A RISK-BASED ASSESSMENT OF ECOBANK GHANA LIMITED (EGH)

Masters 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

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.

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

October, 2010

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.

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

October, 2010

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"*+..................................................................................... ,, ,.; ,., ,.0 ,.2 ,.< ,.= ,.> ,.3 $!C-G5*4+( *1 ST4(Y .................................................................................. ,, J4ST"1"C!T"*+ *1 CH*"C) *1 "+ST"T4T"*+................................................ ,0 "+T5*(4CT"*+ *1 C*%:!+Y.......................................................................... ,< ST!T)%)+T *1 TH) :5*$/)% ........................................................................ ,< *$J)CT"8) *1 TH) ST4(Y ................................................................................ ,= S"G+"1"C!+C) *1 TH) ST4(Y .......................................................................... ,= SC*:) !+( /"%"T!T"*+ *1 TH) ST4(Y ....................................................... ,> *5G!+"S!T"*+ *1 TH) ST4(Y ....................................................................... ,>

CH!:T)5 T.* ' /"T)5!T45) 5)8").......................................................................... ,3 0.; 0., 0.0 0.2 0.< 0.<., 0.<.0 0.<.2 0.<.< 0.= "+T5*(4CT"*+..................................................................................................... ,3 5"S- %!+!G)%)+T "+ $!+-"+G ................................................................... ,3 5!T"*+!/)S 1*5 5"S- %!+!G)%)+T "+ $!+-"+G ................................ ,6 C!T)G*5")S *1 5"S- %!+!G)%)+T ............................................................ ,9 -)Y $!+- 5"S-S ................................................................................................. 0; Credit 5is& ......................................................................................................... 0, %ar&et 5is&s ...................................................................................................... 00 *perational 5is& ................................................................................................ 0> Strategic 5is& ..................................................................................................... 03

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
3

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

October, 2010

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.; 2., 2.0 2.2 "+T5*(4CT"*+..................................................................................................... 26 (!T! S*45C) ....................................................................................................... 26 $)+CH%!5-S ....................................................................................................... 26 !+!/YST"C!/ T**/S ......................................................................................... 29 5atios ................................................................................................................. 29 Graphs and Charts .............................................................................................. <; 5atio !nalysis .................................................................................................... <, Common'SiAe !nalysis ..................................................................................... <, Trend !nalysis ................................................................................................... <0

2.2., 2.2.0 2.< 2.<., 2.<.0 2.<.2 2.=

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

!+!/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 ................................................................................................................. << /iabilities ........................................................................................................... <= )Buity and Capital !deBuacy ............................................................................ <3

<.,., <.,.0. <.,.2 <.0 <.2

"+C*%) ST!T)%)+T 5"S-S .............................................................................. <6 C5)("T 5"S- .......................................................................................................... =, SiAe..................................................................................................................... =, Concentration ..................................................................................................... =0 :roduct distribution............................................................................................ =< Customer loans distribution by tenor ................................................................. =< /oan @uality ...................................................................................................... == 5elated :arty (ealings....................................................................................... => /iBuidity %ismatches ........................................................................................ =3 Structure of funding ........................................................................................... =6 Cashflo s and ratios .......................................................................................... >;
4

<.2., <.<.0 <.2.2 <.2.< <.2.= <.2.> <.< <.<., <.<.0 <.<.2

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

Masters Thesis: A risk-based assessment of Ecobank Ghana Limited <.>. <.3.

October, 2010

"+T)5)ST 5!T) 5"S- .......................................................................................... >0 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 ....................................................................................................... >= 5is& identification .............................................................................................. >> 5is& %easurement ............................................................................................. >3 5is& %onitoring and Control ............................................................................. >6 5is& 5eporting ................................................................................................... >9 *rganisation ....................................................................................................... >9 5is& "dentification.............................................................................................. 3, 5is& %easurement ............................................................................................. 3, 5is& %onitoring and Control ............................................................................. 3< 5is& 5eporting ................................................................................................... 3< *rganisation ....................................................................................................... 3= 5is& "dentification.............................................................................................. 3= 5is& %easurement ............................................................................................. 3> 5is& %onitoring and Control ............................................................................. 3> 5is& 5eporting ................................................................................................... 33

=.,., =.,.0 =.,.2 =.,.< =.,.= =.0 =.0., =.0.0 =.0.2 =.0.< =.0.= =.2 =.2., =.2.0 =.2.2 =.2.< =.2.= =.<

%!5-)T 5"S- ........................................................................................................ >9

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

S4%%!5Y .............................................................................................................. 33

CH!:T)5 S"7 ' C*+C/4S"*+ !+( 5)C*%%)+(!T"*+S ....................................... 39 >.; >., >.0 "+T5*(4CT"*+..................................................................................................... 39 C*+C/4S"*+ ......................................................................................................... 39 5)C*%%)+(!T"*+S .......................................................................................... 6, "nterest 5ate 5is& %anagement ......................................................................... 6, !dopting an integrated approach to ris& management ...................................... 60

>.0., >.0.0

!::)+("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
5

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

October, 2010

!::)+("7 (? Tables and Charts for 5is& :rofile !ssessment ............................................. 9; !::)+("7 )?"nternational 5ecommended :rinciples for ensuring Sound 5is& %anagement ..... ,;, 5)1)5)+C)S ...................................................................................................................... ,;9

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

October, 2010

LIST OF TABLES
Table ,.,? Summary of )GHCs performance in Ghanaian ban&ing industry........................... ,2 Table 2.,? 5atios in assessing ban& ris&s ................................................................................. 29 Table <.,? Capital adeBuacy and off'balance sheet measures.................................................. <3 Table <.0? Customer loans distribution by borro er group ..................................................... =2 Table <.2? /oan loss coverage ................................................................................................. => Table <.<? %aturity /adder ...................................................................................................... =6 Table =.,? )GHCs internal ris& rating system........................................................................... >> Table =.0? 8!5 limits at various levels ................................................................................... 30

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

October, 2010

LIST OF FIG!RES

1igure ,.,? :erformance of )coban& Ghana /imited on Ghana Stoc& )#change ................... ,2 1igure 2.,? (iagrammatic representation of components of the ban&Cs 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
8

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

October, 2010

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 as atchers from time to time, to ascertain the adeBuacy of the systems, policies and procedures for managing ris&s ell as their conformity to current best practices. !s a contribution to this e#ercise, this ell as assessing its ris& management frame or& to ascertain its soundness and study is focused on )coban& Ghana /imited F)GHG ith the aim of evaluating the ban&Cs ris& profile as 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&Cs 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&Cs 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 )GHCs ris& management structure and policies, vis'H'vis recommendations by the $asel Committee on $an&ing Supervision, helped in establishing the soundness or other ise of the ban&Cs ris& management practices. The study revealed that )GHCs 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 profit margin hich ith profitability. The assets ere efficiently applied to generate high ell as po ered by stable income sources. The ban&Cs asset Buality as

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 !lso, as ho ever the ea& point in the ban&Cs credit ris& condition. ith ith the majority of its cash flo obtained from operational activities, coupled

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
9

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

October, 2010

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

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.

10

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

October, 2010

CHA%TER ONE - INTROD!CTION

&'( BACKGRO!ND OF ST!D$

(evelopments in the global financial sector ithin the past decade have given sta&eholders in the 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 put for ard for the failures in ris& ith some of them going burst. Some reasons

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 J gross loans and advancesG of the ban&s in Ghana, from about ,.=E to <.0E , 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&Cs 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 the 5eserve $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;;9G. 0 Contained in the 0;,; $an&ing Survey 5eport by :[Link], Ghana.

11

Masters Thesis: A risk-based assessment of Ecobank Ghana Limited management practices of the Ghanaian ban&s losses, although there have been a fe occurrences.

October, 2010

hich have resulted in significant financial

reported cases of fraud, theft and other operational

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&sG concerning significant line ea&nesses in their ris& management systems. The ban&s are ith major regulatory reBuirements hich are basically in believed to be generally compliant

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 e#ercise ith a focus on )coban& Ghana /imited F)GHG. &'& )!STIFICATION OF CHOICE OF INSTIT!TION as chosen for this study because of its reputation as being among as therefore a contribution to this

)coban& Ghana limited

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 various categories including the coveted K$an& consecutive years. !ccording to the 0;,; $an&ing Survey 5eport released by :rice aterhouseCoopers Ghana in collaboration The ban& advances 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. as the third largest contributor to both industry deposits and gross loans and ith ,;.=E and 3.3E respectively. )GHCs share of industry assets, deposits, and
2

on several ban&ing a ards in for five

of the Year ! ard

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

[Link] an!"ng-#$%&e'-[Link]

12

Masters Thesis: A risk-based assessment of Ecobank Ghana Limited Table ,.,? Summary of )GHCs performance in Ghanaian ban&ing industry *((+ *((, [Link]/ 0 Co1tr23ut2o1 ,;., Ra1421. 0 Co1tr23ut2o1 6.= Ra1421.

October, 2010

*((0 Co1tr23ut2o1 6.6 Ra1421. < < 2

Share of "ndustry < < !ssets Share of "ndustry ,;.= 2 6.3 < 6.9 (eposits Share of "ndustry 3.3 2 3.2 < 3.6 Gross /oans and !dvances 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&Cs performance, its shares have performed considerable ell on the Ghana Stoc& )#change since it got listed F1igure ,., gives an illustration of the ban&Cs performance on the Ghana Stoc& )#changeG. !nalysts also rate )GH Buite favourably, ith $loomberg /. :. rating its short term local currency !,L and Global Credit 5ating Company Fa reputable international rating agencyG rating the ban&s long and short term credits Fe#posuresG !!' 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. 1igure ,.,? :erformance of )coban& Ghana /imited on Ghana Stoc& )#change
<

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

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

13

Masters Thesis: A risk-based assessment of Ecobank Ghana Limited &'* INTROD!CTION OF COM%AN$

October, 2010

)coban& Ghana /imited F)GHG is one of the thirty one F2,G subsidiaries of the )coban& Group hich is the leading :an !frican ban&ing group in !frica. "t as incorporated under GhanaCs 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 June 0;;>, )GH ent public and ay for it to embar& on its medium term strategic holesale ban& to one ith a retail focus. "n shift of moving from being a predominantly

as listed on the Ghana Stoc& )#change. The ban&

operates four F<G subsidiaries? )coban& "nvestment %anagers /imited, )coban& /easing Company /imited, )coban& 8enture Capital /imited, and )$ !ccion Savings D /oans Company /imited. Together customers in Ghana. &'5 STATEMENT OF THE %ROBLEM ith its subsidiaries, )GH provides corporate ban&ing, holesale and retail investment ban&ing and retail ban&ing products and services to

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 ithstand major
=

major internal test to ascertain the resilience of the ban&ing industry to

shoc&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&

/he Go&e%no% of the 0"ge%"a +ent%a- ,an! ha&e had to #ac! d"%ecto%# and ch"ef e*ec$t"&e off"ce%# of #ome 0"ge%"a an!# fo% %each of p%$dent"a- a%%angement# and m"#management "n add"t"on to %ecommend"ng the "n1ect"on of f$nd# "nto tho#e an!# ' the cent%a- an! to #afeg$a%d the "nte%e#t of c-"ent# and #ha%eho-de%#.

14

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

October, 2010

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&Cs 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 tablesG to ascertain the level of credit and mar&et FliBuidity, interest rate, foreign currencyG ris&s the ban& is e#posed to. "". the effectiveness of the ban&Cs 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&Cs ris& management practices vis' H'vis current recommended standards and best practices by the $asel Committee on $an&ing Supervision. &'7 SIGNIFICANCE OF THE ST!D$

!n assessment of )GHCs ris& management frame or& provided the state of the ban&Cs ability to handle the inherent ris&s in its operations. !lso deviations from international best practices ere also identified and alternatives recommended. The ban&Cs ability to deal ith significant shoc&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 GhanaCs ban&ing sector. "n addition, it ill provide a guide for further studies on ris& management in the industry.

15

Masters Thesis: A risk-based assessment of Ecobank Ghana Limited &'8 SCO%E AND LIMITATION OF THE ST!D$

October, 2010

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

as mainly ere

gathered from financial statements and other disclosures contained in the ban&Cs annual reports. "n this regard, annual reports of the last three years F0;;9, 0;;6, and 0;;3G considered to ensure consistency in the value used. This is because the ban& shifted from the use of "nternational !ccounting Standards F"!SG to "nternational 1inancial 5eporting Standards F"15SG, in conformity ith reBuirements by The "nstitute of Chartered !ccountants FGhanaG, 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&Cs ris& management policy manuals and other independent reports on its financial performance economy as a information as used to gather relevant information concerning the ban&Cs current health and capacity to remain stable in the face of instability in the industry and the global hole. Ho ever, the ban& considers most information, e#cept those contained as not available for use. !lso, due to lac& of adeBuate comparable data on other the study as unable to provide a complete as in the annual report and official releases, sensitive and for that matter detailed but relevant players in the Ghanaian ban&ing industry, all cases. Ho ever, in cases underta&en. &'ORGANISATION OF THE ST!D$

picture of the performance )GHCs ris& in relation to peer group trends and industry norms in here industry data as available comparative analysis

The study has been organised into si# F>G 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& FmethodologyG for assessing the ban&. The assessment of the ban&Cs 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.

16

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

October, 2010

CHA%TER T
*'( INTROD!CTION

O - LITERAT!RE RE#IE

This chapter revie s the literature on ris& management in ban&ing. "t discusses issues on ris& management from different perspectives and to the study. "t starts ith the vie of giving a theoretical foundation ell as the &inds ith an e#position on ris& management, follo ed by revie s of

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

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 FcostG of uncertainty Fris&G regarding possible losses FSchmidt and 5oth, ,99;G. 5edja F,996G 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;,;G 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;;;G. To ensure that ban&s operate in a sound ris& management environment, here there is reduced impact of uncertainty and potential losses, ith the best ris&Jre ard ithin limits set through managers need reliable ris& measures to direct capital to activities ratios. They need estimates of the siAe of potential losses to stay

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,993G, ris& management is the process by measures, choosing hich ris&s to reduce, hich managers satisfy these hat means, and
17

needs by indentifying &ey ris&s, obtaining consistent, understandable, operational ris& hich to increase and by

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

October, 2010

establishing procedures to monitor resulting ris& positions. $essis F0;,;G 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&Cs 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 customersC ris& profiles. !ccording to Santomero F,99=G, 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 goals and objectives. *'* RATIONALES FOR RISK MANAGEMENT IN BANKING ith the firmMs

The main aim of management of ban&s is to ma#imise e#pected profits ta&ing into account its variabilityJvolatility Fris&G. This calls for an active management of the volatility Fris&G 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 shareholdersC ealth. 8arious authors hy including StulA F,96<G, Smith et al F,99;G and 1root et al F,992G have offered reasons managers should concern themselves organisations. !ccording to *ldfield and Santomero F,99=G, recent revie position and of the literature presents four

ith the active management of ris&s in their

main rationales for ris& management. These include managers self interest of protecting their 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 firmCs 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.
18

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

October, 2010

.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 shareholdersC 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 firmCs operations, loss of strategic position in the industry, costs associated ill help avoid lo avoid lo profits ithdra al of license or charter and even ban&ruptcy. The ant to ith these ill cause managers to avoid them by embar&ing on activities that realisations. 1inally, ris& management is pursued because firms hich force them to see& e#ternal investment opportunities. .hen this

happens, it results in suboptimal investments and hence lo er e#pected shareholdersC 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, to concern itself 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 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,969G noted, a &ey feature of the franchise of financial institutions Fincluding ban&sG 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 activities and assets into three distinctive subgroups in accordance hiles others can be eliminated altogether. "t is therefore useful to defragment the ris&s inherent in their ith their nature so that the appropriate strategies can be adapted to mitigate them. *ldfield and Santomero F,99=G 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
19

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

October, 2010

&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&Cs 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 alright but transferred by the ban&, ill constrain ris&s ill also reduce the profitability of the business activity. Some ris&s can also be hen there is no value'added or competitive advantage associated ho are in better positions to manage hich should be adsorbed and

ith absorbing andJor managing them, to other parties

and benefit from them. There is yet another class of ris&s further resources to manage them. Some activities by the ban& include those

aggressively managed at the originating ban& level because good reasons e#ist for using hose inherent ris&s have to be managed 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&Cs business purpose because they are the raison dCNtre 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&Cs array of uniBue value'added services F!llen D Santomero, ,99>, *ldfield D Santomero, ,99=G. *'6 KE$ BANK RISKS ith the provision of ban&ing services differ by the type of service ays to develop the hich are considered in this study are
>

The ris&s associated

rendered. (ifferent authors have grouped these ris&s in various frame or&s for their analyses but the common ones

credit ris&, mar&et ris&s F hich includes liBuidity ris&, interest rate ris& and foreign e#change ris&G, operational ris&s hich sometimes include legal ris&, and more recently, strategic ris&.
6

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

F,992G 20

Masters Thesis: A risk-based assessment of Ecobank Ghana Limited 0.<., Credit 5is&

October, 2010

Greuning and $ratanovic F0;;9G define credit ris& as the chance that a debtor or issuer of a financial instrumentO hether an individual, a company, or a countryO ill not repay principal and other investment'related cash flo s according to the terms specified in a credit agreement. "nherent to ban&ing, credit ris& means that payments may be delayed or not made at all, hich can cause cash flo problems and affect a ban&Cs liBuidity. The goal of credit ris& management is to ma#imise a ban&Cs ris&'adjusted rate of return by maintaining credit ris& e#posure ithin acceptable parameters. %ore than 3; percent of a ban&Cs balance sheet generally relates to credit ris& and hence considered as the principal cause of potential losses and ban& failures. Time and again, lac& of diversification of credit ris& has been the primary culprit for ban& failures. The dilemma is that ban&s have a comparative advantage in ma&ing loans to entities ith hom they have an ongoing relationship, thereby creating e#cessive ith their obligation to service debt Fdefault ris&G and concentrations in geographic and industrial sectors. Credit ris& includes both the ris& that a obligor or counterparty fails to comply the ris& of a decline in the credit standing of the obligor or counterparty. .hile default triggers a total or partial loss of any amount lent to the obligor or counterparty, a deterioration of the credit standing leads to the increase of the possibility of default. "n the mar&et universe, a deterioration of credit standing of a borro er does materialise into a loss because it triggers an up ard move of the reBuired mar&et yield to compensate the higher ris& and triggers a value decline F$essis, 0;,;G. +ormally the financial condition of the borro er as to ban&s ell as the current value of any underlying collateral are of considerable interest hen evaluating the credit ris&s of obligors or counterparties FSantomero, ,993G.

