A Risk-based Assessment Of

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A RISK-BASED ASSESSMENT OF

ECOBANK GHANA LIMITED (EGH)

Master’s Thesis towards the award of

Master of Science degree in Economics and Business Administration

( CMFSM - Finance & Strategic Management)

at Copenhagen Business School

Author of paper: K ASI MENAKO ASARE-BEKOE



Masters Thesis: A risk-based assessment of Ecobank Ghana Limited October, 2010

1

DEDICATION

To the only true God, His only son Jesus Christ and His Holy Spirit. You have brought me

this far, giving me strength and guidance through the journey. To You be all the glory and

adoration no and forever more. !men

To my ife, children and parents. God bless you for your support. You have been my

encouragement.



2


ACKNO LEDGEMENT

" ish to e#press my sincere gratitude to the Copenhagen $usiness School for sponsoring my

participation in this graduate programme. "t is an opportunity " ill forever cherish.

" am grateful to %r. Jens $orges, my supervisor. Your counsel as very valuable.

" than& all my friends and ell' ishers. God be ith you all.



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TABLE OF CONTENT

()("C!T"*+ ...........................................................................................................................

!C-+* /)(G)%)+T ......................................................................................................... 0

T!$/) *1 C*+T)+T ............................................................................................................. 2

/"ST *1 T!$/)S ..................................................................................................................... 3

/"ST *1 1"G45)S ................................................................................................................... 6

)7)C4T"8) S4%%!5Y ....................................................................................................... 9

CH!:T)5 *+) ' "+T5*(4CT"*+.....................................................................................

.; $!C-G5*4+( *1 ST4(Y ..................................................................................

. J4ST"1"C!T"*+ *1 CH*"C) *1 "+ST"T4T"*+................................................ 0

.0 "+T5*(4CT"*+ *1 C*%:!+Y.......................................................................... <

.2 ST!T)%)+T *1 TH) :5*$/)% ........................................................................ <

.< *$J)CT"8) *1 TH) ST4(Y ................................................................................ =

.= S"G+"1"C!+C) *1 TH) ST4(Y .......................................................................... =

.> SC*:) !+( /"%"T!T"*+ *1 TH) ST4(Y ....................................................... >

.3 *5G!+"S!T"*+ *1 TH) ST4(Y ....................................................................... >

CH!:T)5 T * ' /"T)5!T45) 5)8") ......................................................................... 3

0.; "+T5*(4CT"*+..................................................................................................... 3

0. 5"S- %!+!G)%)+T "+ $!+-"+G ................................................................... 3

0.0 5!T"*+!/)S 1*5 5"S- %!+!G)%)+T "+ $!+-"+G ................................ 6

0.2 C!T)G*5")S *1 5"S- %!+!G)%)+T ............................................................ 9

0.< -)Y $!+- 5"S-S ................................................................................................. 0;

0.<. Credit 5is& ......................................................................................................... 00.<.0 %ar&et 5is&s ...................................................................................................... 00

0.<.2 *perational 5is& ................................................................................................ 0>

0.<.< Strategic 5is& ..................................................................................................... 03

0.= 8!5? ! T**/ 1*5 %)!S45"+G %!5-)T 5"S-S .......................................... 09

0.> "+T)G5!T)( 5"S- %!+!G)%)+T? !+ 4/T"%!T) G*!/ *1 !1*5 !5('/**-"+G 5"S- %!+!G)%)+T 15!%) *5- ...................................2

0.>. )nterprise 5is& %anagement? ! useful tool for integrating ris&s ..................... 22



4


0.3 TH) :/!C) *1 C*5:*5!T) G*8)5+!+C) "+ TH) %!+!G)%)+T *1$!+- 5"S-S ......................................................................................................................2=

CH!:T)5 TH5)) ' %)TH*(*/*GY ............................................................................... 26

2.; "+T5*(4CT"*+..................................................................................................... 26

2. (!T! S*45C) ....................................................................................................... 26

2.0 $)+CH%!5-S ....................................................................................................... 26

2.2 !+!/YST"C!/ T**/S ......................................................................................... 29

2.2. 5atios ................................................................................................................. 29

2.2.0 Graphs and Charts .............................................................................................. <;

2.< !+!/YT"C!/ T)CH+"@4)S ............................................................................... <;

2.<. 5atio !nalysis .................................................................................................... <

2.<.0 Common'SiAe !nalysis ..................................................................................... <

2.<.2 Trend !nalysis ................................................................................................... <0

2.= !+!/YT"C!/ C*%:*+)+TS ............................................................................. <0

CH!:T)5 1*45 ' !SS)SS%)+T *1 $!+- 5"S- :5*1"/) ......................................... <<

<.; "+T5*(4CT"*+..................................................................................................... <<

<. $!/!+C) SH))T 5"S-S ...................................................................................... <<

<. . !ssets ................................................................................................................. <<

<. .0. /iabilities ........................................................................................................... <=

<. .2 )Buity and Capital !deBuacy ............................................................................ <3

<.0 "+C*%) ST!T)%)+T 5"S-S .............................................................................. <6

<.2 C5)("T 5"S- .......................................................................................................... =

<.2. SiAe..................................................................................................................... =

<.<.0 Concentration ..................................................................................................... =0

<.2.2 :roduct distribution............................................................................................ =<

<.2.< Customer loans distribution by tenor ................................................................. =<

<.2.= /oan @uality ...................................................................................................... ==

<.2.> 5elated :arty (ealings....................................................................................... =>

<.< /"@4"("TY 5"S- .................................................................................................... =3

<.<. /iBuidity %ismatches ........................................................................................ =3

<.<.0 Structure of funding ........................................................................................... =6

<.<.2 Cashflo s and ratios .......................................................................................... >;



5


<.>. "+T)5)ST 5!T) 5"S- .......................................................................................... >0

<.3. C455)+CY 5"S- ................................................................................................... >2

CH!:T)5 1"8) ' !SS)SS%)+T *1 5"S- %!+!G)%)+T 15!%) *5- ............... >=

=.; "+T5*(4CT"*+..................................................................................................... >==. C5)("T 5"S- .......................................................................................................... >=

=. . *rganisation ....................................................................................................... >=

=. .0 5is& identification .............................................................................................. >>

=. .2 5is& %easurement ............................................................................................. >3

=. .< 5is& %onitoring and Control ............................................................................. >6

=. .= 5is& 5eporting ................................................................................................... >9

=.0 %!5-)T 5"S- ........................................................................................................ >9=.0. *rganisation ....................................................................................................... >9

=.0.0 5is& "dentification.............................................................................................. 3

=.0.2 5is& %easurement ............................................................................................. 3

=.0.< 5is& %onitoring and Control ............................................................................. 3<

=.0.= 5is& 5eporting ................................................................................................... 3<

=.2 *:)5!T"*+!/ 5"S- ............................................................................................. 3=

=.2. *rganisation ....................................................................................................... 3=

=.2.0 5is& "dentification.............................................................................................. 3=

=.2.2 5is& %easurement ............................................................................................. 3>

=.2.< 5is& %onitoring and Control ............................................................................. 3>

=.2.= 5is& 5eporting ................................................................................................... 33

=.< S4%%!5Y .............................................................................................................. 33

CH!:T)5 S"7 ' C*+C/4S"*+ !+( 5)C*%%)+(!T"*+S ....................................... 39

>.; "+T5*(4CT"*+..................................................................................................... 39>. C*+C/4S"*+ ......................................................................................................... 39

>.0 5)C*%%)+(!T"*+S .......................................................................................... 6

>.0. "nterest 5ate 5is& %anagement ......................................................................... 6

>.0.0 !dopting an integrated approach to ris& management ...................................... 60

!::)+("7 !? Glossary of &ey financial terms and ratios ..................................................... 6=

!::)+("7 $? Comparative 1inancial Statements of )GH for 0;;3 ' 0;;9 ......................... 6>

!::)+("7 C? $loomberg /. : ratings and Stoc& Trends ..................................................... 69



6


!::)+("7 (? Tables and Charts for 5is& :rofile !ssessment ............................................. 9;

!::)+("7 )? "nternational 5ecommended :rinciples for ensuring Sound 5is& %anagement ..... ;

5)1)5)+C)S ...................................................................................................................... ;9





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LIST OF FIG!RES

1igure . ? :erformance of )coban& Ghana /imited on Ghana Stoc& )#change ...................2

1igure 2. ? (iagrammatic representation of components of the ban& s ris& profile ............... <2

1igure <. ? Changes in the composition of assets over the past three years . ...........................<=

1igure <.0? Changes in the composition of liabilities over the past t o years. ....................... <>

1igure <.2? :rofitability D efficiency indicators ......................................................................=;

1igure <.<? Sources of "ncome versus *perating Costs ...........................................................=;

1igure <.=? =; largest e#posures .............................................................................................. =0

1igure <.>? Sectoral allocation of loans ................................................................................... =2

1igure <.3? Customer loans by products .................................................................................. =<

1igure <.6? (istribution of Customer /oans per Tenor and $orro er Group .........................==

1igure <.9? /oan @uality.......................................................................................................... =>

1igure <. ;? 5elated party information.................................................................................... =3

1igure <. ? 1unding soucres................................................................................................... =9

1igure <. 0? Customer deposits by type .................................................................................. =9

1igure <. 2? Trend of Cash flo s ............................................................................................ >;

1igure <. <? Trends in liBuidity ratios ..................................................................................... >0

1igure <. =? "nterest rates repricing gap .................................................................................. >2

1igure <. >? Currency Structure of /oan :ortfolio and Customers (eposits ..........................><

1igure <. 3? Currency 5is& ? Currency )#posure as E of @ualifying Capital ........................><

1igure =. ? ! diagrammatic illustration for measuring e#pected loss .....................................

>6



9


E"EC!TI#E S!MMAR$

The global financial crises over the past three years should ma&e everyone concerned about

recent significant levels of bad debts on the boo&s of ban&s in the Ghanaian financial sector.

"t calls for thorough assessments of the structure and components of the ris& management

frame or&s and practices of ban&s by regulators, analysts and financial atchers from time

to time, to ascertain the adeBuacy of the systems, policies and procedures for managing ris&s

as ell as their conformity to current best practices. !s a contribution to this e#ercise, this

study is focused on )coban& Ghana /imited F)GH ith the aim of evaluating the ban& s ris&

profile as ell as assessing its ris& management frame or& to ascertain its soundness and

conformity to international best practices.

$oth the computational based and analytical based approaches ere adopted in assessing the

ris& condition of )GH. $y applying analytical tools such as ratios, tables and charts, to the

ban& s 0;;9 financial statements, and those of years 0;;3 and 0;;6 serving as references for

comparison. Trends and relationships in the financial statements and other financial data ere

also established. This helped in ma&ing ell'reasoned analysis of the ban& s capital

adeBuacy, balance sheet structure and composition, profitability and reliability of earnings,

credit e#posure siAe and Buality, liBuidity, interest rate and currency ris&s situations. ! revie

of the )GH s ris& management structure and policies, vis' 'vis recommendations by the

$asel Committee on $an&ing Supervision, helped in establishing the soundness or other ise

of the ban& s ris& management practices.

The study revealed that )GH s has a good ris& profile in the face of challenging global

economic and business environment. This is because the significant e#pansion of its balance

sheet siAe did not result in the absorption of more ris& but rather lead to a healthy asset mi#

balancing liBuidity ith profitability. The assets ere efficiently applied to generate high profit margin hich as po ered by stable income sources. The ban& s asset Buality as ell

as its capacity to absorb credit losses had improved in the face of general levels of asset

deterioration in the Ghanaian ban&ing industry. The high level of loan portfolio concentration

to fe large corporate bodies as ho ever the ea& point in the ban& s credit ris& condition.

!lso, ith the majority of its cash flo obtained from operational activities, coupled ith

large portion of deposits provided by core deposit customers, the prospects of )GH

encountering liBuidity challenges as minimal. "n addition, the ban& had adeBuate funding in



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foreign currency to bac& foreign currency loans and meet demands for foreign currency

transactions, shielding it from adverse foreign currency ris& e#posure. )$H lost some interest

income as a result of maintaining more short term sensitive assets than short term sensitive

liabilities during the year 0;;9 hen there as a general decline in interest rates.

The study also revealed that )GH had adeBuate ris& management structures to ensure sound

management of financial and operational ris&s. There as an appropriate environment in

place for managing ris&, in thatI the governance structure as solid ith clear obligations and

lines of authority set out. :olicy documents containing procedures, processes and techniBues

for handling various ris&s had also been approved by the board. 5elevant tools and

management information systems as ell as effective controls ere in place to ensure

adeBuate and consistent identification, measurement, monitoring and controlling as ell asreporting on the various ris&s the ban& is e#posed to. These structures ere also in line ith

internationally accepted principles for managing ris&s as put for ard by the $asel Committee

for $an&ing Supervision and e#pected to be implemented by all ban&s operating in Ghana as

they have incorporated in the Ghana $an&ing !ct 0;;<, !ct >32.



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CHA%TER ONE - INTROD!CTION

&' BACKGRO!ND OF ST!D$

(evelopments in the global financial sector ithin the past decade have given sta&eholders inthe Ghanaian ban&ing industry cause to not only consider the returns made in the sector but

also critically e#amine frame or&s used to manage ris&s in the sector and safeguard their

interests. This is because the failures faced by the industry in recent times have been blamed

largely on the ea&nesses of the regulatory frame or&s and the ris& management practices of

the financial institutions . The greatest impact of the crisis has been on the ban&ing industry,

here some ban&s hich ere hitherto performing ell suddenly announced large losses

ith some of them going burst. Some reasons put for ard for the failures in ris&management in this regard include the limited role of ris& management in the granting of

loans in most ban&s as they are unable to influence business decisions and the fact that their

considerations are subordinate to profitability interests and lac& of capacity to adeBuately

ma&e timely and accurate forecasts. This has resulted in the flouting of basic ris&

management rules such as avoiding strong concentrations of assets and minimising the

volatility of returns.

The impact of the global financial crisis on the ban&ing sector in Ghana has been Buite

minimal such that it did not threaten the survival of ban&s in the sector. This is largely

because the sector has little e#posure to comple# financial instruments and relies mainly on

lo 'cost domestic deposits and liBuidity. Ho ever, the deterioration of asset Buality

Fimpairment charge gross loans and advances of the ban&s in Ghana, from about .=E to

<.0E 0, in the past three years due to significant balances of bad and doubtful debts on their

boo&s is an indication that all is not ell ith the sector. 8arious reasons have been put

for ard by analysts as accounting for the deterioration in the Buality of ban& s loans and

advances. These include increased cost of funds, inflation, depreciation of the Cedi and the

delay by government in paying contractors and other service providers. 4nli&e the case in

developed countries, Buestions have not been raised about ea&ness or other ise of the ris&

!s put for ard by some professionals and scholars such as (r 5a&esh %ohan, (eputy Governor of the5eserve $an& of "ndia, at the 3th !nnual "ndia $usiness 1orum Conference, /ondon $usiness School, /ondon,02 !pril 0;;9 and Gabriele Sabato F!ugust, 0;;9 .0

Contained in the 0; ; $an&ing Survey 5eport by :rice aterhouseCoopers, Ghana.



12


management practices of the Ghanaian ban&s hich have resulted in significant financial

losses, although there have been a fe reported cases of fraud, theft and other operational

occurrences.

The general believe is that ban&s in Ghana have good ris& management structures since there

have not been any complaints or adverse findings against them by the regulators, that is,

$an& of Ghana and Securities and )#change Commission of Ghana Fin the case of listed

ban&s concerning significant ea&nesses in their ris& management systems. The ban&s are

believed to be generally compliant ith major regulatory reBuirements hich are basically in

line ith international standards set by the $asel Committee on $an&ing Supervision. These

reBuirements include rigorous ris& and capital management reBuirements designed to ensure

that the ban&s hold capital reserves appropriate to the ris& they e#pose themselves to through

its lending and investment practices. Ho ever, in order to ascertain the resilience of the

Ghanaian ban&ing sector to ithstand serious economic shoc&s, there ould be the need for

thorough assessments of the structure and components of the ris& management frame or&s

and practices of the ban&s from time to time. This study as therefore a contribution to this

e#ercise ith a focus on )coban& Ghana /imited F)GH .

&'& !STIFICATION OF CHOICE OF INSTIT!TION

)coban& Ghana limited as chosen for this study because of its reputation as being among

the top four ban&s in Ghana. "t is also listed on the Ghana Stoc& )#change and therefore has

its financial and other regulatory reports published, ensuring that the public has access to

some basic information. *ver the past decade )GH has on several ban&ing a ards in

various categories including the coveted K$an& of the Year ! ard ‖ for five

consecutive

years. !ccording to the 0; ; $an&ing Survey 5eport2

released by :rice aterhouseCoopersGhana in collaboration ith the Ghana !ssociation of $an&ers, )GH is ran&ed the fourth

largest ban& in terms of total assets contributing ;. E to total assets of the ban&ing industry.

The ban& as the third largest contributor to both industry deposits and gross loans and

advances ith ;.=E and 3.3E respectively. )GH s share of industry assets, deposits, and

loans and advances, over the last three years, are indicated belo .

3 h ttp ://w w w .p w c . com / e n_ G H /g h /pd f/g h a n a - a n !" n g -# $ % & e ' -201 0 .pd f

http://www.pwc.com/en_GH/gh/pdf/ghana-banking-survey-2010.pdf





13


Table . ? S umm ar y o f ) GH s per forman ce in Gh anaian ban&in g industr y* + * , *

Cate.or/ 0Co1tr23ut2o1

Ra1421. 0Co1tr23ut2o1

Ra1421. 0Co1tr23ut2o1

Ra1421.

Share of "ndustry!ssets ;. < 6.= < 6.6 <

Share of "ndustry(eposits

;.= 2 6.3 < 6.9 <

Share of "ndustryGross /oans and!dvances

3.3 2 3.2 < 3.6 2

o!rce: 2010 Ghana "ankin# !r$e% &e'ort iss!ed b% rice)aterho!se*oo'ers Ghana

!s a further indication of public confidence in the ban& s performance, its shares have

performed considerable ell on the Ghana Stoc& )#change since it got listed F1igure .gives an illustration of the ban& s performance on the Ghana Stoc& )#change . !nalysts also

rate )GH Buite favourably, ith $loomberg /. :. rating its short term local currency ! L and

Global Credit 5ating Company Fa reputable international rating agency rating the ban&s long

and short term credits Fe#posures !!' and ! L respectively <. These give an indication of

the soundness of its credits. "n the light of the above, " consider the ban& to be an appropriate

case for this study.

1 ig u re . ? : e r fo r man c e of ) c ob a n& G h a na / im it e d on Gh a na S toc& ) # c h a nge

o!rce: O)n constr!ction )ith data com'i+ed b% Go+d *oast ec!rities Limited

4 (efe% to )ppend"* +1 fo% , oom e%g # #c%een p%"nt of %at"ng#



14


&'* INTROD!CTION OF COM%AN$

)coban& Ghana /imited F)GH is one of the thirty one F2 subsidiaries of the )coban&

Group hich is the leading :an !frican ban&ing group in !frica. "t as incorporated under

Ghana s Companies Code on January 9, 969 as a private limited liability company to engage

in the business of ban&ing. )GH as initially licensed to operate as a merchant ban& by the

$an& of Ghana on +ovember ;, 969 but follo ing the introduction of 4niversal $an&ing

by the $an& of Ghana in 0;;2, it became the first ban& to be granted the license to do general

ban&ing business. This action cleared the ay for it to embar& on its medium term strategic

shift of moving from being a predominantly holesale ban& to one ith a retail focus. "n

June 0;;>, )GH ent public and as listed on the Ghana Stoc& )#change. The ban&

operates four F< subsidiaries? )coban& "nvestment %anagers /imited, )coban& /easing

Company /imited, )coban& 8enture Capital /imited, and )$ !ccion Savings D /oans

Company /imited. Together ith its subsidiaries, )GH provides corporate ban&ing,

investment ban&ing and retail ban&ing products and services to holesale and retail

customers in Ghana.

&'5 STATEMENT OF THE %ROBLEM

There is the general belief that the ban&ing sector in Ghana is relatively stable ith individual ban&s having healthy ris& profiles and sound ris& management frame or&s. This belief stems

from the fact that, ith the e#ception of orsening asset Buality hich is blamed on internal

macro economic factorsI the industry has not e#perienced major losses in the face of the

global financial crises. !lso, the supervisory and regulatory bodies have not found any of the

ban&s in Ghana culpable of flouting prudential arrangements aimed at protecting the interests

of clients and shareholders as as e#perienced in +igeria =.There has, ho ever, not been any

major internal test to ascertain the resilience of the ban&ing industry to ithstand majorshoc&s. So there is a vacuum bet een the general belief on the ris& position of the Ghanaian

ban&ing industry and the evidence to ban& this belief. To do this reBuires thorough

assessment of the ris& profiles of ban&s in Ghana as ell as evaluate the adeBuacy of the ris&

5 he Go&e%no% of the "ge%"a +ent%a ,an! ha&e had to #ac! d"%ecto%# and ch"ef e*ec$t"&e off"ce%#of #ome "ge%"a an!# fo% %each of p%$dent"a a%%angement# and m"#management "n add"t"on to%ecommend"ng the "n ect"on of f$nd# "nto tho#e an!# ' the cent%a an! to #afeg$a%d the "nte%e#tof c "ent# and #ha%eho de%#.



15


management frame or&s employed by the ban&s to handle the various ris&s they are e#posed

to.

&'6 OB ECTI#E OF THE ST!D$

The objectives of the study ere t o fold, hich ere to assess ?

". the ban& s ris& profile as at the end of the 0;;9 financial year. This involved an

assessment of the income statement and balance sheet to identify inherent ris&s in

their components and structure. "t also involved using various tools Fratios, charts and

tables to ascertain the level of credit and mar&et FliBuidity, interest rate, foreign

currency ris&s the ban& is e#posed to.

"". the effectiveness of the ban& s ris& management frame or& for managing credit,

mar&et and operational ris&s it is e#posed to. This involved an assessment of?

a. the strong governance structure in place,

b. the adeBuate policies, procedures, tools and s&ills,

c. the effective control measures, and

d. the information management systems to support timely and accurate

information delivery in place to manage ris&.

The assessment here also included an evaluation of the ban& s ris& management practices vis''vis current recommended standards and best practices by the $asel Committee on $an&ing

Supervision.

&'7 SIGNIFICANCE OF THE ST!D$

!n assessment of )GH s ris& management frame or& provided the state of the ban& s ability

to handle the inherent ris&s in its operations. !lso deviations from international best practices

ere also identified and alternatives recommended. The ban& s ability to deal ith significantshoc&s and avoid losses during crisis periods as also tested.

Since there is not much structural and operational difference amongst the ban&s in Ghana, it

is hoped that this study ill provide an indication of ho the ris& management landscape

loo&s li&e in Ghana s ban&ing sector. "n addition, it ill provide a guide for further studies on

ris& management in the industry.



16


&'8 SCO%E AND LIMITATION OF THE ST!D$

"n conducting a ris&'based analysis of )coban& Ghana /imited, information as mainly

gathered from financial statements and other disclosures contained in the ban& s annual

reports. "n this regard, annual reports of the last three years F0;;9, 0;;6, and 0;;3 ereconsidered to ensure consistency in the value used. This is because the ban& shifted from the

use of "nternational !ccounting Standards F"!S to "nternational 1inancial 5eporting

Standards F"15S , in conformity ith reBuirements by The "nstitute of Chartered !ccountants

FGhana , Ghana Stoc& )#change and the Securities and )#change Commission for listed

companies to prepare their financial statements for the year ended 2 st (ecember 0;;3 and

beyond. The ban& s ris& management policy manuals and other independent reports on its

financial performance as used to gather relevant information concerning the ban& s currenthealth and capacity to remain stable in the face of instability in the industry and the global

economy as a hole. Ho ever, the ban& considers most information, e#cept those contained

in the annual report and official releases, sensitive and for that matter detailed but relevant

information as not available for use. !lso, due to lac& of adeBuate comparable data on other

players in the Ghanaian ban&ing industry, the study as unable to provide a complete

picture of the performance )GH s ris& in relation to peer group trends and industry norms in

all cases. Ho ever, in cases here industry data as available comparative analysis as

underta&en.

&' ORGANISATION OF THE ST!D$

The study has been organised into si# F> chapters. Chapter *ne deals ith the introduction

of the study. "t focuses on the bac&ground, introduction of company, objectives, significance,

scope and limitation of the study. Chapter T o discusses the e#isting literature on the subject

matter. This included theoretical and empirical literature. Chapter Three provides a

frame or& Fmethodology for assessing the ban&. The assessment of the ban& s ris& profile is

presented in Chapter 1our, hiles Chapter 1ive contains the assessment of the ris&

management frame or& of the ban&. Chapter Si# includes conclusion and proposed

recommendations, based on the assessment done.



17


CHA%TER T O - LITERAT!RE RE#IE

*' INTROD!CTION

This chapter revie s the literature on ris& management in ban&ing. "t discusses issues on ris&management from different perspectives and ith the vie of giving a theoretical foundation

to the study. "t starts ith an e#position on ris& management, follo ed by revie s of

literature on the rationales and categories of ris& management activities as ell as the &inds

of ris& faced by ban&s, 8a5 as a ris& management tool, "ntegrated 5is& %anagement as the

ultimate goal for ris& management frame or&, )nterprise 5is& %anagement and the place of

Corporate Governance in ban& ris& management are also discussed in this chapter.

