SAS STRATEGIC AFRICAN SECURITIES LTD...HFC BANK (GHANA) LTD INFORMATION MEMORANDUM PRIVATE PLACEMENT...

HFC BANK (GHANA) LTD

INFORMATION MEMORANDUM

PRIVATE PLACEMENT OF 86,400,000 SHARES OF HFC BANK (GHANA) LTD FOR US$30 MILLION AT A

PRICE OF GH¢0.50 (US$0.35) PER SHARE

By:

SSAASS SSTTRRAATTEEGGIICC AAFFRRIICCAANN SSEECCUURRIITTIIEESS LLTTDD ((FFIINNAANNCCIIAALL AADDVVIISSOORRSS && LLEEAADD MMAANNAAGGEERR))

HHFFCC IINNVVEESSTTMMEENNTT SSEERRVVIICCEESS LLIIMMIITTEEDD ((CCOO –– MMAANNAAGGEERR))

HHFFCC BBRROOKKEERRAAGGEE SSEERRVVIICCEESS LLIIMMIITTEEDD ((SSPPOONNSSOORRIINNGG BBRROOKKEERR))

NNoovveemmbbeerr 2233,, 22000099

HFC Bank - Private Placement

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HFC BANK (GHANA) LIMITED

(Incorporated in Ghana as limited liability company under the Companies Act, 1963 (Act 179) with registration No C-39,755)

INFORMATION MEMORANDUM

REGARDING

AN ISSUE OF 86,400,000 NEW ORDINARY SHARES OF NO PAR VALUE BY PRIVATE PLACEMENT AT GH¢0.50 (US$0.35) PER SHARE

Sponsored by

HFC BROKERAGE SERVICES LIMITED

and

HFC INVESTMENT SERVICES LIMITED

This Information Memorandum has been reviewed and approved by the Directors of HFC and we collectively and individually accept full responsibility for the accuracy of the information given and that after making all reasonable inquiries and to the best of our knowledge and belief there are no facts the omission of which would make any statement in this Information Memorandum misleading.

Strategic African Securities Ltd. (SAS) is acting as Lead manager and Lead-Sponsoring broker to HFC for the Offer. SAS has relied on information provided by the Company and its advisors and accordingly, SAS does not provide any assurance of the accuracy of the information contained in this Information Memorandum. SAS does, however confirm that to the best of its knowledge, this Information Memorandum constitutes full and fair disclosure of all material facts about the Company and the Offer. Bentsi-Enchill, Letsa & Ankomah has acted as legal advisors to HFC on this Offer. Bentsi-Enchill, Letsa & Ankomah has relied on information provided by the Company. Accordingly, Bentsi-Enchill, Letsa & Ankomah does not provide any assurance of the accuracy of the information contained in this Information Memorandum. Bentsi-Enchill, Letsa & Ankomah does however confirm that to the best of its knowledge, this Information Memorandum constitutes a full and fair disclosure of all material facts about the Company and the Offer. No person is authorised to give any information or to make any representation not contained in this Document and any information or representation not contained in this Information Memorandum must not be relied upon as having been authorised by HFC, Strategic African Securities Limited, Bentsi–Enchill, Letsa & Ankomah or Panel Kerr Forster (the “Advisors”). Neither the delivery of this Information Memorandum nor any sale hereunder shall under any circumstances create any impression that there has been no change in the affairs of the bank since the date hereof or that the information contained herein is correct as of anytime subsequent to this date. The shares being issued under this Information Memorandum are being offered only within the Republic of Ghana and by private placement and nothing herein or in any other related document shall be construed as being an invitation to the public to acquire shares in the bank or any interest in such shares.


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TABLE OF CONTENT KKEEYY MMIILLEESSTTOONNEESS AANNDD TTIIMMEE TTAABBLLEE.............................................................................................................................................V OFFER SUMMARY ..................................................................................................................................................................................V DIRECTORS AND CORPORATE INFORMATION OF HFC BANK (GHANA) LIMITED................................................ VI ADVISORS TO ISSUE .........................................................................................................................................................................VII DEFINITIONS......................................................................................................................................................................................VIII LEGAL ADVISOR’S CERTIFICATE.....................................................................................................................................................1 PART 1 - THE PRIVATE PLACEMENT ...............................................................................................................................................3

1 LEGAL BASIS FOR THE ISSUE .................................................................................................................................................. 4 2 REASONS FOR THE SHARE ISSUE................................................................................................................................................ 4 3 KEY TERMS OF THE OFFER..................................................................................................................................................... 5 4 APPLICATION .................................................................................................................................................................... 5 5 ESCROW ACCOUNT................................................................................................................................................................ 5 6 REFUND ............................................................................................................................................................................ 5 7 PAYMENT ........................................................................................................................................................................... 6 8 SUBMISSION OF COMPLETED APPLICATION FORMS ................................................................................................................... 6 9 COST OF THE OFFER .............................................................................................................................................................. 7 10 SUMMARY OF DETAILS OF THE OFFER .......................................................................................................................................... 7

PART 2 - THE ECONOMY OF GHANA AND THE BANKING INDUSTRY.............................................................................8 1 THE MACROECONOMIC ENVIRONMENT OF GHANA ................................................................................................................. 8 2 THE GHANAIAN BANKING INDUSTRY...................................................................................................................................... 9 3 FUTURE OUTLOOK............................................................................................................................................................. 13

PART 3 - HFC BANK (GHANA) LIMITED.......................................................................................................................................14 1 BACKGROUND................................................................................................................................................................. 14 2 STRATEGIC DIRECTION....................................................................................................................................................... 14 3 OPERATIONS AND SUBSIDIARIES .......................................................................................................................................... 14 4 KEY PRODUCTS AND SERVICES............................................................................................................................................ 15 5 BRANCH NETWORK........................................................................................................................................................... 15 6 SHAREHOLDING STRUCTURE................................................................................................................................................... 15 7 MATERIAL CONTRACTS...................................................................................................................................................... 16 8 LITIGATION...................................................................................................................................................................... 16 9 DIRECTORS, MANAGEMENT AND EMPLOYEES......................................................................................................................... 17 10 HFC’S PERFORMANCE ON THE GSE.................................................................................................................................... 21

PART 4 - USE OF FUNDS AND BUSINESS OUTLOOK ..............................................................................................................22 1 INTRODUCTION ................................................................................................................................................................ 22 3 CORPORATE TARGETS........................................................................................................................................................ 23 4 BUSINESS OUTLOOK.......................................................................................................................................................... 23

PART 5 - FINANCIAL OVERVIEW ....................................................................................................................................................24 PART 6 - RISK FACTORS .....................................................................................................................................................................42 PART 7 - ADDITIONAL INFORMATION ON THE OFFER........................................................................................................43

1 APPLICATION .................................................................................................................................................................. 43 2 OFFER TO PURCHASE......................................................................................................................................................... 43 3 ACCEPTANCE OF THE OFFER............................................................................................................................................... 43 4 PAYMENT FOR SHARES....................................................................................................................................................... 43 7 WARRANTIES ................................................................................................................................................................... 44 8 SUPPLY AND DISCLOSURE OF INFORMATION .......................................................................................................................... 44 9 LISTING OF NEW ORDINARY SHARES .................................................................................................................................... 44 10 SHARE CERTIFICATES / GSE SECURITIES DEPOSITORY .............................................................................................................. 44 11 EXCHANGE CONTROLS ..................................................................................................................................................... 44


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12 RESTRICTIONS ON OWNERSHIP IN BANKS .............................................................................................................................. 45 13 TAXATION....................................................................................................................................................................... 45 14 DOCUMENTS AVAILABLE FOR INSPECTION............................................................................................................................. 45

PART 8 - RECEIVING AGENTS..........................................................................................................................................................46 PART 9 - APPLICATION FORM .........................................................................................................................................................47


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KKEEYY MMIILLEESSTTOONNEESS AANNDD TTIIMMEE TTAABBLLEE

Activity Date Time

Commencement of Offer 23 November, 2009 8.00am Deadline for Acceptance of Applications 10 December, 2009 5.00pm End of Offer 10 December, 2009 5.00pm Allotment Begins 14 December, 2009 8.00am Allotment Ends, 14 December, 2005 5.00pm

Results of the Offer Submitted to HFC 15 December, 2009 5.00pm

Registration of New Shares 15 December, 2009 5.00pm

Crediting of Depository Accounts / Issue of letters of Allotment 16 December, 2009 8.00pm

Listing and Commencement of Trading in the new shares 17 December, 2009 9.30am The dates provided in the activity timetable above are subject to change by the Lead Managers of the Offer in consultation with the Directors of HFC. Any amendment will be published in the national daily newspapers not later than 72 hours of such amendments.