!ccording to Greuning and $ratanovic F0;;9G, formal policies laid do n by the board of directors of a ban& and implemented by management plays a vital part in credit ris& management. !s a matter of fact, a ban& uses a credit or lending policy to outline the scope and allocation of a ban&Cs credit facilities and the manner in and collected. There are also minimum standards set by regulators for managing credit ris&. These cover the identification of e#isting and potential ris&s, the definition of policies that e#press the ban&Cs ris& management philosophy, and the setting of parameters ithin hich credit ris& ill be
21

hich a credit portfolio is

managedO that is, ho investment and financing assets are originated, appraised, supervised,

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

October, 2010

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 5is&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,993G 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 hen it does not

Greuning and $ratanovic F0;;9G, indicate that a ban& faces liBuidity ris&

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 assetsG 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;,;G ho ever considers liBuidity ris& from three distinct situations. The first angle is here 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 here gain time under difficult situations. "n this case, liBuidity ris& is defined as a situation outflo s. The final angle from

short'term asset values are not sufficient to match short term liabilities or une#pected here liBuidity ris& is considered as the e#treme situation. hich creates liBuidity issues and
22

Such a situation can arise from instances of large losses

Masters Thesis: A risk-based assessment of Ecobank Ghana Limited doubts on the future of the ban&. Such doubts can result in massive closing of credit lines by other institutions

October, 2010 ithdra al of funds or

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;;9G. Santomero F,99=G ho ever, posits that hile some ould include the need to plan for gro th and ith an une#pected event, 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 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;;6G 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&etCs perception of the inherent ris&ness of the borro ing institution FGreuning and $ratanovic, 0;;9G. So if there is a national crisis such as acute currency shortage or decline, or perception of the ban&Cs 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&Cs 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
23

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

October, 2010

interest rate ris&s because of the opportunity cost that arises from mar&et movements F$essis, 0;,;G. !ccording to Greuning and $ratanovic F0;;9G, 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;;9G 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 shiftsG. Yield curve ris& materialises hen yield curve shifts adversely affect a ban&Cs income or underlying economic value. !nother important source of interest rate ris& is basis ris&, hich arises from imperfect correlation 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 [Link] and Houpt, ,99>G. !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 positiveG 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
24

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

October, 2010

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&Cs earning and its economic value, an approach hich focuses on the impact of interest rate changes on a ban&Cs net interest income is combined e#posure. 2.,.2./ 0orei#n E1chan#e &isk 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&

$essis F0;,;G 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;;9G, 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 deficitGin 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 countryCs 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 receivables and foreign payables, that is, the difference in price at the price at hich they are collected or paid and 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 countryCs long'term or a companyCs 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
25

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

October, 2010

e#change ris& very critical for its management. The third component, revaluation or translation ris& arises currency, and hen a ban&Cs foreign currency positions are revalued in domestic 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 *perational 5is&

The $asel !ccord F0;;3G defines operational ris& as the ris& of direct or indirect loss resulting from inadeBuate or failed internal processes, people and systems or from e#ternal events. %alfunctions of the information systems, reporting systems, internal monitoring rules and internal procedures designed to ta&e timely corrective actions, or the compliance ith the internal ris& policy rules result in operational ris&s F$essis, 0;,;G. *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 FderivativeG 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;;9G' 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. The Committee addressed operational ris& in its Core :rinciples for )ffective $an&ing Supervision F,993G 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&,
26

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

October, 2010

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&Cs 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& mappingG ith various statistical ith some techniBues such as graphical representation of the probability and severity of ris&s. This helps to find the lin&s bet een various operational ris&s. The process then ends estimates of operational ris&s orst'case losses due to events ris&s. %odelling of loss distributions due to ill enable the right capital charges to be made for operational ris& as

reBuired by current regulations F$essis, 0;,;G. "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 senior e#ecutives. ! certain amount of self'assessment of the controls in place to manage and mitigate operational ris& ill be helpful. 0.<.< Strategic 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, ,990G. Sly otA&y and (rAi& F0;;=G, define strategic ris& as the array of e#ternal events and trends that can devastate a companyCs 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 andJor 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 organisationCs strategic goals, the business strategies
27

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

October, 2010

developed to achieve those goals, the resources deployed against these goals, and the Buality of implementation. )mblemsvQg and -jRlstad F0;;0G, also define strategic ris& as ris& reducing threats. .hich ever uncertainties hich arises as a firm pursues its business objectives either by e#ploiting opportunities andJor ay this is considered, strategic ris& encompasses a variety of hich hich are not financial in nature, but rather credit or operational related caused

by macro'economic factors, industry trends or lapses in a firmCs strategic choices

affects the firmCs earnings and shareholdersC value adversely. Strategic ris&s often constitute some of a firmCs 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;;=G. to deal This is because the more formalised ris& management approaches often remain focused on identifiable e#posures and thus less suitable ith many of the une#pected economic and strategic events that characterise hich strategic ris&s are embedded. Sly otA&y and hich contribute to strategic ris& and contemporary business environment in

(rAi& F0;;=G attempted to identify significant events technology shift

categorised them into seven main classes. These include industry margin sBueeAe, threat of hich has the possibility of driving some products and services out of the project failure and mar&et stagnation. The idea 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 as to provide a frame or& for assessing a companyCs 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 ea&nesses. They include communication channels, operating systems,

strengths and

delivery net or&s, and managerial capacities and capabilities. The organisationCs 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
28

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

October, 2010

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 FprobabilityG and scope FmagnitudeG of lossesI and financing recovery from these losses FHerman and Head, 0;;0G. $easley and 1rigo F0;;3G posit that the first step in strategic ris& management is finding a ay to systematically evaluate a companyCs strategic business a ide range ill impact a businessCs strategy e#ecution, including the ris&. Thus, strategic ris& management begins by identifying and evaluating ho of possible events and scenarios 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;;>G
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 everyJeach 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;;=G. $uilding a rigorous strategic ris& management frame or& reBuires an institution to re'e#amine both its internal practices and its e#ternal environment, and to understand ho connected. "n other impact on ho internal practices, due to the interconnectivity of financial mar&ets
6

closely the t o are can in turn have an

ords, e#ternal factors have an impact on internal practices, but those

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

mar&etplace in general FGovernor -rosAner, *ctober 0;;6G . *'7 #AR: A TOOL FOR MEAS!RING MARKET RISKS orst loss over a target horiAon

Jorion F0;;3G defines 8a5 intuitively as a summary of the that

3

ould be e#ceeded

ith a given level of confidence. "t estimates the ma#imum potential

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

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

29

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

October, 2010

loss that may be incurred on a position at a given horiAon and level of confidence. Greuning and $ratanovic F0;;9G refer to it as a modelling techniBue that typically measures a ban&Cs 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' orst loss Fma#imum movement of the yield hich provides the benefit of early loo&ing method that e#presses financial mar&et ris& in a form that anybody can understand, namely currency. "t measures the predicted detectionG, cureG, over a target horiAon Ffor e#ample, ,; days,

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

CommitteeG. 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: %organCs 5is& metrics, $an&erCs trust 5is& !djusted 5eturn on Capital, and ChaseCs 8alue at ris&. "nputs to a 8a5'based model include data on the ban&Cs positions and on prices, volatility, and ris& factors. 8a5'based models combine the potential change in the value of each position that result from specific movements in underlying ris& factors ould

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 calculated using one of a number of methodologies hich are the historical simulation approach, the delta'normal or varianceJcovariance methodology and the %onte Carlo simulation method. !ccording to the $asel Committee on $an&ing Supervision, the disclosure reBuirements for each portfolio 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 ris& estimates values over the reporting interval and at period end. !lso there should be information about ris& and return in the aggregate, including a comparison of ith actual outcomes. 1urther, there should be Bualitative discussions to assist ith a comparison of the :J/ to 8a5, including a description of differences bet een the basis of the :J/ 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&Cs judgment best
9

Contained in the $asel Committee on $an&ing Supervision .or&ing :aper on :illar 2P %ar&et (iscipline F0;;,G

30

Masters Thesis: A risk-based assessment of Ecobank Ghana Limited e#presses e#posure to ris&, reported in terms of high, medium, and lo reporting period and at period end.

October, 2010 values over the

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 dayCs 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&Cs 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 portfolioCs e#posure. *'8 INTEGRATED RISK MANAGEMENT: AN !LTIMATE GOAL OF A FOR ARD-LOOKING RISK MANAGEMENT FRAME ORK (e/oach F0;;;G 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 1orumCs .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 Kaggregate 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;;9G 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;;>G. "n fact, studies reveal that
31

Masters Thesis: A risk-based assessment of Ecobank Ghana Limited about 6;E of the companies more ris&s that

October, 2010

ith the largest losses in recent times had been hit by t o or

,;

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

transcends corporate silos and the resulting compartmentalisation of ris&s F1unston, 0;;<G . %eulbroe& F0;;0G 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;;0G 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 1orumCs .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 ay of thin&ing about ris& and ith a frame or& for deciding ith the opportunity of integrated ris& management provides is a systematic

identifying its multi'dimensional effects on the firm, coupled benefiting from ne

upon the best strategy for implementation. "t provides managers financial decision areas, connections easily missed

insights into the interplay among different types of ris& and traditional ithout a comprehensive frame or&

F%eulbroe&, 0;;0G. 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;;=G, 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 and aggregation

32

Masters Thesis: A risk-based assessment of Ecobank Ghana Limited ithin the ban&. $ut it is

October, 2010

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&Cs definition, integrated ris& management also involves the aggregation of all the ris&s faced by the firm. "t evaluates the firmCs 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 ithin the firm ill partially assessment of the firmCs value and of its ability to fulfil its contractual obligations in the future. 1urthermore, by aggregating ris&s, some individual ris&s managing those ris&s. The Joint 1orumCs .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&s results 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 5is& %anagement? ! useful tool for integrating ris&s or completely offset each other thereby reducing the total e#pense of hedging or other ise

"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;;=G. !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 firmsC ris&s, their interrelations ith each other and their combined effect on firms. Standard and :oorCs for instance has introduced )nterprise
33

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

October, 2010 ith the

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

third Buarter of 0;;6 FStandard and :oorCs, %ay 0;;6G. "t is in this light that )nterprise 5is& %anagement F)5%G 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 firmCs ris& appetite to determine mitigated or avoided. hich ris&s should be accepted and hich should be ith the purpose of (e/oach F0;;;G describes )5% as a Kstructured and disciplined

approach? it aligns strategy, process, people, technology and &no ledge

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 value for the enterprise as a hole. The Committee of Sponsoring *rganisations of the Tread ay Commission FC*S*G report on enterprise ris& management F)5%G in 0;;< defines it as Ka process, effected by an entityCs 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 every entity 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. achieve the These capabilities inherent in )5% help management ith la s and entityCs performance and profitability targets and prevent loss of resources. ith the intent of ma#imising shareholder

)nterprise ris& management helps ensure effective reporting and compliance "n sum, enterprise ris& management helps an entity get to pitfalls and surprises along the ay. here it

regulations, and helps avoid damage to the entityCs reputation and associated conseBuences. ants to go and avoid

34

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

October, 2010

*'THE %LACE OF COR%ORATE GO#ERNANCE IN THE MANAGEMENT OF 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(G, the $an& for "nternational Settlements F$"SG, the "nternational %onetary 1und F"%1G, 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 structure e#tended to a of corporate governance as centred on Kshareholder value in favour of a corporate governance 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 investorsC activities, all account for the gro ing importance of corporate governance FGreuning and $ratanovic, 0;;9G. !ccording to Greuning and $ratanovic F0;;9G, 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&Cs management, board, shareholders, and other sta&eholders. This includes setting corporate objectives and a ban&Cs ris& profile, aligning corporate activities and behaviours ith the e#pectation that management running day'to'day operations applicable la s and regulations, ill operate the ban& in a safe and sound manner, ith ithin an established ris& profile and in compliance

hile protecting the interests of depositors and other

sta&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 shareholdersC 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
35

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

October, 2010

distress by positively affecting investorsC perception of ris& and their readiness to e#tend funding, good governance increases the firmsC robustness and resilience to e#ternal shoc&s. Greuning and $ratanovic F0;;9G 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&Cs selected ris& profile and a strong financial ris& management function Findependent of business linesG, adeBuate internal control systems Fincluding internal and e#ternal audit functionsG, 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&Cs ris& e#posures interest are e#pected to appear such as relationships here conflicts of 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 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;;9G, 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 are the shareholders hich the Buality and effectiveness of ban& ris& management can be optimised to contribute to a sound and reliable ban&ing system. +e#t ho determine the direction of a ban& by electing the supervisory board
36

ell as transparency and appropriate information flo s

and approving the board of directors, the audit committee, and e#ternal auditors. The board

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

October, 2010

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 boardCs 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 They play a &ey role in improving the mar&etCs ability to determine business ith. ith information and hich ban&s to do capacity to hold directors and management accountable for the sound operation of a ban&.

37

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

October, 2010

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)GHG 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 as obtained from the annual reports and

The study relied mainly on secondary data. This data comes from the regulators, industry

other reports issued by the ban& and other organisations. Some of these e#ternal secondary atchers and other financial analysts. The ban&Cs hether the ban&Cs structures and ris& policy documentations and guidelines concerning the management of the various ris&s are also a major source of information for determining 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 $an&ing Supervision regarding principles hich ensure sound management of ris&s in ban&s. This helped in evaluating the ere mirrored to those in the ban&s policies in respect of its adeBuacy of the )GHCs ris& management frame or& as the essential components of the recommended guidelines structures, processes, procedures and tools put in place to manage ris&s. !ccording to the main regulators of the ban&s in Ghana F$an& of GhanaG, the $asel principles for ensuring sound management of ris&s have been incorporated in GhanaCs $an&ing !ct, !ct >32 and should therefore be adhered to by all ban&s operating in Ghana . To assist in assessing the performance of )GH vis'H'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

,0

/h"# "nfo%mat"on wa# conf"%med ' the 2ep$t' Go&e%no% of ,an! of Ghana3 4%. 5. 6an 5a%e 2o#oo at the (eg"ona- 7em"na% on ("#!- a#ed #$pe%&"#"on on 24 )p%"-3 2006 "n )cc%a.