*'& RISK MANAGEMENT IN BANKING

5is& management is described as the performance of activities designed to minimise the

negative impact Fcost of uncertainty Fris& regarding possible losses FSchmidt and 5oth,

99; . 5edja F 996 also defines ris& management as a systematic process for the

identification and evaluation of pure loss e#posure faced by an organisation or an individual,

and for the selection and implementation of the most appropriate techniBues for treating such

e#posure. The process involves? identification, measurement, and management of the ris&.$essis F0; ; also adds that in addition to it being a process, ris& management also involves a

set of tool and models for measuring and controlling ris&.

The objectives of ris& management include to? minimise foreign e#change losses, reduce the

volatility of cash flo s, protect earnings fluctuations, increase profitability, and ensure

survival of the firm F1atemi and Glaum, 0;;; . To ensure that ban&s operate in a sound ris&

management environment, here there is reduced impact of uncertainty and potential losses,

managers need reliable ris& measures to direct capital to activities ith the best ris& re ard

ratios. They need estimates of the siAe of potential losses to stay ithin limits set through

careful internal considerations and by regulators. They also need mechanisms to monitor

positions and create incentives for prudent ris& ta&ing by divisions and individuals.

!ccording to :yle F 993 , ris& management is the process by hich managers satisfy these

needs by indentifying &ey ris&s, obtaining consistent, understandable, operational ris&

measures, choosing hich ris&s to reduce, hich to increase and by hat means, and



18


establishing procedures to monitor resulting ris& positions. $essis F0; ; indicates that the

goal of ris& management is to measure ris&s in order to monitor and control them, and also

enable it to serve other important functions in a ban& in addition to its direct financial

function. These include assisting in the implementation of the ban& s ultimate strategy by

providing it ith a better vie of the future and therefore defining appropriate business

policy and assisting in developing competitive advantages through the calculation of

appropriate pricing and the formulation of other differentiation strategies based on customers

ris& profiles.

!ccording to Santomero F 99= , the management of the ban&ing firm relies on a seBuence of

steps to implement a ris& management system. These normally contain four parts hich are

standards and reports, position limits or rules, investment guidelines or strategies, incentive

contracts and compensation. These tools are generally established to measure e#posure,

define procedures to manage these e#posures, limit individual positions to acceptable levels,

and encourage decision ma&ers to manage ris& in a manner that is consistent ith the firmMs

goals and objectives.

*'* RATIONALES FOR RISK MANAGEMENT IN BANKING

The main aim of management of ban&s is to ma#imise e#pected profits ta&ing into account itsvariability volatility Fris& . This calls for an active management of the volatility Fris& in order

to get the desired results. 5is& management is therefore an attempt to reduce the volatility of

profit hich has the potential of lo ering the value of shareholders ealth. 8arious authors

including StulA F 96< , Smith et al F 99; and 1root et al F 992 have offered reasons hy

managers should concern themselves ith the active management of ris&s in their

organisations.

!ccording to *ldfield and Santomero F 99= , recent revie of the literature presents four

main rationales for ris& management. These include managers self interest of protecting their

position and ealth in the firm. "t is argued that due to their limited ability to diversify their

investments in their o n firms, they are ris& averse and prefer stability of the firm s earnings

to volatility because, all things being eBual, such stability improves their o n utility. $eyond

managerial motives, the desire to ensure the shouldering of lo er ta# burden is another

rationale for managers to see& for reduced volatility of profits through ris& management.



19


ith progressive ta# schedules, the e#pected ta# burden are reduced hen income smoothens

therefore activities hich reduce the volatility of reported ta#able income are pursued as they

help enhance shareholders value.

:erhaps the most compelling rationale for managers to engage in ris& management ith the

aim of reducing the variability of profits is the cost of possible financial distress. Significant

loss of earnings can lead to sta&eholders losing confidence in the firm s operations, loss of

strategic position in the industry, ithdra al of license or charter and even ban&ruptcy. The

costs associated ith these ill cause managers to avoid them by embar&ing on activities that

ill help avoid lo realisations. 1inally, ris& management is pursued because firms ant to

avoid lo profits hich force them to see& e#ternal investment opportunities. hen this

happens, it results in suboptimal investments and hence lo er e#pected shareholders value

since the cost of such e#ternal finance is higher than the internal funds due to capital mar&et

imperfections. This undesirable outcome encourages managers to actively embar& upon

volatility reducing strategies, hich have the effect of reducing the variability of earnings. "t

is believed that any of the above mentioned rationales is sufficient to motivate management

to concern itself ith ris& and embar& upon a careful assessment of both the level of ris&

associated ith any financial product and potential ris& mitigation techniBues.

*'5 CATEGORIES OF RISK MANAGEMENT

!s %erton F 969 noted, a &ey feature of the franchise of financial institutions Fincluding

ban&s is the bundling and unbundling of ris&s. Ho ever, not all ris&s inherent in their

business should be borne directly by themI some can be traded or transferred hiles others

can be eliminated altogether. "t is therefore useful to defragment the ris&s inherent in their

activities and assets into three distinctive subgroups in accordance ith their nature so that

the appropriate strategies can be adapted to mitigate them. *ldfield and Santomero F 99=argue therefore that ris& facing financial institutions can be segmented into three separable

categories from a management perspective. These are ris&s that can be eliminated or avoided

by simple business practices, ris&s that can be transferred to other participants, and ris& that

must be actively managed at the firm level.

!voiding ris& altogether by business practices has the goal of ridding the ban& of ris&s that

are not essential to the services provided or absorbing on the optimal Buantity of a particular



20


&ind of ris&. This is done by engaging in actions such as under riting standards,

diversification, hedging, reinsurance and due diligence investigation to reduce the chances of

idiosyncratic losses by eliminating ris&s that are superfluous to the ban& s business purpose.

!fter this is done, hat ill be left is some portion of systematic and operational ris&s hich

should be minimised to the greatest e#tent possible and their level and costs communicated to

sta&eholders. This is because an attempt to aggressively avoid these ris&s ill constrain ris&s

alright but ill also reduce the profitability of the business activity. Some ris&s can also be

transferred by the ban&, hen there is no value'added or competitive advantage associated

ith absorbing and or managing them, to other parties ho are in better positions to manage

and benefit from them. There is yet another class of ris&s hich should be adsorbed and

aggressively managed at the originating ban& level because good reasons e#ist for using

further resources to manage them. Some activities hose inherent ris&s have to be managed

by the ban& include those here the nature of the embedded ris& may be comple# and

difficult to reveal to non'firm interests. 1or instance, ban&s holding comple# illiBuid and

proprietary assets may find communicating the nature of such assets more difficult or

e#pensive than hedging the underlying ris& >. %oreover, revealing information about

customers or clients may give competitors an undue advantage. "nternal management of some

ris&s may also be necessary because it is central to the ban& s business purpose because they

are the raison d Ntre of the firm. This includes propriety positions that are accepted because of

their ris&s and e#pected return. "n all these circumstances hen ris& is absorbed, ris&

management activity reBuires the monitoring of business activity ris& and returns and it is

considered as part of doing business. "n effect, ban&s should accept only those ris&s that are

uniBuely a part of the ban& s array of uniBue value'added services F!llen D Santomero, 99>,

*ldfield D Santomero, 99= .

*'6 KE$ BANK RISKS

The ris&s associated ith the provision of ban&ing services differ by the type of service

rendered. (ifferent authors have grouped these ris&s in various ays to develop the

frame or&s for their analyses but the common ones hich are considered in this study are

credit ris&, mar&et ris&s F hich includes liBuidity ris&, interest rate ris& and foreign e#change

ris& , operational ris&s hich sometimes include legal ris&, and more recently, strategic ris&.

6This point has been made in a different conte#t by both Santomero and Trester F 993 and $erger and 4dell

F 992





22


controlled. There are typically three &inds of policies related to credit ris& management. The

first set aims to limit or reduce credit ris&, hich include policies on concentration and large

e#posures, diversification, lending to connected parties, and overe#posure. The second set

aims at classifying assets by mandating periodic evaluation of the collectability of the

portfolio of credit instruments. The third set of policies aims to ma&e provision for loss or

ma&e allo ances at a level adeBuate to absorb anticipated loss.

0.<.0 %ar&et 5 is&s

%ar&et ris& is generally considered as the ris& that the value of a portfolio, either an

investment portfolio or a trading portfolio, ill decrease due to the change in value of the

mar&et ris& factors. :yle F 993 defines mar&et ris& as the change in net asset value due to

changes in underlying economic factors such as interest rates, e#change rates, and eBuity and

commodity prices. There are three common mar&et ris& factors to ban&s and these are

liBuidity, interest rates and foreign e#change rates.

2. .2.1 Li !idit% &isk

Greuning and $ratanovic F0;;9 , indicate that a ban& faces liBuidity ris& hen it does not

have the ability to efficiently accommodate the redemption of deposits and other liabilities

and to cover funding increases in the loan and investment portfolio. These authors go further

to posit that a ban& has adeBuate liBuidity potential hen it can obtain needed funds Fby

increasing liabilities, securitising, or selling assets promptly and at a reasonable cost. The

$asel Committee on $an& Supervision, in its June 0;;6 consultative paper, defined liBuidity

as the ability of a ban& to fund increases in assets and meet obligations as they become due,

ithout incurring unacceptable losses.

$essis F0; ; ho ever considers liBuidity ris& from three distinct situations. The first angle ishere the ban& has difficulties in raising funds at a reasonable cost due to conditions relating

to transaction volumes, level of interest rates and their fluctuations and the difficulties in

finding a counterparty. The second angle loo&s at liBuidity as a safety cushion hich helps to

gain time under difficult situations. "n this case, liBuidity ris& is defined as a situation here

short'term asset values are not sufficient to match short term liabilities or une#pected

outflo s. The final angle from here liBuidity ris& is considered as the e#treme situation.

Such a situation can arise from instances of large losses hich creates liBuidity issues and



23


doubts on the future of the ban&. Such doubts can result in massive ithdra al of funds or

closing of credit lines by other institutions hich try to protect themselves against a possible

default. $oth can generate a brutal liBuidity crisis hich possibly ends in ban&ruptcy.

/iBuidity is necessary for ban&s to compensate for e#pected and une#pected balance sheet

fluctuations and to provide funds for gro th FGreuning and $ratanovic, 0;;9 . Santomero

F 99= ho ever, posits that hile some ould include the need to plan for gro th and

une#pected e#pansion of credit, the ris& here should be seen more correctly as the potential

for funding crisis. Such a situation ould inevitably be associated ith an une#pected event,

such as a large charge off, loss of confidence, or a crisis of national proportion such as a

currency crisis. )ffective liBuidity ris& management therefore helps ensure a ban&Ms ability to

meet cash flo obligations, hich are uncertain as they are affected by e#ternal events and

other agentsM behaviour.

The $asel Committee on $an& Supervision consultative paper FJune 0;;6 asserts that the

fundamental role of ban&s in the maturity transformation of short'term deposits into long'

term loans ma&es ban&s inherently vulnerable to liBuidity ris&, both of an institution'specific

nature and that hich affects mar&ets as a hole. ! liBuidity shortfall at a single ban& can

have system' ide repercussions and hence liBuidity ris& management is of paramount

importance to both the regulators and the industry players. The price of liBuidity is ho ever a

function of mar&et conditions and the mar&et s perception of the inherent ris&ness of the

borro ing institution FGreuning and $ratanovic, 0;;9 . So if there is a national crisis such as

acute currency shortage or decline, or perception of the ban& s credit standings deteriorates,

or fundraising by the ban& becomes suddenly important and recurrent or has une#pected

fluctuation, funding becomes more costly. 1inancial mar&et developments in the past decade

have increased the comple#ity of liBuidity ris& and its management.

2. .2.2 nterest &ate &isk

"n general, interest rate ris& is the potential for changes in interest rates to reduce a ban& s

earnings or value. %ost of the loans and receivables of the balance sheet of ban&s and term or

saving deposits, generate revenues and costs that are driven by interest rates and since interest

rates are unstable, so are such earnings. Though interest rate ris& is obvious for borro ers and

lenders ith variable rates, those engaged in fi#ed rate transactions are not e#empt from



24


interest rate ris&s because of the opportunity cost that arises from mar&et movements F$essis,

0; ; . !ccording to Greuning and $ratanovic F0;;9 , the combination of a volatile interest

rate environment, deregulation, and a gro ing array of on and off'balance'sheet products

have made the management of interest rate ris& a gro ing challenge. !t the same time,

informed use of interest rate derivativesO such as financial futures and interest rate s apsO

can help ban&s manage and reduce the interest rate e#posure that is inherent in their business.

$an& regulators and supervisors therefore place great emphasis on the evaluation of ban&

interest rate ris& management, particularly since the $asel Committee recommends the

implementation of mar&et ris&P based capital charges.

Greuning and $ratanovic F0;;9 posits that ban&s encounter interest rate ris& from four main

sources namely repricing ris&, yield curve ris&, basis ris&, and optionality. The primary and

most often discussed source of interest rate ris& stems from timing differences in the maturity

of fi#ed rates and the repricing of the floating rates of ban& assets, liabilities, and off'balance

sheet positions. The basic tool used for measuring repricing ris& is duration, hich assumes a

parallel shift in the yield curve. !lso, repricing mismatches e#pose a ban& to ris& deriving

from changes in the slope and shape of the yield curve Fnonparallel shifts . Yield curve ris&

materialises hen yield curve shifts adversely affect a ban& s income or underlying economic

value. !nother important source of interest rate ris& is basis ris&, hich arises from imperfectcorrelation in the adjustment of the rates earned and paid on different instruments ith

other ise similar repricing characteristics. hen interest rates change, these differences can

give rise to une#pected changes in the cash flo s and earnings spread among assets,

liabilities, and off'balance'sheet instruments of similar maturities or repricing freBuencies

F right and Houpt, 99> .

!n increasingly important source of interest rate ris& stems from the options embedded in

many ban& asset, liability, and off'balance'sheet portfolios. "f not adeBuately managed,

options can pose significant ris& to a ban&ing institution because the options held by

customers, both e#plicit and embedded, are generally e#ercised at the advantage of the holder

and to the disadvantage of the ban&. %oreover, an increasing array of options can involve

significant leverage, hich can magnify the influences Fboth negative and positive of option

positions on the financial condition of a ban&. $roadly spea&ing, interest rate ris&

management comprises various policies, actions and techniBues that a ban& uses to reduce the

ris& of diminution of its net eBuity as a result of adverse changes in interest rates from any of



25


the sources mentioned above. 5is& factors related to interest rate ris& are estimated in each

currency in hich a ban& has interest'rate'sensitive on and off'balance sheet positions. Since

interest rate ris& can have adverse effects on both a ban& s earning and its economic value, an

approach hich focuses on the impact of interest rate changes on a ban& s net interest income

is combined ith another hich ta&es a more comprehensive vie of the potential long'term

effects of such interest rates changes on its economic value is used to assess the interest ris&

e#posure.

2. .2./ orei#n E chan#e &isk

$essis F0; ; defines foreign e#change ris& as incurring losses due to changes in e#change

rates. Such loss of earnings may occur due to a mismatch bet een the value of assets and that

of capital and liabilities denominated in foreign currencies or a mismatch bet een foreign

receivables and foreign payables that are e#pressed in domestic currency. !ccording to

Greuning and $ratanovic F0;;9 , foreign e#change ris& is speculative and can therefore result

in a gain or a loss, depending on the direction of e#change rate shifts and hether a ban& is

net long or net short Fsurplus or deficit in the foreign currency. "n principle, the fluctuations

in the value of domestic currency that create currency ris& result from long'term

macroeconomic factors such as changes in foreign and domestic interest rates and the volume

and direction of a country s trade and capital flo s. Short'term factors, such as e#pected or

une#pected political events, changed e#pectations on the part of mar&et participants, or

speculation based currency trading may also give rise to foreign e#change changes. !ll these

factors can affect the supply and demand for a currency and therefore the day'to'day

movements of the e#change rate in currency mar&ets. 1oreign e#change ris& is generally

considered to comprise of transaction ris&, economic ris& and revaluation ris&.

Transaction ris& is the price'based impact of e#change rate changes on foreign receivablesand foreign payables, that is, the difference in price at hich they are collected or paid and

the price at hich they are recognised in local currency in the financial statements of a ban&

or corporate entity. !lternatively &no n as business ris&, economic ris& relates to the impact

of e#change rate changes on a country s long'term or a company s competitive position. ith

increasing globalisation, capital moves Buic&ly to ta&e advantage of changes in e#change

rates and therefore devaluations of foreign currencies can lead to increased competition in

both overseas and domestic mar&ets. This phenomenon ma&es this component of foreign



26


e#change ris& very critical for its management. The third component, revaluation or

translation ris& arises hen a ban& s foreign currency positions are revalued in domestic

currency, and hen a parent institution conducts financial reporting or periodic consolidation

of financial statements. $an&s conducting foreign e#change operations are also e#posed to

foreign e#change ris& in forms of credit ris&s such as the default of the counterparty to a

foreign e#change contract and time'Aone'related settlement ris&.

0.<.2 *perati onal 5 is&

The $asel !ccord F0;;3 defines operational ris& as the ris& of direct or indirect loss

resulting from inadeBuate or failed internal processes, people and systems or from e#ternal

events. %alfunctions of the information systems, reporting systems, internal monitoring rules

and internal procedures designed to ta&e timely corrective actions, or the compliance ith the

internal ris& policy rules result in operational ris&s F$essis, 0; ; . *perational ris&s,

therefore, appear at different levels, such as human errors, processes, and technical and

information technology. $ecause operational ris& is an Kevent ris& ‖ , in the absence of an

efficient trac&ing and reporting of ris&s, some important ris&s ill be ignored, there ill be

no trigger for corrective action and this can result in disastrous conseBuences. (evelopments

in modern ban&ing environment, such as increased reliance on sophisticated technology,

e#panding retail operations, gro ing e'commerce, outsourcing of functions and activities,

and greater use of structured finance Fderivative techniBues that claim to reduce credit and

mar&et ris& have contributed to higher levels of operational ris& in ban&s (Greuning and

$ratanovic, 0;;9 '

The recognition of the above'mentioned contributory factor in operational ris& has led to an

increased attention on the development of sound operational ris& management systems by

ban&s ith the initiative being ta&en by the $asel Committee on $an&ing Supervision. TheCommittee addressed operational ris& in its Core :rinciples for )ffective $an&ing

Supervision F 993 by reBuiring supervisors to ensure that ban&s have ris& management

policies and processes to identify, assess, monitor, and control or mitigate operational ris&. "n

its 0;;2 document, Sound :ractices for the %anagement and Supervision of *perational

5is&, the Committee further provided guidance to ban&s for managing operational ris&, in

anticipation of the implementation of the $asel "" !ccord, hich reBuires a capital allocation

for operational ris&s. (espite all these efforts by the regulators at addressing operational ris&,



27


practical challenges e#ist hen it comes to its management. "n the first place, it is difficult to

establish universally applicable causes or ris& factors hich can be used to develop standard

tools and systems of its management since the events are largely internal to individual ban&s.

%oreover, the magnitude of potential losses from specific ris& factors is often not easy to

project. /astly, it is difficult designing an effective mechanism for systematic reporting of

trends in a ban& s operational ris&s because very large operational losses are rare or isolated.

$ecause of the data and methodological challenges raised by operational ris&, the first stage

of developing an effective frame or& to manage it is to set up a common classification of

loss events that should serve as a receptacle for data gathering process on event freBuency

and costs. The data gathered is then analysed Fris& mapping ith various statistical

techniBues such as graphical representation of the probability and severity of ris&s. This helpsto find the lin&s bet een various operational ris&s. The process then ends ith some

estimates of orst'case losses due to events ris&s. %odelling of loss distributions due to

operational ris&s ill enable the right capital charges to be made for operational ris& as

reBuired by current regulations F$essis, 0; ; . "n order for the objectives of setting up an

operational ris& management frame or& to be accomplished, it may reBuire a change in the

behaviour and culture of the firm. %anagement must also not only ensure compliance ith

the operational ris& policies established by the board, but also report regularly to seniore#ecutives. ! certain amount of self'assessment of the controls in place to manage and

mitigate operational ris& ill be helpful.

0.<.< S trategic 5is&

hile financial ris& and credit ris& in ban&ing have been rigorously e#plored, the ris&

management implications of many corporate strategies and the e#ternal mar&et and industry

uncertainties have received relatively little attention F%iller, 990 . Sly otA&y and (rAi&F0;;= , define strategic ris& as the array of e#ternal events and trends that can devastate a

company s gro th trajectory and shareholder value. hiles these t o authors consider

strategic ris& as a sole conseBuence of e#ternal occurrences, other authors loo& at strategic

ris& as the current and prospective impact on earnings and or capital arising from internal

business activities such as adverse business decisions, improper implementation of decisions,

or lac& of responsiveness to industry changes. They therefore consider strategic ris& as a

function of the compatibility of an organisation s strategic goals, the business strategies



28


developed to achieve those goals, the resources deployed against these goals, and the Buality

of implementation. )mblemsvQg and -jRlstad F0;;0 , also define strategic ris& as ris& hich

arises as a firm pursues its business objectives either by e#ploiting opportunities and or

reducing threats. hich ever ay this is considered, strategic ris& encompasses a variety of

uncertainties hich are not financial in nature, but rather credit or operational related caused

by macro'economic factors, industry trends or lapses in a firm s strategic choices hich

affects the firm s earnings and shareholders value adversely. Strategic ris&s often constitute

some of a firm s biggest e#posures and therefore can be a more serious cause of value

destruction. 4nfortunately, as strategic ris&s are often highly unpredictable and of different

forms, managers have also not yet been able to systematically develop tools and techniBues to

address them FSly otA&y and (rAi&, 0;;= . This is because the more formalised ris&

management approaches often remain focused on identifiable e#posures and thus less suitable

to deal ith many of the une#pected economic and strategic events that characterise

contemporary business environment in hich strategic ris&s are embedded. Sly otA&y and

(rAi& F0;;= attempted to identify significant events hich contribute to strategic ris& and

categorised them into seven main classes. These include industry margin sBueeAe, threat of

technology shift hich has the possibility of driving some products and services out of the

mar&et, brand erosion, emergence of one'of'a'&ind competitor to seiAe the lion share of value

in the mar&et, customer priority shift, ne project failure and mar&et stagnation. The idea

as to provide a frame or& for assessing a company s strategic ris&s and develop counter

measures to address them. The authors intimate that the &ey to surviving strategic ris&s isI

&no ing ho to assess and respond to them and therefore devoting resources to it. They also

advice management to adjust their capital allocation decisions by applying a higher cost of

capital to ris&ier projects and to build greater fle#ibility into their capital structure hen faced

ith ris&ier competitive environments.

Ho these ris&s can be managed is determined by the organisational characteristics P the

strengths and ea&nesses. They include communication channels, operating systems,

delivery net or&s, and managerial capacities and capabilities. The organisation s internal

characteristics must be evaluated against the impact of economic, technological, competitive,

regulatory, and other environmental changes. !n effective strategic ris& management

approach should embrace both the upside and do nside of ris&. "t should see& to counter all

losses, both from accidents and from unfortunate business judgments, and seiAe opportunities



29


for gains through organisational innovation and gro th. SeiAing upside ris& involves

searching for opportunities and developing plans to act on these opportunities hen the future

presents them. Countering do nside ris& on the other hand is done by reducing the possibility

of occurring Fprobability and scope Fmagnitude of lossesI and financing recovery from these

losses FHerman and Head, 0;;0 . $easley and 1rigo F0;;3 posit that the first step in strategic

ris& management is finding a ay to systematically evaluate a company s strategic business

ris&. Thus, strategic ris& management begins by identifying and evaluating ho a ide range

of possible events and scenarios ill impact a business s strategy e#ecution, including the

ultimate impact on the valuation of the company.

$efore management can effectively manage ris&s that might be identified by various scenario

analyses, they need to define an overriding ris& management goal. Stephen Gates F0;;> 3

argues that due to the comple#ity of the concept of strategic ris&, no single Buantitative

measure ill prove satisfactory in all strategic situations. $ecause of the uniBueness of the set

of strategic ris& faced by every each financial institution, regulators have not been able to

develop general guidelines for all the institutions for managing strategic ris&. Some

consultants and scholars have come out ith some recommendations and guidelines for

managing strategic ris&. *ne such guide is by Sly otA&y and (rAi& F0;;= . $uilding a

rigorous strategic ris& management frame or& reBuires an institution to re'e#amine both itsinternal practices and its e#ternal environment, and to understand ho closely the t o are

connected. "n other ords, e#ternal factors have an impact on internal practices, but those

internal practices, due to the interconnectivity of financial mar&ets can in turn have an

impact on ho the institution is vie ed e#ternally''and even have an impact on the

mar&etplace in general FGovernor -rosAner, *ctober 0;;6 6.

