or loss maturity Total In thousands of GHS The Group 2017

Cash and Cash Equivalent 169,619 674,485 844,104 -

Non-Pledged Assets - 216,071 - 216,071 Pledged assets - 38,000 38,000

Other investments 10,894 37,156 26,262 Loans and advances to banks 809,736 - - 809,6736 Investment securities - 17,393 17,393

Other assets (excluding prepayments) 28,624 - - 28,624

1,007,979 26,262 956,843 1,991,084

Financial assets at fair Loans and value through Held to Financial assets receivables profit or loss maturity Total

In thousands of GHS The Group 2016

Cash and Cash Equivalent 642,944 303,658 - 339,286

Non-Pledged Assets 68,607 - 68,607

Pledged assets - - 22,300 22,300 Other investments - 28,376 - 28,376

Loans and advances to banks - 919,436 919,436

Investment securities - - 26,225 26,225 Other assets (excluding prepayments) 59,392 - - 59,392

1,282,486 28,376 458,418 1,767,280 viii) Capital management The Group’s objectives when managing capital, which is a broader concept than the ‘equity’ on the face of statement of financial position, are:

to comply with the capital requirements set by Bank of Ghana; to safeguard the Group’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders; and to maintain a strong capital base to support the development of its business.

Capital adequacy and the use of regulatory capital are monitored daily by the Group’s management, employing techniques based on the guidelines developed by the Bank of Ghana for supervisory purposes. The required information is filed with the Bank of Ghana on a monthly basis. The Bank of Ghana requires each locally owned bank to:

hold the minimum level of regulatory capital of GHS120 million in 2017; Tier 1 capital ratio: Tier 1 capital ratio is calculated as the adjusted tier 1 capital divided by the total risk-weighted assets. The Bank’s internal guideline is to ensure that Tier 1 capital ratio must be at least 6%.

97 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

Total capital ratio:

Total capital ratio (also referred to as capital adequacy ratio) is calculated as total capital divided by total risk- weighted assets. Total capital ratio must be at least 10%. Maintained a ratio of total regulatory capital to the risk-weighted assets plus risk-weighted off- statement of financial positions assets at or above the required minimum of 10%; Maintain core capital of not less than 8% of total deposit liabilities; and The Group’s regulatory capital is divided into two tiers:

Tier 1 capital (i.e. core or primary capital) is the portion of capital which is Permanently and freely available to absorb unanticipated losses without the bank being obliged to cease trading, and it is defined to be made up of equity and disclosed reserves. Disclosed reserves are defined to be revenue created or increased by appropriations of retained earnings or surplus after tax and dividends. Example, retained profits, statutory reserves, general reserves (not ear-marked for any identifiable losses), the book value of goodwill is deducted in arriving at Tier 1 capital; and

Tier 2 Capital Tier 2 capital (secondary/supplementary capital) is the portion of capital with some attributes of tier 1 capital, but restricted in its ability to absorb losses accept in liquidation. It however, provides a useful supplement to tier 1 capital, but due to the significant efficiencies in its ability to provide protection for depositors and other creditors, it is restricted in its inclusion in capital. Tier 2 capital is divided into: a. Upper tier 2 capital (has no fixed maturity). b. Lower tier 2 capital (has a limited lifetime). The table below summarises the composition of regulatory capital and the ratios of the Group for the years ended 31 December 2017. During those two years, the individual entities within the Group and the Bank complied with all of the externally imposed capital requirements to which they are subject to.

In thousands of GHS The Bank 2017 2016 Tier 1 Capital Share Capital 146,191 96,191 Disclosed Reserves 47,209 11,921 193,400 108,112 Goodwill and other assets (19,874) (21,439) Losses not provided for (4,037) (2,400) Investment in subsidiaries & associates (13,405) (22,825) Connected Lending of Long Term Nature - - 156,084 61,448 Tier 2 Capital Capital Surplus account 32,051 32,293 Long Term Bonds 53,754 53,894 Convertible bonds - - Other reserves - - Housing Development assistance reserve 744 744 86,549 86,931 Total Regulatory Capital 242,633 148,379 Risk weighted assets On Financial Position 1,005,572 1,219,265 Off Financial Position 43,170 70,485 Total risk weighted assets 1,048,742 1,289,750 Capital adequacy ratio 23.14% 11.50%

ANNUAL FINANCIAL STATEMENTS 2017 98 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

47. Basic and diluted earnings per share Basic and diluted earnings per share are calculated by dividing the net profit attributable to equity holders by the weighted average number of ordinary shares in issue during the year.