38

Masters Thesis: A risk-based assessment of Ecobank Ghana Limited collaboration

October, 2010

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&Cs performance as ell as judge the effectiveness of its ris& management process. 2.2., 5atios

! 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 Some of the areas of ris& schedules. 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&Cs 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.,. Table 2.,? 5atios in assessing ban& ris&s [Link]/ Rat2o9 So:;e1</ %rof2ta32:2t/ Eff2<2e1</ Capital !deBuacy? Total @ualifying Capital J Total 5is& .eighted
!ssets 5eturn on !ssets? :rofit !fter Ta# J !verage total !ssets 5eturn on )Buity? :rofit !fter Ta# J !verage total ShareholdersM 1unds +et "nterest "ncome J !verage total !ssets +et "nterest "ncome J Gross /oans and !dvances *perating )#penses J !verage total !ssets *perating )#penses J Gross *perating "ncome

Cre=2t R294

Customer /oans J Gross /oans and !dvances $an& /oans J Gross /oans and !dvances

39

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

=; /argest )#posures J Gross /oans and !dvances Collateral J +on'performing /oans FCoverage ratioG +on'performing /oans J Gross /oans and !dvances "mpairment Charge J Gross /oans and !dvances !llo ances for "mpairment J Gross /oans and !dvances

October, 2010

L2>u2=2t/ R294

Customer /oans J Customer (eposits "nterban& /oans J "nterban& (eposits 5eadily %ar&etable !ssets J Total !ssets /iBuid !ssets J 8olatile /iabilities F8olatility CoverageG 8olatile /iabilities J Total liabilities /iBuid !ssets JTotal deposits F$an& 5unG

I1tere9t Rate R294

G!: J Total !ssets G!: J Total )Buity "nterest 5ate Sensitive !ssets J "nterest 5ate Sensitive /iabilities "nterest 5ate Sensitive !ssets J Total !ssets "nterest 5ate Sensitive /iabilities J Total /iabilities

Curre1</ R294 o!rce: O)n constr!ction 2.2.0 Graphs and Charts

+et *pen Currency :osition J @ualifying Capital

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&Cs operations and of the trends in the ban&Cs ris&s as presented through ere used to illustrate levels of profitability, capital adeBuacy, performance. ! high'level overvie graphs and charts as they liBuidity and currency ris&s. 5'6 ANAL$TICAL TECHNI?!ES ays in hich the data is interpreted. Some of the common analytical

composition of portfolios, major types of credit ris& e#posures and e#posures to interest rate,

These refer to the analysis.

techniBues used in this report include ratio analysis, common'siAe analysis, and trend

40

Masters Thesis: A risk-based assessment of Ecobank Ghana Limited 2.<., 5atio !nalysis

October, 2010

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 compared ere ith those of the industry averages as put for ard by the $an& of Ghana in the ere considered in addition to

periodic 1inancial Stability 5eports and :rice aterhouseCoopers Ghana in their 0;,; ban&ing Survey 5eport. The ratios for the previous t o years those of the current year in order to have a better vie of the current yearCs 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&Cs managing directorCs statement in the 0;;9 annual report, the ban& is not e#pected to ma&e any acBuisition or divestiture hich ill 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&Cs goals concerning the various ris&s it faces, the ban&ing industry norms and the general economic conditions into consideration. 2.<.0 Common'SiAe !nalysis ere ta&en

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&Cs business orientation, mar&et environment, desired customer mi# or the general economic conditions. Therefore, in assessing the ban&Cs ris& profile, common'siAe analysis and liabilities as therefore as useful in analyAing the relative share of the various asset ell as the major sources of income and changes in the proportionate share hether the ban&Cs ris& management systems ere

over time. 5apid increases in some items, for instance, could imply increase in ris& and ould raise Buestions as to 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.
41

Masters Thesis: A risk-based assessment of Ecobank Ghana Limited 2.<.2 Trend !nalysis as used to sho hether there

October, 2010

Trend analysis techniBue in an amount or a ratio. "t

as an improvement or other ise as assessed through the

as used to provide useful information regarding the historical

performance and gro th of the ban&. The gro th of the ban&

e#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 e#traordinary items. !lso, hether the gro th as sustainable or as as a result of 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 by small 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 as based the si# main types of financial ris&s it is

The analysis of the )GHCs ris& profile 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.

42

Masters Thesis: A risk-based assessment of Ecobank Ghana Limited 1igure 2.,? (iagrammatic representation of components of the ban&Cs ris& profile

October, 2010

Balance Sheet Risk

7t%$ct$%e and +ompo#"t"on of )##et# and 5"a "-"t"e# G%owth and +hange# "n )##et# and 5"a "-"t"e# +ap"ta- )de8$ac' G%owth "n 9ff,a-ance 7heet :tem#

Liquidity Risk

5"8$"d"t' 4"#match ;$nd"ng #t%$ct$%e +a#hf-ow )na-'#"#

Interest Rate Risk Bank Risk Profil e

:nte%e#t (ate Gap )na-'#"#

Income Statement Ri s k
<%of"ta "-"t' 5e&e-# 7ta "-"t' /=$a-"t' of >a%n"ng# 9pe%at"ona>ff"c"enc'

Foreign Currency Ris k

+$%%enc' Gap +$%%enc' 7t%$ct$%e of 5oan po%tfo-"o and +$#tome% depo#"t#

Credit Risk
7"?e of +%ed"t >*po#$%e +oncent%at"on of 5oan#: ,o%%owe% g%o$p#3 :nd$#t%' 2"#t%" $t"on of 5oan# ' <%od$ct 2"#t%" $t"on of -oan# ' /eno% 5oan =$a-"t' (e-ated <a%t' 5end"ng

Source? * n Construction
43

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&Cs assets ris& to ascertain any inherent ris&s in them. Table (, in the appendi# depicts an e#pansion in )coban& GhanaCs balance sheet by =;.9<E over the year to GHS,,266,,92. This the amount of government securities held as placement as an improvement of the previous yearCs gro th of about 26E. This e#pansion as mainly due to the increase in ell as the operating accounts balances and ith other ban&s. %ean hile, the gro th in the e#pansion of the Ghana ban&ing as largely
,2

industryCs 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 underpinned by a reduction in the gro th rates of total loans and fi#ed assets . !s at (ecember 0;;9, KHeld'to maturity investments constituted the largest portion of the ban&s assets ratios to <2.0 E and <2.3E of respectively ma&ing it the biggest contributor to the ban&Cs asset siAe. The general industry trend also reflected a similar situation and securities in 0;;9 gre here ban&sC investments in bills by 92E compared to the ,2E gro th in 0;;6, bringing their 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

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 GhanaG.

13

+onta"ned "n the ;e %$a%' 2010 ed"t"on of the ;"nanc"a- 7ta "-"t' (epo%t of ,an! of Ghana. <p 9.

ConseBuently, the proportion of the industryCs 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 countryCs macro economic condition resulted in deterioration of the ban&Cs loan boo&s. %ean hile, returns on short term instruments became attractive and for that matter captured the bigger chun& of the ban&Cs 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 that the ban& hiles maintaining adeBuate liBuidity cover for the ban&. "t appears therefore as more cautious in its gro th approach in 0;;9 and this is reflected in the

asset'liability and ris& management decisions. 1igure <.,? Changes in the composition of assets over the past three years.

o!rce: O)n constr!ction )ith data from com'arati$e ba+ance sheet in a''endi1 "1

<.,.0. /iabilities 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 by some 09.,E 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 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

)GHCs and the industryCs funding base respectively. (eposits from ban&s and other credit

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 still came from deposits to customers fell belo proportion in the ban&Cs funding base &ept the ris& under control. The ban&Cs largest contribution to funding ith >>.<E even though the percentage contribution the 3<E recorded in the previous year. !s reported in the 0;;9 annual report, the

ban&Cs 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&. deposits reduces uncertainty and liBuidity ris& associated ith the deposits as The reduction in the reliance on large corporate depositors and shifting to more retail and standard ell as cost of deposits hich involves active management and attracts higher rates of interest. 1igure <.0? Changes in the composition of liabilities over the past t o years.

o!rce: O)n constr!ction )ith data from com'arati$e common-si2e ana+%sis of ba+ance sheet in a''endi1 31

! trend analysis of the balance sheet items Fcontained in appendi# (,G 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# (=G. 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
46

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 deposits ith short term 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 interest rate ris&. <.,.2 )Buity and Capital !deBuacy hich matures ithin one to five years falls short significantly of the value of interest rate sensitive financial liabilities giving rise to significant

ShareholdersC 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&Cs funding base in the year under revie to ,<.6E from about 9E in the previous year Frefer to appendi# (,G. 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 GhanaCs 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. )GHCs regulatory capital adeBuacy ratio FC!5G 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&Cs core capital adeBuacy ratio Ftier ,G in year 0;;9 contributed hugely to its gro th in regulatory C!5 FTable <.,G. Table <.,? Capital adeBuacy and off'balance sheet measures
EGH I1=u9tr/ *((+ 0 ,>.60 00.>0 ,>.39 *((0 ,=.3; ,2.>; ,6.>3 *((, 0 ,0.6; ,2.6; ,>.23 *((+ 0 ,3.;; ,6.0; ,;.=2 *((, '<.,;E '6.3=E <6.<<E GroBth EGH *((+ 22.62E 23.0>E ,=.90E I1=u9tr/ *((+ 20.6,E 2,.66E '2=.>9E
,<

Cap2ta: a=e>ua</ @ Off3a:a1<e 9heet IteA9

Core capital !deBuacy Ftier " C!5G Capital adeBuacy ratio FC!5G *ff'balance sheet items as a E of total assets

*((0 ,2.,; ,6.;> 9.3>

*((, 0 ,0.=3 ,>.<6 ,<.<9

5is&' eighted assetsJTotal assets 3,.9> 3,.92 6,.2< 32.0; 36.,; >9.6; ';.;<E ,2.;6E ',;.>2E o!rce: 2004 5 2006 ann!a+ re'orts of EG7 5 0ebr!ar% 2010 0inancia+ 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!#.

47

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&Cs profitability, reveals the sources of the ban&Cs 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 yearCs profit. )ven though there earning gro th as average industry gro th rate for the same period as a slo do n in as about 3E. The the gro th of its after ta# profit in 0;;9, )GH still to ered above it peers about > times in its consistency in the ban&Cs 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#G increased marginally from 2,E in 0;;6 to about 2<E in 0;;9E. This performance times above the industry average of 3.=E as still about <.= hich e#perienced a significant fall from the hile

previous yearCs figure of 06.=E as a result of the general decline in loan asset Buality of ban&s in Ghana. 5eturn on !ssets F5*!G remained stable over the past three years 5eturn on )Buity F5*)G sa a decline in the year under revie 0>E in 0;;9 Ffigure <.=G. The mar&ed decline in 5*) is instructive to &no from about <;E in 0;;6 to

as primarily as a result of the sharp

increase in the ban&Cs eBuity through a rights issue underta&en at the later part of the year. "t that in the case of both after ta# 5*! and 5*), )GH surpassed the ith the average industry figures about ,.3E and ,2.6E respectively performance of its peers

in 0;;9 Frefer to table (6 in appendi#G. !bout =,E of the ban&Cs total income 0;;9. This performance fell belo
15

as obtained from interest on loans and advances in

,=

the average industry contribution of =6.3E

but

as an

(efe% to 26 "n append"* fo% deta"-# on "nd$#t%' compo#"t"on of "ncome.

48

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&Cs earnings. 1ees and commission incomes as ell as trading income sa marginal increases in their contributions to total as good for the ban& given that earnings from about ,6E to 0>E Fsee appendi# (0G. This

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&Cs 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& closely monitored. "t appeared the ban& had made some strides in its cost reduction effort as there gross operating income declining marginally to <9E in the year under revie previous year. Though a further improvement commendable as it fell belo as a slo hich can be substantial if not

do n in the gro th in operating e#penses resulting in operating e#penses as a percentage of from =2E the ould be preferred, this performance as Buite

the ==E industry average. )GH has been efficient in the use of hich as also above the industry average of ,<E. The

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 generating interest income ban& ho ever lagged behind the industry performance in the utiliAation of its capacity in ith the ratio of interest income to total assets of =.9E compared orth noting that hiles the ban& is increasing its loan to >.9E for industry. "t is also

portfolio, the level of non performing loans is also increasing Fappendi# (9G. 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.

49

1igure <.2? :rofitability D efficiency indicators

o!rce: O)n constr!ction )ith data from a''endi1 38

)coban& GhanaCs 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 yearG. 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&Cs profitability and shields the ban& from funding FliBuidityG ris&. 1igure <.<? Sources of "ncome versus *perating Costs

o!rce: O)n constr!ction )ith data from com'arati$e income statement in a''endi1 "2

50

6'5

CREDIT RISK ith )coban& GhanaCs operations is inherent in its credit ith concentrations and large e#posures, diversification, orse case scenario,

The credit ris& associated

e#posures. The ris& areas have to do do

lending to related parties and over e#posure to an economic sector. !nother area also has to ith ma&ing adeBuate allo ances to absorb anticipated loss. "n the 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&Cs operations and e#pansion in its financial assets. This situation places greater responsibility on the ban&Cs board and management to strengthen the ban&Cs systems and processes as the ris& ell. <.2., SiAe ell as personnel to manage

!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 the previous year, there as acceleration in this loan gro th from 23E in as slo do n in the gro th rate in the industry loan portfolio as it

recorded 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>EG in the previous year, the proportion of )coban& GhanaCs lending to customers in the current year under revie appendi#G. This situation as not impressive Frefer to chart (,, in 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 the slo ell as deposits from ban&s. !dditionally, 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.

51

<.<.0

Concentration

The =; largest e#posures by customers constitute ==E of the gross loans and advances to customers in 0;;9 means that the ban& hich as a marginal improvement of 0;;6Cs situation of =>E. This large corporate clients to build its loan as still relying on a fe

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&Cs fifty largest e#posures are almost the siAe of the ban&Cs Bualifying capital, hich is the internal buffer of the ban& to cater for losses in its operations. 1igure <.=? =; largest e#posures

o!rce: O)n constr!ction )ith data from a''endi1 34

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 orth noting that, hiles loans to holesale borro ers gre by about <6E business. "t is

from last yearCs 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&Cs strategic transformation intent and drive to ards positioning it as a predominantly retail ban& as opposed to its previous classification as a universal license in 0;;2 .
,>

holesale ban& after the acBuisition of its

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.

52

Table <.0? Customer loans distribution by borro er group *((Loa19 to Cu9toAer9 per 3orroBer .roup
.holesale 5etail Gro99 Loa19 a1= a=;a1<e9

*((,

*((+ *((>3.<,E 20.=9E

CoApo92t2o1

GroBth

GHCD((( GHCD((( GHCD(((

,93,>06 9=,=0> *+5E&76 020,>62 ,6;,00< 6&*E+(2<<,666 ,2;,00< 6-7E&&*

*((,
=>.2=E <2.>=E

*((+

*((,

*((+
<6.00E '03.3<E

30.=9E ,3.3<E 03.<,E 66.>>E

o!rce: O)n constr!ction )ith data from 2004 5 2006 Ann!a+ re'orts of EG7

&(('((0 &(('((0 &(('((0

.ith regards to economic sector concentrations, the services sector seems to get the greatest portion of the ban&Cs credit facilities as 2>E of total credit follo ed by the manufacturing sector ho ever an inverse gro th trend amongst the t o sectors ent to that sector. This is as hich benefited from ,9E of total credits. There

here the service sectorCs portion

of total loans increased by about ,<E and the manufacturing sectorCs 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 GhanaCs 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 )GHCs total loans and advances, benefits the most from the industryCs total credit facilities ta&ing up 2,.>E. "t is then follo ed by the services and the manufacturing sectors in that order transport, storage and communication sectors sa benefited ith agriculture, forestry and fishing as ith 0,E and ,,.>E respectively Fsee ell as figure <.6G. "ncidentally, the manufacturing, finance and commerce, construction as ell as electricity, gas and

declines in the proportion of credit they 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. 1igure <.>? Sectoral allocation of loans

o!rce: O)n constr!ction )ith data from a''endi1 312

53

The shrin&ing of the proportion of credit benefits in greater parts of the Ghanaian economy in favour of just a fe vulnerable to created an unhealthy concentration of lending. "t made the ban& 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 distribution of the various products that the ban& lent out to its customers in reponse to mar&et ere mainly the direct facilities used by the

! revie

demand indicated that, term loans and overdrafts

ban&Cs 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. 1igure <.3? Customer loans by products

o!rce: O)n constr!ction )ith data from a''endi1 312

<.2.<

Customer loans distribution by tenor ere

The maturity structure of the ban& loans to customers revealed that about 6<E of them

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
54

support their

or&ing capital and other short term needs as opposed to see&ing for funding hich reBuire long intallment credit facilities. The

for infrustructural development

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

o!rce: O)n constr!ction )ith data from a''endi1 31/ and tab+e ,.1

<.2.=

/oan @uality

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 resultant non'performing loan ratio sa has reduced to 6.=E from ,,E in year 0;;6. The a marginal decline to 2.<,E in year 0;;9 from ith

2.>0E in the previous year indicating a tightening of )GHCs lending processes coupled industry trend year under revie hich sa

intensified monitoring and debt recovery drives. This is in contrast ith the current aggregate 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 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. )GHCs 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.