*'7 #AR: A TOOL FOR MEAS!RING MARKET RISKS

Jorion F0;;3 defines 8a5 intuitively as a summary of the orst loss over a target horiAon

that ould be e#ceeded ith a given level of confidence. "t estimates the ma#imum potential

3 "n an article published in the 1all 0;;> edition of the Journal of !pplied Corporate 1inance

6 He made this point in a speech he delivered at an !nnual 5is& %anagement Conference of 5is& %anagement!ssociation $altimore, %aryland *ctober, 0;;6 on the topic Strategic 5is& %anagement in an "nterconnected

orld



30


loss that may be incurred on a position at a given horiAon and level of confidence. Greuning

and $ratanovic F0;;9 refer to it as a modelling techniBue that typically measures a ban& s

aggregate mar&et ris& e#posure and, given a probability level, estimates the amount a ban&

ould lose if it ere to hold specific assets for a certain period of time. "t is a for ard'

loo&ing method that e#presses financial mar&et ris& in a form that anybody can understand,

namely currency. "t measures the predicted orst loss Fma#imum movement of the yield

cure , over a target horiAon Ffor e#ample, ; days, hich provides the benefit of early

detection , ithin a given confidence level F99 percent is the level chosen by the $asel

Committee . 8a5'based models cover a number of mar&et ris&s, the ban& is able to fine'tune

its portfolio structure, dra ing on a range of options for portfolio diversification to reduce the

ris& to hich it is e#posed and the associated capital reBuirements. The ell'&no n

proprietary models that use 8a5 approaches are J: %organ s 5is& metrics, $an&er s trust

5is& !djusted 5eturn on Capital, and Chase s 8alue at ris&. "nputs to a 8a5'based model

include data on the ban& s positions and on prices, volatility, and ris& factors.

8a5'based models combine the potential change in the value of each position that ould

result from specific movements in underlying ris& factors ith the probability of such

movements occurring. The changes in value are aggregated at the level of trading boo&

segments and across all trading activities and mar&ets. The 8a5 amount may be calculatedusing one of a number of methodologies hich are the historical simulation approach, the

delta'normal or variance covariance methodology and the %onte Carlo simulation method.

!ccording to the $asel Committee on $an&ing Supervision, the disclosure reBuirements for

each portfolio 9 should include 8a5 calculations, bro&en do n by type of ris& or asset class

and in the aggregate, estimated for one'day and t o' ee& holding periods, and reported in

terms of high, medium, and lo values over the reporting interval and at period end. !lso

there should be information about ris& and return in the aggregate, including a comparison ofris& estimates ith actual outcomes. 1urther, there should be Bualitative discussions to assist

ith a comparison of the : / to 8a5, including a description of differences bet een the basis

of the : / and the basis of the 8a5 estimates, and Buantitative measure of firm' ide

e#posure to mar&et ris&, bro&en do n by type of ris&, that in the ban& s judgment best

9

Contained in the $asel Committee on $an&ing Supervision or&ing :aper on :illar 2P %ar&et (isciplineF0;;



31


e#presses e#posure to ris&, reported in terms of high, medium, and lo values over the

reporting period and at period end.

8a5 numbers should be aggregated on a simple'sum basis across ris& factor categories,

ta&ing into consideration cross correlations ithin each category. The $asel Committee

mar&et ris& capital standard also reBuires that the 8a5 be computed daily and the mar&et

ris&P related capital reBuirements met on a daily basis. The capital reBuirement is e#pressed

as the higher of the previous day s 8a5 and the average of the daily 8a5 measures for each

of the last >; business days. This is then multiplied by an additional factor designated by

national supervisory authorities and related to the Buality of a ban& s ris& management

system. 8a5 faces some limitations based on the fact that it assumes that historical

e#periences may be repeated in future. "t should therefore be used as one tool in an integrated

set of toolsO and not as the only measure of a portfolio s e#posure.

*'8 INTEGRATED RISK MANAGEMENT: AN !LTIMATE GOAL OF AFOR ARD-LOOKING RISK MANAGEMENT FRAME ORK

(e/oach F0;;; argues that ris& management must be integrated ith business planning and

strategic management so that it becomes ine#tricably lin&ed to those processes. ! report by

the Joint 1orum s or&ing Group of the $asel Committee on $an&ing Supervision in 0;;2,reveals that there is greater emphasis on the management of ris& on an integrated firm' ide

basis, and related efforts to Kaggrega te ‖ ris&s faced by firms in the financial sector. The

or&ing Group believes that these trends stem from the interest of firms in understanding

better the variety of ris&s that they faceI thereby enabling them to determine more accurately

the amount of capital they need to operate their businesses. "t is also clear that the passage of

Sarbanes'*#ley in 0;;0 and the ave of scandals that prompted it, have heightened the need

for an integrated approach to managing ris& in organisations to survive in the current volatile

business environment and accommodate the rapid changing ris& profiles. !ndersen F0;;9

also agues that recent financial management practices, here aggregate mar&et e#posures of

different geographically dispersed assets are typically e#pressed in a single value'at'ris&

metric derived from analyses of co'variation in asset returns, inspires for a more integrated

perspective to ris& management. "t is further noted that environmental haAards, mar&et'related

vulnerability and operational disruptions can interact even though these ris&s are handled by

specialised functional departments F!ndersen and Terp, 0;;> . "n fact, studies reveal that



32


about 6;E of the companies ith the largest losses in recent times had been hit by t o or

more ris&s that ere interrelated, thus revealing the need for a ris& management function that

transcends corporate silos and the resulting compartmentalisation of ris&s F1unston, 0;;< ; .

%eulbroe& F0;;0 argues that integrated ris& management has only recently become a

practical possibility, because of the enormous improvements in information and

communication technologies, and sophisticated and globally'tested legal and accounting

infrastructure to support the use of contractual agreements on large scale and at lo cost.

%eulbroe& F0;;0 defines integrated ris& management as the identification and assessment of

the collective ris&s that affect firm value, and the implementation of a firm' ide strategy to

manage those ris&s. The Joint 1orum s or&ing Group argues that an integrated ris&

management system see&s to have in place management policies and procedures that are

designed to help ensure an a areness of, and accountability for, the ris&s ta&en throughout

the financial firm, and also to develop the tools needed to address those ris&s. ! &ey objective

is to ensure that the firm does not ignore any material source of ris&. "t is considered to be

strategic instead of tactical by loo&ing at ho ris&s affect the value of the entire firm. hat

integrated ris& management provides is a systematic ay of thin&ing about ris& and

identifying its multi'dimensional effects on the firm, coupled ith a frame or& for deciding

upon the best strategy for implementation. "t provides managers ith the opportunity of benefiting from ne insights into the interplay among different types of ris& and traditional

financial decision areas, connections easily missed ithout a comprehensive frame or&

F%eulbroe&, 0;;0 . 1rom a decision'ma&ing perspective, integrated ris& management

typically involves the establishment of hierarchical limit systems and ris& management

committees to help determine ho to set and allocate such limits.

!ccording to 5osenberg and Schuermann F0;;= , the goal of integrated ris& management in a

ban& is to measure and manage ris& and capital across a diverse range of activities in the ban&

hich reBuires an approach for aggregating different ris& types in the ban&. To help

accomplish this, many ban&s have increased the share of their resources devoted to ris&

management activities to strengthen its dedicated ris& management function. %any ban&s

have also invested considerably in centralised information systems to help &eep trac& of ris&s

; 5. 1unston, K!voiding the 8alue -illers, ‖ Treas!r% and &isk Mana#ement , !pril, 0;;<, p. .

*f the $asel Committee on $an&ing Supervision in their 0;;2 report on Trends in ris& integration andaggregation



33


ithin the ban&. $ut it is orth noting that an integrated ris& management process does not

necessarily imply a centralised ris& management structure. 5ather, the &ey characteristic of

the integrated ris& management process is simply that it see&s to ensure that the firm

appropriately considers and evaluates all material ris&s. !s mentioned earlier in %eulbroe& s

definition, integrated ris& management also involves the aggregation of all the ris&s faced by

the firm. "t evaluates the firm s total ris& e#posure, instead of a partial evaluation of each ris&

in isolation, because it is the total ris& of the firm hich typically Kmatters ‖ to the

assessment of the firm s value and of its ability to fulfil its contractual obligations in the

future. 1urthermore, by aggregating ris&s, some individual ris&s ithin the firm ill partially

or completely offset each other thereby reducing the total e#pense of hedging or other ise

managing those ris&s.

The Joint 1orum s or&ing Group of the $asel Committee on $an&ing Supervision broadly

refers to ris& aggregation as efforts by firms to develop Buantitative ris& measures that

incorporate multiple types or sources of ris&. The most common approach is to estimate the

amount of Keconomic capital ‖ that a firm believes is necessary to absorb potential losses

associated ith each of the included ris&s. This is typically accomplished via mathematical or

statistical techniBues designed to assess the li&elihood of potential adverse outcomes,

although the use of specific stress scenarios is also relatively common. !ggregation of ris&sresults in diversification benefits to the firm due to imperfect correlations in the ris&s faced

by the firm. Total ris& becomes lesser and the capital reBuired to safely operate is also lesser

than ould other ise be the case if ris&s ere not aggregated. The evolution in approaches to

ris& integration and ris& aggregation by firms reflects supervisory and regulatory initiatives

and also provides an impetus for continued advances in supervisory and regulatory

approaches.

0.>. )nterprise 5i s& %ana ge ment? ! useful tool for int egr ati ng ris&s

"n recent times there has been an increased attention to ris& management at the enterprise

level and this can be lin&ed to a number of policy decisions F$easley et al, 0;;= . !s

mentioned earlier, regulators, board audit committees, rating agencies, and shareholders are

all becoming interested in having an integrated corporate ris& management approach to

managing ris& in order to account for all firms ris&s, their interrelations ith each other and

their combined effect on firms. Standard and :oor s for instance has introduced )nterprise



34


5is& %anagement analysis into its global corporate credit rating process beginning ith the

third Buarter of 0;;6 FStandard and :oor s, %ay 0;;6 . "t is in this light that )nterprise 5is&

%anagement F)5% has subseBuently emerged as an increasingly popular strategy that

attempts to holistically evaluate and manage all of the ris&s faced by the firm. )5% uses the

firm s ris& appetite to determine hich ris&s should be accepted and hich should be

mitigated or avoided. (e/oach F0;;; describes )5% as a Kstructured and disciplined

approach? it aligns strategy, process, people, technology and &no ledge ith the purpose of

evaluating and managing the uncertainties the enterprise faces as it creates value. "t means

just that? an elimination of functional, departmental or cultural barriers. "t is a truly holistic,

integrated, for ard'loo&ing and process oriented approach to managing all &inds of business

ris&s and opportunities P not just financial ones P ith the intent of ma#imising shareholder

value for the enterprise as a hole ‖ .

The Committee of Sponsoring *rganisations of the Tread ay Commission FC*S* report on

enterprise ris& management F)5% in 0;;< defines it as Ka process, effected by an entity s

board of directors, management and other personnel, applied in strategy setting and across the

enterprise, designed to identify potential events that may affect the entity, and manage ris& to

be ithin its ris& appetite, to provide reasonable assurance regarding the achievement of

entity objectives ‖ . The report posits that the underlying premise of )5% is that everyentity e#ists to provide value for its sta&eholders. )5% enables management to

effectively deal ith uncertainty and associated ris& and opportunity, enhancing the capacity

to build value. )5% is able to do this because it assists in aligning ris& appetite and strategy,

enhancing ris& response decisions, reducing operational surprises and losses, identifying and

managing multiple and cross'enterprise ris&s, seiAing opportunities and improving

deployment of capital. These capabilities inherent in )5% help management

achieve the entity s performance and profitability targets and prevent loss of resources.)nterprise ris& management helps ensure effective reporting and compliance ith la s and

regulations, and helps avoid damage to the entity s reputation and associated conseBuences.

"n sum, enterprise ris& management helps an entity get to here it ants to go and avoid

pitfalls and surprises along the ay.



35


*' THE %LACE OF COR%ORATE GO#ERNANCE IN THE MANAGEMENTOF BANK RISKS

The importance of corporate governance has captured the attention of both national

authorities as ell as institutions engaged in international trade, and financial flo s.Corporate governance is also essential to protecting the stability of international mar&ets such

as the *rganisation for )conomic Co'operation and (evelopment F*)C( , the $an& for

"nternational Settlements F$"S , the "nternational %onetary 1und F"%1 , and the orld $an&.

Several factors can be attributed to this increased attention. These include the gro th of

institutional investors such as pension funds, insurance companies, mutual funds, and highly

leveraged institutions and their role in the financial sector. "n addition, the idely articulated

concerns and criticism that the contemporary monitoring and control of publicly held

corporations are seriously defective, leading to suboptimal economic and social development,

is also a factor to consider. 1urther, the shift a ay from a traditional vie of corporate

governance as centred on Kshareholder value ‖ in favour of a corporate governance

structure e#tended to a ide circle of sta&eholders and the impact of increased

globalisation of financial mar&ets, a global trend to ard deregulation of financial sectors, and

liberalisation of institutional investors activities, all account for the gro ing importance of

corporate governance FGreuning and $ratanovic, 0;;9 .

!ccording to Greuning and $ratanovic F0;;9 , corporate governance relates to the manner in

hich the business of the ban& is governed. "t is defined by a set of relationships bet een the

ban& s management, board, shareholders, and other sta&eholders. This includes setting

corporate objectives and a ban& s ris& profile, aligning corporate activities and behaviours

ith the e#pectation that management ill operate the ban& in a safe and sound manner,

running day'to'day operations ithin an established ris& profile and in compliance ith

applicable la s and regulations, hile protecting the interests of depositors and othersta&eholders. !n effective governance practice in the ban&ing system helps maintain public

trust and confidence in the ban&ing system. "t is also said to create an enabling environment

that re ards ban&ing efficiency, mitigates financial ris&s, and increases systemic stability.

Cost of capital tends to be lo er hen corporate governance is perceived to be good as it

conveys a sense of lo er ris& that translates into shareholders readiness to accept lo er

returns. Good corporate governance has been proven to improve operational performance and

reduce the ris&s of contagion from financial distress. $esides mitigating the internal ris& of



36


distress by positively affecting investors perception of ris& and their readiness to e#tend

funding, good governance increases the firms robustness and resilience to e#ternal shoc&s.

Greuning and $ratanovic F0;;9 also posit that the &ey elements of a sound corporate

governance frame or& in a ban& include a ell articulated corporate strategy against hich

the overall success and the contribution of individuals can be measured. "t also includes

setting and enforcing clear assignment of responsibilities, decision ma&ing authority, and

accountabilities appropriate for the ban& s selected ris& profile and a strong financial ris&

management function Findependent of business lines , adeBuate internal control systems

Fincluding internal and e#ternal audit functions , and functional process design ith the

necessary chec&s and balances. "t also consists of adeBuate corporate values, codes of

conduct, and other standards of appropriate behavior and effective systems used to ensure

compliance. This includes special monitoring of the ban& s ris& e#posures here conflicts of

interest are e#pected to appear such as relationships ith affiliated parties. 1inancial and

managerial incentives to act in an appropriate manner offered to the board, management, and

employees, including compensation, promotion, and penalties are also important elements to

a sound corporate governance as ell as transparency and appropriate information flo s

internally and to the public.

(ue to the critical importance of corporate governance to the ban&ing industry, the $asel

Committee on $an&ing Supervision has in place a set of governance principles for ban&ing

institutions. The guidelines contain four important forms of oversight that should be included

in the organisational structure of any ban& to ensure appropriate chec&s and balances. These

are oversight by the board of directors or supervisory board, oversight by individuals not

involved in the day'to'day running of the various business areas, direct line supervision of

different business areas and independent ris& management, compliance, and audit functions.

"n addition, it is important that &ey personnel are fit and proper for their jobs.

"n the publication by Greuning and $ratanovic F0;;9 , the &ey players involved in ban&

corporate governance and ris& management are the regulatory and supervisory authorities

ho create a regulatory and legal environment in hich the Buality and effectiveness of ban&

ris& management can be optimised to contribute to a sound and reliable ban&ing system. +e#t

are the shareholders ho determine the direction of a ban& by electing the supervisory board

and approving the board of directors, the audit committee, and e#ternal auditors. The board



37


sets the strategic direction, appoints management, establishes operational policies, and, most

importantly, ta&es responsibility for ensuring the soundness of a ban&. !nother &ey player in

the corporate governance structure of a ban& is management ho are responsible for ban&

operations and for implementing ris& management policies. !n audit committee hich can be

regarded as an e#tension of the board s ris& management function helps management ith the

identification and handling of ris&. ! &ey e#ternal player in ban& governance is the e#ternal

auditors. They provide shareholders, the mar&et and other sta&eholders ith information and

capacity to hold directors and management accountable for the sound operation of a ban&.

They play a &ey role in improving the mar&et s ability to determine hich ban&s to do

business ith.



38


CHA%TER THREE - METHODOLOG$

5' INTROD!CTION

This chapter lays do n the methodology for the analysis. "t presents a detailed and systematic process of ho the significant ris&s faced by )coban& Ghana /imited F)GH are identified,

measured and managed. The main discussions of this chapter includes data sourcing,

benchmar&ing, analytical tools to be used, analytical techniBues used for interpreting the data

as ell as an outline of the analytical components of the ris&s the ban& is e#posed to.

5'& DATA SO!RCE

The study relied mainly on secondary data. This as obtained from the annual reports andother reports issued by the ban& and other organisations. Some of these e#ternal secondary

data comes from the regulators, industry atchers and other financial analysts. The ban& s

policy documentations and guidelines concerning the management of the various ris&s are

also a major source of information for determining hether the ban& s structures and ris&

management tools are adeBuate in handling inherent ris& in their business activities.

5'* BENCHMARKS

The major benchmar&s used for this assessment are the various documents released by the

5is& %anagement Group of the $asel Committee on $an&ing Supervision regarding

principles hich ensure sound management of ris&s in ban&s. This helped in evaluating the

adeBuacy of the )GH s ris& management frame or& as the essential components of the

recommended guidelines ere mirrored to those in the ban&s policies in respect of its

structures, processes, procedures and tools put in place to manage ris&s. !ccording to the

main regulators of the ban&s in Ghana F$an& of Ghana , the $asel principles for ensuring

sound management of ris&s have been incorporated in Ghana s $an&ing !ct, !ct >32 and

should therefore be adhered to by all ban&s operating in Ghana 0. To assist in assessing the

performance of )GH vis' 'vis that of the Ghanaian ban&ing industry, the 1inancial stability

reports issued by the $an& of Ghana on periodic bases ere relied upon for industry data.

!lso, the 0; ; Ghana $an&ing Survey report issued by :rice aterhouseCoopers Ghana in

12 h"# "nfo%mat"on wa# conf"%med ' the ep$t' Go&e%no% of ,an! of Ghana %. . an a%e o#oo at the(eg"ona em"na% on ("#!- a#ed #$pe%&"#"on on 24 )p%" 2006 "n )cc%a.



39


collaboration ith Ghana !ssociation of $an&ers provided some peer ratios and industry

averages and served as useful benchmar&s for assessing the ris& profile of )GH.

5'5 ANAL$STICAL TOOLS

The analysis in this report relied heavily on e#cel models. These consisted of a series of

spreadsheet'based data input tables that allo ed data to be collected and manipulated in a

systematic manner. The spreadsheet allo ed for the generation of relevant tables, ratios and

graphs hich assisted in the interpretation and analysis of the data collected to help measure

the ban& s performance as ell as judge the effectiveness of its ris& management process.

2.2. 5ati os

! ratio refers to the mathematical e#pression of one Buantity relative to another. There are

many relationships bet een financial accounts and bet een e#pected relationships from one

point to another. "n addition to giving an indication of current situations, ratios also aids in

ma&ing for ard'loo&ing projections. The ratios covered the areas of ris& management in

varying degrees of detail using the balance sheet, income statement and cash flo schedules.

Some of the areas of ris& here ratios helped in e#pressing useful relationships include

profitability, liBuidity, debt and leverage and capital adeBuacy. 5atios, ho ever, do not

provide a complete picture of a ban& s performance and should be considered in conjunction

ith other Bualitative information and conte#tually. Some of the ratios used in assessing ban&

ris& can be found in table 2. .

T a ble 2 . ? 5 a ti os in a ssessing b a n& ris&s

Cate.or/ Rat2o9

So ;e1</ Capital !deBuacy ? Total @ualifying Capital Total 5is& eighted

!ssets%rof2ta32 2t/ 5eturn on !ssets? :rofit !fter Ta# !verage total !ssets

5eturn on )Buity? :rofit !fter Ta# !verage total ShareholdersM 1unds

Eff2<2e1</ +et "nterest "ncome !verage total !ssets

+et "nterest "ncome Gross /oans and !dvances

*perating )#penses !verage total !ssets

*perating )#penses Gross *perating "ncome

Cre=2t R294 Customer /oans Gross /oans and !dvances

$an& /oans Gross /oans and !dvances



40


=; /argest )#posures Gross /oans and !dvances

Collateral +on'performing /oans FCoverage ratio

+on'performing /oans Gross /oans and !dvances

"mpairment Charge Gross /oans and !dvances

!llo ances for "mpairment Gross /oans and !dvances

L2>u2=2t/ R294 Customer /oans Customer (eposits

"nterban& /oans "nterban& (eposits

5eadily %ar&etable !ssets Total !ssets

/iBuid !ssets 8olatile /iabilities F8olatility Coverage

8olatile /iabilities Total liabilities

/iBuid !ssets Total deposits F$an& 5un

I1tere9t Rate R294 G!: Total !ssets

G!: Total )Buity

"nterest 5ate Sensitive !ssets "nterest 5ate Sensitive /iabilities

"nterest 5ate Sensitive !ssets Total !ssets

"nterest 5ate Sensitive /iabilities Total /iabilities

Curre1</ R294 +et *pen Currency :osition @ualifying Capital

o!rce: O)n constr!ction

2.2.0 Graphs and Cha rts

Graphs and charts provided visual representations of some of the analytical results. They provided a Buic& snap short of the current situation of the ban& by presenting the structures in

the assets, liabilities and incomes. They also facilitated comparison of performance over time

and sho trend lines and changes in significant aspects of the ban& s operations and

performance. ! high'level overvie of the trends in the ban& s ris&s as presented through

graphs and charts as they ere used to illustrate levels of profitability, capital adeBuacy,

composition of portfolios, major types of credit ris& e#posures and e#posures to interest rate,

liBuidity and currency ris&s.

5'6 ANAL$TICAL TECHNI?!ES

These refer to the ays in hich the data is interpreted. Some of the common analytical

techniBues used in this report include ratio analysis, common'siAe analysis, and trend

analysis.



41


2.<. 5ati o !nal ysis

5atio analysis involves attempts to put ratios into perspective and ma&e them more

meaningful. hen seen in isolation ratios mean little so there is the need to interpret the

meaning in the conte#t of other information. "n some cases, the ratios in this report erecompared ith those of the industry averages as put for ard by the $an& of Ghana in the

periodic 1inancial Stability 5eports and :rice aterhouseCoopers Ghana in their 0; ;

ban&ing Survey 5eport. The ratios for the previous t o years ere considered in addition to

those of the current year in order to have a better vie of the current year s performance and

also provide a basis for ma&ing projections into the future. The ban&ing industry in Ghana is

generally considered stable and gathering from the ban& s managing director s statement in

the 0;;9 annual report, the ban& is not e#pected to ma&e any acBuisition or divestiture hichill significantly affect its business operations. Therefore, any for ard loo&ing analyses

based on the ratios calculated from the past years values could be assumed to be appropriate.

"n evaluating the performance of )GH using ratios, the ban& s goals concerning the various

ris&s it faces, the ban&ing industry norms and the general economic conditions ere ta&en

into consideration.

2.<.0 Comm on'S iA e !nal ysi s

This analysis involved converting all financial statement items to a percentage of a given

financial statement item, such as total assets or total revenue. "t revealed the composition of

the various financial statement items and presents the structure of the financial statements.

The compositions of financial statements are normally a result of ris& management decisions

and are normally in response to the ban& s business orientation, mar&et environment, desired

customer mi# or the general economic conditions. Therefore, in assessing the ban& s ris&

profile, common'siAe analysis as useful in analyAing the relative share of the various asset

and liabilities as ell as the major sources of income and changes in the proportionate share

over time. 5apid increases in some items, for instance, could imply increase in ris& and

therefore ould raise Buestions as to hether the ban& s ris& management systems ere

adeBuate to accommodate the increase in ris&. "n addition, a structural change in the balance

sheet revealed through common'siAe analysis could disclose a shift to another area of ris&. !

revie of the proportion of income earned in relation to the amount of energy invested

through the deployment of assets allo ed for challenging assessment of ris& versus re ard.



42


2.<.2 Trend !nal ysis

Trend analysis techniBue as used to sho hether there as an improvement or other ise

in an amount or a ratio. "t as used to provide useful information regarding the historical

performance and gro th of the ban&. The gro th of the ban& as assessed through thee#pansion of its balance sheet and increase in its earning base. %ore importantly, trend

analysis revealed the gro th in the individual balance sheet and income statement items

hich gave an indication as to hether the gro th as sustainable or as as a result of

e#traordinary items. !lso, hether the gro th as healthy for the ban& in terms of ris&

absorption, could be identified from the rate of gro th and commensurate gro th in stable

sources funding. The analysis in this report incorporated both currency and percentage

changes for the last three years to ensure that significant currency changes are not hidden bysmall percentage changes. $ecause the economic environment in Ghana could be said to be

generally stable, past trends could serve as good predictors of future behavior and thereby

being of great assistance as a planning tool.