OFFER SUMMARY

The Company / Offeror HFC BANK (GHANA) LTD.

The Offeree Top ten (10) shareholders, Potential Investor(s) and authorized recipients of this Information Memorandum

Authorized Shares 1,000,000,000

Issued Shares 127,092,359

The Offer 86,400,000 ordinary Shares

Price Per Share GH¢0.50 (US$0.35)

Value of the Offer GH¢43,200,000 (US$30,000,000)


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DIRECTORS AND CORPORATE INFORMATION OF HFC BANK (GHANA) LIMITED

Directors Nana Agyei Duku Asare Akuffo Akwete Akita Ras Boateng Olufunke Iyabo Osibodu Samson Olatubosum Thomas John Kusi Mensah Stephanie Baёta Ansah John Sey

Registered Office ‘Ebankese’

No. 35 Sixth Avenue, North Ridge P. O. Box CT 4603, Cantonments Accra. Tel: +233-21-242090-4 E-Mail: [email protected] Website: www.hfcbankgh.com

Company Secretary Mercy Mamle Tetteh

‘Ebankese’ No. 35 Sixth Avenue, North Ridge P. O. Box CT 4603, Cantonments Accra. Tel: +233-21-242090-4

Auditors PriceWaterhouseCoopers

PMB CT 42, Cantonments Accra, Ghana Tel: +233-21-761500 E-mail: Contact Person: Mr. Charles Egan

Registrars Merchant Bank (Ghana) Limited

57 Examination Loop, North Ridge P.O. Box GP 401 Accra Tel: +233-21-251131-5 Fax: +233-21-251138 Contact Person: Ms. Harriet Antwi


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ADVISORS TO ISSUE

Lead Manager Strategic African Securities Ltd

2nd Ridge Link, North Ridge; P. O. Box KA 16446, Accra Tel: +233-21-251546-7, 251549, +233-30-7011770/4 Fax: +233-21-251548 E-mail: [email protected] Website: www.sasghana.com Contact Person: Apiigy Afenu

Co-Manager HFC Investment Services Limited; No. 6 Sixth Avenue, West Ridge, Accra. P. O. Box CT 4603, Cantonments. Tel: +233-21-683891-3; 664203 Fax: +233-21-664106 E-mail: [email protected] Website: www.hfcbankgh.com Contact Person: Joseph Nketsiah

Legal Advisors Bentsi-Enchill, Letsa & Ankomah 1st Floor Teachers’ Hall Complex Education Loop (Off Barnes Road), Adabraka P. O. Box GP 1632, Accra Tel : +233-21-221171; 224612;227187 Fax : +233-21-226129 E-mail : [email protected] Contact Person: Kojo Bentsi-Enchill

Reporting Accountants Pannell Kerr Forster Valley View, Farrar Avenue P. O. Box 1219, Accra. Tel : +233-21-221266 / 246637 / 221216 Fax : +233-21-226628 E-mail: [email protected] Website: www.pkf-gh.com Contact Person: F. Bruce-Tagoe

Registrars Merchant Bank (Ghana) Limited 57 Examination Loop, North Ridge P.O. Box GP 401, Accra Tel: +233-21-251131-5 Fax: +233-21-251138

Receiving Agents HFC Bank Ghana Ltd HFC Brokerage Services Limited


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DEFINITIONS The following definitions apply in this Document unless otherwise stated specifically. “Board” The Board of Directors of HFC Bank (Ghana) Ltd “BOG” Bank of Ghana “Companies Code” The Ghana Companies Code 1963 (Act 179) as amended “Information Memorandum” or “Document” This Information Memorandum dated November 23, 2009

“Ghana” The Republic of Ghana “GSE” or “ the Exchange” Ghana Stock Exchange “The Manager” Strategic African Securities Ltd., who are sponsoring and managing the

Offer “New shares” The 86,400,000 new ordinary shares of HFC to be issued pursuant to the

Private Placement, in accordance with the terms of the Offer. “Receiving Agent”

Strategic African Securities (SAS), HFC Bank and HFC ISL will be receiving applications and payments from applicants under this Offer. Full contact details of the receiving agents can be found on pages 36, of this Information Memorandum.

“HFC ISL” HFC Investment Services Limited “SAS” Strategic African Securities Ltd, who is acting as lead manager and

sponsor for the HFC private placement “SEC” Securities & Exchange Commission “HFC” or “the Company” HFC Bank (Ghana) Ltd “HFC Board”, “HFC Directors” or “Directors”

The Directors of HFC “HFC shares” Ordinary Shares of HFC “NPART” Non Performing Asset Recovery Trust “the Offer” or “the Private Placement”

The Offer of 86,400,000 new ordinary shares of HFC at a price of GH¢0.50 (US$ 0.35) first to the top ten (10) existing shareholders of HFC and then to strategic investors.


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LEGAL ADVISOR’S CERTIFICATE


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3


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PART 1 - THE PRIVATE PLACEMENT

1 Legal Basis for the Issue The Shareholders of HFC at its 18th Annual General Meeting held on April 16, 2009, at the College of Physicians & Surgeons, Accra, passed the following resolution, among others:-

“ that the Directors be and are hereby generally and unconditionally authorized pursuant to section 202(1) of the Companies Act, 1963(Act 179), to exercise all the powers of the company, to allot and issue up to US$ 30 million in ordinary shares to such Strategic Investor (s) including the ten (10) largest shareholders as the Directors may determine to enable the Bank meet the new Bank of Ghana minimum capital requirement, and take advantage of new business and investment opportunities, without first offering such shares to all existing shareholders in accordance with the provisions of sub-paragraph (b) of the section 202(1)”

2 Reasons for the Private Placement

BOG has by Notice No. BG/Gov/SEC/2008/3 raised the minimum capital requirements for banks to GH¢60 million. Under the new requirements banks are expected to meet this requirement within specified time periods. Banks with majority local ownership are to raise their stated capital to GH¢25 million by 2010 and achieve a minimum capital of GH¢60 million by 2012 whilst banks with majority foreign ownership are expected to achieve GH¢ million by the end of December 2009. The increase in the minimum stated capital is in accordance with BASEL II accords which require banks to maintain sufficient capital reserves to support their risk appetite as defined by the capital adequacy ratio. This is also meant to strengthen the capital base of the banks to enable them to engage in higher volumes of financial transactions and thereby deepen the financial system. HFC is therefore expected to raise its stated capital to GH¢25 million by the end of 2010, and further to GH¢60 million by the end of 2012, to meet the minimum capital requirement as directed by the Bank of Ghana. The proposed new recapitalization policy is expected to make it possible for banks to undertake syndications and also increase the depth of financial services in Ghana. It is also expected to firmly position the banks in a way that will enable them to take advantage of the huge opportunities expected with the recent discovery of oil off the country’s shores, and the complexities in demands of customers.