55

1igure <.9? /oan @uality

o!rce: O)n constr!ction )ith data from a''endi1 36 and 310

The situation buttressed the ban&Cs 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 ith an improvement in the ban&Cs management information systems as made possible hich enabled it to

properly classify its loans. .ith a coverage ratio Fcollateral as a E of non'performing loansG of ,32E Fsee table <.2G, the ban& made adeBuate collateral cover for its non'performing loans to further reduce the incidence of loan losses. Table <.2? /oan loss coverage *((GHCD(( ( ,<,>=6 ,2,<2> 0 ,;9.;9 *((, GHCD(( ( ,=,6,0 ,<,9<6 0 ,;=.36 *((+ GHCD(( ( 06,,2> ,>,00< 0 ,32.<0

Collateral +on'performing loans Collateral as E to +on'performing loans FCoverage ratioG <.2.> 5elated :arty (ealings

o!rce: O)n constr!ction )ith data from 2004 and 2006 ann!a+ re'ort of EG7

The ban& maintained dealings

ith its directors and &ey management personnel in the form ell as giving loans to them. ! revie of the information

of receiving deposits from them as

contained in the ban&Cs 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
56

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&Cs 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 <.,0G. 1igure <.,;? 5elated party information

o!rce: O)n constr!ction )ith data from a''endi1 319

6'6

LI?!IDIT$ RISK

!n evaluation of the liBuidity ris& of )coban& Ghana limited involves an assessment of the ban&Cs ability to efficiently accommodate the redemption of deposits and other liabilities and to 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&sC capital from loses on unscheduled asset sales hich may become neccesary ith deposit runoffs. The assessment of the ban&Cs liBuidity ris& includes the revie structure, cashflo analysis and liBuidity ratio. <.<., /iBuidity %ismatches of the maturity ladder Fsee table <.<G indicates that the ban& has maintained its ith a total liBuidity position of GHS ,29,0<6. of the

maturity profile of assets and liability F/iBuidity %ismatchesG, the composition of the funding

! revie

positive liBuidity profile in year 0;;9

Ho ever the huge negative mismatch in the very short term Fone to three monthsG indicated that the ban& had problems funding all its contractual obligations during the period at a
57

reasonable cost. This situation

as as a result of the ban& not having adeBuate liBuid assets hich are due for redemption in the same period.

maturing during the period to meet deposits

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 <.<? %aturity /adder
*((Matur2t/ %rof2:e of A99et9 a1= L2a32:2t2e9 A99et9 , ' 2 months < ' ,0 months , ' = years *ver = years Tota: L2a32:2t2e9 , ' 2 months < ' ,0 months , ' = years *ver = years Tota: i!uidit" Mismatches 1 - / months , - 12 months 1 - 9 %ears O$er 9 %ears Tota: 101,00: -1/0,/,: 88,,:0 8,:19 77E-57 :,146 //,,:4 41,4,/ -/,,,:/ ,-E(5-64,/2, 1:8,419 -,2,,00 112,198 1/6,2,4 222,30, 00<,2<< =6,2=, ; 8&8E6&8 =3=,<;0 ,30,3,= 26,;9= <6,3<= ,56E+76>>,;<< ,>3,>6> ,,>,0;3 =;,;<< &E&++E+,& CuAu:at2;e '96,20< >9,<9, 03,;9, ,29,0<6 <2<,303 92,996 ,2=,6,, 3,>,= 8-*E&7& =6,,=9, 0;>,,62 ,,9,926 ,<,060 +*&E++6 3>3,30; 22=,=;, 32,6;3 ,>0,0;, &E55+E**+ GHCD((( *((, GHCD((( *((+ GHCD(((

o!rce: O)n constr!ction )ith data from 2004 and 2006 Ann!a+ re'orts of EG7 <.<.0 Structure of funding

)coban& GhanaCs direct portfolio is funded by a mi# of sources as presented in 1igure <.,2. "ts main funding source continued to be from customer deposits of the total funding base. hich constituted about >3E

58

1igure <.,,? 1unding soucres

o!rce: O)n constr!ction )ith data from a''endi1 318

The significant contribution of customer deposits to the ban&Cs funding base implied that the soundness of the ban&Cs 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&Cs funding base as from current accounts. "t formed the bul& of the ban&Cs 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. 1igure <.,0? Customer deposits by type

o!rce: O)n constr!ction )ith data from 2004 and 2006 Ann!a+ re'orts of EG7
59

*n the other hand, retail customer deposits especially those from individual salary and private businessmen carry some level of stability accounts and time deposit accounts sa

or&ers

ith them since the probabilty of

having portions set aside to ards the future for various reasons is high. )ven though saving 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 ratios statement of )coban& Ghana also sho ed that the ban& had a

!n analysis of the cashflo

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 ere deficits in net cashflo from financing and hich provided some the past three years. )ven though there

investing activities in the previous years, e#cept for the current year under revie , the ban&Cs normal course of business operations had generated positive cashflo s level of dependability to the ban&Cs liBuidity situation. 1igure <.,2? Trend of Cash flo s

o!rce: O)n constr!ction )ith data from a''endi1 314

To buttress the ban&Cs sound liBuidity position, it is significant to mention that the ban&Cs customer loans ere fully funded from the ban&Cs internally generated sources as customer
60

loans forms only about <9E of customer deposits. Customer loans as a percentage to core deposits funded as also =3E indicating that a very high proportion of the ban&Cs loan boo& ere ith lo 'cost deposits. /oan assets are the core assets and also generally the most ere proportional to gro th in core deposits. as enough readily convertible assets

illiBuid assets class of the ban&. !ccordingly, they reBuire a stable source of fundingI hence the importance of ensuring that gro th in loans .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 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 . This >,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&Cs liBuidity situation as more sound in this regard vis'H'vis ere adeBuately catered for. /iBuid industry performance of <3E in 0;;9. .ith about 6>E of )coban& GhanaCs liability structure consisting of volatile funding, its short term investment assets Fshort'termG ere about 39E of the ban&Cs volatile liabilities in 0;;9, indicating an
,3

as after it previously lagged behind the industry hich had a ratio of

adeBuate cover for short'term investments. !s represented by the volatility liability dependency 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;;3G 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&Cs ability to retain these volatile finds.

17

:nd$#t%' %at"o# fo% -"8$"d a##et# a# a @ of tota- depo#"t# and -"8$"d a##et# a# a @ of tota- a##et# we%e ta!en f%om the 5"8$"d"t' %at"o# p%e#ented "n the ;e %$a%' 2010 ;"nanc"a- 7ta "-"t' (epo%t of ,an! of Ghana. 5"8$"d a##et# "n that %epo%t a%e %efe%%ed a# the %oad -"8$"d a##et#.

61

1igure <.,<? Trends in liBuidity ratios

o!rce: O)n constr!ction )ith data from a''endi1 318

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 SgapS 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& GhanaCs interest repricing schedule Fappendi# (0;G 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&Cs interest income declined as a result of the decline in the average mar&et interest rates . This is because more assets ere invested at lo er mar&et rates than liabilities during the period.
,6

18

/he fact of the gene%a- d%op "n ma%!et "nte%e#t %ate# "# conta"ned "n the 2010 ,an!"ng 7$%&e' p$ -"#hed ' <%"cewate%ho$#e+oope%#3 Ghana.

62

1igure <.,=? "nterest rates repricing gap

o!rce: O)n constr!ction )ith data from a''endi1 316

"t

ould therefore have been a prudent strategy for the ban& to have a negative interest hich ould have result in interest income of the ban& increasing ould have been ta&en

repricing mismatch

because declining average mar&et interest rates meant more liabilities significantly e#posed to ris& associated asset ratio of 26.=E for 0;;9

on at lo er mar&et rates. "n general, it appeared the ban&Cs assets and shareholders eBuity are ith movements in interest rate. The Gap to total as still on the high side even though it e#perienced a decline as also about 0=,E in 0;;9 from a high of =,6E in the

from about <9E from the previous year considering that general prudent limits are bet een ' ,=E to ,=E. G!: to eBuity ratio 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 ith foreign ban&s,

$ecause )coban& Ghana maintains correspondent ban&ing relationships lend and borro foreign currencies, it is prone to currency ris&s. ! revie currencies in year 0;;9. !lso

in foreign currency and supports customer transactions denominated in of the currency mismatch schedule hose percentage

in appendi# (00 indicated that the ban& had positive net open currency positions for all its ith the e#ception of 4S( liabilities 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
63

structure of the ban&Cs 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 4S( denominated e#posures. 1igure <.,>? Currency Structure of /oan :ortfolio and Customers (eposits ith the greater portion of the remainder ta&en by

o!rce: O)n constr!ction )ith data from a''endi1 321

$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 <.,9G. 1igure <.,3? Currency 5is& ? Currency )#posure as E of @ualifying Capital

o!rce: O)n constr!ction )ith data from a''endi1 321

64

CHA%TER FI#E - ASSESSMENT OF RISK MANAGEMENT FRAME

7'( INTROD!CTION

ORK

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, currencyG and operational ris&s it faces. 7'& =.,., CREDIT RISK *rganisation ith the $oard

The responsibility for credit ris& management in )coban& Ghana /imited lies 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&Cs Credit :olicy %anual. The manual contains an outline of the scope and allocation of the ban&Cs credit facilities and the manner in hich the credit portfolio is managed, that is, ho ith clearly defined responsibilities loans are originated, appraised, supervised and collected at both the individual credit and portfolio levels. "t also outlines the governance structure and credit approval authority. The $oard also periodically revie s and approves the ban&Cs 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
65

day'to'day basis. The organisation of the ban&Cs credit ris& management structure and process ensures that an appropriate environment is established to handle credit ris& and that the ban& is operating under a sound credit granting process. These areas form part of the principles for managing credit ris&s put for ard by the 5is& %anagement Group of the $asel Committee on $an&ing Supervision in a consultative paper issued on 2; +ovember ,999 . =.,.0 5is& identification
,9

)coban& Ghana believes in having effective systems in place to enable it acBuire adeBuate information on borro ers. This enables the ban& to properly identify ris&s associated individual borro ers and credit portfolio. The ban&Cs ris& analysts the sales function in the various business units [Link] $an&ing, 5etail $an&ing, Treasury and 1inancial "nstitutions, and "nvestment $an&ingG to identify ris&s associated revie ith the individual transactions from the onset. !fter an in'depth of the borro ers and the actual transactions being proposed to identify the inherent ris&s, ris& ratings developed internally by the ban& are assigned to both the obligor and the facility being sought for. The rating system is based on a scale of , P ,; to rate commercial and industrial obligors, financial institutions, and sovereign government as ell as Small P and P %edium P scale )nterprises. ! rating of K, identifies obligors of the highest Buality, comparable to !!! on the scale of Standard and :oorCs. ! ris& rating of K,; is assigned to obligors of lo est Buality or highest ris&, identical to ( on the scale of Standard and :oorCs. The ratings, hich are based on the identified inherent ris&s, inform the ris& analystsC decision as to hether the obligor and credit facility should be accommodated having in mind the limits set in the ban&Cs credit policy manual and other industry and regulatory standards. The revie of the proposed credit transactions includes a thorough e#amination of the or& in partnership ith ith

Table =.,? )GHCs internal ris& rating system

S<a:e9 I1terpretat2o1 & -8 - -, + &( +ormal ris& 5is& under atch Substandard ris& 5is& of permanent default

o!rce: 2006 Ann!a+ &e'ort of Ecobank Ghana Ltd

borro erCs business activities, analysis of its financials and sometimes solicitation of opinion of other ban&s, business partners, customers or e#ternal rating agencies all in a bid to have a
19

) #$mme%' of the p%"nc"p-e# a%e conta"ned "n )ppend"* >

66

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 customers 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 ithout undue delays. The use of the ris& ratings system also assists in the proper classification of obligors and facilities in the ban&Cs 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&Cs credit portfolio are therefore identified as unhealthy portfolio structures Fover' concentrationsG, and highlights deteriorating credit Buality in certain classified groups. =.,.2 5is& %easurement

)coban& Ghana limitedCs 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)!(G, probability of default F:(G and the severity of loss in the event of default Floss given default or /G(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&Cs 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 rite'offs, fully reserved interest earned costs include all provisions ta&en against bad debts, 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(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
67

not collected and possible attorney fees incurred in the process of enforcing the ban&Ms claims

corresponding loss norm credit e#posure

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 ith a given facility ris& rating is then multiplied by the corresponding loss ith the portfolio ris& rating is multiplied by 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 the eighted average of loss norm. 1igure =.,? ! diagrammatic illustration for measuring e#pected loss
stimate of credit risk hat 29 the pro3a32:2t/ of a Cou1terpart/ =efau:t21.G EFpe<te= Lo99

) )

EL

)
%D

%ro3a32:2t/ of Defau:t

*
If the counter+arty defaults, to -hat [Link] are -e e.+osure/ EFpe<te= EFpo9ure

EE

*
Lo99 G2;e1 Defau:t

HoB Au<h of the eFpo9ure aAou1t =o Be eFpe<t to :o9e upo1 =efau:tG

LGD

o!rce: Ada'ted from an artic+e b% ;im &ich and *!rtis Tan#e tit+ed #Credit $is% Management& 'ortfolio (iew) =.,.< 5is& %onitoring 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 ensure that ne ban& hen approval conditions are met, and perform periodical revie s of collateral. These are to credit ris& e#posures do not negatively affect the total credit portfolio of the ell
68

hiles e#isting credit facilities remain in good conditions and that the ban& is

protected from losses. !ccounts sho ing distressed signals are isolated and reported. These then receive the attention of the 5emedial %anagement 4nit strategies and hich is ell resourced and have the specialised focus of managing problem credits. The unit helps develop effective 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&Cs "nternal Control 4nit also conducts periodic chec&s on credit granting activities to ensure that they comply ith prudential standards and the ban&Cs credit policies ea&nesses in the credit ell as any e#ceptions to policies, and procedures. Such audits also help to identify areas of administration process, policies and procedures as procedures and limits. =.,.= 5is& 5eporting

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&Cs credit e#posure FportfolioG and helps management and the board ensure that the portfolio performs in accordance serve as early problems. 7'* =.0., MARKET RISK *rganisation ith approved concentration limits and overall ris& profile. The reports also arning systems designed to monitor troubled e#posure and credit process

The board of )coban& Ghana /imited articulates statements of mar&et ris& direction and appetite through the ban&Cs 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&Cs 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*G ho meet monthly and anytime mar&et conditions arrant it.

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&Cs ris& tolerance level. The committee revie s the ban&Cs liBuidity and funding needs and the structure and pricing of the ban&Cs assets and liabilities. "t also articulates the ban&Cs 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&Cs 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&Cs 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 productsG 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#posureG, presence of ne mar&ets and trading in ne as financial instruments. These enable the ban& to avoid huge loses mar&et prospects in the light of the ell as allo ing the ban& to properly assess ne

ban&Cs 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&Cs "T platform also reveals that its technological capacity is of the highest standard ith state'of'the'art
70

computer programmes supporting the timely and accurate delivery of information and

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& "dentification %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&et ris& 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!5G to its trading and non trading portfolios to estimate the mar&et ris& of positions held and the ma#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 parametersJfactors 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
71

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. Table =.0: 8!5 limits at various levels 0;;9 LoB "nterest 5ate 5is& 1oreign )#change 5is& )Buity 5is& 0; 9; 02> A;era.e 0<; ,,= 2;2 H2.h ,0,3 ,>2 <06 LoB 66 = ,03 0;;6 A;era.e 0,< 3 , H2.h =23 ,0 222

o!rce: 2006 Ann!a+ &e'ort of Ecobank Ghana Limited

[Link]

Li-!idit% &isk

)coban& Ghana uses the liBuidity gap schedule Fmaturity ladderG 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&Cs liBuidity ris&. .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&Cs ris& profile, in line ith the ban&Cs 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&lyG intervals instrument for ris& identification and measurement. hich are then consolidated into monthly and Buarterly time horiAons. This ensures that the liBuidity gap schedule remains an effective

72

[Link]

.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& straightfor ard target for hedging purposes. ith a single numeric result for each time period, repricing or maturity and therefore provides a "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, dynamics of hich is the level of net interest margin, is

normally determined by the relative yields and volumes of balance sheet items, the ongoing hich cannot be addressed by a static model. !lso, the gap model may fail to ill be similar to the decisions that resulted in predict the impact of a change in funding strategy on the net interest margins because it assumes that funding decisions in the future the ban&Cs 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&Cs 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./ 0orei#n c!rrenc% risk hen there are fluctuations in the prevailing

1oreign currency ris& is ta&en on by the ban&

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&Cs 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.
73

=.0.<

5is& %onitoring and Control

The treasurer of the ban& has the responsibility of monitoring the mar&et ris& situation on a regular basis. HeJshe monitors interest rates through daily, currency positions to ensure that they are &ept is ell diversified in line ee&ly and monthly revie s of the structure and pricing of assets and liabilities. The treasurer also chec&s the open foreign ithin approved overnight and intraday price limits. /iBuidity ris& is monitored through the gap analysis and ensures that the deposit base ith the Credit :olicy. The %ar&et 5is& %anager also constantly ith the vie of ensuring they are ithin prudential limits revie s the mar&et ris& e#posures

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&Cs 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& 5eporting

.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&Cs position are also provided by the treasury deportment to assist in decision ma&ing. "ndependent revie s of the ban&Cs positions and procedures by the !udit and Compliance 4nit to the board gives the board an objective vie of the mar&et ris& situation.

74

7'5 =.2.,

O%ERATIONAL RISK *rganisation

(ue to the comple# and diverse nature of operational ris&, )coban& Ghana /imitedCs main strategy for managing ris&, is to develop a strong operational ris& culture amongst its entire staff and has therefore committed significant resources to it in the last t o F0G years. %ost of the efforts to ards this have been in the form of sensitising and training staff on ho daily or& activities can contribute to operational ris& and their hat they can do to avoid
0;

potential losses. The ban& has also invested in an operational ris& management application F*pris& %anagement SystemG developed for it by HS$C to assist in identifying lapses in every aspect of the ban&Cs activities hich can result in operational losses. The ban&Cs re 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 ithin the ris& function ho ensures that adeBuate &no ledge, operational ris& manager

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 "n line 5is& "dentification ith $asel "" operational ris& frame or&, )coban& Ghana /imited categorises its or&place safety, dispute ith clients, damage to

operational ris& into seven loss event categories based on their primary cause? internal fraud, e#ternal fraud, employment practices and 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 5"m"tedB.

75

management. These categories formed the foundation of the design and construction of the ban&Cs 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 lossG, potential loss Fan incident that has been discovered, that may or may not ultimately result in a financial lossG and near miss events. ! near miss event is an incident that no loss or a gain. =.2.< 5is& %onitoring and Control as discovered through means other than normal operating practices and that, through good fortune or focused management action, resulted in

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 for monitoring 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 acceptable levels set by the board. impossible events by means of scenario analysis, ithin The $an& analyses the impact of unli&ely, but not hich enable management to gain a better

understanding of the ris&s that it faces under e#treme conditions. $oth historical and
76

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&Cs acceptable level. There are clear sanctions for flouting the processes and procedures established to ensure control over operational to ensure strict compliance. The ban&Cs "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& 5eporting

"t is the responsibility of the *perational 5is& %anager to periodically FBuarterlyG 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& comprehensive Credit :olicy %anual hich the ban& considers to be the major ris&s inherent in its business activities. The ban& has a hich has been revie ed over the years to reflect ne developments in the ban&ing industry Fboth local and internationalG. )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.