In thousands of GHS 2017 2016 The Bank The Group The Bank The Group

Profit/ (loss) attributable to the equity holders 36,923 45,431 (38,606) (47,982)

Weighted average number of ordinary share issued 300,160 300,160 297,421 297,421 Discount on rights issue 54,938 54,938 54,938 54,938 Total Weighted average number of shares outstanding 355,098 355,098 352,359 352,359 Basic earnings per share (expressed in GH Pesewas) 12.30 15.49 (12.98) (16.13) Diluted earnings per share (expressed in GH Pesewas) 10.40 12.79 (10.96) (13.62)

The right issue were fully subscribed and settled during the year

48. Segment analysis The Group has four main reporting segments on a worldwide basis:

Retail banking – incorporating private banking services, private customer current accounts, savings, deposits, investment savings products, custody, credit and consumer loans; Mortgage banking – incorporating mortgage services Corporate banking – incorporating direct debit facilities, current accounts, deposits, overdrafts, loans, and foreign currency; and Microfinance banking –incorporating savings account, deposits, loan and other credit facilities Other Group’s operations comprise fund management, institutional finance and providing computer services, none of which constitutes a separately reportable segment and business activities from head office.

As the Group’s segment operations are all financial with a majority of revenues deriving from interest and the Board of Directors relies primarily on net interest revenue to assess the performance of the segment, the total interest income and expense for all reportable segments is presented on a net basis.

There were no changes in the reportable segments during the year.

Transactions between the business segments are carried out at arm’s length. The revenue from external parties reported to the Board of directors is measured in a manner consistent with that in the profit or loss.

Funds are ordinarily allocated between segments, resulting in funding cost transfers disclosed in inter-segment net interest income. Interest charged for these funds is based on the Bank’s cost of capital. There are no other material items of income or expense between the business segments.

Internal charges and transfer pricing adjustments have been reflected in the performance of each business. Revenue- sharing agreements are used to allocate external customer revenues to a business segment on a reasonable basis.

99 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

The Bank SEGMENT REPORTING In thousands of GHS Corporate Mortgage Consumer Microfinance Total At 31 December 2017 Income Interest income 271,292 27,935 2,068 9,303 310,598 Interest expenses (125,570) (20,951) (1,551) (7,628) (155,701)

Net interest income 145,722 6,984 517 1,675 154,897

Fee and commission income 21,555 2,700 52 - 24,307 Fee and commission expenses (1,198) - - - (1,198) 20,357 2,700 52 - 23,109

Net Trading Income 14,964 - - - 14,964 Other Operating Income 5,263 - - - 5,263 Other Income 9,503 - - - 9,503

Total 196,128 9,684 569 1,675 208,055

Segment assets Loans and advances 531,567 238,017 5,200 35,142 809,926 Unallocated assets 1,269,170

Total assets 2,079,096

Segment liabilities Total deposits 1,712,646 Unallocated liabilities 140,255 Total Liabilities 1,852,901

Segment Equity Total shareholders’ funds 226,195

Total liabilities and shareholders’ fund 2,079,096

Impairment write-back for credit losses 21

ANNUAL FINANCIAL STATEMENTS 2017 100 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

The segment information provided to the Board of Directors for the reportable segments for the year ended 31 December 2016 is as follows:

The Bank SEGMENT REPORTING In thousands of GHS Corporate Mortgage Consumer Microfinance Total At 31 December 2016 Income Interest income 225,440 28,546 1,192 20,834 276,012 Interest expenses (122,346) (14,786) (1,170) (18,081) (156,383) Net interest income 103,094 13,760 22 2,753 119,629

Fee and commission income 14,677 4,064 1,355 - 20,096 Fee and commission expenses (729) - - - (729)

13,948 4,064 1,355 - 19,367

Net Trading Income 11,503 - - - 11,503 Other Operating Income 2,372 - - - 2,372 Other Income 19,990 - - - 19,990