5'7 ANAL$TICAL COM%ONENTS

The analysis of the )GH s ris& profile as based the si# main types of financial ris&s it is

e#posed to, hich are? $alance sheet structure, "ncome statement structure, Credit, /iBuidity,"nterest rate and Currency ris&s. These ris&s are inter related as one can give rise to another or

a transaction aimed at reducing one of the ris&s can end up shifting the ris& to another area. "n

this regard, the analysis too& cogniAance of this interrelationship and adopted a holistic

approach. 1igure 2. provides a conceptual representation of the financial ris& types,

components and inter'relationships.



43


1igu re 2. ? (ia gr amm ati c repr esentation of components of the ban& s ris& profil e

B a l a n ce Sh ee tR i sk

L iqu idi ty R i sk

• t%$ct$%e and+ompo#"t"on of)##et# and

"a " "t"e#• G%owth and +hange#"n

)##et# and5"a "-"t"e#

• +ap"ta )de $ac'• G%owth "n ff-,a ance

heet tem#

Bank

RiskProfil

e

• " $"d"t' "#match• ;$nd"ng #t%$ct$%e• +a#hf ow )na '#"#

In te r e st Ra te R i sk

• nte%e#t (ate Gap)na '#"#

In c o m eSt a te me n t

R i sk

• <%of"ta " "t' e&e #• ta " "t' /=$a "t' of

>a%n"ng#• pe%at"ona>ff"c"enc'

C r e di tR i sk

• "?e of +%ed"t>*po#$%e• +oncent%at"on

of oan#:,o%%owe%g%o$p#

nd$#t%'• "#t%" $t"on ofoan# ' <%od$ct

• "#t%" $t"on of oan#'

eno%• oan =$a "t'• (e ated <a%t'

end"ng

F or e i g nC urr e n cy

R i sk

• +$%%enc' Gap• +$%%enc'

t%$ct$%e of oanpo%tfo "o and+$#tome%depo#"t#

Source? * n Construction



CHA%TER FO!R - ASSESSMENT OF BANK RISK %ROFILE

6' INTROD!CTION

This chapter assesses the ris& e#posures of )coban& Ghana /imited. "t considers the various

ris&s inherent in the assets and liabilities of the ban& and the adeBuacy of the amount of

capital and reserves available to safeguard against solvency. The chapter also considers the

ban&s level of profitability and hether it provided adeBuate cushion for short'term

problems. 1urther, the level of credit and mar&et ris&s the ban& is e#posed to is assessed.

6'& BALANCE SHEET RISKS

<. . !ssets

"t is important to evaluate the composition and structure of a ban& s assets ris& to ascertain

any inherent ris&s in them. Table ( in the appendi# depicts an e#pansion in )coban&

Ghana s balance sheet by =;.9<E over the year to GHS ,266, 92. This as an improvement

of the previous year s gro th of about 26E. This e#pansion as mainly due to the increase in

the amount of government securities held as ell as the operating accounts balances and

placement ith other ban&s. %ean hile, the gro th in the e#pansion of the Ghana ban&ing

industry s balance sheet as relatively slo er as the 2 .2E gro th it e#perienced in 0;;9 fell

behind the 23.0E gro th it recorded in 0;;6. !nalysts believe that this as largely

underpinned by a reduction in the gro th rates of total loans and fi#ed assets 2. !s at

(ecember 0;;9, KHeld'to maturity investments ‖ constituted the largest portion of the

ban&s assets ith about = E. This as in contrast ith the case in 0;;3 and 0;;6 here the

ban& adopted more aggressive strategies and gre its loans and receivables to total assets

ratios to

<2.0 E and <2.3E of respectively ma&ing it the biggest contributor to the ban& s asset siAe.The general industry trend also reflected a similar situation here ban&s investments in bills

and securities in 0;;9 gre by 92E compared to the 2E gro th in 0;;6, bringing their

sta&e in total assets to 0 E from =E in 0;;6 Fsee table (2 in appendi# for assets and

liabilities structure of ban&ing sector of Ghana .





ConseBuently, the proportion of the industry s net loans and advances in total assets also

declined from =0E in 0;;6 to <<E in 0;;9. The shift in the allocation of resources from

credit purposes to investments as because the slo do n of the country s macro economic

condition resulted in deterioration of the ban& s loan boo&s. %ean hile, returns on short term

instruments became attractive and for that matter captured the bigger chun& of the ban& s

funds. This shift in gro th and composition in assets resulted in the reduction in ris& inherent

in the ban&s assets. ! decrease in the proportion of loans and receivable reduces the level of

credit ris&s in the ban&s assets. Held'to'maturity investments are safer than loans and

receivables since the probability of default and variations in interest rates are lo er.

Therefore shifting concentration from loans and receivables to customers, to investments in

more government securities and loans and advances to ban&s result in lo er credit and

mar&et ris&s hiles maintaining adeBuate liBuidity cover for the ban&. "t appears therefore

that the ban& as more cautious in its gro th approach in 0;;9 and this is reflected in the

asset'liability and ris& management decisions.

1 ig u re <. ? C h a n g e s in t h e c omposi t ion of a ssets ov e r the p a st t h r e ey e a r s .

o!rce: O)n constr!ction )ith data from com'arati$e ba+ance sheet in a''endi "1

<. .0. /iabili ti es

Total deposits of the ban& accelerated in its gro th by about <=E in 0;;9 compared to the

<;E gro th recorded in 0;;6. This as in contrast ith the industry trend hich sa an

aggregate slo do n in the gro th of total deposits. The total deposits of the industry gre

by some 09. E hich fell short of the gro th of < .<E recorded in year 0;;6. "t, ho ever,

maintained its position as the main source of funding constituting 32E and >2E of both



)GH s and the industry s funding base respectively. (eposits from ban&s and other credit



46

institutions sa the highest gro th rate of about =20E by year end 0;;9 even though it

contributed only about >.=E to total liabilities and eBuity. Such funds are regarded as volatile

and prone to funding ris&s and therefore an increase in its volume and value over the past

year signified an increase in inherent funding ris& but their relatively lo proportion in the

ban& s funding base &ept the ris& under control. The ban& s largest contribution to funding

still came from deposits to customers ith >>.<E even though the percentage contribution

fell belo the 3<E recorded in the previous year. !s reported in the 0;;9 annual report, the

ban& s t enty largest depositors constitute 0;E of the total deposits at the year end. This is

lo er than the 09E figure that the t enty largest depositors contributed the previous year

indicating that the ban& is ta&ing steps to reduce the reliance on large corporate deposits

hich are less stable and e#pensive to effectively manage their concentration ris&. The

reduction in the reliance on large corporate depositors and shifting to more retail and standard

deposits reduces uncertainty and liBuidity ris& associated ith the deposits as ell as cost of

deposits hich involves active management and attracts higher rates of interest.

1igu re <.0? C han ges in t h e composit ion of liabili ties over the p ast t o ye ar s.

o!rce: O)n constr!ction )ith data from com'arati$e common-si e ana+%sis of ba+ance sheet in a''endi 31

! trend analysis of the balance sheet items Fcontained in appendi# ( confirmed a 22.=E

increase in the borro ings of the ban& in year 0;;9. The ban&ing industry in Ghana also

registered a general gro th of 23.>E in total borro ings at the end of year 0;;9 compared

ith 09.=E gro th in 0;;6. The ratio of borro ings to total liabilities for )GH lagged

behind that of the industry ith )GH recording >E hiles the industry increasing in its

proportion to 2.2E from 0.3E Fappendi# (= . This general industry trend of a decline in

the dominance of total deposits coupled ith the share of borro ings gradually gaining

prominence increases the li&elihood of an increase in cost of intermediation. ith respect to

)GH, the foreign currency denomination of such borro ing e#poses the ban& to foreign



47

currency ris& even though it provides an indication of international confidence in the ban&. "t

appears from the liBuidity gap analysis as presented in the 0;;9 !nnual 5eport of the ban&

that the ban& is funding Buite a substantial amount of its long term loans ith short term

deposits hich creates maturity mismatch and liBuidity concerns. There is also indication of

currency mismatch due to the fact that deposits and borro ing in the various currencies

traded in by the ban& are not adeBuate to fund the lending in those currencies. The value of

interest rate sensitive financial assets hich matures ithin one to five years falls short

significantly of the value of interest rate sensitive financial liabilities giving rise to significant

interest rate ris&.

<. .2 )Buit y and C apit al !d eB uac y

Shareholders funds increased tremendously at a rate of <0E in 0;;9 compared to the 2 E

gro th recorded in the previous year. This increased its share in the ban& s funding base in

the year under revie to <.6E from about 9E in the previous year Frefer to appendi# ( .

The ban& too& steps to boost its capital significantly through a rights issue in *ctober 0;;9 in

its attempt to meet the ne capital reBuirements of GHS>; million set by the Central $an& of

Ghana s for commercial ban&s operating in the country <. ConseBuently, the ban& has been

able to maintain a good balance bet een regulatory capital reBuirements and its total assets

and ris&' eighted assets. )GH s regulatory capital adeBuacy ratio FC!5 increased by about

23E to 00.>E in year 0;;9. This as significantly higher than the industry average capital

adeBuacy ratio of 6.0E. ! 2<E gro th in the ban& s core capital adeBuacy ratio Ftier in

year 0;;9 contributed hugely to its gro th in regulatory C!5 FTable <. .

Table <. ? C apit al adeBu ac y and of f'bal ance sh eet measures

Cap2ta a=e>ua</ @ Off-3a a1<e 9heet Ite 9

EGH I1=u9tr/ Gro th

* * , * + * * , * + EGH I1=u9tr/

0 0 0 0 0 0 * , * + * +Core capital !deBuacy Ftier "C!5 2. ; 0.=3 >.60 =.3; 0.6; 3.;; '<. ;E 22.62E 20.6 E

Capital adeBuacy ratio FC!5 6.;> >.<6 00.>0 2.>; 2.6; 6.0; '6.3=E 23.0>E 2 .66E*ff'balance sheet items as a E of total assets 9.3> <.<9 >.39 6.>3 >.23 ;.=2 <6.<<E =.90E '2=.>9E

5is&' eighted assets Total assets 3 .9> 3 .92 6 .2< 32.0; 36. ; >9.6; ';.;<E 2.;6E ' ;.>2Eo!rce: 2004 5 2006 ann!a+ re'orts of EG7 5 ebr!ar% 2010 inancia+ tabi+it% &e'ort of "ank of Ghana

14

h"# wa# conta"ned "n NOTIC NO!B"#"O$#S C#%&&'#( "##$ed ' the ,an! of Ghana to a an!#.



48

Table <. also indicates that the ratios of off'balance sheet items and ris&' eighted assets to

total assets of the ban& increased marginally hiles those of the industry declined. This

means that the ban& needed more capital than its peers to cover for contingent liabilities and

increasing levels of ris&' eighted assets on its boo&s. Though the increase in the level of

contingent liabilities presented the ban& ith additional financial ris&, the corresponding

trade fees appeared to provide adeBuate compensation for it. Greater attention should

ho ever be given to these items and adeBuate ris& management system should be put in place

for such e#posures to ensure they do not get out of hand.

6'* INCOME STATEMENT RISKS

The income statement provides information on a ban& s profitability, reveals the sources of

the ban& s earnings and their Buality and Buantity.

)coban& Ghana /imited is still enjoying high levels of profitability in 0;;9, recording a

gro th of about <<E from the previous year s profit. )ven though there as a slo do n in

the gro th of its after ta# profit in 0;;9, )GH still to ered above it peers about > times in its

earning gro th as average industry gro th rate for the same period as about 3E. The

consistency in the ban& s profitability gro th enabled it to maintain a stable ris& profile as

ell as providing a cushion against short term problems. :rofit margin Fpost ta# increased

marginally from 2 E in 0;;6 to about 2<E in 0;;9E. This performance as still about <.=

times above the industry average of 3.=E hich e#perienced a significant fall from the

previous year s figure of 06.=E as a result of the general decline in loan asset Buality of

ban&s in Ghana. 5eturn on !ssets F5*! remained stable over the past three years hile

5eturn on )Buity F5*) sa a decline in the year under revie from about <;E in 0;;6 to

0>E in 0;;9 Ffigure <.= . The mar&ed decline in 5*) as primarily as a result of the sharp

increase in the ban& s eBuity through a rights issue underta&en at the later part of the year. "tis instructive to &no that in the case of both after ta# 5*! and 5*), )GH surpassed the

performance of its peers ith the average industry figures about .3E and 2.6E respectively

in 0;;9 Frefer to table (6 in appendi# .

!bout = E of the ban& s total income as obtained from interest on loans and advances in

0;;9. This performance fell belo the average industry contribution of =6.3E = but as an

15 (efe% to 6 "n append"* fo% deta" # on "nd$#t%' compo#"t"on of "ncome.



49

improvement of the 0;;6 figure of <2E. Getting its main source of income from returns on

loans and advances ensured the stability of the ban& s earnings. 1ees and commission

incomes as ell as trading income sa marginal increases in their contributions to total

earnings from about 6E to 0>E Fsee appendi# (0 . This as good for the ban& given that

there is no provision on non'funded income as opposed to interest on loans and advances

hich can be provided for if those assets are impaired in future. Stiff competition in the

Ghanaian ban&ing industry coupled ith the drop in interest rates due to the reduction of the

prime rate by the Central $an& of Ghana, put pressure on interest income. This situation

compelled the ban& to loo& at increasing its non traditional businesses li&e international trade

finance and trading operations as viable options to maintain its profitability. )mphasis on fee'

generating income reduces the ban& s e#posure to lending ris& hich is inherent in increasing

interest margins in a stable mar&et environment as that of Ghana. There are ho ever higher

levels of volatility surrounding these sources of earnings because they depend on general

economic conditions and trading performances. "n addition to them being less stable, these

non'traditional sources of earnings are subject to mar&et ris& hich can be substantial if not

closely monitored.

"t appeared the ban& had made some strides in its cost reduction effort as there as a slo

do n in the gro th in operating e#penses resulting in operating e#penses as a percentage ofgross operating income declining marginally to <9E in the year under revie from =2E the

previous year. Though a further improvement ould be preferred, this performance as Buite

commendable as it fell belo the ==E industry average. )GH has been efficient in the use of

its funds as it recorded an impressive increase in its return on loans and advances from E

in the previous year to 3E in 0;;9 hich as also above the industry average of <E. The

ban& ho ever lagged behind the industry performance in the utiliAation of its capacity in

generating interest income ith the ratio of interest income to total assets of =.9E comparedto >.9E for industry. "t is also orth noting that hiles the ban& is increasing its loan

portfolio, the level of non performing loans is also increasing Fappendi# (9 . This indicates

an increase in credit ris& and the ban& has responded by beefing up its remedial and

collections unit to intensify the recovery of doubtful debts.



50

1 ig u re <.2? : ro f it a bi l it y D e f fi c ie n c y i ndic a tors

o!rce: O)n constr!ction )ith data from a''endi 38

)coban& Ghana s total cost of doing business increased due to significant increases in

operating e#penses and ta#ation. The increase in operating e#penses over the past year,

though at a reducing rate, as mainly due to increases in staff cost as a result of the ban&s

branch e#pansion drive. The enactment of the +ational Stabilisation /evy !ct, 0;;9, brought

about the charging of an additional =E levy on profit before ta# and caused an increase in

ta#ation and levy significantly Fabout 60E of previous year . Since this class of cost cannot

be controlled by the ban&, it ill have to factor it into its e#pected e#penditure and

conseBuently profit target. *perating income adeBuately covered operating e#penses and ith

the e#ception of year 0;;6, interest income has been enough to meet operating e#penses

since 0;;3. This also confirmed the stability of the ban& s profitability and shields the ban&

from funding FliBuidity ris&.

1 ig u re <.<? S ourc e s of " n c ome v e rsus * p e r a ti n g C osts

o!rce: O)n constr!ction )ith data from com'arati$e income statement in a''endi "2



51

6'5 CREDIT RISK

The credit ris& associated ith )coban& Ghana s operations is inherent in its credit

e#posures. The ris& areas have to do ith concentrations and large e#posures, diversification,

lending to related parties and over e#posure to an economic sector. !nother area also has to

do ith ma&ing adeBuate allo ances to absorb anticipated loss. "n the orse case scenario,

total credit ris& e#posure to the ban& as at (ecember 0;;9 amounted to GHS .=3 billion

ithout ta&ing into account any of the collateral held or other credit enhancements attached.

There has been a consistent increase in the amount of ma#imum credit ris& e#posure at a rate

of about =;E in the last three years due to the gro th in the ban& s operations and e#pansion

in its financial assets. This situation places greater responsibility on the ban& s board and

management to strengthen the ban& s systems and processes as ell as personnel to managethe ris& ell.

<.2. S iA e

!bout =3E of the total ma#imum e#posure is derived from loans and advances to ban&s and

customers. The total loan portfolio of the ban& increased by about <0E in year 0;;9 to

amount to GHS9 6 million. hiles there as acceleration in this loan gro th from 23E in

the previous year, there as slo do n in the gro th rate in the industry loan portfolio as itrecorded a gro th of =.9E in 0;;9 compared the <2.9E recorded in the previous year.

/oans and advances to customers constituted = .6E of the total loan portfolio after

e#periencing a gro th of =E from year 0;;6. Compared to the ratio of customer loans to

ban& loans F><E? 2>E in the previous year, the proportion of )coban& Ghana s lending to

customers in the current year under revie as not impressive Frefer to chart ( in

appendi# . This situation as as a result of lo er demand of credit by the local industries

than anticipated due to the fact that most of them had not recovered from the global economic

meltdo n e#perienced in the years 0;;3 and 0;;6. The ban&s in Ghana ere therefore forced

to do business amongst themselves and generate some returns on their idle funds leading to

higher levels of loans and advances to ban&s as ell as deposits from ban&s. !dditionally,

the slo do n in credit also occurred as a result of the consolidation strategy adopted by the

)coban& Group to focus on recoveries of bad debts to clean their boo&s rather than gro ing

their assets.



52

<.<.0 Concentrati on

The =; largest e#posures by customers constitute ==E of the gross loans and advances to

customers in 0;;9 hich as a marginal improvement of 0;;6 s situation of =>E. This

means that the ban& as still relying on a fe large corporate clients to build its loan

portfolio thus any distress to these large clients posed a threat to its total loan siAe, loan

Buality and profitability. This situation did not also appear healthy in terms of credit ris& as it

e#posed the ban& to ris& associated ith sectoral over e#posure. This is even more orrying

hen the ban& s fifty largest e#posures are almost the siAe of the ban& s Bualifying capital,

hich is the internal buffer of the ban& to cater for losses in its operations.

1 ig u re <.=? =; l a r g e st e # posur e s


The high concentration of the =; largest e#posures in the total loan portfolio supports a

condition here, the ban& is seen as supporting more corporate ban&ing business than retail

business. "t is orth noting that, hiles loans to holesale borro ers gre by about <6E

from last year s figure, loans to retail customers decreased significantly by 06E leading to

holesale loans to retail loan ratio of 32?03. This situation does not support the ban& sstrategic transformation intent and drive to ards positioning it as a predominantly retail ban&

as opposed to its previous classification as a holesale ban& after the acBuisition of its

universal license in 0;;2 >.

16

h"# #tatement "# a#ed on the an! # #t%ateg"c #tatement a# conta"ned at page 8 of the 2009 ann$a%epo%t.



53

Table <.0? C ustom er loan s distribut ion b y bor ro er group

* * , * + Co po92t2o1 Gro thLoa19 toCu9to er9 per3orro er .roup GH GH GH * * , * + * , * +

holesale 93,>06 020,>62 2<<,666 >3.< E =>.2=E 30.=9E 3.3<E <6.00E5etail 9=,=0> 6;,00< 2;,00< 20.=9E <2.>=E 03.< E 66.>>E '03.3<EGro99 Loa19 a1=a=;a1<e9 *+5 &76 6&* + 6 7 &&* & ' 0 & ' 0 & ' 0

o!rce: O)n constr!ction )ith data from 2004 5 2006 Ann!a+ re'orts of EG7

ith regards to economic sector concentrations, the services sector seems to get the greatest

portion of the ban& s credit facilities as 2>E of total credit ent to that sector. This is

follo ed by the manufacturing sector hich benefited from 9E of total credits. There as

ho ever an inverse gro th trend amongst the t o sectors here the service sector s portion

of total loans increased by about <E and the manufacturing sector s portion sa a decline of

also about <E. The rather increasing proportion of total loans being benefited by the service

sector as due to boost in that sector of Ghana s economy coupled ith d indling of the

manufacturing sector resulting from the increase of cheap imports and high operating cost.

Commerce, hich is the third highest beneficiary of )GH s total loans and advances, benefits

the most from the industry s total credit facilities ta&ing up 2 .>E. "t is then follo ed by the

services and the manufacturing sectors in that order ith 0 E and .>E respectively Fseefigure <.6 . "ncidentally, the manufacturing, finance and commerce, construction as ell as

transport, storage and communication sectors sa declines in the proportion of credit they

benefited ith agriculture, forestry and fishing as ell as electricity, gas and ater sectors

pic&ing up gradually in response to current policy initiatives by the government of Ghana to

promote agriculture and also position the economy to ta&e advantage of the oil find in Ghana.

1 ig u re <.>? S ec to r a l allo c a ti on of loans




54

The shrin&ing of the proportion of credit benefits in greater parts of the Ghanaian economy in

favour of just a fe created an unhealthy concentration of lending. "t made the ban&

vulnerable to ea&ness that could have arisen in the services sector resulting in significant

ris&s to the ban& such as simultaneous failures amongst several clients in the services sector

for similar reasons hich may lead losses to the ban&.

<.2.2 : roduct di stribut ion

! revie of the various products that the ban& lent out to its customers in reponse to mar&et

demand indicated that, term loans and overdrafts ere mainly the direct facilities used by the

ban& s customers. These products are considered ris&y due to the fact that they involve a

direct outlay of funds and therefore a thorough assessment of the borro ers and the loan

reBuests should be done as ell as adeBuate security be ta&en for such facilities. The increase

in the use of guarantees is also orth considering for potential credit ris&s. )ven though these

ban& products are considered as an indirect facility, defaults of commitments under them

results in payment of some obligations leading to losses. Therefore, as off'balance sheet item,

guarantees should be adeBuately assessed, secured and managed to avoid une#pected losses.

1 ig u re <.3? C usto m e r lo a ns b y pro d u c ts


<.2.< Custom er loans distribut ion b y teno r

The maturity structure of the ban& loans to customers revealed that about 6<E of them ere

for short term periods in year 0;;9. This situation appeared to be as a result of a deliberate

attempt by the ban& to reduce the probability of losses occuring as tenor of the loans

increases, hence the consistent increase in the proportion of short term loans. The increase in

short term loans also indicate that the ban&s customers sought for more short term loans to



55

support their or&ing capital and other short term needs as opposed to see&ing for funding

for infrustructural development hich reBuire long intallment credit facilities. The

macroeconomic conditions over the past three years has resulted in the shortage of long'term

funds to support funding of capital projects hence the decline in long term loans.

1 ig u re <.6? (istribution of Custo m e r / o a ns p e r Te n or a nd $ o r r o e r G roup

o!rce: O)n constr!ction )ith data from a''endi 31/ and tab+e.1

<.2.= /oan @uali t y

The ban& also recorded some success in its efforts to improve the Buality of its loan portfolio

and reduce the incidence of losses. "n the first place, the gro th in the level of non'

performing loans in the year under revie has reduced to 6.=E from E in year 0;;6. The

resultant non'performing loan ratio sa a marginal decline to 2.< E in year 0;;9 from

2.>0E in the previous year indicating a tightening of )GH s lending processes coupled ith

intensified monitoring and debt recovery drives. This is in contrast ith the current aggregate

industry trend hich sa an acceleration of the gro th in non'performing loans from a rate

of 30E in 0;;6 to about 0>E in 0;;9. "ndustry non'performing loans ratio in the current

year under revie conseBuently shot up to almost =E from 3.3E in the previous year. !lso,

the allo ances for loan impairment and impairment charges increased consistently over the

past three years. )GH s rate of impairment allo ance to gross loans and advances increased

from about .=E in 0;;6 to <E in 0;;9 hiles the average rate for the industry jumped from

=E to 9.<E. "mpairment charges made by )GH in respect of loans and advances, has also

increased consistently from ;.0E to 0E of gross loans and advances from 0;;3 to 0;;9.



56

1 ig u re <.9? / o a n @u a li t y

o!rce: O)n constr!ction )ith data from a''endi 36 and 310

The situation buttressed the ban& s desire to enhance its capacity to absorb losses by ma&ing

available adeBuate reserves for them in response to loan gro th, prior loss e#periences,changes in business conditions and general economic conditions. This as made possible

ith an improvement in the ban& s management information systems hich enabled it to

properly classify its loans. ith a coverage ratio Fcollateral as a E of non'performing loans

of 32E Fsee table <.2 , the ban& made adeBuate collateral cover for its non'performing loans

to further reduce the incidence of loan losses.