As a result of these developments, HFC a key player in the banking industry and a listed company on the Exchange intends to raise more capital through a private placement of shares and subsequently list these new shares on the Exchange. The Board and Management of HFC recognise that the Ghanaian banking industry has become extremely competitive in the last half decade, and recognise the added value the injection of additional capital could provide by enhancing its ability to improve its loan base among other things.

Additionally, as part of the bank’s 5- year strategic plan, the bank aims to undertake this Offer as a means to achieve its key strategic objectives. Notable among its objectives are:

• Transformation of the bank into a Holding company with seven (7) main subsidiaries; • Investment in the subsidiaries to meet specific strategic needs; • Full automation of its business operations; • Improvement of all processes to meet ISO banking standards; • Exploration of investment opportunities in other West African countries; and • Strengthening of human resource capacity.


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The breakdown of the application of the USD30 million to be raised is as follows:

Year 2010 Year 2011 Year 2012 Item Description Amount (GH¢’000) 1. Recapitalise HFC Investment Services Limited 3,000 2. Recapitalise HFC Realty Company Limited 2,000 2,000 3. Recapitalise Boafo (Microfinance) Services Ltd 5,000 2,000 4. Incorporate a Mortgage Company - 7,000 5. Recapitalise HFC Private Equity 4,000 6. Acquire stake in HFC Mortgage & Savings (SL)

Limited 4,000

7. Branch Expansion, ICT. 13,579 Cost of Offer 621 TOTAL 32,200 7,000 4,000

3 Key Terms of the Offer

Number of Shares

The Offer comprises an issue of 86,400,000 new ordinary shares of HFC at GH¢0.50 (US$0.35) per share to the ten (10) largest existing shareholders of HFC and strategic investors. The shares to be issued under this Offer will rank pari-passu with the ordinary shares of HFC already in issue and listed on the GSE.

Pricing of the Shares

The Offer is priced at GH¢0.50 (US$0.35) per share. This price represents a 19% discount to HFC’s market price of 62Gp on November 13, 2009, the last practicable date before the printing of this Document. If all the shares on offer are fully subscribed for, HFC would raise an amount of US$ 30,000,000 (Gh¢43,200,000).

Minimum Proceeds from the Offer The minimum amount to be realized from the Offer has been set at GH¢21,600,000 (US$15,000) or 50% of the Offer, which would involve the sale of 43,200,000 shares.

4 Application

All applications for shares under this Offer must be in whole numbers and no purported application for fractions of a share will be accepted.

5 Escrow Account

All application monies collected from applicants will be deposited into an Escrow Account with Account Name “HFC Private Placement” and Account Number 0011008329011 (for Ghana Cedis) and Account Number 0011008329027 (for USD$) at HFC.

6 Refunds

If any application is not accepted or is accepted for a smaller number of shares than applied for, the balance of the amount paid on application will be returned to the receiving agents not later than December 16, 2009 for onward distribution to applicants. HFC will announce such refunds through a national daily newspaper with wide circulation within 72 hours of the making of such refunds.


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If HFC does not make refunds of extra application monies to the receiving agents by December 16, 2009 then HFC will pay to investors, interest on the unpaid amounts from December 17, 2009 at the prevailing Bank of Ghana prime rate for each day of default until the refund is made to receiving agents.

7 Payment

Payment for shares under the Offer should be made in full on application. Qualifying applicants resident in Ghana, payment may be made by cash, cheque, postal or money order which should be presented at the offices of the receiving agents where the Application Form is lodged. All cheques, postal or money orders should be crossed HFC Share Issue and endorsed Commission to Drawer’s Account. This endorsement must be signed by the drawer. Bank commissions and transfer charges on application monies must be paid by the applicant. Applications in respect of which cheques are returned unpaid for any reason whatsoever, or for which funds do not clear for the full amount payable on the application by 5 pm on December 10, 2009 may be treated as invalid.

Qualifying applicants not resident in Ghana must purchase shares under this Offer in foreign currency and for this purpose HFC allows payment` for shares in United States Dollars. The price of an HFC share under this Offer is US$ 0.35 for payment in United States Dollars. Funds should be remitted for the benefit of HFC Private Placement by bank transfer to the following account details:

US$

Ghana International Bank Plc 69 Cheapside, P. O. Box 77 London EC2P 2BB Sort Code: 60 92 63 Swift Code: GHIBGB2L Iban No.: GB64GHIB60926301486002 Account No.: 01486002 of HFC Bank (Ghana) Ltd Swift Code: HFCAGHAC For further credit to: HFC Private Placement Account No.: 0011008329027

Any application from a person not resident in Ghana, which is not received in a form which will realize cleared funds for the full amount payable on the application by 5 pm on December 10, 2009 may be treated as invalid. Bank commissions and transfer charges on application monies must be paid by the applicant. Applications, in respect of which cheques are returned unpaid, for any reason whatsoever, will be rejected.

8 Submission of Completed Application Forms

All qualifying applicants resident in Ghana must submit their duly completed Application Forms at the offices of the receiving agents by 5 pm on December 10, 2009. Qualifying applicants not resident in Ghana must submit their duly completed Application Forms to the receiving agents, whose contact details are provided on page 46. Applicants who choose to mail their Application Forms to the receiving agents are advised to use the registered mail services. However, all documents mailed to the receiving agents by applicants will be at the applicant’s own risk, and HFC may treat applications not received by 5 pm on December 10, 2009 as invalid.


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Applicants are to note that Application Forms must be lodged at the same receiving agent office where payment is made for the shares applied for. The receiving agent will acknowledge receipt of the application forms and funds from the applicants.

9 Cost of the Offer

The total cost of the Offer is not anticipated to exceed 1.5% of the amount to be raised. HFC will pay all fees out of the proceeds of the Offer. Below are the summarized details of the cost of the offering.

Item Amount GH¢ % of Amount to be Raised

Professional and Advisory Fees (legal & financial due diligence, financial & management advisory, etc.)

143,568 0.33

Commissions & Success Fees 395,280 0.92

Regulatory Fees (SEC, GSE Listing Fees, Registrar-General)

74,550 0.17

Others (publicity/marketing, printing, logistics, VAT etc.)

7,232 0.02

Total Estimated Cost 620,630 1.44 10 Summary of Details of the Offer

No. of Authorized Shares 1,000,000,000 No. of Issued Shares 127,092,359 Price per Share (GH¢ / US$) 0.50 /$0.35 Ordinary Shares on Offer 86,400,000 Outstanding Shares After Offer 213,492,359 Expected Proceeds from the Offer (GH¢)* 43,200,000

*US$ 1 = GH¢1.44

11 Offer Timetable

Activity Date Time Commencement of Offer 23 November 8.00am Deadline for Acceptance of Applications 10 December 5.00pm End of Offer 10 December 5.00pm Allotment Begins 14 December 8.00am Allotment Ends, 14 December 5.00pm Results of the Offer Submitted to HFC 15 December 5.00pm Registration of New Shares 15 December 5.00pm Crediting of Depository Accounts / Issue of letters of Allotment 16 December 8.00pm

Listing and Commencement of Trading in the New Shares 17 December 9.30am

All dates provided are subject to change by the Lead Manager in consultation with the Directors of HFC. Any amendment will be published in a national daily newspaper not later than 72 hours of such amendments.