Total 150,907 17,824 1,377 2,753 172,861

Segment assets Loans and advances 681,185 198,713 5,446 34,620 919,964 Unallocated assets 936,207

Total assets 1,856,171

Segment liabilities Total deposits 1,558,210 Unallocated liabilities 156,812 Total Liabilities 1,715,022

Segment Equity Total shareholders’ funds 141,149 Total liabilities and shareholders’ fund 1,856,171

Impairment charge for credit losses 69,781

101 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

The Group SEGMENT REPORTING In thousands of GHS Corporate Mortgage Consumer Microfinance Total At 31 December 2017 Income Interest income 282,007 27,935 2,068 9,303 321,313 Interest expenses (125,570) (20,951) (1,551) (7,628) (155,701) Net interest income 156,437 6,984 517 1,675 165,612

Fee and commission income 41,854 2,700 52 - 44,606 Fee and commission expenses (1,198) - - - (1,198) 40,656 2,700 52 - 43,408

Net Trading Income 14,964 - - - 14,964 Other Operating Income 34,782 - - - 34,782 Other Income 13,987 - - - 13,987

Total 260,826 9,684 569 1,675 272,753

Segment assets Loans and advances 531,377 238,017 5,200 35,142 809,736 Unallocated assets 1,290,442

Total assets 2,100,178

Segment liabilities Total deposits 1,712,646 Unallocated liabilities 145,333 Total Liabilities 1,857,979

Segment Equity Total shareholders’ funds 241,199 Total liabilities and shareholders’ fund 2,100,178

Impairment write-back for credit losses 21

ANNUAL FINANCIAL STATEMENTS 2017 102 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

The Group SEGMENT REPORTING In thousands of GHS Corporate Mortgage Consumer Microfinance Total At 31 December 2016 Income Interest income 237,000 28,546 1,192 20,834 287,572 Interest expenses (122,346) (14,786) (1,170) (18,081) (156,383) Net interest income 114,654 13,760 22 2,753 131,189 Fee and commission income 27,215 6,415 2,138 - 35,768 Fee and commission expenses (729) - - - (729) 26,486 6,415 2,138 - 35,039

Net Trading Income 11,503 - - - 11,503 Other Operating Income 12,359 - - - 12,359 Other Income - - - 11,510 11,510

Total 176,512 20,175 2,160 2,753 201,600

Segment assets Loans and advances 680,657 198,713 5,446 34,620 919,436 Unallocated assets 978,120

Total assets 1,897,556

Segment liabilities Total deposits 1,558,210 Unallocated liabilities 191,750 Total Liabilities 1,749,960

Segment Equity Total shareholders’ funds 147,596 Total liabilities and shareholders’ fund 1,897,556

Impairment charge for credit losses 72,781

Operating segments are reported in a manner consistent with internal reporting provided to ALCO and the Board of Directors. All transactions between business segments are conducted on arm’s length basis, with intra - segment revenue and costs being eliminated in head office. Income and expenses directly associated with each segment are included in determining business segment performance.

103 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

49. Maturity analysis of assets and liabilities

Bank 2017 At 31 December In thousands of GHS Note Total Within 12 months After 12 months Assets

Cash and Cash Equivalent 18 842,923 842,923 - Non- Pledged Assets 19 216,071 216,071 - Pledged assets 19 38,000 38,000 - Other investments 20 26,262 16,093 10,169 Investment in subsidiaries 20 13,405 - 13,405 Loans and advances to customers 21 809,926 249,784 560,142 Investment securities 22 8,303 3,000 5,303 Deferred Tax 24 19,941 - 19,941 Intangible Assets - Goodwill 25a 3,931 - 3,931 Intangible Assets - Software 25b 1,858 590 1,268 Other Assets 26 33,756 29,571 4,185 Property , Plant and Equipment 27 64,720 12,962 51,758 Total assets 2,079,096 1,408,994 670,102

Liabilities Deposits from customers 29 1,712,646 919,732 792,914 Bonds 31a 53,754 53,754 Borrowings 30 14,719 5,888 8,831 Current income tax liabilities 23 2,256 2,256 - Other Liabilities 31b 69,526 60,117 9,409 Total liabilities 1,852,901 997,993 864,908