Table <.2? /oan loss cov erage* * , * +

GH GH GH

Collateral <,>=6 =,6 0 06, 2> +on'performing loans 2,<2> <,9<6 >,00<

0 0 0Collateral as E to +on'performing loans FCoverageratio ;9.;9 ;=.36 32.<0o!rce: O)n constr!ction )ith data from 2004 and 2006 ann!a+ re'ort of EG7

<.2.> 5elated : art y (e ali ngs

The ban& maintained dealings ith its directors and &ey management personnel in the form

of receiving deposits from them as ell as giving loans to them. ! revie of the information

contained in the ban& s annual report indicates that the level of such financial relations

bet een the ban& and its directors and &ey management staff has declined significantly. "n

addition to that, for the past three years the amount of deposits from related parties has

out eighed the amount of loans given to them by the ban&. 1igure <. 0 provides a

diagramatic illustration of the situation. )ven though there as inadeBuate information to



57

assess hether the regularity of the credit decisions concerning the loans as ell as the

Buality of the outstandings on such loans, the amounts involved ere not very material to

significantly affect the ban& s credit ris& position. The ban& also hadadeBuate capital to cover

the e#posures to related parties as the amount of related party loans appears to be Buite

negligible compared ith Bualify capital F1igure <. 0 .

1 ig u re <. ;? 5 e lat e d p a r t y info r m a ti on


6'6 LI?!IDIT$ RISK

!n evaluation of the liBuidity ris& of )coban& Ghana limited involves an assessment of the

ban& s ability to efficiently accommodate the redemption of deposits and other liabilities andto cover funding increases in the loan and investment portfolio. "n addition to having enough

funding to serve as cushion for e#pected and une#pected fluctuations in the balance sheet, the

ban& is said to have adeBuate liBuidity if it is able to acBuire needed funds promptly and at a

reasonable cost. Having adeBuate liBuidity serves as a defence mechanism that protects the

ban&s capital from loses on unscheduled asset sales hich may become neccesary ith

deposit runoffs. The assessment of the ban& s liBuidity ris& includes the revie of the

maturity profile of assets and liability F/iBuidity %ismatches , the composition of the funding

structure, cashflo analysis and liBuidity ratio.

<.<. /iBui dit y %ismatch es

! revie of the maturity ladder Fsee table <.< indicates that the ban& has maintained its

positive liBuidity profile in year 0;;9 ith a total liBuidity position of GHS 29,0<6.

Ho ever the huge negative mismatch in the very short term Fone to three months indicated

that the ban& had problems funding all its contractual obligations during the period at a



58

reasonable cost. This situation as as a result of the ban& not having adeBuate liBuid assets

maturing during the period to meet deposits hich are due for redemption in the same period.

The ban& also had funding difficulties for its medium term liabilities, that is, those falling due

bet een one and five years. ! greater portion of its long'term borro ings fell due during this

period and there ere not commensurate assets to meet such obligations, creating a negative

net liBuidity position. The large liBuidity suplus in the previous maturity brac&et helps

smoothen the shortfall and improves the net cummulative situation.

Table <.<? %aturit y /add er

* * , *((+

Matur2t/ %rof2 e of A99et9 a1= L2a32 2t2e9 GH GH GH

A99et9

' 2 months <2<,303 =6 ,=9 3>3,30;

< ' 0 months 92,996 0;>, 62 22=,=;

' = years 2=,6 9,926 32,6;3

*ver = years 3,> = <,060 >0,0;

Tota 8 * &7& +*& ++6 & 55+ **+

L2a32 2t2e9

' 2 months 222,30 =3=,<;0 6>>,;<<

< ' 0 months 00<,2<< 30,3 = >3,>6>

' = years =6,2= 26,;9= >,0;3

*ver = years ; <6,3<= =;,;<<

Tota 8&8 6&8 ,56 +7 & &++ +,&

i!uidit" Mismatches Cu u at2;e

1 - / months 101,00 ,146 -64,/2 '96,20<

- 12 months -1/0,/ //, 4 1 8,419 >9,<9

1 - 9 %ears 88, 0 41,4 / - 2, 00 03,;9

O$er 9 %ears 8, 19 -/ , / 112,198 29,0<6

Tota 77 57 , 5 1/6,2 4o!rce: O)n constr!ction )ith data from 2004 and 2006 Ann!a+ re'orts of EG7

<.<.0 S tructure of fundin g

)coban& Ghana s direct portfolio is funded by a mi# of sources as presented in 1igure <. 2.

"ts main funding source continued to be from customer deposits hich constituted about >3E

of the total funding base.



59

1 ig u re <. ? 1 unding so u c r e s


The significant contribution of customer deposits to the ban& s funding base implied that the

soundness of the ban& s liBuidity management hinged on the stability and Buality of its

customer deposit base. ! revie of the product types employed by the ban& to mobilise funds

indcate that the greatest contribution to the ban& s funding base as from current accounts. "t

formed the bul& of the ban& s core deposits and ensured greater stability and cheaper source

of funds for the ban&. "t ho ever appeared that the majority of current accounts funds came

from large depositors and therefore reduced the level of stability since these depositors could

come for bul& funds ithout notice and may cause liBuidity problems. Since all the ban&s are

after the same funds from these large depositors, the interest cost of these funds may be

higher than the interest on current account funds. The deposits of these corporates are also

dependent on the prospects of their business hich fluctuates ith response to both internal

and macro'economic developments ma&ing it volatile in nature.

1 ig u re <. 0? C usto m e r deposits b y t y p e

o!rce: O)n constr!ction )ith data from 2004 and 2006 Ann!a+ re'orts of EG7



60

*n the other hand, retail customer deposits especially those from individual salary or&ers

and private businessmen carry some level of stability ith them since the probabilty of

having portions set aside to ards the future for various reasons is high. )ven though saving

accounts and time deposit accounts sa some gro th in their absolute amounts over the last

year, they still constituted a small portion of the total customer deposit base. !mounts in cash

collateral sa a significant gro th in its proportion of total customer base. These ere mostly

ta&en to bac& letters or credit and guarantees issued on behalf of Small and %edium scale

customers ho did not have the profile reBuired by the ban& for clean lending. The ban&

therefore needs to intensify and restructure its deposit mobilisation and retention programme

ith more focus on retail clients to increase the Buality and stability of its deposits.

<.<.2 Cashflo s and rati os

!n analysis of the cashflo statement of )coban& Ghana also sho ed that the ban& had a

good record of generating enough cash internally to support its operations. +et increases in

cash and cash eBuivalent have remained positive and have consistently increased over the

past three years as depicted in figure <. =. This situation had been sustained by net cash flo s

from operating activities hich had remained positive and have consistently increased over

the past three years. )ven though there ere deficits in net cashflo from financing and

investing activities in the previous years, e#cept for the current year under revie , the ban& s

normal course of business operations had generated positive cashflo s hich provided some

level of dependability to the ban& s liBuidity situation.

1 ig u re <. 2? T r e nd of C a sh flo s


To buttress the ban& s sound liBuidity position, it is significant to mention that the ban& s

customer loans ere fully funded from the ban& s internally generated sources as customer



61

loans forms only about <9E of customer deposits. Customer loans as a percentage to core

deposits as also =3E indicating that a very high proportion of the ban& s loan boo& ere

funded ith lo 'cost deposits. /oan assets are the core assets and also generally the most

illiBuid assets class of the ban&. !ccordingly, they reBuire a stable source of fundingI hence

the importance of ensuring that gro th in loans ere proportional to gro th in core deposits.

ith the liBuid assets to total deposit ratio increasing from =3E in 0;;6 to 6;E in 0;;9, the

ban& demonstrated its desir ofe ensuring that there as enough readily convertible assets

available to repay deposits on demand in case of a ban& run. The ban& performed better in

year 0;;9 compared to its peers as the industry average for liBuid assets to total deposit ratio

as about 3<E 3. This as after it previously lagged behind the industry hich had a ratio of

> E in 0;;6.

/iBuid assets as a percentage of total assets of > E indicated a positive sign from a liBuidity

standpoint as it enabled the ban& to easily liBuidate some of its assets to meet une#pected

demands for funds. The ban& s liBuidity situation as more sound in this regard vis' 'vis

industry performance of <3E in 0;;9. ith about 6>E of )coban& Ghana s liability structure

consisting of volatile funding, its short term investment ere adeBuately catered for. /iBuid

assets Fshort'term ere about 39E of the ban& s volatile liabilities in 0;;9, indicating an

adeBuate cover for short'term investments. !s represented by the volatility liabilitydependency ratios, the ban& relied heavily on volatile funds to support it long'term assets.

The high positive ratios F >2E for 0;;9, 099E for 0;;6 and 00 E for 0;;3 sho ed that the

ban& as highly e#posed to liBuidity ris& in times of financial stress or adverse changes in

mar&et conditions hich impacts on the ban& s ability to retain these volatile finds.

17 nd$#t%' %at"o# fo% " $"d a##et# a# a @ of tota depo#"t# and " $"d a##et# a# a @ of tota a##et# we%e ta!en f%om the " $"d"t' %at"o# p%e#ented "n the ;e %$a%' 2010 ;"nanc"a ta " "t' (epo%t of,an! of Ghana. " $"d a##et# "n that %epo%t a%e %efe%%ed a# the %oad " $"d a##et#.



62

1 ig u re <. <? T r e nds in l i Buid i t y r a ti os


6'8' INTEREST RATE RISK

!n interest repricing schedule is used to generate simple indicators of the interest rate ris&

sensitivity of both earnings and economic value to changing interest rates. "t involves

evaluating earnings e#posure of )coban& Ghana to interest rate movements by subtracting

interest rate sensitive liabilities in different time bands from the corresponding interest rate

sensitive assets to produce a repricing gap for that time band. "t is the responsibility of the

ban& in this regard to strive to achieve a balance bet een reducing ris& to earnings from

adverse movements in interest rates, and enhancing net interest income through correct

anticipation of the direction and e#tent on interest rate changes. !n analysis of )coban&

Ghana s interest repricing schedule Fappendi# (0; indicated that there as a positive or

asset sensitive gap of GHS = =,2 3 in the year 0;;9, not ithstanding the negative interest

repricing mismatches for the '= years maturity buc&et. This represented a 3E increase in

the situation in the previous year positive repricing gap. "t meant that generally the ban& s

interest income declined as a result of the decline in the average mar&et interest rates 6. This

is because more assets ere invested at lo er mar&et rates than liabilities during the period.

18 he fact of the gene%a d%op "n ma%!et "nte%e#t %ate# "# conta"ned "n the 2010 ,an!"ng $%&e' p$ "#hed'

<%"cewate%ho$#e+oope%#3 Ghana.



63

1 ig u re <. =? " nt e r e st r a t e s r e p r ici n g g a p


"t ould therefore have been a prudent strategy for the ban& to have a negative interest

repricing mismatch hich ould have result in interest income of the ban& increasing

because declining average mar&et interest rates meant more liabilities ould have been ta&en

on at lo er mar&et rates. "n general, it appeared the ban& s assets and shareholders eBuity are

significantly e#posed to ris& associated ith movements in interest rate. The Gap to total

asset ratio of 26.=E for 0;;9 as still on the high side even though it e#perienced a decline

from about <9E from the previous year considering that general prudent limits are bet een '

=E to =E. G!: to eBuity ratio as also about 0= E in 0;;9 from a high of = 6E in the

previous year. There as a significant decline in the ratio of interest rate sensitive assets to

interest rate sensitive liabilities from about 2>;E in 0;;6 to 0 3E in 0;;9 in response to the

falling mar&et rates. The ban& ho ever could not react adeBuately to reverse the mismatch

situation to avoid losses in interest income basically because of the unpredictable nature of

the macroeconomic conditions in the country and the global financial situation.

6' ' C!RRENC$ RISK

$ecause )coban& Ghana maintains correspondent ban&ing relationships ith foreign ban&s,

lend and borro in foreign currency and supports customer transactions denominated in

foreign currencies, it is prone to currency ris&s. ! revie of the currency mismatch schedule

in appendi# (00 indicated that the ban& had positive net open currency positions for all its

currencies in year 0;;9. !lso ith the e#ception of 4S( liabilities hose percentage

contribution is more than 4S( assets, the contribution of the other currencies in the assets of

the ban& adeBuately covered the contribution of the currencies to the liabilities. The currency



64

structure of the ban& s loans and deposits ere also encouraging as its funding capacity

provided by the deposit base in the various currencies e#ceeded its loan portfolio in the

various currencies significantly. "n both the cases of loans and deposits, the ban& &ept a little

above =;E of its e#posure in Ghana cedis ith the greater portion of the remainder ta&en by

4S( denominated e#posures.

1 ig u re <. >? Cu r r e n c y S tru c ture of / o a n : o r tfolio a nd Custo m e rs (e posits


$asel !ccord reBuires that certain capital charges be made for mar&et ris&s including

currency ris&s. Currency e#posure as a percentage of Bualifying capital indicated that the

ban& had adeBuate capital base to cover current currency ris& e#posures Frefer figure <. 9 .

1 ig u re <. 3? Cu r r e n c y 5is& ? Cu r r e n c y ) # posure a s E of @u a li f y in g C a pi ta l




65

CHA%TER FI#E - ASSESSMENT OF RISK MANAGEMENT

FRAME ORK

7' INTROD!CTION

The ris& management frame or& of )coban& Ghana /imited comprises a comprehensive set

of policies, standards, procedures and processes designed to identify, measure, monitor and

report significant ris& e#posures in a consistent and effective manner across the ban&. This

chapter assesses these tools employed by the ban& in managing the credit, liBuidity, mar&et

Finterest rate, currency and operational ris&s it faces.

7'& CREDIT RISK

=. . *r ganisation

The responsibility for credit ris& management in )coban& Ghana /imited lies ith the $oard

of (irectors, hich is responsible for ensuring that an appropriate and conducive

environment has been created for managing credit ris&. The board has done this by setting

comprehensive credit ris& management policies and procedures as contained in the ban& s

Credit :olicy %anual. The manual contains an outline of the scope and allocation of the

ban& s credit facilities and the manner in hich the credit portfolio is managed, that is, ho

loans are originated, appraised, supervised and collected at both the individual credit and

portfolio levels. "t also outlines the governance structure ith clearly defined responsibilities

and credit approval authority. The $oard also periodically revie s and approves the ban& s

credit ris& strategy in addition to revie ing and approving all credits in e#cess of the policy

limit, through its 5is& Committee.

The $oard has, ho ever, delegated the authority to approve credit ithin the policy limit to

individual credit officers based on their credit e#pertise, e#perience and independence of

judgment. !ll e#tensions of credit are approved by at least three credit officers, one of hom

must have an individual credit limit eBual or greater than the amount of credit e#tension

being considered, and also at least one credit officer must come from the ris& management

department. *perationally, the Country 5is& %anager ensures that the ban& has resources,

e#pertise and controls in place for the efficient and effective management of credit ris& on a





67

good assessment of the possible inherent ris&s. This system of involving both ris& analysts

and the sales function in the business units in the identification of potential inherent ris&s

ensures that ris& considerations are factored in the process right from the beginning. "t also

enables the t o functions ith diverse interests to or& together at addressing any concerns

surrounding the credit reBuest so that a timely decision can be ta&en and a response given to

customers ithout undue delays. The use of the ris& ratings system also assists in the proper

classification of obligors and facilities in the ban& s credit portfolio. The classification assists

in measuring credit e#posures across different borro er groups, product types, geographies,

industry segments and other relevant ris& factors using the same standards. The ris&s in the

ban& s credit portfolio are therefore identified as unhealthy portfolio structures Fover'

concentrations , and highlights deteriorating credit Buality in certain classified groups.

=. .2 5is& % easurement

)coban& Ghana limited s credit ris& management frame or& includes a methodology to

measure the average amount of e#pected credit loss inherent in its credit portfolio over a

period of time. This enables the ban& to decide on ho best to manage the credit ris& in its

activities and portfolio, such as by setting aside the appropriate loan loss reserves or by

selling loans to reduce ris&. The approach is designed to be consistent ith the internal rating

based approaches in $asel "" and it embraces estimates of the amount of e#posure at default

F)!( , probability of default F:( and the severity of loss in the event of default Floss given

default or /G( . "n arriving at the credit ris& measure at a particular point in time, the ban&

determines the level of the statistical e#pected economic loss in the event of default, that is,

the ban& s e#posure at default. This figure measures the net present value of credit costs that

the ban& ould face from the time of default until the end of the recovery process. Credit

costs include all provisions ta&en against bad debts, rite'offs, fully reserved interest earned

not collected and possible attorney fees incurred in the process of enforcing the ban&Ms claims

in court.

The ban& then proceeds by assigning ris& ratings to credit facilities of all the obligors in the

credit portfolio. Their internal ris& rating gives an indication of the severity of li&ely loss on

the e#posure hich is referred to as the loss given default F/G( . The specific rating

assigned to a credit facility is influenced by &ey transaction characteristics such as the

presence of collateral and the degree of subordination. The facility ris& rating also have



68

corresponding loss norm hich reflects the probability of default. The eighted average loss

norm provides a measure of the portfolio ris& profile and portfolio ris& rating. The amount of

credit e#posure ith a given facility ris& rating is then multiplied by the corresponding loss

norms to arrive at a measure of loss in the event of default on the e#posure involved. *n a

portfolio level, the aggregate credit e#posure ith the portfolio ris& rating is multiplied by

the eighted average of loss norm.

1igu re =. ? ! dia gramma ti c il lust rati on for measur ing e# pected loss

stimate of creditrisk

E pe<te= Lo99 ) EL

)

hat 29 the pro3a32 2t/ of aCou1terpart/ =efau t21.

%ro3a32 2t/ of Defau t %D)

*

If the counter+artydefaults, to -hat e.tent are

-e e.+osure/

Ho u<h of the e po9urea ou1t =o e e pe<t to o9eupo1 =efau t

E pe<te= E po9ure )

Lo99 G2;e1 Defau t )

EE

*

LGD

o!rce: Ada'ted from an artic+e b% ;im &ich and *!rtis Tan#e tit+ed #Credit $is%

Management 'ortfolio (iew

=. .< 5is& % onit oring and Control

The ban& credit ris& management policy also provides for an effective administration of their

credit portfolio. The Credit !dministration 4nit of the ban& monitors the performance of

individual e#posures on a daily basis to identify any signs of deterioration and ensure

adeBuate provision has been made for such. "n addition to this, the unit ensures regularity or

credit approvals and line utilisations, authorise disbursements of credit facilities hen

approval conditions are met, and perform periodical revie s of collateral. These are to

ensure that ne credit ris& e#posures do not negatively affect the total credit portfolio of the

ban& hiles e#isting credit facilities remain in good conditions and that the ban& is ell



protected from losses. !ccounts sho ing distressed signals are isolated and reported. These

then receive the attention of the 5emedial %anagement 4nit hich is ell resourced and

have the specialised focus of managing problem credits. The unit helps develop effective

strategies and or& out programmes to rehabilitate the troubled credits and advices

management on appropriate provisions to be made for them.

"n addition to the Credit !dministration 4nit monitoring the performance of the credit

portfolio, the ban& s "nternal Control 4nit also conducts periodic chec&s on credit granting

activities to ensure that they comply ith prudential standards and the ban& s credit policies

and procedures. Such audits also help to identify areas of ea&nesses in the credit

administration process, policies and procedures as ell as any e#ceptions to policies,

procedures and limits.

=. .= 5is& 5 eporting

8arious internal ris& management reports are regularly sent to management and the board

from the 5is& %anagement function. These provide detailed information on the ban& s credit

e#posure Fportfolio and helps management and the board ensure that the portfolio performs

in accordance ith approved concentration limits and overall ris& profile. The reports also

serve as early arning systems designed to monitor troubled e#posure and credit process

problems.

7'* MARKET RISK

=.0. *r ganisation

The board of )coban& Ghana /imited articulates statements of mar&et ris& direction and

appetite through the ban& s mar&et ris& management policy hich is developed and

approved by the board. The mar&et ris& management policy contains the frame or& for

managing mar&et ris& in a consistent manner across the ban& in order to stabilise earnings

and capital under a broad range of mar&et conditions. The 5is& Committee of the board, the

Chief )#ecutive of the ban& and the Country 5is& %anager coordinate, facilitate and oversee

the effectiveness and integrity of the ban& s mar&et ris& management frame or&. The

supervision and management of mar&et ris& in the ban& is ho ever vested on the !sset and

/iability Committee F!/C* ho meet monthly and anytime mar&et conditions arrant it.



70

The committee is responsible for recommending specific strategies to address mar&et ris&s in

the light of macroeconomic and industry changes as ell as the ban& s ris& tolerance level.

The committee revie s the ban& s liBuidity and funding needs and the structure and pricing

of the ban& s assets and liabilities. "t also articulates the ban& s interest rate vie and decides

on the reBuired maturity profile and mi# of incremental assets and liabilities.

Since mar&et ris& is mostly absorbed in the treasury function, the Country Treasurer is

responsible for mar&et ris& ta&ing activities and managing mar&et ris& on a day'to'day basis

ithin approved limits by the board. "n addition, he implements the ban& s liBuidity

contingency and capital plan hen the need arise. "n consultation ith a mar&et ris& manager

ithin the ris& function, the Country Treasurer also organises training for the staff and

publicises relevant &no ledge on mar&et ris& to create a areness and understanding at all

levels of the ban&. To ensure effective coordination and aggregation of efforts in the

management of mar&et ris&s in the ban&, the %ar&et 5is& %anager plays a facilitating and

enabling function. He is also responsible for analysing and reporting to management and the

board the mar&et ris& profile of the ban&. The structure put in place by the ban& to manage

mar&et ris& as enumerated above ensures a good governance mechanism for its management

as has been strongly recommended by regulators including $asel "".

"n addition to ensuring a good governance structure to manage mar&et ris&, another essential

reBuirement for a strong mar&et ris& management frame or& is that it creates a good

atmosphere for its management. "n this regard, the ban& s frame or& prescribes limits ithin

hich mar&et ris&s should be absorbed and prescribes procedures to handle e#ceptional

activities. 1or instance, the mar&et ris& management policy provides for limits on positions

Flong, short, or net positions in mar&ets and products and these limits are set ith regards to

the capital available to cover mar&et ris&, that is, the limits are tied to Bualifying capital.

There are also limits on lo est tolerable loss level Fstop loss e#posure , presence of ne

mar&ets and trading in ne financial instruments. These enable the ban& to avoid huge loses

as ell as allo ing the ban& to properly assess ne mar&et prospects in the light of the

ban& s ris& profile and ris& management strategy. The ban& is also able to build adeBuate

personnel and system capacity to accommodate additional ris& that may come ith the use of

ne financial instruments and entering ne mar&ets. ! revie of the ban& s "T platform also

reveals that its technological capacity is of the highest standard ith state'of'the'art

computer programmes supporting the timely and accurate delivery of information and



71

e#ecution of transactions. Such a system is necessary for prompt ris& evaluation of

transactions as the e#act nature of inherent ris&s is identified.

=.0.0 5is& "denti fic ati on

%ar&et ris&s in )coban& Ghana are identified through daily monitoring of levels, and profit

and loss balances of trading and non trading positions. This is made possible because the

trading units maintain blotters for recording movements and balance sheet positions of

trading instruments. %ar&et ris&s are spotted by the %ar&et 5is& %anager and officers of the

internal control department hen daily trading activities do not conform to approved

strategies and resulting ris& e#posures from such activities e#ceed approved price limits and

the overall ris& tolerance level set by the board. 5is&s that may arise from changes in mar&etris& factors hich may affect the value of trading and non'trading positions as ell as

income streams on non'trading portfolios are also monitored and identified by local !/C*

members on a daily basis.

=.0.2 5is& % easurement

Generally, )coban& Ghana /imited applies the 8alue at 5is& methodology F8!5 to its

trading and non trading portfolios to estimate the mar&et ris& of positions held and thema#imum losses e#pected based on a number of assumptions for various changes in mar&et

conditions. This methodology provides a statistical estimate of potential loss on the current

portfolio from adverse mar&et movements. "t e#presses the ma#imum amount that the ban&

might lose but at a confidence level of 96E. There is therefore a 0E chance that actual loss

could be greater than the 8!5 estimate. The 8!5 model used also assumes a holding period

of ; days until positions can be closed and that mar&et movements occurring over this

holding period ill follo a similar pattern to those that have occurred over the preceding;'day period. The ban& assesses the past movements in rates, prices, indices, etc. over the

previous five years and applies the trend directly to its current positions using the historical

simulation method. *n a regular basis, actual outcomes are then monitored to test the

validity of the assumptions and the parameters factors used in the 8!5 calculation.

The benefit of using 8!5 is that it is for ard'loo&ing and e#presses mar&et ris& in a form

that anybody can understand, that is, currency. The use of this model ho ever does not



72

prevent losses outside of these limits in the event of more significant mar&et movement. The

board sets limits on the value of ris& that may be acceptable for the ban&, trading and non'

trading separately.