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PART 2 - THE ECONOMY OF GHANA AND THE BANKING INDUSTRY

1 The Macroeconomic Environment of Ghana The performance of the national economy has been quite impressive over the last eight (8) years. From 4.2% in 2001, the Gross Domestic Product (GDP) reached 7.3% in 2008. These improvements have been facilitated by the introduction of prudent fiscal and monetary policies, favourable prices of key export commodities like cocoa and gold, enhanced domestic revenue mobilization and support from the donor community.

Below are some key economic indicators:

Source: Bank of Ghana **Estimates

Stability and Growth

High inflation, which has hitherto been the bane of the economy, has been brought under control. Year-end inflation fell steadily from 40.5% in 2000 to 21.3% in 2001 and further to 12.7% at the end of 2007. Conversely in 2008, as a result of rising petroleum and food prices, inflation rose to18.1% at the end of the year. By end of first quarter in 2009, the rate of inflation had shot up to 20.53%, the highest in 6 years. The rate of inflation at the end of September this year stands at 18.37, far from the end of year target of 12.3%. Interest Rates

The benchmark Prime Rate, previously known as the Bank of Ghana Rediscount Rate, declined steadily from 27% p.a. in 2000 to 12.5% in 2006, but moved up slightly to 13.5% in November 2007. In 2008, the prime rate was increased consistently from 13.5% in January to 17% in July, where it remained stable till the end of the year. In February 2009, the prime rate was again increased to 18.5%, and remained there since. This is in line with the inflation targeting policy of the Bank of Ghana.

Along with the Prime Rate, other interest rates also fell. The yield on government securities, which is the benchmark for other market rates, fell with the Prime Rate. The interest equivalent on the 91-day GOG/BOG Treasury Bill fell from 41.99% in December 2000 to 17.08% p.a. in December 2004 and continued further down to 10.62% p.a. at the close of year 2007. Like the other indices, the 2008 crises pushed the 91-day Treasury-bill rate up to 24.68% at the end of the year. The average 91-day Treasury-bill rate for the month of October, 2009 stood at 25.72% per annum. Value of Currency

Depreciation of the local currency, the cedi, moves in positive correlation with inflation. The cedi depreciated by 49.5% against the United States dollar during financial year 2000 when inflation hit 40.5%, but fell steeply to 3.7% in 2001. Except for 2002 when the cedi depreciated by 14.82 % against the dollar, annual depreciation during 2001 and 2003 to half year 2008 has been below 5%. However, it began a steady rise and closed the year 2008 at a depreciation of 20.89 to the dollar. At the end of October 2009, a depreciation of 16.45% against the US dollar has been recorded.

INDICATORS 2005 2006 2007 2008 2009**

GDP Growth (%) 5.9 6.4 6.3 7.3 5.9

Inflation (y-o-y, %) 14.8 10.5 12.8 18.1 12.3

91-day bill (%) 11.4 10.7 10.6 24.7 19.1

BOG Prime Rate (%) 15.50 12.50 13.50 17.00

GH¢/US$ Depreciation (%) 0.64 1.33 4.05 20.89


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Capital Markets

The performance of the capital market has a negative correlation with interest rates and inflation. As inflation and interest rates rise, returns on the capital market decline and vice versa. During the high inflation period of 1999 and 2000, the GSE All-share index recorded changes of -15.22% and 16.55% respectively, but recovered from the slump in 2002 with an impressive growth of 45.96%. The most impressive performance of the All-share index to date is the 2003 change of 154%. The index finished at 58.06% in 2008. However that year’s crises sent the market spiraling in 2009; the GSE index had fallen by 48.44% as at the end of October, 2009.

2 The Ghanaian Banking Industry

The banking industry in Ghana has evolved significantly over the years through the combined effects of structural reforms and the country’s good macro-economic performance. The change in policy was due to the realization of the failure of the ‘control policy’ which led to stagnation in the banking sector. By 1983, most of the state-owned banks were rendered insolvent by non-performing assets and required government intervention between 1989 and 1991 through the NPART to stay in business. Banking sector credit as a percentage of GDP was 3.6% in 1983, compared to 21.2% in 2006. This stands at 7% (as at December 2008)

The industry is currently one of the most buoyant and competitive yet profitable sectors of the economy despite the intense competition within the industry. Beside policy reforms the growth of the sector has been buoyed up by the prevailing macro-economic conditions – declining inflation, rising GDP growth, fiscal discipline, etc.

The industry was formerly categorised by the various services provided by the banks i.e. commercial, merchant, and development banks. Currently, banks provide virtually the same banking services due to the new universal licences, introduced by BOG that permits them to play all these roles. All banks in Ghana currently possess universal licenses and are permitted to operate as such.

Some of the significant reforms that have occurred in the banking industry since 2001 include:

Year Key Developments

2003 Increase in the minimum stated capital of banks from GH¢20,000 to GH¢7 million.

2003 Maintenance, transaction, and transfer fees charged by commercial banks abolished.

2003 Universal Banking Licence was introduced for banks with ¢70 billion (GH¢7 million) in capital.

2004 The Banking Act 2004 (Act 673) replaced the Banking Law 1989 (PNDC Law 225).

2006 Secondary deposit reserves requirement (15%) abolished.

2006 Foreign Exchange Act 2006 (Act 723) (the “Foreign Exchange Act”) came into effect.

2007 Credit Reporting Act (Act 726) (“Credit Reporting Act”) and Banking (Amendment) Act 2007 (Act 738) passed.

2007 National Reconstruction Levy abolished.

2007 Redenomination of the cedi.

2008 Introduction of E-zwich, the biometric smart card.

2008 The Borrowers and Lenders Act, 2008 (Act 773) (the “Borrowers and Lenders Act”) and the Anti-money Laundering Act, 2008 (Act 749) (the “Anti-money Laundering Act”) came into effect

2008 BOG’s notice for requirement of minimum stated capital of GH¢60 million to maintain Class 1 banking status.

Source: Ghana Banking Survey, PWC


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With regards to the new minimum capital requirement set by the Bank of Ghana, banks with majority local holding have until the end of 2010 to obtain a stated capital of GH¢25 million and until the end of 2012 to obtain GH¢60 million. However, banks with majority foreign holding have until the end of 2009 to meet this requirement.

Regulatory Environment

BOG has overall supervisory and regulatory authority in all matters relating to banking and non banking financial businesses in the country. BOG was established in 1957 (after independence) as an independent central bank with primary functions being:

• The issuance of currency; • Serving as banker and fiscal agent of the Government; • Regulation of the financial system; and • Setting the framework for independent monetary management to achieve monetary stability.

The Central Bank through its Banking Supervision Department (BSD), has overall supervisory authority in all matters relating to the business of banking in Ghana. BSD examines the affairs of every bank at least once a year, placing particular emphasis on capital adequacy, solvency, asset quality and management. Other areas also examined include the soundness of borrowing and lending operations, and the funding of long-term commitments. The Banking Industry is regulated by the following:

• Bank of Ghana Act 2002 (Act 612); • Banking Act, 2004 (Act 673) as amended by the Banking (Amendment) Act, 2007 (Act 738); • Companies Act 1963 (Act 179); • Bank of Ghana Notices / Directives / Circulars / Regulations’ • Borrowers and Lenders Act; • The Anti-Money Laundering Act; • The Credit Reporting Act; and • The Companies Act, 1963 (Act 179).