The Group 2017 At 31 December In thousands of GHS Note Total Within 12 months After 12 months Assets

Cash and Cash Equivalent 18 844,104 844,104 - Non- Pledged Assets 19 216,071 216,071 - Pledged assets 19 38,000 38,000 - Other investments 20 37,156 25,918 11,238 Investment in subsidiaries 20 - - - Loans and advances to customers 21 809,736 249,661 560,075 Investment securities 22 17,393 12,090 5,303 Deferred Tax 24 19,949 - 19,949 Intangible Assets - Goodwill 25a 3,931 - 3,931 Intangible Assets - Software 25b 2,021 644 1,377 Other Assets 26 44,567 40,703 3,864 Property , Plant and Equipment 27 67,250 16,813 50,438 Total assets 2,100,178 1,444,004 656,175

Liabilities Deposits from customers 29 1,712,646 919,732 792,914 Bonds 31a 53,754 53,754 Borrowings 30 14,719 5,888 8,831 Current income tax liabilities 23 2,132 2,132 - Other Liabilities 31b 74,728 6,319 9,409 Total liabilities 1,857,979 993,071 864,908

ANNUAL FINANCIAL STATEMENTS 2017 104 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

49. Maturity analysis of assets and liabilities

Bank 2016 At 31 December In thousands of GHS Note Total Within 12 months After 12 months Assets

Cash and Cash Equivalent 18 638,851 638,851 - Non- Pledged Assets 19 68,607 68,607 Pledged assets 19 22,300 22,300 Other investments 20 20,013 12,264 7,749 Investment in subsidiaries 20 22,825 - 22,825 Loans and advances to customers 21 919,964 256,111 663,853 Investment securities 22 8,612 5,478 3,134 Current income tax assets 23 25,111 25,111 Deferred Tax 24 15,199 15,199 Intangible Assets - Goodwill 25a 3,931 - 3,931 Intangible Assets - Software 25b 2,581 1,290 1,291 Other Assets 26 45,200 31,754 13,446

Property , Plant and Equipment 27 62,977 12,473 50,504

Total assets 1,856,171 1,089,438 766,733

Liabilities and equity

Deposits from banks 28 - -

Deposits from customers 29 1,558,210 948,500 609,710 Bonds 31a 53,894 53,894 Borrowings 30 41,845 17,234 24,611 Other Liabilities 31b 61,073 57,243 3,830 Total liabilities 1,715,022 1,022,977 692,045

105 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

49. Maturity analysis of assets and liabilities

Group 2016 At 31 December In thousands of GHS Note Total Within 12 months After 12 months Assets

Cash and Cash Equivalent 18 642,944 642,944 Non- Pledged Assets 19 68,607 68,607 Pledged assets 19 22,300 22,300 Other investments 20 28,376 12,264 16,112 Loans and advances to customers 21 919,436 255,583 663,853 Investment securities 22 26,225 23,091 3134 Current income tax assets 23 25,275 25,275 Deferred Tax 24 15,263 15,263 Intangible Assets - Goodwill 25a 3,931 - 3,931 Intangible Assets - Software 25b 2,754 1,370. 1,384 Other Assets 26 76,900 56,734 20,166 Property , Plant and Equipment 27 65,545 13,890 51,655 Total assets 1,897,556 1,137,321 760,235

Liabilities Deposits from customers 31a 1,558,210 965,600 592,610 Bonds 30 53,894 53,894 Borrowings 21 41,845 17,234 24,611 Other Liabilities 29 96,009 80,343 15,666 Total liabilities 1,749,958 1,063,177 686,781

50. Events after the reporting period There was no event after reporting date that require adjustments or disclosure.

ANNUAL FINANCIAL STATEMENTS 2017 106 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

Notes To The Consolidated Financial Statements 31 December 2017

51. Major shareholders HFC BANK (GHANA) LIMITED - SHAREHOLDERS’ ANALYSIS AS AT 31 DECEMBER 2017

SHAREHOLDERS’ STRUCTURE AS AT 31.12.2017

FROM TO MEMBERS SHARES CAPITAL %

1 1,000 1,750 532,746 0.13 1,001 5,000 397 920,595 0.24 5,001 10,000 73 531,872 0.14 10,001 9,999,999,999 118 386,344,796 99.49 TOTAL 2,338 388,330,009 100.00