T a ble =.0 : 8 ! 5 l i m i ts at v a rious lev e ls

0;;9 0;;6

Lo A;era.e H2.h Lo A;era.e H2.h

"nterest 5ate 5is& 0; 0<; 0 3 66 0 < =23

1oreign )#change 5is& 9; = >2 = 3 0

)Buity 5is& 02> 2;2 <06 03 222

o!rce: 2006 Ann!a+ &e'ort of Ecobank Ghana Limited

9.2.2.1 Li !idit% &isk

)coban& Ghana uses the liBuidity gap schedule Fmaturity ladder to identify and measure the

potential future funding shortfalls hich are an indication of liBuidity ris&. "n its

methodology, the ban& matches cash flo s payable under non'derivative financial liabilities

and assets held for managing liBuidity ris& by remaining contractual maturities. This e#ercise

results in either positive or negative mismatches over various time horiAons. The resulting

gaps from this model may just be seen as a starting point for Buantifying the ban& s liBuidityris&. ith a comprehensive system of assessing future cash flo s from all material assets,

liabilities, off balance sheet items as ell as other business activities of the ban&, it ho ever

serves as useful tool for managing liBuid ris& in the ban&. "n order to provide a more in'depth

indication of the liBuidity situation, the ban& also chec&s the degree of diversification of the

sources of funds. This is to ensure that they correspond ith the ban& s ris& profile, in line

ith the ban& s liBuidity ris& management strategy and also meet prudential reBuirements

Since liBuidity ris& arises during short une#pected periods of time, the ban& constructs

maturity ladders on very short F ee&ly intervals hich are then consolidated into monthly

and Buarterly time horiAons. This ensures that the liBuidity gap schedule remains an effective

instrument for ris& identification and measurement.



73

9.2.2.2 nterest &ate &isk

The ban& uses gap analysis to measure its e#posure to interest rate ris& here it compares the

values of interest rate sensitive assets and interest rate sensitive liabilities that mature or

reprice at various time periods in the future. "n cases here some assets and liabilities do not

have specific contractual maturity or repricing dates, the ban& ma&es judgemental

assumptions about their behaviour. This method enables the ban& estimate the effect of

interest rate changes on its near'term reported earnings. "t presents the ban& ith a single

numeric result for each time period, repricing or maturity and therefore provides a

straightfor ard target for hedging purposes. "ts static nature ho ever does not give a

complete picture of interest rate ris&. $y focusing on reported earnings in estimating rate

sensitivity, this approach to evaluating interest rate ris& tends to ignore the effect of

mismatches among medium'or long'term positions.

The ultimate target of interest rate management, hich is the level of net interest margin, is

normally determined by the relative yields and volumes of balance sheet items, the ongoing

dynamics of hich cannot be addressed by a static model. !lso, the gap model may fail to

predict the impact of a change in funding strategy on the net interest margins because it

assumes that funding decisions in the future ill be similar to the decisions that resulted in

the ban& s original repricing schedule. 1urther, gap analysis does not ta&e into account

variations in the characteristics of different positions ithin a time band because all positions

are assumed to mature or reprice simultaneously. "deally, a ban& s interest rate ris&

management system should ta&e into account the specific characteristics of each interest'

sensitive position and capture in detail the range of potential movements.

9.2.2./ orei#n c!rrenc% risk

1oreign currency ris& is ta&en on by the ban& hen there are fluctuations in the prevailing

foreign currency e#change rates on its financial positions and cash flo s. The actual impacts

of such mismatches are measured through the income statement as foreign e#change gains or

losses. The ban& s foreign e#change ris& management is based on mismatch analysis hich

helps it to determine imbalances bet een maturing foreign assets and liabilities. These

imbalances are then evaluated in the light of current and e#pected e#change rates, domestic

and international mar&et interest rates and acceptable ris& return profiles.



74

=.0.< 5is& % onit oring and Control

The treasurer of the ban& has the responsibility of monitoring the mar&et ris& situation on a

regular basis. He she monitors interest rates through daily, ee&ly and monthly revie s of

the structure and pricing of assets and liabilities. The treasurer also chec&s the open foreign

currency positions to ensure that they are &ept ithin approved overnight and intraday price

limits. /iBuidity ris& is monitored through the gap analysis and ensures that the deposit base

is ell diversified in line ith the Credit :olicy. The %ar&et 5is& %anager also constantly

revie s the mar&et ris& e#posures ith the vie of ensuring they are ithin prudential limits

at all times. !t their monthly meetings, !/C* also e#amine various reports, trac&ing major

activities giving rise to mar&et ris& and also analyses the impact of unli&ely but not

impossible events by means of scenario analysis to enable them gain a better understanding

of the ris&s that the ban& faces under e#treme conditions. *n semi'annual and annual basis,

the ban& s internal control department underta&e thorough and objective assessment of the

entire ris& management frame or& to ascertain assurance regarding its continuing

appropriateness and adeBuacy in the light of current macroeconomic developments and

industry practices.

ith mar&et ris& being monitored and controlled from different angles and levels, the ban&

is assured of an effective system of ensuring that mar&et ris& is &ept ithin acceptable limits.

=.0.= 5is& 5 eporting

ith an elaborate information management system embedded in its "T platform, the

management of )coban& Ghana limited is provided ith timely information on mar&et ris&

e#posures. Scheduled reports on the ban& s position are also provided by the treasury

deportment to assist in decision ma&ing. "ndependent revie s of the ban& s positions and procedures by the !udit and Compliance 4nit to the board gives the board an objective vie

of the mar&et ris& situation.



75

7'5 O%ERATIONAL RISK

=.2. *r ganisation

(ue to the comple# and diverse nature of operational ris&, )coban& Ghana /imited s main

strategy for managing ris&, is to develop a strong operational ris& culture 0; amongst its entire

staff and has therefore committed significant resources to it in the last t o F0 years. %ost of

the efforts to ards this have been in the form of sensitising and training staff on ho their

daily or& activities can contribute to operational ris& and hat they can do to avoid

potential losses. The ban& has also invested in an operational ris& management application

F*pris& %anagement System developed for it by HS$C to assist in identifying lapses in

every aspect of the ban& s activities hich can result in operational losses. The ban& sre ard system has also been adjusted to include recognition for being operational ris&

conscious. The $oard of (irectors and the %anaging (irector of )coban& Ghana /imited

have &een interest and are directly responsible for the management of operational ris& in the

ban&. They set the appropriate environment necessary for handling operational ris& in the

ban& by approving the frame or& and strategies for managing it.

The responsibility for e#ecuting the frame or& and implementing the strategy is ho ever

vested in all heads of units and departments since the sources of operational ris&s cuts across

the entire operations of the ban&. To assist in coordinating the effort of all the staff and

management or&ing ithin or managing operational business units of the ban&, there is an

operational ris& manager ithin the ris& function ho ensures that adeBuate &no ledge,

systems and resources are available to handle operational ris&s. He also participates in

preparing, testing and revie ing the business continuity and disaster recovery plan of every

business unit.

=.2.0 5is& "denti fic ati on

"n line ith $asel "" operational ris& frame or&, )coban& Ghana /imited categorises its

operational ris& into seven loss event categories based on their primary cause? internal fraud,

e#ternal fraud, employment practices and or&place safety, dispute ith clients, damage to

physical assets, business disruptions and systems failure, and e#ecution, delivery and process

20

h"# fact "# #tated c ea% ' "n the 2009 ann$a %epo%t of > Athe pa%ent compan' of >co an! Ghana"m"tedB.



76

management. These categories formed the foundation of the design and construction of the

ban& s operational ris& management soft are and therefore capture information along those

lines. The process of operational ris& identification is mostly based on self assessment

e#ercises by all staff in the various units and departments in a form responding to a set of

Buestions or chec&list relating to their individual or& schedules. "n addition to the regular

assessments of business activities to identify potential inherent ris&s, ris& indicators such as

thefts, failed trades, errors in funds transfer or loan disbursements are immediately

highlighted and brought to the attention of management in other to initiate steps to reduce the

impact of potential losses.

=.2.2 5is& % easurement

ith the help of scorecards, the *perational 5is& %anager is able to translate the Bualitative

assessments from the various units to Buantitative metrics to give a clearer picture of the

different types of operational ris& e#posures. /oss events are also recorded and the amount

of potential or actual inherent losses are stated and reported to the appropriate management

level by the heads of units and departments. "nternal loss events are categorised into actual

loss Fan incident that has resulted in a financial loss , potential loss Fan incident that has been

discovered, that may or may not ultimately result in a financial loss and near miss events. !

near miss event is an incident that as discovered through means other than normal

operating practices and that, through good fortune or focused management action, resulted in

no loss or a gain.

=.2.< 5is& % onit oring and Control

Through its ris& and control self assessments system enabled by its operational ris&

management application, )coban& Ghana /imited is able to trac& internal loss data formonitoring and control purposes. $usiness units are thus able to monitor the &ey operational

ris& e#posures and their underlying causes against the thresholds set by the $an&. The

*perational 5is& %anager is also able to have access to real time data on the levels and

trends of loss events and therefore help in monitoring to ensure that they are ithin

acceptable levels set by the board. The $an& analyses the impact of unli&ely, but not

impossible events by means of scenario analysis, hich enable management to gain a better

understanding of the ris&s that it faces under e#treme conditions. $oth historical and



77

hypothetical events are tested. 5egular monitoring activities ensure that deficiencies in the

operational ris& management policies, processes and procedures are Buic&ly detected and

corrected to reduce the incidence of loss events. !ny indication of potential loss triggers

mitigation measures if the loss is beyond the ban& s acceptable level. There are clear

sanctions for flouting the processes and procedures established to ensure control over

operational to ensure strict compliance. The ban& s "nternal Control 4nit and its e#ternal

auditors also provide independent assurance and challenge across all business functions in

respect of the integrity and effectiveness of the operational ris& management frame or& in

general.

=.2.= 5is& 5 eporting

"t is the responsibility of the *perational 5is& %anager to periodically FBuarterly report on

aggregate ris& profile, ris& control effectiveness and corrective actions ta&en during the

period. He reports operational loss events to management. The "nternal !uditor of the ban&

submits detailed reports of their investigations of operational loss events, including causes

and remedial actions to be implemented to management. 1urther, the $oard reBuires

immediate escalation to the 5is& Committee and $oard of all instances of unauthorised

deviations from any of the standards set out in this ris& policy statementI and li&ely or actual

breaches of thresholds agreed by the 5is& Committee and the $oard.

7'6 S!MMAR$

This chapter loo&ed at the ris& management frame or& employed by )coban& Ghana limited

to enable it achieve an appropriate balance bet een ris& and re ard. The frame or& is

basically structured to handle credit ris&, mar&et ris& and operational ris& hich the ban&

considers to be the major ris&s inherent in its business activities. The ban& has acomprehensive Credit :olicy %anual hich has been revie ed over the years to reflect ne

developments in the ban&ing industry Fboth local and international . )ven though the ban& is

yet to develop such a comprehensive policy manual for managing mar&et and operational

ris&s, it has adopted various guidelines fashioned along the lines of the recommendations by

the 5is& %anagement Group of the $asel Committee on $an&ing Supervision hich see&s to

ensure sound management practices of various ris&s in the ban&ing industry.



78

The ban& s ris& management frame or& mainly see&s to establish an appropriate

environment for managing ris& as ell as put in place necessary tools for the actual

management process. "n line ith establishing an appropriate environment for managing

ris&, the frame or& ensures that there is a solid governance structure in place ith clear

obligations and authority assigned to all ho have responsibilities in the ris& management

process . The frame or& also outlines various procedures, processes and techniBues for

handling ris&s. ith respect to the actual ris& management activities, the frame or&

provides guidance on the approaches for identifying, measuring, monitoring and controlling

as ell as reporting on the various ris&s the ban& is e#posed to. To ensure compliance to the

tenet of the ban& s ris& management frame or&, portions of the ban&s re ard system have

been tied to the level of ris& consciousness of all staff.



79

CHA%TER SI" - CONCL!SION AND RECOMMENDATIONS

8' INTROD!CTION

This chapter provides concluding statements on )coban& Ghana /imited s financial ris&

condition as at the end of its 0;;9 financial year and the adeBuacy of its ris& management

frame or& in handling the ris&s confronting it. The conclusions are supported by a summary

of the results from the analysis on the ban& s ris& profile and the evaluation of the

components of its ris& management frame or& vis' 'vis recommended structures by the

$asel Committee on $an&ing Supervision. The chapter also contains a couple of

recommendations aimed at improving the ban& s ris& management system.

8'& CONCL!SION

The impressive financial performance of the Ghanaian ban&ing industry coupled ith the

absence of any major complaints or adverse finding against ban&s in Ghana gives the

impression that the ban&s are generally stable. The implications of this belief are that the

ban&s have relatively good ris& profiles as ell as sound frame or&s for managing ris&s

inherent in their business activities. The e#tent to hich this can be verified relies on

thorough assessments of the nature and Buantum of ris&s confronting the various ban&s in the

country and an evaluation of their ris& management structures and systems. " have no

&no ledge of any previous or& on Ghana ban& s in this area of study and therefore this

study provides an initial contribution to this e#ercise ith a focus on )coban& Ghana

/imited. "t provides an empirical indication of the types and levels of ris&s the ban& is

e#posed to and its capacity to effectively manage them as at the end of the financial year

0;;9. The evidence from the study suggests that the ris& profile of )coban& Ghana /imited

as good based on the follo ing observations?

i. Though there as a significant e#pansion of the siAe of the ban& s balance sheet, the

resulting structural changes lead to a healthy asset mi# balancing liBuidity ith

profitability. The consecutive approach ta&en by the ban& in 0;;9 sa its investments

in government securities constituting the largest portion of its asset mi# so as to avoid

increasing lending ris&. The gro th in assets as also bac&ed by stable funding



80

sources from customer demand deposits and adeBuate capital base hich sa a huge

increase through additional capitaliAation by shareholders.

ii. The profitability level of the ban& as also high hich provided a cushion for short

term liBuidity problems and a stable source of capital generation. This as fueled by

significant gro th in the ban& s main revenue streamsI net interest income and fee'

based incomes. The ban& s demonstration of high levels of efficiency in the use of its

potential Fassets and in its operations, indicated in the stable 5eturn on !ssets and

relatively high +et "ncome as a percentage of Gross /oan and !dvances ratios,

provides confidence of its ability to sustain profitability.

iii. )#panded credit e#posure ith significant concentration levels to fe large corporate

in the service sector of the economy creates some orry for the ban& s credit ris&.

Ho ever, the loan Buality improved as the level of non'performing loans in the loan

portfolio declined ith tightened lending processes and increased monitoring and

recovery activities. The ban& s capacity to absorb credit losses as also improved

ith adeBuate collateral cover and allo ance made for impairments.

iv. The high level of profitability ensured that the ban& had enough liBuid assets to meet

une#pected short term mismatches. ith a funding structure dominated by core

customer deposits coupled ith majority of its cash flo generated from operating

activities, the liBuidity situation of the ban& as health as at the end of financial year

0;;9.

v. $y &eeping more short term interest sensitive assets compared to short term interest

sensitive liabilities in the face of falling interest rate levels, the ban& incurred loss of

interest income. The level of the ban& s e#posure to interest rate ris& as further

revealed by the high G!: to total assets ratio hich even fell outside the general

prudential limits. The ban& ho ever appears to have adeBuate eBuity to cushion it

against any threats from adverse interest rate movements.

vi. 1inally, )GH had adeBuate funding in foreign currency to bac& foreign currency loans

and meet demands for foreign currency transactions shielding it from adverse foreign

currency ris& e#posure.

The study also revealed that )coban& Ghana /imited had adeBuate ris& management

structures to ensure sound management of credit, liBuidity, interest rate, currency and

operational ris&s. This is premised on the fact that?



81

a. !n appropriate environment has been established for managing ris&. This included a,

solid governance structure ith clear obligations and lines of authority and policy

documents approved by the board containing procedures, processes and techniBues

for handling various ris&s.

b. 5elevant tools and management information systems have been provided to ensure

adeBuate and consistent identification, measurement, monitoring and controlling as

ell as reporting on the various ris&s the ban& is e#posed to.

c. )ffective controls have also been put in place to ensure compliance to the tenet of the

ban& s ris& management frame or& by lin&ing portions of the ban&s re ard and

punishment system to the e#tent of adherence to ris& issues.

d. Strong ris& culture in the ban& as all staff are conscious about the ris&s inherent in

their activities are al ays on the loo&out to avoid or minimise the incidence of ris&.

This has been made possible through e#tensive regular education and training on ris&

issues in the ban& coupled ith the central role ris& a areness play in the

performance base remuneration system.

These interventions made by the ban& to ensure sound ris& management are also in line ith

internationally accepted principles for managing ris&s as put for ard by the $asel Committee

for $an&ing Supervision and e#pected to be implemented by all ban&s operating in Ghana as

they have incorporated in the Ghana $an&ing !ct 0;;<, !ct >32 0 .

8'* RECOMMENDATIONS

(espite a fairly good ris& management frame or& in place to adeBuately manage the various

types of ris& )GH faces, " ould li&e to ma&e a couple of recommendations hich " believe

ould help strengthen it ris& management system and ma&e it more competitive. These are

primarily related to interest rate ris& measurement and ris& integration and aggregation.

>.0. "nte rest 5 ate 5is& %ana gement

Currently, )GH applies the %aturity Gap !nalysis method here assets and liabilities are

categorised by their repricing dates to identify mismatches ithin specific time periods, for

estimating interest rate ris&. !n alternative hich ill help address the shortfalls in this

21 h"# "nfo%mat"on wa# conf"%med ' the ep$t' Go&e%no% of ,an! of Ghana %. . an a%e o#oo at the

(eg"ona em"na% on ("#!- a#ed #$pe%&"#"on on 24 )p%" 2006 "n )cc%a.



82

accounting approach of evaluating interest rate ris& ill be one hich focuses on estimating

the interest rate sensitivity of the economic value of a ban&Ms on' and off'balance'sheet

positions. )conomic 8alue !nalysis F)8! can serve as a good indicator of Buality of net

interest margins over a long term and help identify ris& e#posures such as changes in mar&et

conditions not evident in the analysis of short term. This can help the ban& to avoid strategies

that ma#imiAe current earnings at the cost of e#posing future earning to great ris&. T o such

approaches hich have been recommended in recent times are the simulation techniBue and

duration analysis.

Simulation involves the use of sophisticated computer models to generate the effects of a

ide array of interest rate scenarios on a ban&Ms financial condition. The measures it generates

can address both the accounting and economic perspectives of )GH s interest rate ris&

e#posure. Ho ever, simulations are highly data intensive, and the results rely heavily on

assumptions as ith many computer modeling techniBues. %oreover, these assumptions on

target variables such as net interest income it is difficult to objectively isolate the influence of

changing interest rates on the measures. "n the light of these, duration analysis is highly

recommended to )GH to maintain a balance bet een simplicity and results. (uration is the

measure of the sensitivity of the present value Feconomic value of the assets and liabilities to

changing interest rates. (uration analysis therefore helps in estimating the durations of assets,liabilities, and off'balance'sheet positions. Through this, )GH can estimate the net duration

of its portfolio and the interest sensitivity of the present value of its net orth. "n this sense,

duration analysis offers a more comprehensive approach to measuring interest rate ris& by

incorporating the entire spectrum of a ban&Ms repricing mismatches. "t e#pands the basic

maturity gap approach to assess the effects of changes in rates on the present value of all

future earnings, not just on ne#t yearMs boo& earnings.

>.0.0 !dopting an inte gr ated a pproach to ris& m ana gem ent

Currently, the structure of )GH s ris& management frame or& allo s for specific ris&'related

decisions to be multiple levels of the ban&. !lso different approaches are used in managing

the different ris& types at various units in the ban&. This result in fragmented ris&

management practices and a disjointed approach for dealing ith the ris&s the ban& is

e#posed to. There is therefore the need for the ban& to develop an integrated system hich

ensures a systematic and comprehensive approach to managing ris& across the ban&. !n





84

are incorporated in the economic capital method, it can be used to aggregate the different

types of ris&s it face such as credit ris&, mar&et ris&s and operational ris&. The common

outcome of these ris&s is the possible lose of net asset value hich economic capital see&s to

safeguard against. There are various ays by hich )GH can go about aggregating its ris&.

The best approach ill be to use the building bloc& approach that aggregates ris& at

successive levels in an organiAation. The aggregation is first done across the ban& s business

lines by ris& type before subseBuent aggregating the ris& types at the ban& ide level.

The above approach ill enable )GH to &no the ris& profile of each of its business units in

addition to getting the ban&' ide total e#posure. )GH can no set aside an amount of money

Feconomic capital ith the help of statistical tool such as 8!5 Ffor mar&et ris& . The

economic capital ill be the amount the ban& believes ill be necessary to absorb potential

losses from each ris& type, business unit and the ban& under e#treme mar&et conditions after

all the various individual ris&s and their related effects on each other has been accounted for.

!ggregation of ris&s and estimation of economic capital can assist )GH in its ris&

management efforts in many ays. "t can assist the ban& in ris& control, in that, the amount of

economic capital allocated to business unit constraints the ris&s it ta&es. !lso it can help in

performance measurement as it is use in ell'&no n measures li&e ris&'adjusted return on

capital F5!5*C and return on ris&'adjusted capital F5*5!C hich can be used to evaluate performance across the various business lines in the ban&. )GH can also vary the amount of

economic capital allocated to a business unit from time to time to promote or discourage

certain activities sometimes in response to business cycles shifts. 1or instance it can allocate

more economic capital to units ith lo 5!5*C so that those units may reduce their

activities hen macro economic conditions are too volatile and thereby save the ban& from

probable huge losses.





86

A%%ENDI" B: Co parat2;e F21a1<2a State e1t9 of EGH for * - * +

ECOBANK GHANA LIMITED

B&' BALANCE SHEET

*((- *((, *((+

ASSETS GH GH GH

Cash and Cash $alances ith central ban& <6,032 >9,393 ;<, >0

1inancial assets held for trading ' E !it% instr!ments 6,02< =,;90 0,=<;

!vailable'for'sale financial assets ' )Buity instruments =,6;< 2=, 60 0<,2>2

/oans and receivables 066,>9< <; ,=2 <=>, =9

Held'to'maturity investments

3ebt instr!ments 6>,<>6 69,>39 0>6,=2<

Loans and ad$ances 33,=6; 020,>;9 <<0,6;>

(erivative financial instruments 2 ; ;Tangible assets ' ro'ert%, +ant and E !i'ment >,920 0<,26 <<,; =

"ntangible assets ' License for cor'orate soft)are ; 0, 9; 2,>2;

Ta# assets ' 3eferred ta assets 93; 9 6 ,2 9

*ther assets 2=,39 =6,2 > <;,>>=

T*T!/ !SS)TS 88, 6+ +&+ 8+7 & 5,, &+5

LIABILITIES GH GH GH

(eposits from ban&s and other credit institutions =9,6; <,0> 9;, 03

$orro ings ==,>> > ,360 60,<99

(eposits from customers <23,9= >60,3;= 900,;33

Ta# liabilities <,30< <,2< 2,23<

*ther liabilities <=,9<> 3 ,6>6 6<,3;2

T*T!/ /"!$"/"T")S 8 6 ,5 ,56 +7 & &,* ,

E?!IT$ GH GH GH

Stated capital >,<;; >,<;; ;;,;;;

"ncome Surplus !ccount 02,<9> < ,> 9 =9,;<

5evaluation 5eserves ,>;0 ,=9= =,<9

Statutory 5eserve 1und 6,3<3 00,9>= 09,>=<

5egulatory Credit 5is& 5eserve <,<0 0,36 0,3 >

Capital and )Buity attributable to parent eBuityMs)Buity holders ><,>>> 6=,2>; 0;>,9;0

+on'controlling interest ; '>00 ' ,<69

T*T!/ )@4"TY 86 888 ,6 5, * 7 6&5

T*T!/ /"!$"/"T")S !+( )@4"TY 88, 6+ +&+ 8+7 & 5,, &+5

Co1t21.e1</ 2a32 2t2e9 a1= <o 2t e1t 87 *8,' &55 *5 ' *55 &*+'




B*' INCOME STATEMENT

*((- *((, *((+

GH GH GH

I1tere9t I1<o e

!vailable'for'sale financial assets ' E !it% instr!ments 2,292 >,0;2 <0,<=0/oans and receivables 03,9 = <<,6>; 3>,=<=

Held'to'maturity investments ' +acements 5 T f!nds ;,<3 ,>9 0,260

(I1tere9t E pe19e)

(emand deposits ' ,2<6 '0,299 '6,>>3

Time deposits ' 0,;62 ' 2,2;< ' ,6;6

$orro ed funds '0,>03 '>,>36 ' 9,2 2

Savings ; '<,00< '9, 2<

Fee9 a1= Co 2992o1 I1<o e

Trade finance fees =,;03 <,639 3,>0>

Credit related fees and commission 2,;69 2,3<> >,02Cash %anagement ,;32 9, 6> >,< 9

*ther fees and commissions 3,60< 2,;>3 2,906

(Fee9 a1= Co 2992o1 E pe19e9) '=; ' , ;3 '0,;=0Rea 29e= .a219 o1 f21a1<2a a99et9 @ 2a32 2t2e9 1ot

ea9ure=

at fa2r ;a ue throu.h prof2t or o99 1et ' finance +ease 0,636 <,2 ; =,;>>Ga219 o1 f21a1<2a a99et9 a1= 2a32 2t2e9 he = for tra=21.1et

- net tradin# income >,9;3 2=,2;9 06, <6

Ga219 o1 f21a1<2a a99et9 a1= 2a32 2t2e9 =e92.1ate= at fa2r

;a ue throu.h prof2t or o99 1et - 3i$idend income 206 > 2 <<6

Other operat21. 21<o e

:rofit on sale of eBuipment 6 2 <6

other income ,==9 ,;0< ,<>9

Tota I1<o e 85 +&5 & &,+ &7+ ,,,

Operat21. E pe19e9 '22, <2 '=3,=;= '33,>6

I pa2r e1t <har.e o1 oa19 a1= a=;a1<e9 '=9 '=,392 '9,= 6

%rof2t 3efore 21<o e ta 5 & + 65 ,+& * 8,+

"ncome ta# e#penses '3,62; ' ;,2 0 ' 3, 9=

+ational stabilisation levy ; ; ' ,><%rof2t for the /ear ** 56+ 55 7 + 75 ,75

!ttributable to?