77

The ban&Cs ris& management frame or& mainly see&s to establish an appropriate environment for managing ris& as management process. "n line ell as put in place necessary tools for the actual ith clear ith establishing an appropriate environment for managing ho have responsibilities in the ris& management

ris&, the frame or& ensures that there is a solid governance structure in place obligations and authority assigned to all

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&Cs ris& management frame or&, portions of the ban&s re ard system have been tied to the level of ris& consciousness of all staff.

78

CHA%TER SI" - CONCL!SION AND RECOMMENDATIONS

8'( INTROD!CTION

This chapter provides concluding statements on )coban& Ghana /imitedCs 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&Cs ris& profile and the evaluation of the components of its ris& management frame or& vis'H'vis recommended structures by the $asel Committee on $an&ing Supervision. The chapter also contains a couple of recommendations aimed at improving the ban&Cs ris& management system. 8'& CONCL!SION ith the

The impressive financial performance of the Ghanaian ban&ing industry coupled

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 hich this can be verified relies on inherent in their business activities. The e#tent to

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&Cs in this area of study and therefore this ith a focus on )coban& Ghana study provides an initial contribution to this e#ercise

/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&Cs balance sheet, the ith its investments

resulting structural changes lead to a healthy asset mi# balancing liBuidity profitability. The consecutive approach ta&en by the ban& in 0;;9 sa increasing lending ris&. The gro th in assets

in government securities constituting the largest portion of its asset mi# so as to avoid as also bac&ed by stable funding

79

sources from customer demand deposits and adeBuate capital base increase through additional capitaliAation by shareholders. ii. The profitability level of the ban& as also high

hich sa

a huge

hich provided a cushion for short as fueled by

term liBuidity problems and a stable source of capital generation. This

significant gro th in the ban&Cs main revenue streamsI net interest income and fee' based incomes. The ban&Cs demonstration of high levels of efficiency in the use of its potential FassetsG 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 portfolio declined orry for the ban&Cs credit ris&.

Ho ever, the loan Buality improved as the level of non'performing loans in the loan ith tightened lending processes and increased monitoring and as also improved recovery activities. The ban&Cs capacity to absorb credit losses 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 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&Cs e#posure to interest rate ris& revealed by the high G!: to total assets ratio as further hich even fell outside the general 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

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?
80

a. !n appropriate environment has been established for managing ris&. This included a, solid governance structure 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&Cs 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 ith performance base remuneration system. These interventions made by the ban& to ensure sound ris& management are also in line 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 . 8'* RECOMMENDATIONS
0,

ith clear obligations and lines of authority and policy

documents approved by the board containing procedures, processes and techniBues

(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., "nterest 5ate 5is& %anagement here assets and liabilities are ithin specific time periods, for

Currently, )GH applies the %aturity Gap !nalysis method categorised by their repricing dates to identify mismatches estimating interest rate ris&. !n alternative
21

hich

ill help address the shortfalls in this

/h"# "nfo%mat"on wa# conf"%med ' the 2ep$t' Go&e%no% of ,an! of Ghana3 4%. 5. 6an 5a%e 2o#oo at the (eg"ona- 7em"na% on ("#!- a#ed #$pe%&"#"on on 24 )p%"-3 2006 "n )cc%a.

81

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!G 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 )GHCs 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 valueG 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 integrated approach to ris& management

Currently, the structure of )GHCs 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 hich
82

e#posed to. There is therefore the need for the ban& to develop an integrated system

ensures a systematic and comprehensive approach to managing ris& across the ban&. !n

integrated ris& management system is necessary because as its business activities becomes more varied, the li&elihood of having more than one type of ris& inherent in an activity or one type of ris& triggering other ris&s is Buite high. %anagement vie ill therefore need a portfolio ith the vie of of all the various ris&s and developing a strategy to manage them

benefiting from diversification effects. Such an integrated approach can help senior management see the relationships bet een the various ris& e#posures as covered is reduced. )GHCs ris& management function should champion this due to the enormous authority it ields in issues of ris& management as ell as its significant responsibility of coordinating ith some responsibilities for and facilitating unit ris& management activities. The ban&Cs 5is& %anagement Committee should be e#panded to include the heads of other departments some ris&s such as "T, *perations, "nternal Control the three business segments [Link] $an&ing, 5etail $an&ing and TreasuryG. The e#panded committee can be used to promote an integrated frame or& of policies, procedures and defined processes for ban&' ide ris& management about ho ith the vie of ensuring accountability for decisions related to the management of ris&. 1ran& discussions can also ta&e place bet een the o ners of these ris&s their activities affect each others and increase their ris&s. The various strategies being used to manage the various ris&s can be synchroniAed to ensure more efficiency and effectiveness in the ris& management process. 5is&s should be defined uniformly across the firm no matter here they appear and common sets of metric should be adopted to capture them. Synchronising these ban&' ide metrics for ris& ith the ban&Cs information technology system ill aid accurate data capture, analysis and reporting. The ban& should also aim at developing aggregate measures for its ris& e#posure. The idea is to incorporate multiple types or sources of ris&s into a single Buantitative ris& measure. Such a measure ith give the management of the ban& an idea of
00

ell as their

multidimensional effect on the ban&. The possibility of some ris&s not being appropriately

hat its aggregate ris& e#posure

at any point in time. "n this regard, the ban& should consider the use of the economic capital methodology . !n economic capital method attempt to assess the amount of capital needed to support a given set of business activities or ris&s. .hen stress testing or scenario analysis
22

This is in line ith the gro ing trend in the hole over amongst financial institutions. This is carried in a report by the Joint 1orumCs .or&ing Group of the $asel Committee on $an&ing Supervision F!ugust, 0;;2G.

83

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 safeguard against. There are various The best approach ays by hich economic capital see&s to hich )GH can go about aggregating its ris&.

ill be to use the Tbuilding bloc&C approach that aggregates ris& at

successive levels in an organiAation. The aggregation is first done across the ban&Cs business lines by ris& type before subseBuent aggregating the ris& types at the ban& ide level. The above approach Feconomic capitalG economic capital 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 ith the help of statistical tool such as 8!5 Ffor mar&et ris&G. The 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*CG and return on ris&'adjusted capital F5*5!CG 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 activities probable huge losses. ith lo 5!5*C so that those units may reduce their hen macro economic conditions are too volatile and thereby save the ban& from

84

A%%ENDI" A: G:o99ar/ of 4e/ f21a1<2a: terA9 a1= rat2o9

Cap2ta: a=e>ua</ rat2o is the ratio of adjusted eBuity base to ris& adjusted asset base as reBuired by the $an& of Ghana F$oGG, i.e. Total regulatory capital J Total ris& eighted assets. Core <ap2ta: a=e>ua</ rat2o (Ba9e: I <ap2ta: a=e>ua</)? Total tier , capital J Total ris& eighted assets. Ca9h a99et9 include cash on hand, balances ith the central ban&, money at call or short notice, and cheBues in course of collection and clearing. Core Cu9toAer Depo92t9 includes current accounts, cash collateral account, individual consumer savings, and money mar&et accounts. Co9t 21<oAe rat2o H +on'interest operating e#penses J *perating income. I1tere9t Rate9 Se192t2;e A99et9 refers to assets principally of loans ith maturity ithin a year. I1tere9t Rate9 Se192t2;e L2a32:2t2e9 refers to liabilities principally of deposits ith maturity ithin a year. L2>u2= a99et9 include cash assets and assets that are relatively easier to convert to cash, e.g., investments in government securities, Buoted and unBuoted debt and eBuity investments, eBuity investments in subsidiaries. Loa1 :o99 pro;292o19 H FGeneral D specific provisions for bad debts for L "nterest in suspenseG J Gross loans and advances. Lo1. terA A99et9 includes securities hich mature beyond one year, other real estate o ned and net loans Net 21tere9t 21<oAe U Total interest income ' Total interest e#pense Net 21tere9t Aar.21 H +et interest income J !verage assets No1-perforA21. :oa19 refer9 to loans and advances ith payments of interest and principal past due by 9; days or more, or at least 9; days of interest payments have been capitaliAed, refinanced or delayed by agreement, or payments are less than 9; days overdue, but there are other good reasons to doubt that payments ill be made in full. %rof2t after taF Aar.21 H :rofit after ta# J Total income %rof2t 3efore taF Aar.21 H :rofit after e#traordinary items but before ta# J Total income ?ua:2f/21. <ap2ta: includes share capital, regulatory ris& reserves, statutory reserves, retained earnings, non controlling interest, subordinated debt and other reserves. Retur1 o1 a99et9 H :rofit after ta# J !verage total assets Retur1 o1 e>u2t/ H :rofit after ta# J !verage total shareholdersM funds [Link]= a99et9 refer to ban&s assets adjusted for ris&. Shareho:=er9D fu1=9 comprise paid'up stated capital, income surplus, statutory reserves, and capital surplus or revaluation reserves. Short terA I1;e9tAe1t9 includes government securities L loans to ban& ith maturity less than , year L trading assets L investments securities. #o:at2:e L2a32:2t2e9 refers to short term borro ed funds and short term non'core deposits normally from institutional investors. #o:at2:e L2a32:2t/ Depe1=e1</ rat2o U F8olatile liability ' Short Term "nvestmentsG J F/ong Term !ssetsGV ,;;

85

A%%ENDI" B: CoAparat2;e F21a1<2a: StateAe1t9 of EGH for *((- - *((+

ECOBANK GHANA LIMITED B&' BALANCE SHEET *((ASSETS Cash and Cash $alances ith central ban& 1inancial assets held for trading ' E-!it% instr!ments !vailable'for'sale financial assets ' )Buity instruments /oans and receivables Held'to'maturity investments 3ebt instr!ments Loans and ad$ances (erivative financial instruments Tangible assets ' (ro'ert%, (+ant and E-!i'ment "ntangible assets ' License for cor'orate soft)are Ta# assets ' 3eferred ta1 assets *ther assets T*T!/ !SS)TS LIABILITIES (eposits from ban&s and other credit institutions $orro ings (eposits from customers Ta# liabilities *ther liabilities T*T!/ /"!$"/"T")S E?!IT$ Stated capital "ncome Surplus !ccount 5evaluation 5eserves Statutory 5eserve 1und 5egulatory Credit 5is& 5eserve Capital and )Buity attributable to parent eBuityMs )Buity holders +on'controlling interest T*T!/ )@4"TY T*T!/ /"!$"/"T")S !+( )@4"TY Co1t21.e1</ :2a32:2t2e9 a1= <oAA2tAe1t ><,>>> ; 86E888 88,E-6+ 87E*8,'(( 6=,2>; '>00 ,6E-5, +&+E8+7 &55E*5-'(( 0;>,9;0 ',,<69 *(7E6&5 &E5,,E&+5 *55E&*+'(( 6>,<>6 ,33,=6; 2 ,>,920 ; 93; 2=,39, 88,E-6+ GHCD((( =9,6;, ==,>>, <23,9=, <,30< <=,9<> 8(6E(,5 GHC ,>,<;; 02,<9> ,,>;0 ,6,3<3 <,<0, 69,>39 020,>;9 ; 0<,26, 0,,9; 9,6 =6,2,> +&+E8+7 GHCD((( ,<,0>, >,,360 >60,3;= <,2<, 3,,6>6 ,56E+7GHC ,>,<;; <,,>,9 ,,=9= 00,9>= 0,36, 0>6,=2< <<0,6;> ; <<,;,= 2,>2; ,,2,9 <;,>>= &E5,,E&+5 GHCD((( 9;,,03 60,<99 900,;33 2,23< 6<,3;2 &E&,*E-,( GHC ,;;,;;; =9,;<, ,=,<9, 09,>=< 0,3,> GHCD((( <6,032 6,02< =,6;< 066,>9< *((, GHCD((( >9,393 =,;90 2=,,60 <;,,=2, *((+ GHCD((( ,;<,,>0 0,=<; 0<,2>2 <=>,,=9

86

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

B*' INCOME STATEMENT *((GHCD((( I1tere9t I1<oAe !vailable'for'sale financial assets ' E-!it% instr!ments /oans and receivables Held'to'maturity investments ' (+acements 5 T f!nds (I1tere9t EFpe19e) (emand deposits Time deposits $orro ed funds Savings Fee9 a1= CoAA2992o1 I1<oAe Trade finance fees Credit related fees and commission Cash %anagement *ther fees and commissions (Fee9 a1= CoAA2992o1 EFpe19e9) Rea:29e= .a219 o1 f21a1<2a: a99et9 @ :2a32:2t2e9 1ot Aea9ure= at fa2r ;a:ue throu.h prof2t or :o99E 1et ' finance +ease Ga219 o1 f21a1<2a: a99et9 a1= :2a32:2t2e9 he:= for tra=21.E 1et - net tradin# income Ga219 o1 f21a1<2a: a99et9 a1= :2a32:2t2e9 =e92.1ate= at fa2r ;a:ue throu.h prof2t or :o99E 1et - 3i$idend income Other operat21. 21<oAe :rofit on sale of eBuipment other income Tota: I1<oAe Operat21. EFpe19e9 IApa2rAe1t <har.e o1 :oa19 a1= a=;a1<e9 %rof2t 3efore 21<oAe taF "ncome ta# e#penses +ational stabilisation levy %rof2t for the /ear !ttributable to? )Buity holders of the parent entity +on controlling interest 002<9 ; **E56+ 2<,;6= '=;> 55E7-+ 6 ,,==9 85E+&5 '22,,<2 '=9, 5(E&-+ '3,62; ; **E56+ ,2 ,,;0< &(-E&,+ '=3,=;= '=,392 65E,+& ',;,2,0 ; 55E7-+ 206 >,2 =,;03 2,;69 ,,;32 3,60< '=;, <,639 2,3<> 9,,6> 2,;>3 ',,,;3 ',,2<6 ',0,;62 '0,>03 ; '0,299 ',2,2;< '>,>36 '<,00< ,2,292 03,9,= ,;,<3, ,>,0;2 <<,6>; ,,,>9, *((, GHCD(((

October, 2010

*((+ GHCD((( <0,<=0 3>,=<= ,0,260 '6,>>3 ',,,6;6 ',9,2,2 '9,,2< ,3,>0> >,02, ,>,<,9 2,906 '0,;=0

0,636

<,2,;

=,;>>

>,9;3

2=,2;9

06,,<6 <<6 ,<6 ,,<>9 &7+E,,, '33,>6, '9,=,6 -*E8,+ ',3,,9= ',,><, 75E,75 =<,30; '6>3 75E,75

87

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

B5' CASHFLO STATEMENT *((GHCD((( Ca9h f:oB9 froA operat21. a<t2;2t2e9 "nterest paid "nterest received +et fees and commissions receipts *ther income received (ividend received +et trading income /ease income :ayments too employees and suppliers Ta# paid Ca9h f:oB froA operat21. a<t2;2t2e9 3efore <ha1.e9 21 operat21. a99et9 a1= :2a32:2t2e9 Changes in operating assets and liabilities /oans and advances other assets "nvestment securities Customer deposits *ther liabilities %andatory reserve reBuirement Net Ca9h .e1erate= froA operat21. a<t2;2t2e9 Cash flo from investing activities :urchase of property and eBuipment :urchase of soft are :roceeds from sale of sale eBuipment :urchase of Government securities Net <a9h u9e= 21 21;e9t21. a<t2;2t2e9 Cash flo from financing activities (ividend paid :roceeds from right issue 5epayment of borro ed funds :roceeds from borro ed funds Net <a9h .e1erate=I(u9e= 21) froA f21a1<21. a<t2;2t2e9 +et increase in cash and cash eBuivalents Cash and cash eBuivalents at beginning of year >,,00 -6E-5>9,;;9 93,,20 ',0>,=,2 23,;,= ; ,;0,2,< <0,=23 ; 6+E76, '6,663 ; 2,; 0,260 -8E&+7 ',;,6=9 ',,6,>2, '00,<3; '09,236 0<<,3=< =3,206 '=,;<, &*8E78* ',2,,<3 '0,2=, ,9 2,0,, &*E*8, ',2,26< ; ; >,,00 --E*8* ,<<,02> ,>>,,<< 5&(E5-5(E5+5 57E7&7 ',>,;=9 =;,=<0 ,>,=,0 ,,=>6 206 9,=22 0,636 '06,<3, '>,<26 '0>,>;> 30,0;= ,9,0=< ,,;23 >,< 09,992 <,2,; '=2,269 ',,,9;2 *((, GHCD(((

October, 2010

*((+ GHCD((( '<0,>6, ,0=,3,; <0,,=0 ,,>,3 <<6 02,2=< <,>>0 '>9,32; ',9,2>; 88E&-* '=<,>06 ,3,>=, ',;,6,9 029,230 ',<,>;< '0<,209 &7*E865 ',,,<,6 '0,63; ,>, '=9,,6; -5E5(0>,=3< 39,=;; '9,=36 0,,,2= 86E6,5 0;9,99, 2,;,233 7*(E58,

Ca9h a1= <a9h e>u2;a:e1t9 at the e1= of /ear &88E&6& o!rce: 2004 and 2006 Ann!a+ &e'orts of Ecobank Ghana +imited