DIRECTOR’S SHAREHOLDING AS AT 31 DECEMBER 2017

SHARES % OF ISSUED CAPITAL

Mr. Robert Le Hunte 13,057 0.0034 Mr. Charles William Zwennes 2.000 0.0005 Total 15,057 0.0039

HFC BANK (GHANA) LIMITED – MAJOR SHAREHOLDERS AS AT 31 DECEMBER 2017 (TOP 20)

SHARES % OF ISSUED CAPITAL

Republic Financial Holdings Limited 250,894,484 64.61 Social Security & National Ins. Trust 7 7,591,323 19.98 Ghana Union Assurance Co. Ltd 42,334,167 10.90 Scgn/Ghana International Bank Plc 9,221,968 2.37 Capital and Equity Ltd 625,000 0.16 United Master Trust Provident 401,300 0.10 Std Noms TVL Pty/Heritage Fund Ltd 384,876 0.10 Databank Brokerage Limited 200,000 0.05 Mr. C.A. Martinson 180,566 0.05 Fanel Ltd 165,000 0.04 Mr. G. Amenuvor 150,000 0.04 HFC Equity Trust 142,749 0.04 Enterprise Group 133,420 0.03 GES Occupational Pension Scheme 126,800 0.03 Dr. D.A.D. Boateng 126,113 0.03 Mr. J.E. Nketsiah 125,400 0.03 Mr. C.A. Bonsu 120,000 0.03 Mr.O. Asafo-Adjei 120,000 0.03 GNI/GGFC-Prime Equity 112,200 0.03 United Smart Provident Fund Scheme 102,654 0.03 Reported totals 383,258,020 98.68 Not reported 5,071,989 1.32 Grand totals 388,330,009 100.00

107 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

BRANCH NETWORK

ANNUAL FINANCIAL STATEMENTS 2017 108 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