)Buity holders of the parent entity 002<9 2<,;6= =<,30;

+on controlling interest ; '=;> '6>3

** 56+ 55 7 + 75 ,75

87



88


B5' CASHFLO STATEMENT

*((- *((, *((+

GH GH GH

Ca9h f o 9 fro operat21. a<t2;2t2e9

"nterest paid ' >,;=9 '0>,>;> '<0,>6"nterest received =;,=<0 30,0;= 0=,3 ;

+et fees and commissions receipts >,= 0 9,0=< <0, =0

*ther income received ,=>6 ,;23 ,> 3

(ividend received 206 > < <<6

+et trading income 9,=22 09,992 02,2=<

/ease income 0,636 <,2 ; <,>>0

:ayments too employees and suppliers '06,<3 '=2,269 '>9,32;

Ta# paid '>,<26 ' ,9;2 ' 9,2>;

Ca9h f o fro operat21. a<t2;2t2e9 3efore <ha1.e9 21

operat21. a99et9 a1= 2a32 2t2e9 5 5+5 57 7&7 88 & *

Changes in operating assets and liabilities

/oans and advances ' 0>,= 2 ' 6,>2 '=<,>06

other assets 23,; = '00,<3; 3,>=

"nvestment securities ; '09,236 ' ;,6 9

Customer deposits ;0,2 < 0<<,3=< 029,230

*ther liabilities <0,=23 =3,206 ' <,>;<

%andatory reserve reBuirement ; '=,;< '0<,209

Net Ca9h .e1erate= fro operat21. a<t2;2t2e9 6+ 76, &*8 78* &7* 865

Cash flo from investing activities

:urchase of property and eBuipment '6,663 ' 2, <3 ' ,< 6

:urchase of soft are ; '0,2= '0,63;

:roceeds from sale of sale eBuipment 2 ; 9 >

:urchase of Government securities 0,260 2,0 '=9, 6;

Net <a9h u9e= 21 21;e9t21. a<t2;2t2e9 -8 &+7 &* *8, 5 5

Cash flo from financing activities

(ividend paid ' ;,6=9 ' 2,26< 0>,=3<

:roceeds from right issue ; 39,=;;

5epayment of borro ed funds ; '9,=36

:roceeds from borro ed funds >, 00 >, 00 0 , 2=Net <a9h .e1erate= (u9e= 21) fro f21a1<21. a<t2;2t2e9 -6 5 - *8* 86 6,5

+et increase in cash and cash eBuivalents >9,;;9 <<,02> 0;9,99

Cash and cash eBuivalents at beginning of year 93, 20 >>, << 2 ;,233

Ca9h a1= <a9h e>u2;a e1t9 at the e1= of /ear &88 &6& 5& 5 7* 58,o!rce: 2004 and 2006 Ann!a+ &e'orts of Ecobank Ghana +imited



89


A%%ENDI" C: B oo 3er. L' % rat21.9 a1= Sto<4 Tre1=9

C ? 5 ati ngs for short'ter m and /on g 'term c redit s.

o!rce: "+oomber# L.

C0 ? T ab le annual s har e pr ice p er fo r mance o f )GH o n t he Gh ana Stoc& ) #cha n ge

Share %r2<e %erfor a1<e of EGHTra=21. Date Sto<4 %r2<e

'Jul';> 09;.;;2'Jan';3 2=0.;

'Jul';3 <=>.0;<'Jan';6 0;=;.;

'Jul';6 < ;;.;;0'Jan';9 <=;;.;

;'Jul';9 0;>;.;;='Jan' ; 06;;.;;9'Jul' ; 22;;.;

o!rce: O)n constr!ction )ith data com'i+ed b% Go+d *oast ec!rities Limited



90


A%%ENDI" D: Ta3 e9 a1= Chart9 for R294 %rof2 e A99e99 e1t

( ? Comm on S iA e and Trend anal ysis of $alan ce S heet of )GHBALANCE SHEET Co po92t2o1 Gro th

* * , * + * , * +ASSETS 0 0 0 0 0

Cash and Cash $alances ith central ban& 3.00 3.=9 3.=; <<.=9 <9.0<

1inancial assets held for trading ' E !it% instr!ments .02 ;.== ;. 6 '26. > '=;. 0

!vailable'for'sale financial assets ' )Buity instruments ;.63 2.62 .3> =;>. 3 '2;.3=

Held'to'maturity investments 29.<6 2=.;< = .0< 00.;> 0;.30

/oans and receivables <2. 3 <2.>> 20.6> 29.;9 2.>;

Tangible assets ' ro'ert%, +ant and E !i'ment 0.=2 0.>= 2. 3 <2.99 6;.=2

*ther assets =.=; >.>6 2.09 >3.;6 '0=.3<

Tota A99et & & & 5 '7* 7 '+6

LIABILITIES @ E?!IT$(eposits from ban&s and other credit institutions 6.9< .== >.<9 '3>. = =2 .96

$orro ings 6.20 >.30 =.9< .;; 22.=2

(eposits from customers >=.<9 3<.02 >>.<0 ==.69 2=.;>

Ta# D other liabilities 3.=6 6.09 >.2< =;.<; =.=3

E>u2t/ +'8 +'*& &6', 5&' 6 &6*'6&

Tota & & & 5 '7* 7 '+6o!rce: O)n constr!ction )ith data from com'arati$e ba+ance sheet

(0? C omm on S iA e and Trend anal ysis of "ncome s tatement of )GHCo po92t2o1 Gro th

INCOME STATEMENT * * , * + * , * +

+et "nterest "ncome ==.69E <2.;=E = .=3E 09. 9E 36.>6E

1ees and Commission "ncome 0=.6<E 6.<<E 0>.2>E 9.3<E 2.0;E

5ealised gains on finance lease <.=;E <.;0E 2. 3E <9.3>E 3.=<E

+et trading income ;.6 E 20.9<E 3.>;E < .0 E '0;.06E

(ividend income ;.= E ;.=3E ;.06E 6>.69E '0>.90E

*ther operating income 0.<=E ;.93E .; E ' 0.92E 0=. =E

Total "ncome ;;.;;E ;;.;;E ;;.;;E >3.6 E <6.32E

*perating )#penses 39.3<E 33.=9E 30.>3E 32.= E 2=.;9E"mpairment charge on loans and advances .<0E 3.60E 6.9;E 66;.0;E ><.2;E

:rofit before ta# <=.<<E >=.> E

Ta#ation and levy 6.6<E 2.9 E 3.>0E 2 .3;E 60.>>E

%rof2t for the /ear =;.0=E >;.26E

:rofit attributed to +on controlling interest ;.;;E ;.>6E ;.6 E ;.;;E 3 .2<E

Total Cost ;;.;;E ;;.;;E ;;.;;E 36.20E <<.0<Eo!rce: O)n constr!ction )ith data from com'arati$e income statement



91


(2? $alan ce S heet and gr o th trend of (eposit % one y $an &s in Ghana

Ke/ De;e op e1t9 Depo92t Mo1e/ Ba149 Ba a1<e Sheet Gro th

*((, *((+ *((, *((+

ASSETS GH GH 0 0

1oreign !ssets 936,6;; ,=0>,0;; =<.9 ==.9(omestic !ssets 9,3 2,<;; 0,= 0,<;; 2=.> 06.6

"nvestments ,=<3,9;; 0,969,2;; 0.6 92.

$ills 992,;;; ,396,2;; .2 6 .

Securities =09,3;; , 2 ,3;; '<;.; 2.>

+et !dvances =,=92,9;; >,9 3,>;; <0.3 02.3

of hich foreign currency ,= ;,<;; ,>==,0;; =0. 9.>

Gross !dvances =,9>>,6;; >,9 3,>;; <2.9 =.9

*ther !ssets =;>,>;; 3>2,>;; <.= =;.3

1i#ed !ssets 2<<,>;; <0<,0;; <0.> 02.

Tota A99et & 8+* * &6 5, 8 5-'* 5&'5

LIABILITIES @ E?!IT$ GH GH 0 0

Total (eposits >,9<9,;;; 6,9>6,>;; < .< 09.

of hich foreign currency ,6;<,3;; 0,3<9,0;; 33.> =0.2

Total $orro ings ,2>;,;;; ,63 ,3;; 09.= 23.>

1oreign liabilities 9;=,9;; , ;2,<;; 2=.6 0 .6

Short'term borro ings 2< ,9;; = 6,<;; 0.; = .>

/ong'term borro ings 230,0;; 2<9,3;; =9.9 '>.;

(eposits of non'residents 9 ,6;; 02=,0;; 92.> 00.>

(omestic liabilities 6,=9;,=;; , <<,2;; 2>.= 09.3

Short'term borro ings =<3,>;; 633,6;; ==.2 >;.2

/ong'term borro ings 96,2;; 0=,6;; '0<.2 06.;

(eposits of (eposits >,3=3,0;; 6,322,=;; <;.2 09.0

*ther /iabilities ,0>0,6;; ,23=,3;; 20.0 6.9

:aid'up capital <<=,6;; , ;2,3;; >;.; <3.>

ShareholdersM 1unds , 0,6;; ,3>0,6;; 26. =6.<o!rce: ebr!ar% 2010 inancia+ tabi+it% &e'ort



92


(<? "n come St atement an d gro th trend of ( eposit %one y $an&s in Gh ana

Depo92t Mo1e/ Ba149 I1<o e State e1t Gro th

* * , *((+ * , * +

GH GH GH 0 0

"nterest "ncome 330, ;;.; , 6=,0;;.; ,62 ,<;;.; =2.= =<.=interest )#penses '0>9,=;;.; '<6 ,=;;.; '6=6, ;;.; 36.3 36.0

+et "nterest "ncome =;0,>;;.; 3;2,>;;.; 932,2;;.; <; 26.2

1ees and Commissions F+et 02<,3;;.; 2;2, ;;.; 2>>,;;;.; 09. 0;.6

*ther "ncome 62, ;;.; 0 =,6;;.; 030,=;;.; =9.3 0>.2

*perating "ncome 60;,<;;.; ,000,=;;.; ,> ,6;;.; <9 2 .6

Total income ,><;,6;;.; 0,<<=,;;;.; 2,002,>;;.;

*perating )#penses '<> ,9;;.; '32>,2;;.; '929,=;;.; =9.< 03.>

Staff Cost ' 6;,;;;.; '2;2,<;;.; '23>,9;;.; >6.> 0<.0

*ther *perating )#penses '06 ,9;;.; '<20,9;;.; '=>0,>;;.; =2.> 2;.;

+et *perating "ncome 2=6,=;;.; <6>,0;;.; >30,2;;.; 2=.= 26.2

Total :rovision F/oan losses, (epreciation D *thers ' <,2;;.; ' 66, ;;.; '22;, ;;.; ><.> 3=.=

%onetary /oss ,;;;.; 2,0;;.; ' ,0;;.; ; ;.;

"ncome $efore Ta# 0<=,0;;.; 2; ,2;;.; 2< ,;;;.; 00.9 2.0

Ta# '>6,2;;.; '3<, ;;.; '93,9;;.; 6.= 20.

+et "ncome 3>,9;;.; 003,2;;.; 0<2, ;;.; 06.= 3.;o!rce: ebr!ar% 2010 inancia+ tabi+it% &e'ort

(=? Table of gro th in capit al adeBua c y and off 'b alance sh eet i tem

Co po92t2o1 of <o po1e1t9 21 Tota A99et9

* * & * * * 5 * 6 * 7 * 8 * * , * +

ASSETS 0 0 0 0 0 0 0 0 0 0

Cash and due from ban&s 0=.= 0=.0 06.9 09.= 03.; 0;.3 02.= 02.2 0=.0 0>.2

"nvestments 0<.0 06.; 2 .3 03.3 03.3 0>.9 02.2 3.> <.= 0 .2

+et advances 29.> 23.3 2;.< 2;=.0 2=.> <2.; <=.; =;.2 =0.2 <2.6

*ther assets 6.; =.3 =.3 <.6 >.2 >.= =.0 =.3 <.3 =.<

1i#ed assets 0.3 2.< 2.2 0.3 0.3 2.; 2. 2. 2.0 2.;

LIABILITIES @ E?!IT$

Total deposits > .< =6.2 >;.; >0.3 ><.0 ><.6 >=.0 >2.; >=.; >2.9

Total borro ings 0.3 6.< 3.= 6.; 3.< 9.; .2 2.= 0.3 2.2

*ther liabilities 2.> 9.= 9.; >.3 =.= 2.< ;.3 0.0 .6 9.6

ShareholdersM funds .9 2. 0.> 0.= 0.> 0.6 .3 ;.2 ;.< 0.>o!rce: ebr!ar% 2010 b!++etin of the inancia+ tabi+it% &e'ort b% "ank of Ghana



93


(>? C h a rt of income c o m posit i on

o!rce: O)n constr!ction )ith data from common-si e ana+%sis of income statement and 2010 inancia+

tabi+it% &e'ort of "ank of Ghana

(3? !sset invested comp ared ith i ncome sour ces

o!rce: O)n constr!ction )ith data from common-si e ana+%sis of ba+ance sheet and income statement

(6? Table of pro fitabilit y and effi cienc y r ati os

EGH I1=u9tr/

%rof2ta32 2t/ a1= Eff2<2e1</ * * , * + * +

:rofit margin Fpost ta# 2<.93E 2 .22E 22.>6E 3.=<E

5eturn on assets Fpre'ta# <.= E <.33E =.0<E .32E

5eturn on average eBuity Fpost ta# 2<.=>E 29.>2E 0>.00E 2.39E

+et interest income as a E of total assets =.2<E =.;0E =.9<E >.92E

*perating e#penses as a E of total assets <.9>E >.0=E =.>;E >.>9E

+et interest income as a E of Gross loans and advances 0. 9E . 6E 3.2>E <.;3E

*perating e#penses as a E of gross operating income = .=9E =2.2<E <6.<=E 09. <Eo!rce: O)n constr!ction )ith data from com'arati$e ba+ance sheet and income statement



94


(9? Table of credit ris& measures fo r )GH* * , * + Gro th

Cre=2t R294 Mea9ure9 GH GH GH *((, * +

Total ma#imum e#posure to credit ris& >62,026 ,;0=,<<2 ,=30,2=6 =;.;9E =2.22E

Gross loans and advances to customers 092, =< < 0,9;3 <3=, 0 <;.6=E =.;3E

Gross loans and advances to ban&s 33,=6; 020,>;9 <<0,6;> 2;.99E 9;.2>E

Total /oan :ortfolio <3;,32< ><=,= > 9 3,9 6 23. 2E <0.0;E

@ualifying capital 6>,90> ;9,;;> 0==,<<2 0=.<;E 2<.2<E

Collateral <,>=6 =,6 0 06, 2> 3.63E 33.9<E

+on'performing loans 2,<2> <,9<6 >,00< .0=E 6.=<E

"mpairment Charge =9 =,392 9,= 6 66;.0;E ><.2;E

!llo ance for impairment <,<>; 9,>< 6,9=0 >. 3E 9>.=6E=; largest e#posure to customers Fnon

ban&s >;,2==.0< 02;, ==.=0 0> ,2 .>; <2.=2E 2.=<ECustomer loans as a E to total loan

portfolio >0E ><E =0E$an& loans as a E of total loan

portfolio 26E 2>E <6E=; largest e#posure as E to gross loansand advances =<.3;E =>.;;E ==.;;E=; largest e#posure as E to Bualifyingcapital 6<.<3E 0 . <E ;0.2;E=; largest e#posure as E to Total creditris& e#posure 02.<3E 00.<<E >.>0ECollateral as E to +on'performingloans FCoverage ratio ;9.;9E ;=.36E 32.<0E

+on'performing loans as E of Grossloans and advances <.=6E 2.>0E 2.< E"mpairment Charge as a E of Grossloans and advances ;.0;E .<;E 0.;;E!llo ance for impairment as E of Gross loans and advances .=0E 0.22E 2.99Eo!rce: O)n constr!ction )ith data from com'arati$e ba+ance sheet and income statement

( ;? Table of c redit ris& measures fo r Ghan a ban& ing "ndustr yCre=2t R294 Mea9ure9 for the Gha1a2a1 Ba1421. I1=u9tr/ Gro th

* * , * + * , * +

GH GH GH 0 0

Total /oan :ortfolio < <,><6 =9>,>6; >9 ,3>= <2.9;E =.9<E +on'performing loans 0>>,;;; <=6, ;; ,;2<, ;; 30.00E 0=.3<E

0 0 0

+on'performing loans as E of Gross loans and advances >.9;E 3.3;E <.9;E

!llo ance for impairment as E of Gross loans and advances <.3;E =. ;E 9.<;Eo!rce: ebr!ar% 2010 of inancia+ tabi+it% &e'ort of "ank of Ghana



95


( ? 5 a ti o of n on ' b a n& to ban& lo a ns

o!rce: O)n constr!ction )ith data from tab+e of credit risk meas!re com'!tations

( 0? t able of industr y co ncentrati on of custom er l oansCo po92t2o1 Gro th

EGH I1=u9tr/ EGH

I1=u9tr/ Co1<e1trat2o19 * * , * + * + * , * +

Construction =.6<E ;.>;E 9.09E 3.6;E >;.<;E '2.;2E

!griculture, forestry and fishing ;.;<E ;.63E 0.33E <.3;E 092 .<;E 0= .62E

%ining and Buarrying >.=6E <.;=E 2.36E 0.3;E ' .>>E 2.2>E

%anufacturing 3.32E 0<.9=E 9.2;E .>;E ; .62E ' <.2<E

)lectricity, gas and ater =.>9E ;.;3E 6.22E >.2;E '96. 6E 0>9<.;>E

Commerce and finance 6.;2E 3. =E =.36E 2 .>;E 2>.<2E .6<E

Transport, Storage and communication 3.90E 3.66E =.;3E 2.9;E <0.3 E '06.6;E

Services 26. >E 2<.<0E 2=.>6E 0 .0;E 09.29E <.3>E

%iscellaneous ; ; ; ;.0;E ; ;

Total ;;.;;E ;;.;;E ;;.;;E ;;.;;E <2.<=E ;.3 Eo!rce: O)n constr!ction )ith data from 2004 and 2006 Ann!a+ re'orts of EG7

( 2? Table of custome r loans dist ribution b y p ro ducts* * , * + Co po92t2o1 Gro th

Cu9to er Loa19 3/ pro=u<t GH GH GH*((-

0*((,

0*((+

0*((,

0*((+

0

Term /oans 6<,63< 02;,63; 20=,=>= = .=6 <0.< <=.93 0<.66 < .;0

*verdrafts 63, < <6,6<9 ,902 0<.2; 03.2< =.6; 3;.63 '0<.6

1inance leases =,660 6,<<6 3,<>= <.<2 2.29 0.<3 >. > '=.22

Staff loans =, <; 9,;36 2,602 .<2 .>3 .9= 3>.> =0.03

%ortgage << 2,3<3 >,22= ;.;< ;.>9 ;.69 0=;0.;6 >9.;3

Guarantees > ,0>2 ;;, >> 002,;>0 3.;9 6.<; 2 .=; >2.=; 00.>9/oan commitments D other credit related liabilities <,;;= 22,023 ;,;>3 . 0 >. .<0 309.69 '>9.3

Tota 57, 6** 766 5+7 , *6 & ' & ' & 'o!rce: O)n constr!ction )ith data from 2004 and 2006 Ann!a+ re'orts of EG7





97


( 6? Table of li Buidi t y ri s& measures

*((- *((, *((+

L2>u2=2t/ Rat2o9 GH GH GH

Total !ssets >><,=2> 90 ,99< ,229,009

/iBuid assets 0=0, >= 293, 33 6 6,;<0Total /iabilities > >,< > 62<,9=3 , 99,96

8olatile /iabilities ==6,;>= 3<6, 3 ,;22,32;

Customer (eposits <23,9=; >60,3;= 92=,99

Customer /oans 06=,330 020,>;9 <=>, =9

"nterban& (eposits =9,6; <,0> 90,62

"nterban& /oans 6>,2 0 020,>;9 <<0,6;>

!ll deposits type <93,3= >9>,9>> ,;06,600

Core Customer (eposits 2>;,0;> =9;,>0 39=,0<6

Short term "nvestment 0=3,2=9 2=0,96; =3>,;<0

/ong term !ssets 2=,6 20,0< 06;,;02

Customer loans as a E of customer deposits >=.0=E 2<.;3E <6.3<E

Customer loans as a E of core deposits 39.2<E 29.26E =3.2>E

"nterban& loans as a E of interban& deposits <<.22E >2 .;6E <33.;;E

8olatile /iability (ependency ratio 00 .<0E 096.6;E >2.<=E

/iBuid assets as a E of total assets 23.9=E <2.;6E > .;6E

/iBuid assets as a E of volatile liabilities '

<o+ati+it% co$era#e <=. 9E =2.;9E 39. 2E

8olatile /iabilities as a E of total liabilities 9;.=2E 69.>;E 6>. =E

/iBuid assets as a E of all deposits type ' "ank &!n =;.>>E =>.99E 39.= E

0; largest deposits as a E total customer deposits 09.;;E 0;.;;Eo!rce: O)n constr!ction )ith data from 2004 and 2006 Ann!a+ re'orts of EG7

( 9? Table of c ash flo summ ar y* * , * + Gro th

Ca9h F o 9 GH GH GH * , * + +et cash operating from Fused in activities <9,=<6 0>,=>0 =0,><2 ==.<2E 0;.> E +et cash used in investing activities '>, 9= ' 0,0>6 32,2;3 '96.;2E >93.==E

+et cash Fused in generated from financing activities '<,323 '3,0>0 ><,<62 '=2.2;E 963.9=E +et increase in cash and cash eBuivalents >9,;;9 <<,02> 0;9,99 ;9.; E <=.=9Eo!rce: O)n constr!ction )ith data from cash f+o) statement



98


(0;? Table of int er est rat e ris& m easur es*((- *((, *((+

I1tere9t Rate Repr2<21. Matur2t/ =ate9 GH GH GH

A99et9

' 2 months <03,9=< <2>,336 >29,96=

< ' 0 months 62,=;= 3 ,;=> 2 =,903

' = years 2,;>2 0,;=< 32,6;3

+on'"nterest bearing 0>,000 32,02> 2;9,= ;

Tota 87 66 ,+5 &*6 & 55+ **+

L2a32 2t2e9

' 2 months 2;0,>; 00,< ; 2; , ==

< ' 0 months 0;2, 0 <>, 6 29,<<;

' = years 0;, ;0 62,;=> >2,<<>

+on'"nterest bearing 32,=<2 =3>,< 6 =3=,2>=

Tota 7++ 57, ,*, * & & + 6 8 *nterest $epricing Mismatches

1 - / months 129,/9/ /1 ,/ 4 //4,4/0

- 12 months -116, 08 12 ,6/4 18 , 48

1 - 9 %ears -8,0/6 24,664 -46, /6

+on'"nterest bearing 92, 86 - 0/,142 -2 9,499

Tota +, ./0 0+ ,11 ,+2 /1.