Market Participants

The banking sector currently comprises twenty-six (26) banks, with approximately six hundred and seventy-nine (679) branches nationwide. Six (6) of the banks, namely: CAL Bank Ltd, Ecobank Ghana Ltd, Ghana Commercial Bank Ltd, HFC Bank Ltd, Standard Chartered Bank Ltd, and SG-SSB Limited are listed on the Ghana Stock Exchange. In addition to the 26 banks is ARB Apex Bank, which acts as a central bank for the hundred and twenty-nine (129) rural and community banks also operating in the system. The table below shows the banks currently operating in Ghana:

Bank Type Licensed

Standard Chartered Bank Ghana Ltd (SCB) Universal 1896 Barclays Bank (GH) Ltd (BBG) Universal 1917 Ghana Commercial Bank Ltd (GCB) Universal 1953 National Investment Bank Ltd (NIB) Universal 1963 Agricultural Development Bank Ltd (ADB) Universal 1965 Merchant Bank (GH) Ltd (MBG) Universal 1971 SG-SSB Ltd (SG-SSB) Universal 1977 CAL Bank Ltd (CAL) Universal 1990 Ecobank (GH) Ltd (EBG) Universal 1990 The Trust Bank Ltd (TTB) Universal 1992 UT Bank Ltd (UTB)* Universal 1996


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Bank Type Licensed

First Atlantic Merchant Bank Ltd (FAMB) Universal 1996 Prudential Bank Ltd (PBL) Universal 1996 International Commercial Bank Ltd (ICB) Universal 1996 Stanbic Bank of Ghana Ltd (SBG) Universal 1999 Amalgamated Bank Ltd (AMAL) Universal 1999 Unibank Ltd (UNI) Universal 2000 HFC Bank (Ghana) Ltd (HFC) Universal 2003 United Bank for Africa (Ghana) Ltd (UBA) Universal 2004 Zenith Bank (Ghana) Ltd (ZBG) Universal 2005 Guaranty Trust Bank Ltd (GTB) Universal 2006 Fidelity Bank Ltd (FBL) Universal 2006 Intercontinental Bank Ltd (IBL) Universal 2006 Banqué Sahélo-Saharienne Pour L’Investissement et Le Commerce (BSIC)

Universal 2008 Bank of Baroda (Ghana) Ltd (BOB) Universal 2008 Access Bank (Ghana) Ltd Universal 2009

*UT Bank was established as a result of an acquisition of BPI Bank Ltd by UT Holdings.

HFC and Competition in the Banking Industry

The banking industry is one of the fastest growing and profitable industries in the country. In the last four years, industry assets have nearly tripled from GH¢3,709 million in 2005 to GH¢10,530 million at the end of 2008, as a result of new entries, as well as branch expansions. The industry’s earnings have equally grown significantly, rising from GH¢115 million in 2005 to GH¢227 million representing a Compound Annual Growth Rate (CAGR) of 25%.

Despite the decrease in margins, brought on by increased competition the industry remains profitable. Net interest margin for the full year 2008 was at 62% while profit margin remained high at 20.3%.

The table below highlights the performance of the banking industry in the last four years:

GHANA’S BANKING INDUSTRY 2005 2006 2007 2008 CAGR Total Assets (GH¢'m) 3,709 5,217 7,842 10,530 42% Loans and Advances (GH¢'m) 1,594 2,324 3,914 5,471 51% Deposits and Current Accounts (GH¢'m) 2,511 3,521 5,199 6,934 40% Profit after Tax (GH¢’m) 115 155 105 227 25% Loan to Deposit (%) 63.5 66.0 75.3 78.9 Net Interest Margin (%) 72.0 72.3 66.4 61.6 Net Profit Margin (%) 25.2 27.4 13.3 20.3

Source: SAS Banking Industry Analysis 2008

HFC is one of Ghana’s growing indigenous banks. In the last four (4) years the company’s assets have increased more than threefold from GH¢70.46 million in 2005 to GH¢378.61 million, representing a CAGR of 76%. Loans and advances also grew by a CAGR of 63% while deposits and current accounts rose by 45%. The bank’s earnings grew massively in the period, from GH¢0.72 million in 2005 to GH¢6.08 million.


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The table below highlights the performance of HFC in the last four years:

2005 2006 2007 2008 CAGR Total Assets (GH¢'m) 70.46 107.23 162.79 378.61 75% Loans and Advances (GH¢'m) 29.77 65.93 102.63 141.51 68% Deposits and Current Accounts (GH¢'m) 28.03 55.48 63.80 85.21 45% Profit after Tax (GH¢’m) 0.72 1.22 2.12 6.08 104% Loan to Deposit (%) 106.22 118.85 160.87 166.08 Net Interest Margin (%) 52.46 51.39 54.20 49.96 Net Profit Margin (%) 7.26 9.65 8.87 17.04 P/E ratio (x) 83.82 44.30 25.48 12.96

*** Source: SAS Banking Industry Analysis 2008

HFC is also well placed in the industry. In 2008, the bank emerged as the eleventh (11th) largest bank with its total assets of GH¢378.61 million. It also ranked twentieth (20th) and fifteenth (15th) in terms of deposits and loans & advances respectively. Its deposits amounted to GH¢85.21 million representing 1.2% of the industry total, whilst loans and advances amounted to GH¢141.51 million, representing 2.6% of the industry total. The bank also recorded a loan to deposit ratio of 1.66 in 2008, the highest in the industry at the time.

RETURN ON EQUITY

PROFIT MARGIN

0

5

10

15

20

25

2006 2007 2008

%

HFC Industry

0

5

10

15

20

2006 2007 2008

%

HFC Industry

ASSET TURNOVER

EQUITY MULTIPLIER (ASSET/EQUITY)

0

0.05

0.1

0.15

0.2

2006 2007 2008

X

HFC Industry

0

5

10

15

2006 2007 2008

X

HFC Industry


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Developments in the banking system through September 2007 show strong asset growth, improved profitability and asset quality, adequate liquidity and a strong capital position of banks to absorb shocks. Banks continued to expand credit instead of investment in government instruments on account of the relatively low returns on those instruments.

3 Future Outlook The entire financial services industry is generally healthy as a result of the prevailing favourable macro-economic and regulatory environment. The banking sector remains very competitive, adequately resourced and stable with no immediate threat to system stability. The industry is poised for much stiffer competition in the years ahead.

In 2008, the country discovered oil in commercial quantities in the Cape Three Point area of the Western Region and production is expected to commence by the second quarter of 2010. The anticipated revenue from oil exports is expected to reduce Government’s over reliance on revenues from the current key traditional exports, cocoa and gold, reduce its budget deficits, improve the balance of payment, and help to improve macroeconomic stability in the country. This is expected to impact positively on interest rates and boost the private sector business growth (enhancing opportunities for good credit facilities) as well as the business of HFC. The healthy competition and relative decline in interest rates have generated a lot of attention on small and medium scale enterprises, which were previously neglected. Going forward, banks need to reduce cost to improve upon their efficiency and hence profitability. The enactment of the Credit Reporting Act is expected to enhance credit risk management thus improving the quality of bank assets and impact on profitability of the banks. Meanwhile, a number of banks operating in Ghana are making plans in the near future to embark on various financing strategies to raise funds to boost their stated capital requirement in order to meet the Bank of Ghana’s requirements.


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PART 3 - HFC BANK (GHANA) LIMITED

1 Background

HFC has its beginnings in the former Home Finance Company (HFC) Limited, a mortgage finance institution which was incorporated on May 7, 1990 under the Companies’ Act, 1963 (Act 179), and commenced business on July 31, 1990. The Company was promoted by the Government of Ghana (GOG), Social Security and National Insurance Trust (SSNIT) and Merchant Bank (Ghana) Limited to implement the pilot housing finance project which was funded by the International Development Association (“IDA”) (World Bank), and GOG under a development credit agreement dated December 21, 1990. HFC obtained its license as a non-bank financial institution from the Bank of Ghana on August 1, 1994, became a public company on October 5, 1994 and was subsequently listed on the Ghana Stock Exchange on March 17, 1995. The company obtained a Universal Banking License from the Bank of Ghana on November 17, 2003. Home Finance Company Limited changed its name to HFC Bank (Ghana) Limited on June 11,2003. Thus from a beginning as a purely mortgage finance institution, HFC added investment management and savings mobilization business to its operations and became a fully-fledged universal bank offering mortgage finance, investment banking services and a wide range of commercial banking products.