NETWORK OF HFC BANK BRANCHES

HEAD OFFICE “EBANKESE” ASANKRAGUA BRANCH ESSAM BRANCH #35, Sixth Avenue, North Ridge Opp. Takoradi/Kumasi Lorry Station Near Essam Post Office P.O. Box CT4603, Cantonments, Accra Asankragua Off Debiso-Oseikojokrom Main Road Tel: +233-302-242090-4 P. O. Box 57, Asankragua P. O. Box 99, Sefwi Essam Fax: +233-302-242095 Tel: +233 312 093999 / 0544 Tel: +233 244 339226 / 0544 341204 Website: www.hfcbank.com.gh 341305 / 0577 650944-5 Email: [email protected] Email: [email protected] Email: [email protected] GOASO BRANCH ABOSSEY OKAI BRANCH ASOKWA BRANCH Nana Sei Building, Crystal Plaza Building The Ark (Plot 1 Block C) Goaso Roundabout Opposite Presby. Church Asokwa Industrial Area, Kumasi Tel: +233 303 931535-6 Main Spare Parts Lane P. O. Box 11226, Adum-Kumasi Fax: + 233 577 986086 Abossey Okai, Accra Tel: +233 303 931537-8 / 0540 114489/90 Email: [email protected] Tel: +233 302 673181 / 673475 Email: [email protected] Fax: +233 302 671918 JUABOSO BRANCH Email: [email protected] ASEMPANEYE BRANCH H/No. J19, Juaboso Main Street Opposite PBC Ltd Depot P.O. Box JB 12, Ecomog Residential Area ACCRA CENTRAL BRANCH Asempaneye Tel: +233 244 341413 / 0544 341203 31-33 Kwame Nkrumah Avenue Tel: +233 57 765 5389 Email: [email protected] SIC Building, Okaishie, Accra Email: [email protected] Tel: +233 302 683756-9 KASOA BRANCH Fax: +233 302 683761 ADABOKROM BRANCH P. O. Box OK 28 Email: [email protected] Main Street, Opposite Dormaman Clinic Kasoa Adabokrom Tel: +233 302 862696-9 ACHIMOTA BRANCH Tel: +233 544341204/ 0244 330906 Fax: +233 302 862723 # 09-121, Near Neoplan Station Email: [email protected] Email: [email protected] Off Nsawam Road, Achimota Tel: +233 54 114491-2 ADJIRINGANO BRANCH KASOA AGENCY Email: [email protected] No. 9/90 Block 23 YOO MART Baby Jet Heights Building P.O. BOX OK 28 Kasoa ADABRAKA BRANCH East Adjiringano Tel: +233 #C89/2 Bonsu Brothers Building Email. [email protected] Kwame Nkrumah Avenue BAATSONA BRANCH Adabraka, Accra #47 Nungua Link Road KNUST BRANCH Tel: +233 302-251330/2 Baatsona – Spintex Road Accra Commercial Area Fax: +233 302-251406 Tel. +233 302 816600-9 Jubilee Mall KNUST Campus Email: [email protected] Fax. +233 302 816602 Tel: +233 3220 64243/64241-2 Email. [email protected] Fax: +233 3220 64244 ADUM BRANCH Email: [email protected] #OTB 571 Asomfo Road BOLGATANGA BRANCH Adum Roundabout, Adum #A4, 3B Kotokoli Line KUMASI MAIN BRANCH Private Mail Bag, G.P.O, Kumasi Off Bawku Road Asokwa Railway Taxi Rank Tel: +233 3220 49430-5 P. O. Box BG 401, Bolgatanga Opp. Former Unicorn House Fax: +233 3220-49436 Tel: +233 242 700865-8 P.O.Box 1226, Adum Email: [email protected] Email: [email protected] Tel: +233 3220 49430-4 Fax: +233 3220 49436 AGONA SWEDRU BRANCH CAPE COAST BRANCH Email: [email protected] Near Texaco, Agona Swedru Mancell Place 110/1 Tantri Tel: +233 3320 20172/3 Adjacent Accra Lorry Station, Cape Coast KUMASI MAGAZINE BRANCH Fax: +233 3320 20174 Tel: +233 3321 36441-2 Plot No. XVIII Email: [email protected] Fax: +233 3321 36440 Mattias Junction Email: [email protected] Suame Roundabout ASAMANKESE BRANCH Tel: +233 322 046033/043037 Plot No. 5, Asamankese DANSOMAN BRANCH Fax: +233 322 046218 Tel: +233 28 966922 / 28 9669316 Plot 1A, High Street, Email: [email protected] Fax: +233 57 7900016 Dansoman Estates Email: [email protected] Tel: +233 302 320837-8 / 0289 559310 KOFORIDUA BRANCH Fax: +233 302 320831 Antartic Plaza ASHAIMAN BRANCH Email: [email protected] Central Market, Koforidua Opposite Ashaiman Govt. School Tel: +233 3420 26840-1 Night Market Road, Ashaiman EBANKESE BRANCH Fax: +233 3420 26842 Tel: +233 303 307785 / 301475 / 301468 #35, Sixth Avenue, North Ridge Email: [email protected] Fax: +233 303 301419 P.O. Box CT4603, Cantonments, Accra Email: [email protected] Tel: +233 302 242090-4 Fax: +233 302 242095 Email: [email protected]