88

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

October, 2010

A%%ENDI" C: B:ooA3er. L' % rat21.9 a1= Sto<4 Tre1=9

C,? 5atings for short'term and /ong'term credits.

o!rce: "+oomber#

L. (

C0? Table annual share price performance of )GH on the Ghana Stoc& )#change

Share %r2<e %erforAa1<e of EGH Tra=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

89

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

October, 2010

A%%ENDI" D: Ta3:e9 a1= Chart9 for R294 %rof2:e A99e99Ae1t

(,? Common SiAe and Trend analysis of $alance Sheet of )GH
BALANCE SHEET *((ASSETS Cash and Cash $alances ith central ban& 1inancial assets held for trading ' E-!it% instr!ments !vailable'for'sale financial assets ' )Buity instruments Held'to'maturity investments /oans and receivables Tangible assets ' (ro'ert%, (+ant and E-!i'ment *ther assets Tota: A99et LIABILITIES @ E?!IT$ (eposits from ban&s and other credit institutions $orro ings (eposits from customers Ta# D other liabilities E>u2t/ 6.9< 6.20 >=.<9 3.=6 +'8,.== >.30 3<.02 6.09 +'*& >.<9 =.9< >>.<0 >.2< &6',( &(( '3>.,= ,,.;; ==.69 =;.<; 5&'(6 5-'7* =2,.96 22.=2 2=.;> ,=.=3 &6*'6& 7('+6 0 3.00 ,.02 ;.63 29.<6 <2.,3 0.=2 =.=; &(( CoApo92t2o1 *((, 0 3.=9 ;.== 2.62 2=.;< <2.>> 0.>= >.>6 &(( *((+ 0 3.=; ;.,6 ,.3> =,.0< 20.6> 2.,3 2.09 &(( 0 <<.=9 '26.,> =;>.,3 00.;> 29.;9 <2.99 >3.;6 5-'7* GroBth *((, *((+ 0 <9.0< '=;.,0 '2;.3= ,0;.30 ,2.>; 6;.=2 '0=.3< 7('+6

Tota: &(( &(( o!rce: O)n constr!ction )ith data from com'arati$e ba+ance sheet

(0? Common SiAe and Trend analysis of "ncome statement of )GH

CoApo92t2o1 INCOME STATEMENT +et "nterest "ncome 1ees and Commission "ncome 5ealised gains on finance lease +et trading income (ividend income *ther operating income Total "ncome *perating )#penses "mpairment charge on loans and advances :rofit before ta# Ta#ation and levy %rof2t for the /ear :rofit attributed to +on controlling interest ,6.6<E ;.;;E ,2.9,E ;.>6E ,3.>0E ;.6,E ,;;.;;E *((==.69E 0=.6<E <.=;E ,;.6,E ;.=,E 0.<=E ,;;.;;E 39.3<E ,.<0E *((, <2.;=E ,6.<<E <.;0E 20.9<E ;.=3E ;.93E ,;;.;;E 33.=9E 3.60E *((+ =,.=3E 0>.2>E 2.,3E ,3.>;E ;.06E ,.;,E ,;;.;;E 30.>3E 6.9;E GroBth *((, 09.,9E ,9.3<E <9.3>E <,,.0,E 6>.69E ',0.92E >3.6,E 32.=,E 66;.0;E <=.<<E 2,.3;E =;.0=E ;.;;E 36.20E *((+ 36.>6E ,,2.0;E ,3.=<E '0;.06E '0>.90E 0=.,=E <6.32E 2=.;9E ><.2;E >=.>,E 60.>>E >;.26E 3,.2<E <<.0<E

Total Cost ,;;.;;E ,;;.;;E o!rce: O)n constr!ction )ith data from com'arati$e income statement

90

Masters Thesis: A risk-based assessment of Ecobank Ghana Limited (2? $alance Sheet and gro th trend of (eposit %oney $an&s in Ghana
Ke/ De;e:opAe1t9 Depo92t Mo1e/ Ba149D Ba:a1<e Sheet *((, ASSETS 1oreign !ssets (omestic !ssets "nvestments $ills Securities +et !dvances of hich foreign currency Gross !dvances *ther !ssets 1i#ed !ssets Tota: A99et LIABILITIES @ E?!IT$ Total (eposits of hich foreign currency Total $orro ings 1oreign liabilities Short'term borro ings /ong'term borro ings (eposits of non'residents (omestic liabilities Short'term borro ings /ong'term borro ings (eposits of (eposits *ther /iabilities :aid'up capital GHCD((( 936,6;; 9,3,2,<;; ,,=<3,9;; 992,;;; =09,3;; =,=92,9;; ,,=,;,<;; =,9>>,6;; =;>,>;; 2<<,>;; &(E8+*E*(( GHCD((( >,9<9,;;; ,,6;<,3;; ,,2>;,;;; 9;=,9;; 2<,,9;; 230,0;; ,9,,6;; 6,=9;,=;; =<3,>;; 96,2;; >,3=3,0;; ,,0>0,6;; <<=,6;; *((+ GHCD((( ,,=0>,0;; ,0,=,0,<;; 0,969,2;; ,,396,2;; ,,,2,,3;; >,9,3,>;; ,,>==,0;; >,9,3,>;; 3>2,>;; <0<,0;; &6E(5,E8(( GHCD((( 6,9>6,>;; 0,3<9,0;; ,,63,,3;; ,,,;2,<;; =,6,<;; 2<9,3;; 02=,0;; ,,,,<<,2;; 633,6;; ,0=,6;; 6,322,=;; ,,23=,3;; ,,,;2,3;; ,,3>0,6;; *((, 0 =<.9 2=.> ,0.6 ,,,.2 '<;.; <0.3 =0., <2.9 ,<.= <0.> 5-'* 0 <,.< 33.> 09.= 2=.6 0.; =9.9 92.> 2>.= ==.2 '0<.2 <;.2 20.0 >;.; 26.,

October, 2010

GroBth *((+ 0 ==.9 06.6 92., 6,., ,,2.> 02.3 9.> ,=.9 =;.3 02., 5&'5 0 09., =0.2 23.> 0,.6 =,.> '>.; 00.> 09.3 >;.2 06.; 09.0 6.9 ,<3.> =6.<

ShareholdersM 1unds ,,,,0,6;; o!rce: 0ebr!ar% 2010 0inancia+ tabi+it% &e'ort

91

Masters Thesis: A risk-based assessment of Ecobank Ghana Limited (<? "ncome Statement and gro th trend of (eposit %oney $an&s in Ghana
Depo92t Mo1e/ Ba149D I1<oAe StateAe1t *(("nterest "ncome interest )#penses +et "nterest "ncome 1ees and Commissions F+etG *ther "ncome *perating "ncome Total income *perating )#penses Staff Cost *ther *perating )#penses +et *perating "ncome Total :rovision F/oan losses, (epreciation D *thersG %onetary /oss "ncome $efore Ta# Ta# +et "ncome o!rce: 0ebr!ar% 2010 0inancia+ tabi+it% &e'ort GHCD((( 330,,;;.; '0>9,=;;.; =;0,>;;.; 02<,3;;.; 62,,;;.; 60;,<;;.; ,,><;,6;;.; '<>,,9;;.; ',6;,;;;.; '06,,9;;.; 2=6,=;;.; ',,<,2;;.; ,,;;;.; 0<=,0;;.; '>6,2;;.; ,3>,9;;.; *((, GHCD((( ,,,6=,0;;.; '<6,,=;;.; 3;2,>;;.; 2;2,,;;.; 0,=,6;;.; ,,000,=;;.; 0,<<=,;;;.; '32>,2;;.; '2;2,<;;.; '<20,9;;.; <6>,0;;.; ',66,,;;.; 2,0;;.; 2;,,2;;.; '3<,,;;.; 003,2;;.; *((+ GHCD((( ,,62,,<;;.; '6=6,,;;.; 932,2;;.; 2>>,;;;.; 030,=;;.; ,,>,,,6;;.; 2,002,>;;.; '929,=;;.; '23>,9;;.; '=>0,>;;.; >30,2;;.; '22;,,;;.; ',,0;;.; 2<,,;;;.; '93,9;;.; 0<2,,;;.;

October, 2010

GroBth *((, 0 =2.= 36.3 <; 09., ,=9.3 <9 =9.< >6.> =2.> 2=.= ><.> ; 00.9 6.= 06.= *((+ 0 =<.= 36.0 26.2 0;.6 0>.2 2,.6 03.> 0<.0 2;.; 26.2 3=.= ;.; ,2.0 20., 3.;

(=? Table of gro th in capital adeBuacy and off'balance sheet item

CoApo92t2o1 of <oApo1e1t9 21 Tota: A99et9 *((( ASSETS Cash and due from ban&s "nvestments +et advances *ther assets 1i#ed assets LIABILITIES @ E?!IT$ Total deposits Total borro ings *ther liabilities >,.< ,0.3 ,2.> =6.2 6.< ,9.= >;.; 3.= ,9.; >0.3 6.; ,>.3 ><.0 3.< ,=.= ><.6 9.; ,2.< >=.0 ,,.2 ,;.3 >2.; ,2.= ,0.0 ,;.2 >=.; ,0.3 ,,.6 ,;.< >2.9 ,2.2 9.6 ,0.> 0 0=.= 0<.0 29.> 6.; 0.3 *((& 0 0=.0 06.; 23.3 =.3 2.< *((* 0 06.9 2,.3 2;.< =.3 2.2 *((5 0 09.= 03.3 2;=.0 <.6 0.3 *((6 0 03.; 03.3 2=.> >.2 0.3 *((7 0 0;.3 0>.9 <2.; >.= 2.; *((8 0 02.= 02.2 <=.; =.0 2., *((0 02.2 ,3.> =;.2 =.3 2., *((, 0 0=.0 ,<.= =0.2 <.3 2.0 *((+ 0 0>.2 0,.2 <2.6 =.< 2.;

ShareholdersM funds ,,.9 ,2., ,0.> ,0.= ,0.> ,0.6 ,,.3 o!rce: 0ebr!ar% 2010 b!++etin of the 0inancia+ tabi+it% &e'ort b% "ank of Ghana

92

Masters Thesis: A risk-based assessment of Ecobank Ghana Limited (>? Chart of income composition

October, 2010

o!rce: O)n constr!ction )ith data from common-si2e ana+%sis of income statement and 2010 0inancia+ tabi+it% &e'ort of "ank of Ghana

(3? !sset invested compared ith income sources

o!rce: O)n constr!ction )ith data from common-si2e ana+%sis of ba+ance sheet and income statement

(6? Table of profitability and efficiency ratios

EGH %rof2ta32:2t/ a1= Eff2<2e1</ :rofit margin Fpost ta#G 5eturn on assets Fpre'ta#G 5eturn on average eBuity Fpost ta#G +et interest income as a E of total assets *perating e#penses as a E of total assets +et interest income as a E of Gross loans and advances *((2<.93E <.=,E 2<.=>E =.2<E <.9>E ,0.,9E *((, 2,.22E <.33E 29.>2E =.;0E >.0=E ,,.,6E *((+ 22.>6E =.0<E 0>.00E =.9<E =.>;E ,3.2>E I1=u9tr/ *((+ 3.=<E ,.32E ,2.39E >.92E >.>9E ,<.;3E 09.,<E

*perating e#penses as a E of gross operating income =,.=9E =2.2<E <6.<=E o!rce: O)n constr!ction )ith data from com'arati$e ba+ance sheet and income statement

93

Masters Thesis: A risk-based assessment of Ecobank Ghana Limited (9? Table of credit ris& measures for )GH
*((Cre=2t R294 Mea9ure9 Total ma#imum e#posure to credit ris& Gross loans and advances to customers Gross loans and advances to ban&s Total /oan :ortfolio @ualifying capital Collateral +on'performing loans "mpairment Charge GHCD((( >62,026 092,,=< ,33,=6; <3;,32< 6>,90> ,<,>=6 ,2,<2> =9, *((, GHCD((( ,,;0=,<<2 <,0,9;3 020,>;9 ><=,=,> ,;9,;;> ,=,6,0 ,<,9<6 =,392 *((+ GHCD((( ,,=30,2=6 <3=,,,0 <<0,6;> 9,3,9,6 0==,<<2 06,,2> ,>,00< 9,=,6

October, 2010

GroBth *((, =;.;9E <;.6=E 2;.99E 23.,2E 0=.<;E 3.63E ,,.0=E 66;.0;E *((+ =2.22E ,=.;3E 9;.2>E <0.0;E ,2<.2<E 33.9<E 6.=<E ><.2;E 9>.=6E ,2.=<E

!llo ance for impairment <,<>; 9,><, ,6,9=0 ,,>.,3E =; largest e#posure to customers Fnon ban&sG ,>;,2==.0< 02;,,==.=0 0>,,2,,.>; <2.=2E Customer loans as a E to total loan portfolio >0E ><E =0E $an& loans as a E of total loan portfolio 26E 2>E <6E =; largest e#posure as E to gross loans and advances =<.3;E =>.;;E ==.;;E =; largest e#posure as E to Bualifying capital ,6<.<3E 0,,.,<E ,;0.2;E =; largest e#posure as E to Total credit ris& e#posure 02.<3E 00.<<E ,>.>0E Collateral as E to +on'performing loans FCoverage ratioG ,;9.;9E ,;=.36E ,32.<0E +on'performing loans as E of Gross loans and advances <.=6E 2.>0E 2.<,E "mpairment Charge as a E of Gross loans and advances ;.0;E ,.<;E 0.;;E !llo ance for impairment as E of Gross loans and advances ,.=0E 0.22E 2.99E o!rce: O)n constr!ction )ith data from com'arati$e ba+ance sheet and income statement

(,;? Table of credit ris& measures for Ghana ban&ing "ndustry

Cre=2t R294 Mea9ure9 for the Gha1a2a1 Ba1421. I1=u9tr/ *((GHCD((( Total /oan :ortfolio +on'performing loans +on'performing loans as E of Gross loans and advances <,<,><6 0>>,;;; 0 >.9;E !llo ance for impairment as E of Gross loans and advances <.3;E o!rce: 0ebr!ar% 2010 of 0inancia+ tabi+it% &e'ort of "ank of Ghana *((, GHCD((( =9>,>6; <=6,,;; 0 3.3;E =.,;E *((+ GHCD((( >9,,3>= ,,;2<,,;; 0 ,<.9;E 9.<;E 0 <2.9;E 30.00E GroBth *((, *((+ 0 ,=.9<E ,0=.3<E

94

Masters Thesis: A risk-based assessment of Ecobank Ghana Limited (,,? 5atio of non'ban& to ban& loans

October, 2010

o!rce: O)n constr!ction )ith data from tab+e of credit risk meas!re com'!tations

(,0? table of industry concentration of customer loans

CoApo92t2o1 EGH I1=u9tr/ Co1<e1trat2o19 Construction !griculture, forestry and fishing %ining and Buarrying %anufacturing )lectricity, gas and ater Commerce and finance Transport, Storage and communication Services %iscellaneous *((=.6<E ;.;<E >.=6E ,3.32E =.>9E ,6.;2E 3.90E 26.,>E ; *((, ,;.>;E ;.63E <.;=E 0<.9=E ;.;3E ,3.,=E 3.66E 2<.<0E ; *((+ 9.09E 0.33E 2.36E ,9.2;E 6.22E ,=.36E =.;3E 2=.>6E ; I1=u9tr/ *((+ 3.6;E <.3;E 0.3;E ,,.>;E >.2;E 2,.>;E 2.9;E 0,.0;E ,;.0;E GroBth EGH *((, ,>;.<;E 092,.<;E ',,.>>E ,;,.62E '96.,6E 2>.<2E <0.3,E 09.29E ; <2.<=E *((+ '2.;2E 0=,.62E 2.2>E ',<.2<E ,0>9<.;>E ,.6<E '06.6;E ,<.3>E ; ,;.3,E

Total ,;;.;;E ,;;.;;E ,;;.;;E ,;;.;;E o!rce: O)n constr!ction )ith data from 2004 and 2006 Ann!a+ re'orts of EG7

(,2? Table of customer loans distribution by products

*((Cu9toAer Loa19 3/ pro=u<t Term /oans *verdrafts 1inance leases Staff loans %ortgage Guarantees /oan commitments D other credit related liabilities GHCD((( ,6<,63< 63,,,< ,=,660 =,,<; ,<< >,,0>2 <,;;= *((, GHCD((( 02;,63; ,<6,6<9 ,6,<<6 9,;36 2,3<3 ,;;,,>> 22,023 *((+ GHCD((( 20=,=>= ,,,,902 ,3,<>= ,2,602 >,22= 002,;>0 ,;,;>3 CoApo92t2o1 *((*((, *((+ 0 0 0 =,.=6 <0.<, <=.93 0<.2; <.<2 ,.<2 ;.;< ,3.;9 ,.,0 03.2< 2.29 ,.>3 ;.>9 ,6.<; >.,, ,=.6; 0.<3 ,.9= ;.69 2,.=; ,.<0 &(('(( GroBth *((, *((+ 0 0 0<.66 <,.;0 3;.63 ,>.,> 3>.>, 0=;0.;6 >2.=; 309.69 '0<.6, '=.22 =0.03 >9.;3 ,00.>9 '>9.3,