"nterest rate sensitive assets = ,<=9 >;3,62< 9==,9 0

"nterest rate sensitive liabilities =;=,3 2 >6,=06 <<;,=9=

Gap =,3<> <29,2;> = =,2 3

"nterest rate sensitive assets "nterest rate sensitive liabilities ; . <E 2>;.>3E 0 >.9>E

"nterest rate sensitive assets Total assets 36.>;E >6.;>E 3 .26E

"nterest rate sensitive liabilities Total /iabilities 6<.26E 0;.2=E 23.2>E

Gap Tota a99et9 ',,0 6+'&+0 5,'6,0

Gap Tota e>u2t/ ,',+0 7&,'650 *7 ', 0o!rce: O)n constr!ction )ith data from 2004 and 2006 Ann!a+ re'orts of EG7

(0 ? C h a rt of in t e r e st r a te ra ti os

o!rce: O)n constr!ction )ith data from tab+e of interest rate risk meas!res



99


(00? Ta b le of c u r re n c y r i s& m ea sur e s* * , * + Co po92t2o1

Curre1</ A1a /929 GH GH GH * * , * +

A99et9

Cedis 2>6,30< =<6,;30 >9=,26; ==. <E =9.=9E = .36E

4S( 0<<,66< 2 6,>29 =><,<32 2>.>0E 2<.>=E <0.;<E

)45 2<, 6 22,39; =;,32< =. E 2.>3E 2.36E

G$: 3,200 9,>90 ,>9= 0.=9E .;=E ;. 2E

*ther 2,>26 9,=;0 2;,=33 ;.=<E .;2E 0.06E

Tota 88, 6+ +&+ 8+7 & 56* ,7+ ;;.;;E ;;.;;E ;;.;;E

L2a32 2t2e9

Cedis 2 0,=< <32,; 2 =36,<>0 = .3<E =>.>=E <9.;=E

4S( 0<9,22= 2 <,=;9 =<;,<<= < .03E 23.>3E <=.60E

)45 03,602 22,0> < ,3<9 <.> E 2.96E 2.=<E

G$: ,6>< 9,=<6 ; .9>E . <E ;.;;E*ther 0,=0; <,>0> 6,3=; ;.<0E ;.==E .=9E

Tota 8 6 ,5 ,56 +7 & & + 6 8 ;;.;;E ;;.;;E ;;.;;E

3et 4pen Currenc" 'osition

Cedis 9 ,14/ 89,096 11 ,614

4S( - , 91 ,1/0 2 ,024

)45 ,/94 926 4,649

G$: 9, 94 1,, 1, 69

*ther 1,114 ,48 11,428

Tota 86 888 ,6 5, &85 675

@ualifying capital 6>,90> ;9,;;> 0==,<<2

Curre1</ R294 E po9ure a9 0 of ?ua 2f/21. Cap2ta :

*edis ><.>2E >6.6>E <=.33E

= 3 '=. 0E 2.39E 9.< E

E=& 3.2 E ;.<9E 2.=0E

G" >.06E ;. 2E ;.>>E

Other .09E <.<3E <.>2E

Total 6'5+0 ' 60 85'++0

Co po92t2o1

Curre1</ Stru<ture of Loa1 %ortfo 2o : * * , * + Loans in *edis 3 ,==0 0;2,<<0 0>2,;36 >;.;2E =;.>3E =3.>3E

Loans in = 3 ;6, =; 63,36< 6 ,6>9 23.6<E <>.33E 29.63E

Loans in E=& =,6 3 ;,030 , 0< 0.;<E 0.=>E 0.<<E

Loans in G" 0=2 22 66 ;.;9E ;.; E ;.;0E

Loans in other c!rrencies ; ; ; ;.;;E ;.;;E ;.;;E

Total 06=,330 <; ,=2 <=>, =9 ;;.;;E ;;.;;E ;;.;;E

Curre1</ Stru<ture of Cu9to er =epo92t9 : * * , * +

3e'osits in *edis 0=;, ; 29<,<02 <3 ,9<3 =3. E =3.33E = . 6E

3e'osits in = 3 = ,32< 0<6,3 ; <0<,== 2<.>=E 2>.<2E <>.;<E



100


3e'osits in E=& 02,>9 03,=06 =,>;6 =.< E <.;2E .>9E

3e'osits in G" ;,23 9,<; ; 0.23E .26E ;.;;E

3e'osits in other c!rrencies 0,;=2 0,><2 9,93 ;.<3E ;.29E .;6E

Total <23,9=; >60,3;= 900,;33 ;;.;;E ;;.;;E ;;.;;Eo!rce: O)n constr!ction )ith data from 2004 and 2006 Ann!a+ re'orts of EG7

(02? C hart of cur renc y st ructure of !ssets and /ia bil it ies, Curren t : eriod

o!rce: O)n constr!ction )ith data from tab+e of c!rrenc% risk meas!res



101


A%%ENDI" E:I1ter1at2o1a Re<o e1=e= %r21<2p e9 fore19ur21. Sou1= R294 Ma1a.e e1t

E&' Co r p o r a t e G o; e r 1 a 1 < e f or Ba 1 4 21 . Or. a 1 2Ja t 2o 1 9 (E 1 h a 1 < 21 . Co r p o r a t e

Go;e r1 a1 <e f or Ba14 21. Or.a12 Jat2o1 9)

:rinciple ? $oard members should be Bualified for their positions, have a clearunderstanding of their role in corporate governance, and be able to e#ercise sound judgmentabout the affairs of the ban&.

:rinciple 0? The board of directors should approve and oversee the ban& s strategic objectivesand corporate values that are communicated throughout the ban&ing organiAation.

:rinciple 2? The board of directors should set and enforce clear lines of responsibility andaccountability throughout the organiAation.

:rinciple <? The board should ensure that there is appropriate oversight by seniormanagement consistent ith board policy.

:rinciple =? The board and senior management should effectively utiliAe the or& conducted by the internal audit function, e#ternal auditors, and internal control functions.

:rinciple >? The board should ensure that compensation policies and practices are consistentith the ban& s corporate culture, long'term objectives and strategy, and control

environment.

:rinciple 3? The ban& should be governed in a transparent manner.

:rinciple 6? The board and senior management should understand the ban& s operationalstructure, including here the ban& operates in jurisdictions, or through structures, thatimpede transparency Fthat is, K&no 'your'structure ‖ .

o!rce: "ase+ *ommittee on "ankin# !'er$ision ( ebr!ar%, 200 >

E*' S 2.1 9 of a D29torte= Cre= 2t Cu ture

". Self'dealing? !n overe#tension of credit to directors and large shareholders, or to theirinterests, hile compromising sound credit principles under pressure from related

parties. Self'dealing has been the &ey issue in a significant number of problem ban&s."". Compromise of credit principles? !rises hen loans that have undue ris& or are

e#tended under unsatisfactory terms are granted ith full &no ledge of the violationof sound credit principles. The reasons for the compromise typically include self'



102


dealing, an#iety over income, competitive pressures in the ban& s &ey mar&ets, or personal conflicts of interest.

""". !n#iety over income? ! situation in hich concern over earnings out eighs thesoundness of lending decisions, underscored by the hope that ris& ill not materialiAeor lead to loans ith unsatisfactory repayment terms. This is a relatively freBuent

problem because a loan portfolio is usually a ban& s &ey revenue'producing asset."8. "ncomplete credit information? This indicates that loans have been e#tended ithout

proper appraisal of borro er credit orthiness.8. Complacency? This is a freBuent cause of bad loan decisions. Complacency is

typically manifested in a lac& of adeBuate supervision of old, familiar borro ers,dependence on oral information rather than reliable and complete financial data, andan optimistic interpretation of &no n credit ea&nesses because of survival indistressed situations in the past. "n addition, ban&s may ignore arning signsregarding the borro er, economy, region, industry, or other relevant factors or fail toenforce repayment agreements, including a lac& of prompt legal action.

8". /ac& of supervision? "neffective supervision invariably results in a lac& of &no ledgeabout the borro er s affairs over the lifetime of the loan. ConseBuently, initiallysound loans may develop problems and losses because of a lac& of effectivesupervision.

8"". Technical incompetence? This includes a lac& of technical ability among creditofficers to analyAe financial statements and obtain and evaluate pertinent creditinformation.

8""". :oor selection of ris&s? This tendency typically involves the follo ing?

a. The e#tension of loans ith initially sound financial ris& to a level beyond thereasonable payment capacity of the borro er. This is a freBuent problem in unstableeconomies ith volatile interest rates.

b. /oans here the ban&'financed share of the total cost of the project is large relative tothe eBuity investment of the o ners. /oans for real estate transactions ith narroeBuity o nership also fall into this category.

c. /oans based on the e#pectation of successful completion of a business transaction,rather than on the borro er s credit orthiness, and loans made for the speculative

purchase of securities or goods.d. /oans to companies operating in economically distressed areas or industries.e. /oans made because of large deposits in a ban&, rather than on sound net orth or

collateral.f. /oans predicated on collateral of problematic liBuidation value or collateral loans that

lac& adeBuate security margins.

o!rce: *ommercia+ "ank E amination Man!a+ "oard of Go$ernors edera+ &eser$e %stem 3i$ision of "ankin# !'er$ision and &e#!+ation (3ecember, 1649>



103


E5 %r21 <2p e9 f or th e A99e9 9 e1 t of Ba14 9 Ma1 a.e e1 t of Cre= 2t R294

A. Estab+ishin# an a''ro'riate credit risk en$ironment

:rinciple ' The board of directors should have responsibility for approving and periodicallyrevie ing the credit ris& strategy and significant credit ris& policies of the ban&. The strategyshould reflect the ban& s tolerance for ris& and the level of profitability the ban& e#pects toachieve for incurring various credit ris&s.

:rinciple 0? Senior management should have responsibility for implementing the credit ris&strategy approved by the board of directors and for developing policies and procedures foridentifying, measuring, monitoring and controlling credit ris&. Such policies and proceduresshould address credit ris& in all of the ban& s activities and at both the individual credit and

portfolio levels.

:rinciple 2? $an&s should identify and manage credit ris& inherent in all products andactivities. $an&s should ensure that the ris&s of products and activities ne to them aresubject to adeBuate procedures and controls before being introduced or underta&en, andapproved in advance by the board of directors or its appropriate committee.

". O'eratin# !nder a so!nd credit #rantin# 'rocess

:rinciple <? $an&s must operate under sound, ell'defined credit'granting criteria. Thesecriteria should include a thorough understanding of the borro er or counterparty, as ell as

the purpose and structure of the credit, and its source of repayment.

:rinciple =? $an&s should establish overall credit limits at the level of individual borro ersand counterparties, and groups of connected counterparties that aggregate in comparable andmeaningful manner different types of e#posures, both in the ban&ing and trading boo& and onand off the balance sheet.

:rinciple >? $an&s should have a clearly'established process in place for approving necredits as ell as the e#tension of e#isting credits.

:rinciple 3? !ll e#tensions of credit must be made on an arm s'length basis. "n particular,credits to related companies and individuals must be monitored ith particular care and otherappropriate steps ta&en to control or mitigate the ris&s of connected lending.

*. Maintainin# an a''ro'riate credit administration, meas!rement and monitorin# 'rocess

:rinciple 6? $an&s should have in place a system for the ongoing administration of theirvarious credit ris&'bearing portfolios.



104


:rinciple 9? $an&s must have in place a system for monitoring the condition of individualcredits, including determining the adeBuacy of provisions and reserves.

:rinciple ;? $an&s should develop and utilise internal ris& rating systems in managing creditris&. The rating system should be consistent ith the nature, siAe and comple#ity of a ban& sactivities.

:rinciple ? $an&s must have information systems and analytical techniBues that enablemanagement to measure the credit ris& inherent in all on' and off'balance sheet activities. Themanagement information system should provide adeBuate information on the composition ofthe credit portfolio, including identification of any concentrations of ris&.

:rinciple 0? $an&s must have in place a system for monitoring the overall composition andBuality of the credit portfolio.

:rinciple 2? $an&s should ta&e into consideration potential future changes in economicconditions hen assessing individual credits and their credit portfolios, and should assesstheir credit ris& e#posures under stressful conditions.

3. Ens!rin# ade !ate contro+s o$er credit risk

:rinciple <? $an&s should establish a system of independent, ongoing credit revie and theresults of such revie s should be communicated directly to the board of directors and seniormanagement.

:rinciple =? $an&s must ensure that the credit'granting function is being properly managedand that credit e#posures are ithin levels consistent ith prudential standards and internallimits. $an&s should establish and enforce internal controls and other practices to ensure thate#ceptions to policies, procedures and limits are reported in a timely manner to theappropriate level of management.

:rinciple >? $an&s must have a system in place for managing problem credits and variousother or&out situations.

E. The ro+e of s!'er$isors

:rinciple 3? Supervisors should reBuire that ban&s have an effective system in place toidentify measure, monitor and control credit ris& as part of an overall approach to ris&management. Supervisors should conduct an independent evaluation of a ban& s strategies,

policies, practices and procedures related to the granting of credit and the ongoingmanagement of the portfolio. Supervisors should consider setting prudential limits to restrict

ban& e#posures to single borro ers or groups of connected counterparties.

o!rce: "ase+ *ommittee on "ankin# !'er$ision ( ss!ed on ?o$ember /0, 1666>





106


:rinciple 3? ! ban& should establish a funding strategy that provides effective diversificationin the sources and tenor of funding. "t should maintain an ongoing presence in its chosenfunding mar&ets and strong relationships ith funds providers to promote effectivediversification of funding sources. ! ban& should regularly gauge its capacity to raise fundsBuic&ly from each source. "t should identify the main factors that affect its ability to raisefunds and monitor those factors closely to ensure that estimates of fund raising capacityremain valid.

:rinciple 6? ! ban& should actively manage its intraday liBuidity positions and ris&s to meet payment and settlement obligations on a timely basis under both normal and stressedconditions and thus contribute to the smooth functioning of payment and settlement systems.

:rinciple 9? ! ban& should actively manage its collateral positions, differentiating bet eenencumbered and unencumbered assets. ! ban& should monitor the legal entity and physical

location here collateral is held and ho it may be mobilised in a timely manner.

:rinciple ;? ! ban& should conduct stress tests on a regular basis for a variety of short'termand protracted institution'specific and mar&et' ide stress scenarios Findividually and incombination to identify sources of potential liBuidity strain and to ensure that currente#posures remain in accordance ith a ban& s established liBuidity ris& tolerance. ! ban&should use stress test outcomes to adjust its liBuidity ris& management strategies, policies,and positions and to develop effective contingency plans.

:rinciple ? ! ban& should have a formal contingency funding plan FC1: that clearly setsout the strategies for addressing liBuidity shortfalls in emergency situations. ! C1: shouldoutline policies to manage a range of stress environments, establish clear lines ofresponsibility, include clear invocation and escalation procedures and be regularly tested andupdated to ensure that it is operationally robust.

:rinciple 0? ! ban& should maintain a cushion of unencumbered, high Buality liBuid assetsto be held as insurance against a range of liBuidity stress scenarios, including those thatinvolve the loss or impairment of unsecured and typically available secured funding sources.There should be no legal, regulatory or operational impediment to using these assets to obtain

funding.

3. !b+ic disc+os!re

:rinciple 2? ! ban& should publicly disclose information on a regular basis that enablesmar&et participants to ma&e an informed judgment about the soundness of its liBuidity ris&management frame or& and liBuidity position.



107


E. The ro+e of s!'er$isors

:rinciple <? Supervisors should regularly perform a comprehensive assessment of a ban& soverall liBuidity ris& management frame or& and liBuidity position to determine hetherthey deliver an adeBuate level of resilience to liBuidity stress given the ban& s role in thefinancial system.

:rinciple =? Supervisors should supplement their regular assessments of a ban& s liBuidityris& management frame or& and liBuidity position by monitoring a combination of internalreports, prudential reports and mar&et information.

:rinciple >? Supervisors should intervene to reBuire effective and timely remedial action bya ban& to address deficiencies in its liBuidity ris& management processes or liBuidity position.

:rinciple 3? Supervisors should communicate ith other supervisors and public authorities,such as central ban&s, both ithin and across national borders, to facilitate effectivecooperation regarding the supervision and oversight of liBuidity ris& management.Communication should occur regularly during normal times, ith the nature and freBuency ofthe information sharing increasing as appropriate during times of stress.

o!rce: "ase+ *ommittee on "ankin# !'er$ision ( e'tember, 2004>

E7 S ou 1= %ra< t2<e9 f or th e Ma1 a.e e1 t a1= Sup er;292 o1 of Op erat2o1 a R294

A. 3e$e+o'in# an A''ro'riate &isk Mana#ement En$ironment

:rinciple ? The board of directors< should be a are of the major aspects of the ban& soperational ris&s as a distinct ris& category that should be managed, and it should approve and

periodically revie the ban& s operational ris& management frame or&. The frame or&should provide a firm' ide definition of operational ris& and lay do n the principles of hooperational ris& is to be identified, assessed, monitored, and controlled mitigated.

:rinciple 0? The board of directors should ensure that the ban& s operational ris& managementframe or& is subject to effective and comprehensive internal audit by operationallyindependent, appropriately trained and competent staff. The internal audit function should not

be directly responsible for operational ris& management.

:rinciple 2? Senior management should have responsibility for implementing the operationalris& management frame or& approved by the board of directors. The frame or& should beconsistently implemented throughout the hole ban&ing organisation, and all levels of staffshould understand their responsibilities ith respect to operational ris& management. Seniormanagement should also have responsibility for developing policies, processes and

procedures for managing operational ris& in all of the ban& s material products, activities,

processes and systems.



108


". &isk Mana#ement: dentification, Assessment, Monitorin#, and Miti#ation@*ontro+

:rinciple <? $an&s should identify and assess the operational ris& inherent in all material products, activities, processes and systems. $an&s should also ensure that before ne products, activities, processes and systems are introduced or underta&en, the operational ris&inherent in them is subject to adeBuate assessment procedures.

:rinciple =? $an&s should implement a process to regularly monitor operational ris& profilesand material e#posures to losses. There should be regular reporting of pertinent informationto senior management and the board of directors that supports the proactive management ofoperational ris&.

:rinciple >? $an&s should have policies, processes and procedures to control and or mitigatematerial operational ris&s. $an&s should periodically revie their ris& limitation and control

strategies and should adjust their operational ris& profile accordingly using appropriatestrategies, in light of their overall ris& appetite and profile.

:rinciple 3? $an&s should have in place contingency and business continuity plans to ensuretheir ability to operate on an ongoing basis and limit losses in the event of severe businessdisruption.

*. &o+e of !'er$isors

:rinciple 6? $an&ing supervisors should reBuire that all ban&s, regardless of siAe, have an

effective frame or& in place to identify, assess, monitor and control mitigate materialoperational ris&s as part of an overall approach to ris& management.

:rinciple 9? Supervisors should conduct, directly or indirectly, regular independent evaluationof a ban& s policies, procedures and practices related to operational ris&s. Supervisors shouldensure that there are appropriate mechanisms in place hich allo them to remain apprisedof developments at ban&s.

3. &o+e of 3isc+os!re

:rinciple ;? $an&s should ma&e sufficient public disclosure to allo mar&et participants toassess their approach to operational ris& management.

o!rce: "ase+ *ommittee on "ankin# !'er$ision ( ebr!ar%, 200/>





110


• $asel Committee on $an&ing Supervision F0;;6 , K:rinciples for Sound /iBuidity

5is& %anagement and Supervision ,‖ $ a n& f o r " nte r n a ti on a l S e tt lem e nt s , $asel.

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Small 1irm 1inance, J ourn a l of $ usiness, 4niv e r si t y o f Chic a g o : r e s s , vol. >6F2 ,

pages 2= '6 , July.

• Committee of Sponsoring *rganiAations of the Tread ay Commission F0;;< ,

K)nterprise 5is& %anagement P "ntegrated 1rame or& ‖ , )#ecutive Summary

• (e/oach, J. . F0;;; , K%astering 5is& to Create 8alue ‖ , Chapter in

)nt e rp r ise' ide 5is& %an a g e ment? S tr a te g ies for / in& i n g 5is& and * pportuni t y ,1inancial Times :rentice Hall, /ondon, pp. 2' 9.

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%ana g e ment ( ec is i on, 8ol. <; "ss? 9, pp.6<0 P 6=0

• 1atemi, !. D Glaum, %. F0;;; , K5is& management practices in German fi rms ‖ ,

%ana g e r i a l 1 ina n c e , 0>, P 3.

• 1root, -. !., Scharfstein, (. S., D Stein, J. C. F 99< , K! 1rame or& for 5is&

%anagement ‖ , H a r v a rd $ usiness 5 e vie , 3>F> , pp. 9 ' ;0.• Gates, S. F0;;> , K"ncorporating Strategic 5is& into )nterprise 5is& %anagement? !

Survey of Current Corporate :ractice ‖ , J ourn a l of !pplied Co r por a te 1 ina n c e ,

8ol.

6, +o. <, pp. 6 '9;.

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+o , +onp r o f it 5is& %a n a g e ment C e nt e r.

•

Houpt J. 8. D )mbersit J. !. F 99 , ! method for evaluating interest rate ris& in4.S. commercial ban&s, 1e d e r a l 5 e s e rve $ ul l e ti n , !ugust "ssue, pages >0='>23.

• Jim 5ich D Curtis Tange F0;;2 , BCredit 5is& %easurement ' ! :ortfolio 8ie C,)5 i s& .

• %erton, 5. C. F 969 , KThe application of the continuous'time theory of finance to

financial intermediation and insurance ‖ , G e n e va : a p e rs on 5i s & a nd " nsu r a n c e

Th e o r y , <, 00='0> .

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$usiness ‖ , J ourn a l of " n t e rn a ti on a l $ usines s , pp. 2 '22 .



111


• %uelbroe&, /. -. F0;;0 , K"ntegrated 5is& %anagement for the 1irm? ! Senior

%anager s Guide ‖ , H a r v a rd $ usi n e ss S c hoo l , or&ing paper.

• *ldfield, G. D Santomero !. %. F 99= , KThe :lace of 5is& %anagement in 1inancial

"nstitutions ,‖ h a rton 1 i n a n c ial " nst i tu t ions C e nte r , 4niv e rsi t y of : e nn s y lv a ni a ,or&ing :aper 9=';='$.

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July 993.

• 5osenberg, J. 8. D Schuermann, T. F0;;> , ! general approach to integrated ris&

management ith s&e ed, fat'tailed ris&s , J ourn a l of 1 ina n c ial ) c onom i c s , )lsevier,

vol. 39F2 , pages =>9'> <.

• Sabato, Gabriele F!ugust, 0;;9 , K1inancial Crisis? here did 5is& %anagement

1ailX‖ 5 o y a l $ a n& o f S c ot l a nd, G r oup Cr e dit 5is & .

• Santomero, !. %. D Trester, J. F 993 , Structuring (eposit "nsurance for a 4nited

)urope, )u r op e a n 1 in a n c ial %ana g e m e n t , $lac& ell :ublishing /td, vol. 2F0 , pages

2=' =<.

• Santomero, !.%. F 99= K1inancial 5is& %anagement? The hys and Ho s, ‖

1 inan c ial % a r& e ts, " nst i tu t ions and " nstruments <F= ? ' <.• Santomero, !.%. F 993 , KCommercial $an& 5is& %anagement? !n !nalysis of the

:rocess, ‖ J ourn a l of 1 in a n c ial S e rvi ce s 5 e s ea r c h .

• Schmit, J. T. D 5oth -. F 99; , Cost )ffectiveness of 5is& %anagement

:ractices, J ou r n a l o f 5 is & a n d " ns u ra n c e , 8ol. =3, +o.2 pp. <=='<3;

• Sly otA&y, !. J. D (rAi&, J. F0;;= , KCountering the $iggest 5is& of !ll , ‖ H a rvard

$ usiness 5 e vie , 60, pp. 36'66

•

StulA, 5. %. F 96< , K*ptimal Hedging :olicies ‖ , The J ourn a l of 1 inan c i a l and@u a nt i tative ! n a l y si s , 8ol. 9, +o. 0. pp. 03' <;.

• Torben J. !. F0;;9 , )ffective ris& management outcomes? e#ploring effects of

innovation and capital structure , J ourn a l of Str a teg y a nd % a n a g e men t , 8ol. 0 "ss? <,

pp.2=0 P 239

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interest rate ris& ‖ , 1 e d e ra l 5 e s e rve $ ul l e ti n , 1ebruary "ssue, =P 06.




Spee<h

• (r 5a&esh %ohan, (eputy Governor of the 5eserve $an& of "ndia F!pril, 0;;9 ,

KGlobal financial crisis P causes, impact, policy responses and lessons ‖ a t t he 3th

!nnu a l " ndia $ usiness 1 o r um C onf e r e n c e , /ondon $usiness School, /ondon.

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"nterconnected orld ‖ ! t t he 5is& % a n a g e m e nt !ssoci a ti on !nnu a l 5 is&

%anagement Conferen ce , $altimore, %aryland.

I 1ter1et L2149

• 0;;9 !nnual 5eport of )coban& Ghana /imited?h tt p ? e coban & .co m up l o ad 0; ;;<06 ; >;303 6<9061 9 < $( g ) -8 H .pdf

• Ghana $an&ing !ct 0;;<, !ct >32?

h tt p ? .bo g .g o v . g h p r iv a t econ ten t 1 il e " ( : S $ an & i n g E 0; ! c tE 0 ;>32.p d f

• 0;;9 !nnual 5eport of $an& of Ghana?

h tt p ? .bo g .g o v . g h p r iv a t econ ten t p u b li c 1 i le 5 es ea r c h ! nn u a lE 0; 5 e po r t s ! nn 5 ep0;;9

$ an & E 0; o fE 0 ; G han a E 0 ; ! nnua lE 0; 5 e po r t E 0;0 ; ;9.pdf

• 0; ; Ghana $an&ing Survey by :rice aterhouseCoopers in collaboration ith Ghana

!ssociation of $an&ers? h t tp ? .p c.co m en G H g h pd f g han a ' ban & i ng ' su r ve y ' 0; ;.pdf

• $$C? h t tp ? n e s.bb c .co.u & 0 h i 60;69 2 0. s t m

• Central $an& of +igeria? .cenban & .o r g

• Gold Coast Securities /imited?

h tt p ? .g c si n v e st m en t s .co m fi n ' G hanaSt o c & H i s t o r y .phpX

http://ecobank.com/upload/20100428060727184928F94BDgEKVH.pdf

http://www.bog.gov.gh/privatecontent/File/IDPS/Banking%20Act%20673.pdf


http://www.bog.gov.gh/privatecontent/public/File/Research/Annual%20Reports/AnnRep2009/Bank%20of%20Ghana%20Annual%20Report%202009.pdf





http://news.bbc.co.uk/2/hi/8208932.stm



http://www.cenbank.org/

http://www.gcsinvestments.com/fin-GhanaStockHistory.php?companyid=33


http://ecobank.com/upload/20100428060727184928F94BDgEKVH.pdf






http://www.cenbank.org/




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