109 ANNUAL FINANCIAL STATEMENTS 2017 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

NETWORK OF HFC BANK BRANCHES

LEGON BRANCH SEFWI BEKWAI BRANCH TEMA BRANCH The UG-Credit Union Building Noguchi Road Market Square, Sefwi Bekwai Asafoatse Kotei Offices and University of Ghana, Legon P. O. Box 15, Sefwi Bekwai Commercial Complex Tel: +233 302 519154-6 Tel: +233 577 650957 Private Mail Bag Fax: +233 302 519153 Email: [email protected] Community One, Tema. Email: [email protected] Tel: +233 303 201432/ 201423/208385-6 SEFWI WIAWSO BRANCH Fax: +233 303 200362 MADINA BRANCH Near Dwenase Market Email: [email protected] # M1224/3 P. O. Box 189, Sefwi Wiawso TEMA COMMUNITY 25 BRANCH Post Office Road, Madina Tel: +233 577650961 Community 25 Mall Tel: +233 289 669320 Email: [email protected] Near Devtraco Junction, Tema Fax: +233 302 240565 Tel: + 233 540 108896-8 Email: [email protected] SEFWI AKONTOMBRA BRANCH Email: [email protected] C/o Sefwi Wiawso Branch NEW TOWN BRANCH P. O. BOX 189, WIAWSO. # 1509 Opposite House Party Computers Tel: +233 54 010 4245 Accra New Town TUDU BRANCH Tel: +233 302 240520 / 240596 / 0289 669319 TAKORADI BRANCH Darkmak House, Kojo Thompson Road Fax: +233 302 240565 No.3 /1 Kitson Avenue Road Accra Email: [email protected] Old GNTC Building, Market Circle Tel: +233 302 666203, 675114 Tel: +233 3120 26247 / 26192/ 26231 Fax: +233 302 664106 POST OFFICE SQUARE BRANCH Fax: +233 3120 26209 Email: [email protected] Permasu Building Email: [email protected] Asafoatse Nettey Street, Accra UNIVERSITY OF GHANA BRANCH Tel: +233 302 684112-5 TAMALE BRANCH UG Banking Square Fax: +233 302 684161 No. 8 Daboya Street University of Ghana, Legon Email: [email protected] Old Market, Tamale Tel. +233 302 519154-6 P.O. Box TL 718, Tamale Fax. +233 302 670816 PRIVATE BANKING Tel: +233 3720 25558/ 25220 Email. [email protected] ‘Adeshie Place’ No. F/235/6 Fax: +233 3720 24699 Josiah Tongogari Street, Labone, Accra Email: [email protected] WINNEBA BRANCH Tel: +233 302 767191 – 2 Kojo Beedu Street Fax: +233 302 767164 TECHIMAN (JUBILEE) BRANCH Near Winneba SHS Junction Email: [email protected] Plot 415 Abanim Private Mail Bag, Winneba Techiman-Tamale Main Road Tel: +233 3323 20578 RIDGE BRANCH P.O. Box TM 515, Techiman Fax: +233 3323 20579 6 Sixth Avenue Tel: +233 3525 22411-2 Email: [email protected] Ridge Ambassadorial Enclave Fax: +233 3525 22414 West Ridge, Accra Email: [email protected] Tel: +233 302 683891-3/683895-9, 683900 Fax: +233 302 683901 Email: [email protected]

ANNUAL FINANCIAL STATEMENTS 2017 110

HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

DRAFT RESOLUTIONS

I AS ORDINARY RESOLUTIONS

1. That the Financial Statements of HFC Bank (Ghana) Limited and its Subsidiaries for the financial year ended 31st December 2017 together with the Auditors’ Report thereon be received and adopted. 2. That the Directors’ Report for the year ended 31st December 2017 be received and adopted. 3. That the appointment by the Directors of Mr. Anthony Jordan as a Managing Director of the Company pursuant to Regulation 62 of the Company’s Regulations and Sections 181 (3) and 193 (a) of the Companies Act, 1963 (Act 179) (the “Companies Act”) be and is hereby ratified in accordance with Section 137 (5) (c) of the Companies Act, subject to regulatory approval. 4. That Mr. Ebenezer Tetteh Tagoe be and is hereby re-elected as a Director of the Company under Regulation 64 of the Company’s Regulations and Section 298 (e) of the Companies Act. 5. That Mr. Paul King Aryene be and is hereby re-elected as a Director of the Company under Regulation 64 of the Company’s Regulations and Section 298 (e) of the Companies Act. 6. Raising of Capital:- (1) That the Directors of the Company be and are hereby generally and unconditionally authorised to increase the Company’s Stated Capital by up to Two Hundred and Fifty-Five Million Ghana Cedis (GHS 255,000,000) by a renounceable rights issue and to exercise all the powers of the Company pursuant to Section 202 (1) of the Companies Act, 1963 (Act 179) to offer, issue and allot to registered members of the Company, in proportion as nearly as may be practicable to their respective holdings in the issued shares of the Company, such number of ordinary shares as may be required to increase the Company’s Stated Capital by up to Two Hundred and Fifty- Five Million Ghana Cedis (GHS 255,000,000) (“the Rights Issue”). (2) That the Directors of the Company be and are hereby authorised, subject to all applicable laws and regulatory requirements, to determine the terms, timing and pricing of any such offer, option, allotment or issue and to offer, issue, allot, and/or deal with all such shares as are not subscribed to by the registered members of the Company in the Rights Issue at such times, on such terms and for such prices as the Directors shall determine. 7. That KPMG be and is hereby appointed as Auditors of the Company pursuant to Section 134 (4) of the Companies Act and subject to regulatory approval. 8. That the Directors be and are hereby authorized to fix the remuneration of the Company’s Auditors for the Financial Year 2018.