2 Strategic Direction

The overall strategy of the bank is directed to achieving growth in profitability and branch operations, expanding its operations into the West African sub-region and North America, maintaining its leadership in Home Mortgage finance and regaining its leadership position in fund Management. The bank is currently engaged in revising the requirements for mortgage products to make them more accessible for customers. It is also implementing a high-level electronic platform that provides customers with secured single sign-on transactional capabilities. The main strategy of the bank is strengthening the group as a market leader in the competitive and robust Ghanaian banking industry in tandem with international best practices. This the bank aims to achieve by addressing some key strategic issues. Notable among these are:

• Transformation of the bank into a Holding company with seven (7) main subsidiaries; • Recapitalisation of the bank (with a minimum of US$30 million); • Investment in the bank’s subsidiaries to meet specific strategic needs; • Full automation of the bank’s business operations; • Improvement of all processes to meet ISO banking standards • Exploration of investment opportunities in other west african countries, and • Strengthening of the bank’s human resource capacity.

HFC’s vision is “To become a leading universal banking institution in the West African sub-region, providing world-class financial services” and the bank’s mission is to be “committed to creating wealth and better life for its customers”. The management of HFC seeks to realize its vision and mission in the medium term in the banking Industry as an iconic bank with a strong image and brand that people can easily identify with. This is expected to be achieved through a powerful engine (people, infrastructure and processes).

3 Operations and Subsidiaries

The bank began as a purely mortgage finance institution. HFC added investment management and savings mobilization businesses to its operations and became a fully-fledged universal bank offering mortgage finance, investment banking services and a wide range of commercial banking products.


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The bank currently has two main wholly owned subsidiaries. HFC Investment Services Limited, which engages in investment banking, and HFC Realty, which offers property related services. HFC Investment Services also has a wholly-owned subsidiary engaged in brokerage services, HFC Brokerage Services Limited. In addition, HFC has a 60% equity stake in UG-HFC Limited, a joint venture company established in 1998 with the University of Ghana, to develop a commercial property at the Ridge Ambassadorial area in Accra. In April 2007, the bank entered into a joint venture with CHF International of USA to establish the HFC Boafo Microfinance Services Limited to provide microfinance services in the informal sector. The bank is currently managed under three divisions, namely, Commercial Banking, Mortgage & Consumer Loans, and Investment Banking.

4 Key Products and Services

HFC offers the following financial products and services under its three main divisions:

• Commercial Banking: The product line in this division includes current, savings, homesave, fixed deposit, life starter, and students plus accounts. Loans administered under this division include auto, consumer, and educational as well as rent advance facility. Additionally, foreign trade, money transfer, SMS and ATM banking services are also provided. The Corporate Banking unit offers Small & Medium Enterprises Banking as well as relationship management.

• Mortgage and Consumer Loans Division: The division handles the mortgage banking function of the group by providing home purchase, home equity, home improvement, and home completion mortgages. Consumer Loan products include personal loans, employer-assisted schemes etc.

• Investment Banking: This division handles investment services to a cross section of customers. These include Funds Management, Asset Management, Financial Advisory and Brokerage Services. Currently, there are four funds under management namely: HFC Unit Trust, HFC Real Estate Investment Trust (HFC-REIT), HFC Equity Trust, and HFC Future Plan Trust.

HFC has nineteen (19) Automated Teller Machines (ATMs); fifteen (15) at the Bank’s branches and four (4) offsite ones. The bank has other e-banking products like HFC Fastxt and Transflow services. The bank plans to continue its electronic banking expansion process to pass on convenience in service delivery.

The Bank’s slogan underpins its service ethos: ‘Banking. The way you like it!’ That is, HFC focuses its efforts and resources to cater for any category of banking needs of the customer.

5 Branch Network

HFC Bank has 20 branches in seven regions of the country. There are 12 branches in the Greater Accra region; three branches in Ashanti region; and one branch each in the Central, Eastern, Western, Brong Ahafo and Northern regions. All the branches are networked and operations are centralised. The bank intends to embark on branch expansion to increase their coverage in the country and bring the specialized products of the bank closer to its customers.

6 Shareholding Structure The total number of issued shares sum up to 127,092,359, with the twenty largest shareholders together holding 116,013,690 shares, representing 91.28% of total issued shares of the Bank. The bank has 468,344 in treasury.


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A list of the eighteen (18) largest shareholders and their holdings as at August 31, 2009 is depicted below:

Name Percent of Issued Capital Social Security & National Insurance Trust 20.86% Union Bank of Nigeria PLC 19.67% Ghana Union Assurance Company Limited 12.42% Ghana Cocoa Board 7.29% BBGN/State Insurance Company 9.90% Union Homes Savings & Loans 11.39% BBGN/ SSB Eaton Vance Tax Managed 2.37% HFC Unit Trust 1.62% BBGN/SSB Eaton Vance Structured 0.94% Sir O.N. Chionuma 0.76% BBGN/SSB Eaton Vance Tax Managed 0.69% EDC Stockbrokers Limited 0.63% BBGN/Northern Trust Co. AVFC 63143 0.50% Capital and Equity Ltd 0.49% HFC Staff Provident Fund 0.43% Galtere International Fund 0.40% Mr. A. Akuffo 0.32% Mrs. Baёta Ansah 0.30% Public 9.02% Total 100.00

7 Material Contracts All contracts that HFC has entered into are those related to the normal course of business.

8 Litigation HFC is currently investigating the circumstances leading to the fraudulent transfer in June 2009 of an amount of GB£800,000 from the Bank to various accounts in the UK. Legal action has commenced in the UK courts for an order for the return of the funds from the banks where they have been lodged. Apart from this case, which could impact on its operations, HFC is not involved in any litigation the results of which might have an adverse or material effect on the financial position or conduct of its business.


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9 Directors, Management and Employees

Board of Directors

HFC Bank has a nine-member Board of Directors consisting of seven (7) Non–Executive Directors, of which one is the Chairman; and two (2) Executive Directors, of which one is the Managing Director. The Board is responsible for setting the Bank’s strategic direction, for leading and controlling the bank and for monitoring activities of the executive management.

The Board operates mostly through committees. Currently the Board has three (3) committees, namely Finance & Credit, Audit and Remuneration committee. The Board assumes complete responsibility for activities of the bank.

The profile of the Board of Directors is presented below:

Nana Agyei Duku (Chairman): He is an experienced insurance executive and currently the Managing Director of Ghana Union Assurance Company Limited. Nana Agyei Duku also serves as a Director of UG-HFC Ltd., a joint venture company between HFC and the University of Ghana. He was appointed to the Board on February 24, 1993.

Mr. Asare Akuffo (Managing Director): He is one of the pioneer management staff and was appointed the Managing Director of the Bank in July 2005. He has extensive finance and auditing experience. Before joining HFC Bank, Mr. Akuffo was an Investment Manager at SSNIT. He is a director of HFC Investments Services Ltd, HFC Realty Ltd and Boafo Microfinance. He is a Chartered Accountant by profession, and was appointed to the Board on September 1, 1995. Mr. Akwete Akita (Executive Director, Finance & Investment Banking): Mr. Akita was appointed as an Executive Director in charge of Finance & Investment Banking of the Bank in November 2005. He has wealth of banking experience after having worked for Ghana Commercial Bank Limited for seven and half years before joining HFC Bank. He is also a Director of HFC Investment Services Limited. He is a Chartered Accountant by profession.