Tota: 57,E6** 766E5+7 -(,E*6( &(('(( &(('(( o!rce: O)n constr!ction )ith data from 2004 and 2006 Ann!a+ re'orts of EG7

95

Masters Thesis: A risk-based assessment of Ecobank Ghana Limited (,<? Table of customer loans distribution by maturity
*((Matur2t/ of Loa19 to <u9toAer9 , ' 2 months < ' ,0 months , ' = years *ver = years GHCD((( ,>6,<<9 ,>,339 90,909 3,>,= *((, GHCD((( 029,;<6 >;,;,, 69,>>0 ,0,6,; *((+ GHCD((( 0,=,06< ,>3,;>6 32,6;3 ; *((0 CoApo92t2o1 *((, *((+ 0 0 =9.=2 ,<.9= 00.22 2.,9 <3.,9 2>.>0 ,>.,6 ;.;; &(('((

October, 2010

GroBth *((, *((+ 0 0 <,.9, 0=3.>> '2.=0 >6.00 06.6> ,36.<; ',3.>6 ',;;.;;

=6.9= =.63 20.=0 0.>>

Net Loa19 a1= a=;a1<e9 *,7E--* 6(&E75& 678E&7+ &(('(( &(('(( o!rce: O)n constr!ction )ith data from 2004 and 2006 Ann!a+ re'orts of EG7

(,=? Table of related party information

GroBth
5elated :arty "nformation !mount of loans FGHWM;;;G to (irectors D -ey %gt :ersonnel !mount of deposits FGHWM;;;G to (irectors D -ey %gt :ersonnel *((02> <=< *((, ,30 09; *((+ ,=0 ,,9 ;.;>E

*((,
'03.,0E '2>.,0E

*((+
',,.>2E '=6.93E

!mount of loan as E of @ualifying Capital ;.03E ;.,>E o!rce: O)n constr!ction )ith data from 2004 and 2006 Ann!a+ re'orts of EG7

(,>? Chart of /iBuidity %ismatches

o!rce: O)n constr!ction )ith data from tab+e of c!stomer +oans distrib!tion tab+es

(,3? Table of composition and trends in funding sources

*((Fu1=21. Sour<e9 (eposit from ban&s (eposit from customers *ther liabilities $orro ings Shareholders funds GHCD((( =9,6;, <23,9=; <=,9<> ==,>>, ><,>>> *((, GHCD((( ,<,0>, >60,3;= 3,,6>6 >,,360 6<,326 *((+ GHCD((( 90,62, 92=,99, 6<,3;2 62,99; 0;=,<,2 *((9.;,E >=.9=E >.90E 6.26E 9.3<E CoApo92t2o1 *((, ,.=>E 3<.=6E 3.6=E >.3=E 9.0>E *((+ >.>0E >>.30E >.;<E =.99E ,<.><E ,;;.;;E GroBth *((, '3>.,=E ==.69E =>.<0E ,,.;;E 2,.;<E *((+ ==;.9<E 23.,;E ,3.6>E 2=.9=E ,<0.<,E

Tota: fu1=21. 3a9e 886E(*6 +&7E576 &E6(*E+*, ,;;.;;E ,;;.;;E o!rce: O)n constr!ction )ith data from 2004 and 2006 Ann!a+ re'orts of EG7

96

Masters Thesis: A risk-based assessment of Ecobank Ghana Limited (,6? Table of liBuidity ris& measures
*((L2>u2=2t/ Rat2o9 Total !ssets /iBuid assets Total /iabilities 8olatile /iabilities Customer (eposits Customer /oans "nterban& (eposits "nterban& /oans !ll deposits type Core Customer (eposits Short term "nvestment /ong term !ssets Customer loans as a E of customer deposits Customer loans as a E of core deposits "nterban& loans as a E of interban& deposits 8olatile /iability (ependency ratio /iBuid assets as a E of total assets /iBuid assets as a E of volatile liabilities ' <o+ati+it% co$era#e 8olatile /iabilities as a E of total liabilities /iBuid assets as a E of all deposits type ' "ank &!n =;.>>E =>.99E <=.,9E 9;.=2E =2.;9E 69.>;E GHCD((( >><,=2> 0=0,,>= >,>,<,> ==6,;>= <23,9=; 06=,330 =9,6;, 6>,2,0 <93,3=, 2>;,0;> 0=3,2=9 ,2=,6,, >=.0=E 39.2<E ,<<.22E 00,.<0E 23.9=E *((, GHCD((( 90,,99< 293,,33 62<,9=3 3<6,,,3 >60,3;= 020,>;9 ,<,0>, 020,>;9 >9>,9>> =9;,>0, 2=0,96; ,20,0<, 2<.;3E 29.26E ,>2,.;6E 096.6;E <2.;6E

October, 2010

*((+ GHCD((( ,,229,009 6,6,;<0 ,,,99,96, ,,;22,32; 92=,99, <=>,,=9 90,62, <<0,6;> ,,;06,600 39=,0<6 =3>,;<0 06;,;02 <6.3<E =3.2>E <33.;;E ,>2.<=E >,.;6E 39.,2E 6>.,=E 39.=,E 0;.;;E

0; largest deposits as a E total customer deposits 09.;;E o!rce: O)n constr!ction )ith data from 2004 and 2006 Ann!a+ re'orts of EG7

(,9? Table of cash flo summary

*((Ca9h F:oB9 +et cash operating fromJFused inG activities +et cash used in investing activities +et cash Fused inGJgenerated from financing activities GHCD((( <9,=<6 '>,,9= '<,323 *((, GHCD((( ,0>,=>0 ',0,0>6 '3,0>0 ,<<,02> *((+ GHCD((( ,=0,><2 32,2;3 ><,<62 0;9,99, GroBth *((, ,==.<2E '96.;2E

*((+

+et increase in cash and cash eBuivalents >9,;;9 o!rce: O)n constr!ction )ith data from cash f+o) statement

0;.>,E >93.==E '=2.2;E 963.9=E <=.=9E ,;9.;,E

97

Masters Thesis: A risk-based assessment of Ecobank Ghana Limited (0;? Table of interest rate ris& measures
*((I1tere9t Rate Repr2<21.IMatur2t/ =ate9 A99et9 , ' 2 months < ' ,0 months , ' = years +on'"nterest bearing Tota: L2a32:2t2e9 , ' 2 months < ' ,0 months , ' = years +on'"nterest bearing Tota: *nterest $epricing Mismatches 1 - / months , - 12 months 1 - 9 %ears +on'"nterest bearing Tota: "nterest rate sensitive assets "nterest rate sensitive liabilities Gap "nterest rate sensitive assetsJ"nterest rate sensitive liabilities "nterest rate sensitive assets J Total assets "nterest rate sensitive liabilities J Total /iabilities Gap I Tota: a99et9 129,/9/ -116,:08 -8,0/6 92,:86 +,-./0 =,,,<=9 =;=,3,2 =,3<> ,;,.,<E 36.>;E 6<.26E (',,0 /1,,/:4 12,,6/4 24,664 -,0/,142 0+-,11 >;3,62< ,>6,=06 <29,2;> 2>;.>3E >6.;>E 0;.2=E 6+'&+0 7&,'650 2;0,>;, 0;2,,,0 0;,,;0 32,=<2 7++E57, ,00,<,; <>,,,6 62,;=> =3>,<,6 ,*,E((* <03,9=< 62,=;= ,2,;>2 ,0>,000 87(E-66 <2>,336 ,3,,;=> ,,0,;=< ,32,02> ,+5E&*6 GHCD((( *((, GHCD(((

October, 2010

*((+ GHCD((( >29,96= 2,=,903 32,6;3 2;9,=,; &E55+E**+ 2;,,,== ,29,<<; ,>2,<<> =3=,2>= &E&-+E6(8 //4,4/0 18:,,48 -46,:/6 -2:9,499 ,+2-/1. 9==,9,0 <<;,=9= =,=,2,3 0,>.9>E 3,.26E 23.2>E 5,'6,0 *7(',-0

Gap I Tota: e>u2t/ ,',+0 o!rce: O)n constr!ction )ith data from 2004 and 2006 Ann!a+ re'orts of EG7

(0,? Chart of interest rate ratios

o!rce: O)n constr!ction )ith data from tab+e of interest rate risk meas!res

98

Masters Thesis: A risk-based assessment of Ecobank Ghana Limited (00? Table of currency ris& measures
*((Curre1</ A1a:/929 A99et9 Cedis 4S( )45 G$: *ther Tota: L2a32:2t2e9 Cedis 4S( )45 G$: *ther Tota: 3et 4pen Currenc" 'osition Cedis 4S( )45 G$: *ther Tota: @ualifying capital *edis = 3 E=& G"( Other Total Curre1</ Stru<ture of Loa1 %ortfo:2o : Loans in *edis Loans in = 3 Loans in E=& Loans in G"( Loans in other c!rrencies Total Curre1</ Stru<ture of Cu9toAer =epo92t9 : 3e'osits in *edis 3e'osits in = 3 0=;,,;, ,=,,32< 29<,<02 0<6,3,; <3,,9<3 <0<,==, ,3,,==0 ,;6,,=; =,6,3 0=2 ; 06=,330 0;2,<<0 ,63,36< ,;,030 22 ; <;,,=2, 0>2,;36 ,6,,6>9 ,,,,0< 66 ; <=>,,=9 9:,14/ -,,,91 :,/94 9,,94 1,114 86E888 6>,90> 89,096 ,,1/0 926 1,, ,,48: ,6E-5, ,;9,;;> 11:,614 2,,024 4,649 1,:69 11,428 &85E675 0==,<<2 <=.33E 9.<,E 2.=0E ;.>>E <.>2E 85'++0 2,0,=<, 0<9,22= 03,602 ,,,6>< 0,=0; 8(6E(,5 <32,;,2 2,<,=;9 22,0>, 9,=<6 <,>0> ,56E+7=36,<>0 =<;,<<= <,,3<9 ; ,6,3=; &E&-+E6(8 =,.3<E <,.03E <.>,E ,.9>E ;.<0E ,;;.;;E 2>6,30< 0<<,66< 2<,,6, ,3,200 2,>26 88,E-6+ =<6,;30 2,6,>29 22,39; 9,>90 9,=;0 +&+E8+7 >9=,26; =><,<32 =;,32< ,,>9= 2;,=33 &E56*E,7+ ==.,<E 2>.>0E =.,,E 0.=9E ;.=<E ,;;.;;E GHCD((( *((, GHCD((( *((+ GHCD((( *((-

October, 2010

CoApo92t2o1 *((, =9.=9E 2<.>=E 2.>3E ,.;=E ,.;2E ,;;.;;E =>.>=E 23.>3E 2.96E ,.,<E ;.==E ,;;.;;E *((+ =,.36E <0.;<E 2.36E ;.,2E 0.06E ,;;.;;E <9.;=E <=.60E 2.=<E ;.;;E ,.=9E ,;;.;;E

Curre1</ R294 EFpo9ure a9 0 of ?ua:2f/21. Cap2ta:: ><.>2E >6.6>E '=.,0E 3.2,E >.06E ,.09E -6'5+0 2.39E ;.<9E ;.,2E <.<3E --'-60

CoApo92t2o1 *((>;.;2E 23.6<E 0.;<E ;.;9E ;.;;E ,;;.;;E *((=3.,,E 2<.>=E *((, =;.>3E <>.33E 0.=>E ;.;,E ;.;;E ,;;.;;E *((, =3.33E 2>.<2E *((+ =3.>3E 29.63E 0.<<E ;.;0E ;.;;E ,;;.;;E *((+ =,.,6E <>.;<E

99

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

3e'osits in E=& 3e'osits in G"( 3e'osits in other c!rrencies 02,>9, ,;,23, 0,;=2 03,=06 9,<;, 0,><2 ,=,>;6 ; 9,93, =.<,E 0.23E ;.<3E ,;;.;;E

October, 2010
<.;2E ,.26E ;.29E ,;;.;;E ,.>9E ;.;;E ,.;6E ,;;.;;E

<23,9=; >60,3;= 900,;33 Total o!rce: O)n constr!ction )ith data from 2004 and 2006 Ann!a+ re'orts of EG7

(02? Chart of currency structure of !ssets and /iabilities, Current :eriod

o!rce: O)n constr!ction )ith data from tab+e of c!rrenc% risk meas!res

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

October, 2010

A%%ENDI" E:I1ter1at2o1a: Re<oAAe1=e= %r21<2p:e9 for e19ur21. Sou1= R294 Ma1a.eAe1t

E&' Corporate Go;er1a1<e for Ba1421. Or.a12Jat2o19 (E1ha1<21. Corporate Go;er1a1<e for Ba1421. Or.a12Jat2o19) :rinciple ,? $oard members should be Bualified for their positions, have a clear understanding of their role in corporate governance, and be able to e#ercise sound judgment about the affairs of the ban&. :rinciple 0? The board of directors should approve and oversee the ban&Cs strategic objectives and corporate values that are communicated throughout the ban&ing organiAation. :rinciple 2? The board of directors should set and enforce clear lines of responsibility and accountability throughout the organiAation. :rinciple <? The board should ensure that there is appropriate oversight by senior management consistent ith board policy. :rinciple =? The board and senior management should effectively utiliAe the or& conducted by the internal audit function, e#ternal auditors, and internal control functions. :rinciple >? The board should ensure that compensation policies and practices are consistent ith the ban&Cs corporate culture, long'term objectives and strategy, and control environment. :rinciple 3? The ban& should be governed in a transparent manner. :rinciple 6? The board and senior management should understand the ban&Cs operational structure, including here the ban& operates in jurisdictions, or through structures, that impede transparency Fthat is, K&no 'your'structureG. o!rce: "ase+ *ommittee on "ankin# !'er$ision (0ebr!ar%, 200:> E*' ". S2.19 of a D29torte= Cre=2t Cu:ture Self'dealing? !n overe#tension of credit to directors and large shareholders, or to their interests, 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 violation of sound credit principles. The reasons for the compromise typically include self'

"".

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

October, 2010

""".

"8. 8.

8".

8"".

8""".

dealing, an#iety over income, competitive pressures in the ban&Cs &ey mar&ets, or personal conflicts of interest. !n#iety over income? ! situation in hich concern over earnings out eighs the soundness of lending decisions, underscored by the hope that ris& ill not materialiAe or lead to loans ith unsatisfactory repayment terms. This is a relatively freBuent problem because a loan portfolio is usually a ban&Cs &ey revenue'producing asset. "ncomplete credit information? This indicates that loans have been e#tended ithout proper appraisal of borro er credit orthiness. 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, and an optimistic interpretation of &no n credit ea&nesses because of survival in distressed situations in the past. "n addition, ban&s may ignore arning signs regarding the borro er, economy, region, industry, or other relevant factors or fail to enforce repayment agreements, including a lac& of prompt legal action. /ac& of supervision? "neffective supervision invariably results in a lac& of &no ledge about the borro erCs affairs over the lifetime of the loan. ConseBuently, initially sound loans may develop problems and losses because of a lac& of effective supervision. Technical incompetence? This includes a lac& of technical ability among credit officers to analyAe financial statements and obtain and evaluate pertinent credit information. :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 the reasonable payment capacity of the borro er. This is a freBuent problem in unstable economies ith volatile interest rates. b. /oans here the ban&'financed share of the total cost of the project is large relative to the eBuity investment of the o ners. /oans for real estate transactions ith narro eBuity 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 erCs 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 E1amination Man!a+ "oard of Go$ernors 0edera+ &eser$e %stem 3i$ision of "ankin# !'er$ision and &e#!+ation (3ecember, 1649>

102 1021

Masters Thesis: A risk-based assessment of Ecobank Ghana Limited E5 A. %r21<2p:e9 for the A99e99Ae1t of Ba149K Ma1a.eAe1t of Cre=2t R294 Estab+ishin# an a''ro'riate credit risk en$ironment

October, 2010

:rinciple , ' The board of directors should have responsibility for approving and periodically revie ing the credit ris& strategy and significant credit ris& policies of the ban&. The strategy should reflect the ban&Cs tolerance for ris& and the level of profitability the ban& e#pects to achieve 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 for identifying, measuring, monitoring and controlling credit ris&. Such policies and procedures should address credit ris& in all of the ban&Cs activities and at both the individual credit and portfolio levels. :rinciple 2? $an&s should identify and manage credit ris& inherent in all products and activities. $an&s should ensure that the ris&s of products and activities ne to them are subject to adeBuate procedures and controls before being introduced or underta&en, and approved 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. These criteria 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 ers and counterparties, and groups of connected counterparties that aggregate in comparable and meaningful manner different types of e#posures, both in the ban&ing and trading boo& and on and off the balance sheet. :rinciple >? $an&s should have a clearly'established process in place for approving ne credits as ell as the e#tension of e#isting credits. :rinciple 3? !ll e#tensions of credit must be made on an armCs'length basis. "n particular, credits to related companies and individuals must be monitored ith particular care and other appropriate 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 their various credit ris&'bearing portfolios.
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Masters Thesis: A risk-based assessment of Ecobank Ghana Limited