II AS SPECIAL RESOLUTION

To amend the Company’s Regulations by Special Resolution in the following manner:- 9. That Regulation 55 be deleted in its entirety and replaced with the following as a new Regulation 55:- 55) Meetings shall be conducted in accordance with sections 166 to 173 of the Code. On a poll being validly demanded the Chairman of the meeting shall direct such poll in accordance with Section 170 of the Code;

ANNUAL FINANCIAL STATEMENTS 2017 112 HFC BANK (GHANA) LIMITED AND ITS SUBSIDIARIES

PROXY

I/We______of ______being members of HFC BANK (GHANA) LIMITED hereby appoint ______or failing him, MR. CHARLES ZWENNES, Chairman of HFC Bank (Ghana) Limited, P.O. Box CT4603, Cantonments, Accra, as my/our proxy to vote for me/us on my/ our behalf at the Extraordinary General Meeting of the Company to be held at Accra City Hotel, Barnes Road, Accra at eleven o’clock (11:00am) in the forenoon on the 26th day of April 2018 and at any adjournment thereof.

Please indicate with a tick in the space below how you wish your votes to be cast

RESOLUTIONS FOR AGAINST ABSTAIN 1. To consider and approve the Financial Statements of HFC Bank (Ghana) 1. Limited & Auditors Report thereon. 2. To receive and adopt the Directors’ Report. 2.

3. To ratify the appointment of Mr. Anthony Jordan as Managing Director. 3.

4. To re-elect Mr. Ebenezer Tetteh Tagoe as a Director. 4.

5. To re-elect Mr. Paul King Aryene as a Director. 5. 6. (1) To undertake a renounceable rights issue, 6 (1). to offer, issue and allot shares. (2) To determine terms of the issue and deal with 6 (2). unsubscribed shares. 7. To appoint KPMG as Auditors. 7.

8. To authorise Directors to fix the Auditors’ fees. 8.

SPECIAL RESOLUTIONS

9. To amend the Regulations – Regulation 55. 9.

Or any other business transacted at the meeting and otherwise instructed in the paragraphs above, the proxy will vote as he/she thinks fit.

This ___ day of ______2018 Signed ______

THIS FORM SHOULD NOT BE COMPLETED AND SENT TO THE SECRETARY IF THE SENDER WILL BE ATTENDING THE MEETING

1. Provision has been made on the form for MR. CHARLES ZWENNES, the Chairman of the Meeting, to act as your Proxy but if you so wish, you may insert in the blank space the name of any person whether a member of the Company or not who will attend the Meeting and vote on your behalf instead of the Chairman.

2. In the case of joint holder, each holder must sign. In case of a company, the Proxy Form must be signed by a Director or its Common Seal appended.

If you intend to sign a Proxy, please sign the above Proxy Form and post/submit it to reach the Secretary, HFC Bank (Ghana) Limited, Ebankese, P.O. Box CT4603, Cantonments, Accra, Ghana or via email to hfcomp@hfcbank. com.gh at any time prior to the commencement of the meeting in accordance with the Company’s Regulations.

113 ANNUAL FINANCIAL STATEMENTS 2017 THIRD FOLD HERE FIRST FOLD HERE SECOND FOLD HERE SECOND THE SECRETARY SECRETARY THE HFC BANK (GHANA) LIMITED EBANKESE BOX CT4603 P.O. CANTONMENTS GHANA ACCRA,

BEFORE POSTING THE ABOVE FORM, TEAR OFF AND RETAIN THE PART BELOW