Mr. Ras Boateng (Non Executive Director): He was a Deputy Director General at SSNIT. He is a Chartered Financial Analyst (CFA) and also holds an MBA in Finance. He is a Director at Golden Beach Hotels. His appointment to the Board took effect on November 15, 2001.

Mrs. Olufunke Iyabo Osibodu (Non-Executive Director): She is the Group Managing Director / Chief Executive Officer of Union Bank of Nigeria Plc. She represents Union Bank of Nigeria PLC on the board of HFC Bank (GH) Ltd. She holds a BSc. in Social Sciences (Economics) and an Advance Management Program

Mr. Samson Olatubosun Thomas (Non-Executive Director): He represents Union Homes Savings and Loans Plc on the Board of HFC Bank (GH) Ltd. He has held various senior positions at Union Bank of Nigeria, and is currently the Managing Director of Union Homes Savings and Loans Limited. He holds an MSC. in Banking and Finance. Mr. John O. Kusi-Mensah (Non-Executive Director): Mr. Kusi-Mensah is the Head of Corporate Affairs of the SIC Insurance Company of Ghana and represents the SIC Insurance Company on the Board. He is a Valuer by profession and is a fellow of the Ghana Institute of Surveyors. He is also a director of HFC Realty Ltd. He was appointed a Director of the Board on March 30, 2005.

Mrs. Stephanie Baёta Ansah (Non-Executive Director): She is the founding Chief Executive of HFC. Before assuming the position of Chief Executive at HFC, she worked with Merchant Bank (Ghana) Limited where she became Deputy Managing Director in 1982. Mrs. S.B. Ansah is also a Director of HFC Investment Services Limited and SBA and


18

Associates Limited. She is a lawyer by profession and worked for 30 years in the banking industry. She was appointed a non-executive director on July 1, 2005.

Mr. John Sey (Non Executive Director): Mr. Sey is a Chartered Accountant by profession and a former Senior Partner at Deloitte and Touche, a firm of Chartered Accountants and Management Consultants. He is a past president of the Institute of Chartered Accountants (Ghana) and a past Chairman of Ghana Commercial Bank Limited. He was a Managing Director at First Ghana Building Society. He is currently a Conference and Synod member of the Methodist Church, Ghana. He became a member of the Board on April 25, 2002. Management

HFC is managed by a team of competent managers made up of professionals who have demonstrated outstanding capabilities and experience in the fields of banking, law, finance and economics. Below is a brief profile of the senior management team of HFC Bank (Ghana) Limited:

Asare Akuffo (Managing Director): Please see section under Board of Directors.

Akwete Akita (Executive Director, Finance & Investment Banking): Please see section under Board of Directors.

Charles Martinson (General Manager, Banking Operations): Mr. Martinson has over thirty years banking experience. Prior to joining HFC Bank in November 2003, he worked with Cal Bank Limited for eleven years. He holds an MBA degree and is also a Fellow of the Chartered Institute of Bankers.

Mercy Mamle Tetteh (Mrs.) (Board Secretary and Head of Legal): She holds an LLB and a BL and has over twenty eight-years professional experience. Prior to joining HFC Bank, she worked with Bank of Ghana and the FINSAP Secretariat. She has been working with the Bank as Head of Legal and Company Secretary since April 1998.

Charles Ofori Acquah (General Manager, Business Development). He joined the then Home Finance Company in 1994 as a Finance Officer. He worked in a number of Departments and became the Treasurer of the Company. Mr. Ofori-Acquah is a holder of a BA (Hons) in Political Science and is an Associate of the Chartered Institute of Bankers, England, UK.

Charles Bonsu (General Manager, Mortgage & Consumer Loans): Mr. Bonsu began his career with Fannie Mae (the Federal National Mortgage Association USA) in 1986. He was responsible for the management of a pool of Mortgage-Backed Securities. Prior to Joining HFC Bank in 1999, he worked for the Ghana Stock Exchange as the Management Information Systems Manager. Mr. Bonsu holds a Bachelors degree in Accounting and a Masters degree in Management Information Systems.

Frederick Obasuyi (Credit Controller): He is currently the credit controller of HFC Bank. He joined the Bank in August 2008 on secondment from the Union Bank of Nigeria. Mr. Obasuyi holds a BSc. Industrial Chemistry from the University of Lagos, an MSc. in Instrumentation from the University of Technology, Loughborough, UK, an MBA from the University of Benin, Nigeria, and an MSc. Banking and Finance from the University of Ibadan Nigeria. He is an Associate of the Nigerian Institute of Bankers.

Mildred Sika Tettey (Head, Human Resource): She is the Head of Human Resources at HFC Bank (Ghana) Limited. Ms Tettey joined the bank in July 2006. She is a fellow member of the Institute of Administration Management, UK, and holds a Bachelor of Arts degree in Administration Management.


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Joseph Edward Nketsiah (General Manager HFC Investment Services Limited): He is an Investment Banker by profession. Mr. Joseph Nketsiah holds a BSc. Administration degree from the University of Ghana, and an MBA in Financial Management from the University of Hull, UK. He joined the bank in October 2003. Philip Oduro-Amoyaw (Head, Strategic Planning & Research): Mr. Oduro-Amoyaw is a Strategy and Investment Specialist by profession. He holds a B.A Economics and an M.A. Economics degree from the University of Ghana. He also holds a certificate in Development Banking and Financial Management from the University of Strathclyde, UK.

Benjamin Dzoboku (Head, Internal Control and Audit): He is a Chartered Accountant by profession. Mr. Dzoboku also holds an MBA in Financial Management. Prior to joining HFC in January 2007, he worked with SG-SSB Bank as an Internal auditor from October 2003 to December 2006. Between June 2000 and September 2003, he worked with Pannell Kerr Forster (Chartered Accountants) as a Senior Auditor. Employees

The table shows the breakdown of the average number of persons employed by the HFC Group over the past three years:

Category 2006 2007 2008 Sept. 2009 CAGR Management 37 51 58 59 23% Supervisors/Officers 76 114 198 203 38% Clerical 51 67 92 94 23% Non-Clerical 21 32 32 33 16% Total 185 264 380 389 28%

Disclosure of Interests by Directors

The Directors named below held the following number of ordinary shares in HFC as of August 31, 2009.

Name Shares Held by Directors Nana Agyei Duku 67,500 Asare Akuffo 404,496 Akwete Akita 61,250 Stephanie Baёta Ansah 381,048 John Sey 4,364 Ras Boateng 11,500

Other Disclosures

• Relationship Among Directors – There are no family relationships among the Directors.

• Bankruptcy Petitions – No petition under any bankruptcy law has been filed against any Director, or any partnerships of which such persons were partners, or of any company in which such persons are or were Directors


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• Criminal Proceedings or Convictions for Fraud or Dishonesty – No person who is a Director, or has been nominated to become a Director has been convicted in a criminal proceeding or is a named subject of any pending criminal proceeding relating to an offence involving fraud or dishonesty.

• Prohibition against Financial Advisory or Capacity to Hold Office - No person who is a Director, or has been nominated to become a Director has been subject of any judgment or ruling of any court of competent jurisdiction, tribunal or government body permanently or temporarily restraining him from acting as an investment advisor, dealer in securities, Director or employee of a corporate body or engaging in any type of business practice or activity or profession.

• Materiality of Management Interest in the Company’s Business and Affairs – No member of management or any other person related to them have any material interest in the company either directly or indirectly.