October, 2010

:rinciple 9? $an&s must have in place a system for monitoring the condition of individual credits, including determining the adeBuacy of provisions and reserves. :rinciple ,;? $an&s should develop and utilise internal ris& rating systems in managing credit ris&. The rating system should be consistent ith the nature, siAe and comple#ity of a ban&Cs activities. :rinciple ,,? $an&s must have information systems and analytical techniBues that enable management to measure the credit ris& inherent in all on' and off'balance sheet activities. The management information system should provide adeBuate information on the composition of the credit portfolio, including identification of any concentrations of ris&. :rinciple ,0? $an&s must have in place a system for monitoring the overall composition and Buality of the credit portfolio. :rinciple ,2? $an&s should ta&e into consideration potential future changes in economic conditions hen assessing individual credits and their credit portfolios, and should assess their credit ris& e#posures under stressful conditions. 3. Ens!rin# ade-!ate contro+s o$er credit risk

:rinciple ,<? $an&s should establish a system of independent, ongoing credit revie and the results of such revie s should be communicated directly to the board of directors and senior management. :rinciple ,=? $an&s must ensure that the credit'granting function is being properly managed and that credit e#posures are ithin levels consistent ith prudential standards and internal limits. $an&s should establish and enforce internal controls and other practices to ensure that e#ceptions to policies, procedures and limits are reported in a timely manner to the appropriate level of management. :rinciple ,>? $an&s must have a system in place for managing problem credits and various other or&out situations. E. The ro+e of s!'er$isors

:rinciple ,3? Supervisors should reBuire that ban&s have an effective system in place to identify measure, monitor and control credit ris& as part of an overall approach to ris& management. Supervisors should conduct an independent evaluation of a ban&Cs strategies, policies, practices and procedures related to the granting of credit and the ongoing management 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>
104 1041

Masters Thesis: A risk-based assessment of Ecobank Ghana Limited E6 A. %r21<2p:e9 for the Aa1a.eAe1t a1= 9uper;292o1 of :2>u2=2t/ r294

October, 2010

0!ndamenta+ 'rinci'+e for the mana#ement and s!'er$ision of +i-!idit% risk

:rinciple ,? ! ban& is responsible for the sound management of liBuidity ris&. ! ban& should establish a robust liBuidity ris& management frame or& that ensures it maintains sufficient liBuidity, including a cushion of unencumbered, high Buality liBuid assets, to ithstand a range of stress events, including those involving the loss or impairment of both unsecured and secured funding sources. Supervisors should assess the adeBuacy of both a ban&Ms liBuidity ris& management frame or& and its liBuidity position and should ta&e prompt action if a ban& is deficient in either area in order to protect depositors and to limit potential damage to the financial system. ". Go$ernance of +i-!idit% risk mana#ement

:rinciple 0? ! ban& should clearly articulate a liBuidity ris& tolerance that is appropriate for its business strategy and its role in the financial system. :rinciple 2? Senior management should develop a strategy, policies and practices to manage liBuidity ris& in accordance ith the ris& tolerance and to ensure that the ban& maintains sufficient liBuidity. Senior management should continuously revie information on the ban&Cs liBuidity developments and report to the board of directors on a regular basis. ! ban&Cs board of directors should revie and approve the strategyI policies and practices related to the management of liBuidity at least annually and ensure that senior management manages liBuidity ris& effectively. :rinciple <? ! ban& should incorporate liBuidity costs, benefits and ris&s in the internal pricing, performance measurement and ne product approval process for all significant business activities Fboth on' and off'balance sheetG, thereby aligning the ris&'ta&ing incentives of individual business lines ith the liBuidity ris& e#posures their activities create for the ban& as a hole. *. Meas!rement and mana#ement of +i-!idit% risk

:rinciple =? ! ban& should have a sound process for identifying, measuring, monitoring and controlling liBuidity ris&. This process should include a robust frame or& for comprehensively projecting cash flo s arising from assets, liabilities and off'balance sheet items over an appropriate set of time horiAons. :rinciple >? ! ban& should actively monitor and control liBuidity ris& e#posures and funding needs ithin and across legal entities, business lines and currencies, ta&ing into account legal, regulatory and operational limitations to the transferability of liBuidity.

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October, 2010

:rinciple 3? ! ban& should establish a funding strategy that provides effective diversification in the sources and tenor of funding. "t should maintain an ongoing presence in its chosen funding mar&ets and strong relationships ith funds providers to promote effective diversification of funding sources. ! ban& should regularly gauge its capacity to raise funds Buic&ly from each source. "t should identify the main factors that affect its ability to raise funds and monitor those factors closely to ensure that estimates of fund raising capacity remain 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 stressed conditions and thus contribute to the smooth functioning of payment and settlement systems. :rinciple 9? ! ban& should actively manage its collateral positions, differentiating bet een encumbered 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'term and protracted institution'specific and mar&et' ide stress scenarios Findividually and in combinationG to identify sources of potential liBuidity strain and to ensure that current e#posures remain in accordance ith a ban&Cs 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:G that clearly sets out the strategies for addressing liBuidity shortfalls in emergency situations. ! C1: should outline policies to manage a range of stress environments, establish clear lines of responsibility, include clear invocation and escalation procedures and be regularly tested and updated to ensure that it is operationally robust. :rinciple ,0? ! ban& should maintain a cushion of unencumbered, high Buality liBuid assets to be held as insurance against a range of liBuidity stress scenarios, including those that involve 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 enables mar&et participants to ma&e an informed judgment about the soundness of its liBuidity ris& management frame or& and liBuidity position.

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Masters Thesis: A risk-based assessment of Ecobank Ghana Limited E. The ro+e of s!'er$isors

October, 2010

:rinciple ,<? Supervisors should regularly perform a comprehensive assessment of a ban&Cs overall liBuidity ris& management frame or& and liBuidity position to determine hether they deliver an adeBuate level of resilience to liBuidity stress given the ban&Cs role in the financial system. :rinciple ,=? Supervisors should supplement their regular assessments of a ban&Cs liBuidity ris& management frame or& and liBuidity position by monitoring a combination of internal reports, prudential reports and mar&et information. :rinciple ,>? Supervisors should intervene to reBuire effective and timely remedial action by a 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 effective cooperation regarding the supervision and oversight of liBuidity ris& management. Communication should occur regularly during normal times, ith the nature and freBuency of the information sharing increasing as appropriate during times of stress. o!rce: "ase+ *ommittee on "ankin# !'er$ision ( e'tember, 2004> E7 A. Sou1= %ra<t2<e9 for the Ma1a.eAe1t a1= Super;292o1 of Operat2o1a: R294 3e$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&Cs operational ris&s as a distinct ris& category that should be managed, and it should approve and periodically revie the ban&Cs operational ris& management frame or&. The frame or& should provide a firm' ide definition of operational ris& and lay do n the principles of ho operational ris& is to be identified, assessed, monitored, and controlledJmitigated. :rinciple 0? The board of directors should ensure that the ban&Cs operational ris& management frame or& is subject to effective and comprehensive internal audit by operationally independent, 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 operational ris& management frame or& approved by the board of directors. The frame or& should be consistently implemented throughout the hole ban&ing organisation, and all levels of staff should understand their responsibilities ith respect to operational ris& management. Senior management should also have responsibility for developing policies, processes and procedures for managing operational ris& in all of the ban&Cs material products, activities, processes and systems.
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Masters Thesis: A risk-based assessment of Ecobank Ghana Limited

October, 2010

". &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& profiles and material e#posures to losses. There should be regular reporting of pertinent information to senior management and the board of directors that supports the proactive management of operational ris&. :rinciple >? $an&s should have policies, processes and procedures to control andJor mitigate material operational ris&s. $an&s should periodically revie their ris& limitation and control strategies and should adjust their operational ris& profile accordingly using appropriate strategies, in light of their overall ris& appetite and profile. :rinciple 3? $an&s should have in place contingency and business continuity plans to ensure their ability to operate on an ongoing basis and limit losses in the event of severe business disruption. *. &o+e of !'er$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 controlJmitigate material operational ris&s as part of an overall approach to ris& management. :rinciple 9? Supervisors should conduct, directly or indirectly, regular independent evaluation of a ban&Cs policies, procedures and practices related to operational ris&s. Supervisors should ensure that there are appropriate mechanisms in place hich allo them to remain apprised of developments at ban&s. 3. &o+e of 3isc+os!re :rinciple ,;? $an&s should ma&e sufficient public disclosure to allo assess their approach to operational ris& management. o!rce: "ase+ *ommittee on "ankin# !'er$ision (0ebr!ar%, 200/> mar&et participants to

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October, 2010

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Boo49
$essis, J. F0;,;G, 5is& %anagement in $an&ing, .iley, Third edition Greuning, H. 8. D $ratanovic, S. $. F0;;2G, !nalyAing $an&ing 5is&? ! 1rame or& for !ssessing Corporate Governance and 5is& %anagement, .orld $an& :ublications. Jorion, :. F,993G, 8alue at 5is&, 5ichard (. "r in "nc., $urr 5udge, "/. 5ejda, G. ). F,996G, :rinciples of ris& management and insurance, 4S!? !ddison .esley, Si#th )dition, +e Yor&, +Y. Saunders, !. F,993G, 1inancial "nstitutions %anagement? ! %odern :erspective, 5ichard (. "r in, "nc., Second )dition, $urr 5idge, "/. Smith, C., Smithson C. D .ilford, (. F,99;G, Strategic 5is& %anagement F"nstitutional "nvestor Series in 1inanceG, Harper and 5o , +e Yor&.

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!llen, 1. D Santomero, !.%. F,993G, KThe theory of financial intermediation, Journal of $an&ing and 1inance, 0,, ,<>, ' ,<6=. !ndersen, -. D Terp, !. F0;;>G, K5is& %anagement, Chapter 0 in :erspectives on Strategic 5is& %anagement, C$S :ress, pp. 03'<>. $asel Committee on $an&ing Supervision F,999G, K:rinciples for the %anagement of Credit ris&, $an& for "nternational Settlements, $asel. $asel Committee on $an&ing Supervision F0;;,G, K:rinciples for the %anagement and Supervision of "nterest 5ate 5is&, $an& for "nternational Settlements, $asel. $asel Committee on $an&ing Supervision F0;;2G, KSound :ractices for the %anagement and Supervision of *perational 5is&, "nternational Settlements, $asel. $asel Committee on $an&ing Supervision F0;;2G, KTrends in ris& integration and aggregation, $an& for "nternational Settlements, $asel. $asel Committee on $an&ing Supervision F0;;>G, KCorporate Governance for $an&ing *rganiAations F)nhancing Corporate Governance for $an&ing *rganiAationsG, $an& for "nternational Settlements, $asel.
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$an& for

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

October, 2010

$asel Committee on $an&ing Supervision F0;;6G, K:rinciples for Sound /iBuidity 5is& %anagement and Supervision, $an& for "nternational Settlements, $asel. $easley, %. S. D 1rigo, %. F0;;3G, KStrategic 5is& %anagement? Creating and :rotecting 8alue, Strategic 1inance, /7778"", 09. %ay 0;;3. $erger, !. +. D 4dell, G. 1. F,99=G, S5elationship /ending and /ines of Credit in Small 1irm 1inance,S Journal of $usiness, 4niversity of Chicago :ress, vol. >6F2G, pages 2=,'6,, July.

Committee of Sponsoring *rganiAations of the Tread ay Commission F0;;<G, K)nterprise 5is& %anagement P "ntegrated 1rame or&, )#ecutive Summary (e/oach, J. .. F0;;;G, K%astering 5is& to Create 8alue, Chapter , in )nterprise' .ide 5is& %anagement? Strategies for /in&ing 5is& and *pportunity, 1inancial TimesJ:rentice Hall, /ondon, pp. 2',9.

)mblemsvQg, J. D -jRlstad, /. ). F0;;0G, SStrategic ris& analysis P a field versionS, %anagement (ecision, 8ol. <; "ss? 9, pp.6<0 P 6=0 1atemi, !. D Glaum, %. F0;;;G, K5is& management practices in German firms, %anagerial 1inance, 0>, ,P,3. 1root, -. !., Scharfstein, (. S., D Stein, J. C. F,99<G, K! 1rame or& for 5is& %anagement, Harvard $usiness 5evie , 3>F>G, pp. 9,',;0. Gates, S. F0;;>G, K"ncorporating Strategic 5is& into )nterprise 5is& %anagement? ! Survey of Current Corporate :ractice, Journal of !pplied Corporate 1inance, 8ol. ,6, +o. <, pp. 6,'9;.

Herman, %. /. D Head, G. /. F G,AStrategic 5is& %anagement? /oo&ing at $oth Sides +o A, +onprofit 5is& %anagement Center. Houpt J. 8. D )mbersit J. !. F,99,G, S! method for evaluating interest rate ris& in 4.S. commercial ban&s,S 1ederal 5eserve $ulletin, !ugust "ssue, pages >0='>23. Jim 5ich D Curtis Tange F0;;2G, BCredit 5is& %easurement ' ! :ortfolio 8ie C, )5is&. %erton, 5. C. F,969G, KThe application of the continuous'time theory of finance to financial intermediation and insurance, Geneva :apers on 5is& and "nsurance Theory, ,<, 00='0>,.

%iller, -. (. F,990G, K! 1rame or& for "ntegrated 5is& %anagement in "nternational $usiness, Journal of "nternational $usiness, pp. 2,,'22,.
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Masters Thesis: A risk-based assessment of Ecobank Ghana Limited

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%uelbroe&, /. -. F0;;0G, K"ntegrated 5is& %anagement for the 1irm? ! Senior %anagerCs Guide, Harvard $usiness School, or&ing paper. *ldfield, G. D Santomero !. %. F,99=G, KThe :lace of 5is& %anagement in 1inancial "nstitutions, .harton 1inancial "nstitutions Center, 4niversity of :ennsylvania, .or&ing :aper 9=';='$.

:yle, (. H. F,993G S$an& 5is& %anagement? Theory,S "nstitute of $usiness and )conomic 5esearch, 4niversity of California, 1inance .or&ing :aper +o. 5:1'030, July ,993.

5osenberg, J. 8. D Schuermann, T. F0;;>G, S! general approach to integrated ris& management ith s&e ed, fat'tailed ris&sS, Journal of 1inancial )conomics, )lsevier, vol. 39F2G, pages =>9'>,<.

Sabato, Gabriele F!ugust, 0;;9G, K1inancial Crisis? .here did 5is& %anagement 1ailX 5oyal $an& of Scotland, Group Credit 5is&. Santomero, !. %. D Trester, J. F,993G, SStructuring (eposit "nsurance for a 4nited )urope,S )uropean 1inancial %anagement, $lac& ell :ublishing /td, vol. 2F0G, pages ,2=',=<.

Santomero, !.%. F,99=G K1inancial 5is& %anagement? The .hys and Ho s, 1inancial %ar&ets, "nstitutions and "nstruments <F=G?,',<. Santomero, !.%. F,993G, KCommercial $an& 5is& %anagement? !n !nalysis of the :rocess, Journal of 1inancial Services 5esearch. Schmit, J. T. D 5oth -. F,99;G, SCost )ffectiveness of 5is& %anagement :ractices,S Journal of 5 is& and "nsu ran ce , 8ol. =3, +o.2 pp. <=='<3; Sly otA&y, !. J. D (rAi&, J. F0;;=G, KCountering the $iggest 5is& of !ll, Harvard $usiness 5evie , 60, pp. 36'66 StulA, 5. %. F,96<G, K*ptimal Hedging :olicies, The Journal of 1inancial and @uantitative !nalysis, 8ol. ,9, +o. 0. pp. ,03',<;. Torben J. !. F0;;9G, S)ffective ris& management outcomes? e#ploring effects of innovation and capital structureS, Journal of Strategy and %anagement, 8ol. 0 "ss? <, pp.2=0 P 239

.right, (. %. D Houpt, J. 8. F,99>G, K!n analysis of commercial ban& e#posure to interest rate ris&, 1ederal 5eserve $ulletin, 1ebruary "ssue, ,,=P,06.
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Masters Thesis: A risk-based assessment of Ecobank Ghana Limited

October, 2010

Spee<h
(r 5a&esh %ohan, (eputy Governor of the 5eserve $an& of "ndia F!pril, 0;;9G, KGlobal financial crisis P causes, impact, policy responses and lessons at the 3th !nnual "ndia $usiness 1orum Conference, /ondon $usiness School, /ondon. Governor 5andall S. -rosAner F*ctober, 0;;6G, KStrategic 5is& %anagement in an "nterconnected .orld !t the 5is& %anagement !ssociation !nnual 5is& %anagement Conference, $altimore, %aryland.

I1ter1et L2149
0;;9 !nnual 5eport of )coban& Ghana /imited? http?JJecoban&.comJuploadJ0;,;;<06;>;303,6<90619<$(g)-[Link] Ghana $an&ing !ct 0;;<, !ct >32? http?JJ .[Link].ghJprivatecontentJ1ileJ"(:SJ$an&ingE0;!ctE0;>[Link] 0;;9 !nnual 5eport of $an& of Ghana? http?JJ .[Link].ghJprivatecontentJpublicJ1ileJ5esearchJ!nnualE0;5eportsJ!nn5ep0;;9 J$an&E0;ofE0;GhanaE0;!nnualE0;5eportE0;0;;[Link] 0;,; Ghana $an&ing Survey by :rice aterhouseCoopers in collaboration ith Ghana !ssociation of $an&ers? http?JJ .p [Link]'ban&ing'survey'0;,;.pdf

$$C? http?JJne [Link].u&J0JhiJ60;[Link] Central $an& of +igeria? Gold Coast Securities /imited? http?JJ .[Link]' GhanaStoc&[Link] companyidU22 .cenban&.org

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