• Directors’ Powers to Borrow and Charge the Company’s Assets – The Directors may exercise all the powers of the company to borrow money and to mortgage or charge the property and undertaking or any part thereof, and to issue debentures. Such powers can be varied by amending the Company’s Regulations.

Corporate Governance and Board Practices

HFC recognizes the valuable contribution Corporate Governance makes to long-term business prosperity and ensuring accountability to shareholders. The bank is therefore fully committed to the principles and practice of good corporate governance. The bank is managed in a way that maximizes long-term shareholder value and takes into account the interests of all of its stakeholders. Organizational Chart

The organizational structure of HFC is depicted in the diagram below.

Board of Directors

RemunerationCommittee

Finance & CreditCommittee

Audit Committee

Managing Director

Subsi-diaries

BusDev’mentDivision

CorporateBanking Division

Banking Ops

Division

CompSectary

Mortgage& Cons

Loans Div

Executive Director(Fin & Investments)

InternalControl &

Inspections

ICTDept

LegalDept.

ProductDev’t

PublicInst.

MktingDirectSales

CorpAffairs

MortDept

ConsLoansDept

CreditRel’ship

PvteBnkng

DomesBnkng

ForeignOps

OpsControl

Treasury

FinCtrol

RecovDept

RiskMgmt

StrategicPlanning

AdmHumanRes.


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10 HFC’S Performance on the GSE

HFC was listed on the Exchange on March 17, 1995 at a price of GH¢0.01. Since its listing, the bank’s shares gained investor interest, a phenomenon which propelled its share price in the years to a high of GH¢1.1080 per share in May, 2004. However, the stock’s price began a steady slide as investors started to pull out profits from the stock market toward the end of 2004. This sparked an all-out investor sell-off of shares, which cascaded into declining stock prices across the board in 2005. The year marked HFC’s worst performance ever, the stock declining 40% to GH¢0.60 per share, while the market wiped off 29.9% of its value, its worst performance too. The decline continued unabated and by the end of 2006, the share price had slipped to GH¢0.54 as the decline of the general market weighed on its share price. The bank’s shares are currently trading at GH¢0.62 per share.

Find below a chart of HFC’s price movements since listing.

00.20.40.60.8

11.2

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

GH¢

Over the years HFC’s share price has moved in tandem with that of the general market as shown in the diagram below. The stock however outperformed the market from 1995 to 1998, then in 2000, 2004 and 2005.

.

Since the beginning of 2009, the bank’s share price has maintained its strength despite the general market decline. The equity which opened at a price of GH¢0.62 per share is still trading at that price, in spite of 42% year-to-date loss recorded by the GSE. HFC’s share price, however, is expected to improve with improvements in its business. Currently, HFC has a trailing PE of 13.81 and a forward PE of 8.94, compared to the industry average of 11.35 and 9.20 respectively, for all listed banks on the Ghana Stock Exchange.


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PART 4 - USE OF FUNDS AND BUSINESS OUTLOOK

1 Introduction The improving macro-economic situation and the free market regulatory regime of BOG coupled with the stable political and peaceful social environment of the country has led to a healthy and vigorous competition in the banking and the financial services industry. The introduction of off-shore banking and other reforms soon to be introduced into the banking sector and the financial services industry generally are expected to increase the level of competition among the players in the industry.

BOG recently fixed new minimum capital requirements of GH¢60 million expected to be met by various categories of banks within specified time periods. This is meant to strengthen the capital base of the banks to enable them engage in higher volumes of financial transactions and thereby deepen the financial system. The increase in stated capital is in accordance with BASEL II accords which require banks to maintain sufficient capital reserves to support their risk appetite as defined by the capital adequacy ratio.

HFC having a majority local share ownership is therefore expected to obtain a stated capital of GH¢25 million by the end of 2010 and have until the end of 2012 to obtain GH¢60 million. As a result of these developments, HFC a key player in the banking industry and a listed company on the Exchange intends to raise more capital through the issue of shares by private placement and to subsequently list these new shares on the GSE.

The Board and Management of HFC recognise that the Ghanaian banking industry has become extremely competitive in the last half decade, and recognise the added value the additional funds could provide by enhancing its ability to undertake bigger transactions. This Offer is expected to, among other things, raise funds to meet the new capital requirement, enhance its competitive edge, deal with new challenges, take advantage of the expectant growth in the economy and the complexities in demands of customers.

2 Strategic Direction

The main strategy of the bank is strengthening the group as a market leader in the competitive and robust Ghanaian banking industry in tandem with international best practices. This the bank hopes to achieve in the short to medium term by addressing some key strategic issues. Notable among its objectives are:

• Transformation of the bank into a holding company with seven (7) main subsidiaries; • Recapitalisation of the bank (with a minimum of US$30 million); • Investment in the subsidiaries to meet specific strategic needs; • Full automation of its business operations; • Improvement of all processes to meet ISO banking standards; • Exploration of investment opportunities in other West African countries; and • Strengthening of human resource capacity.

HFC Bank’s vision is “To become a leading universal banking institution in the West African sub-region, providing world-class financial services” and its mission is to be “committed to creating wealth and better life for its customers”.

The management of HFC seeks to realize its vision and mission in the medium term as an iconic bank with a strong image and brand with which people can easily identify. This is expected to be achieved through a powerful engine (people, infrastructure and processes).

The Directors and Management of HFC recognize the opportunities and challenges presented by developments and competition in the banking industry and have accordingly devised the strategies and plans to ensure that the Bank not only survives the competition but grows to be among the leaders in the industry, using state-of-the-art technology to provide customer-oriented service to customers and


23

value creation for the shareholder. The bank also plans to improve its technology infrastructure to better meet the needs of its cherished customers, to make sound loans available to all types of customers and to ultimately increase its market share.

3 Corporate Targets In pursuance of the bank’s strategy as outlined above, its board and management have identified the following key areas as critical in achieving its strategy. The business objectives of HFC for the short to medium term as part its strategic plan are enumerated as follows: 1. Consolidate a strong position in the banking industry by entering into the first quartile of banks in the Ghanaian banking

industry. 2. Provide high-level automated financial services to individuals and businesses through a wider branch network of at least forty

(40) branches by 2014. 3. Grow into a fully integrated Universal Banking institution, with all subsidiary services offered in all branches of the bank as a

single unit. 4. Improve HFC’s share of Industry Deposits from 1.40% (in 2008) to 5% by end of 2014. 5. Increase HFC’s share of Total Industry Assets from its current share of 2.11% to 4.94% in 2012 and to 6.78% in 2014. 6. Reduce Operating Expense to Total Income ratio to 41.75% in 2014, from a projection of 32.47% in 2010. 7. Reduce ratio of Staff Cost to Total Income to 26.10% in 2014, from a projection of 32.47% in 2010. 8. Achieve an Interest Cost to Total Income ratio of 41.08% in 2014. 9. Achieve a Per Capita Staff Cost of GH¢ 54,730 by 2014. 10. Improve service delivery of the bank to meet ISO standards.

4 Business Outlook

HFC is very optimistic of its future efficiency and profitability. It anticipates that the Ghanaian economy will improve in the years ahead, as the impact of the Global financial crisis and its ripple effects on the economy subside. Additionally, a more stable macroeconomic environment, with relative price stability and lower interest rates are anticipated. The production of oil in Ghana in 2010 is expected to boost the fiscal position of government and reduce its borrowing, which would have had adverse effect on interest rates and crowd out the private sector. This will boost private sector business growth (enhancing opportunities for good credit facilities) as well as enhance the property market and the home loans business.

HFC intends to consolidate itself in all segments of its core business by the establishment of a holding company and registering its core business as autonomous companies.

The bank, in the medium term, also intends to expand its branch network to attain a full nationwide coverage with not less than fifty branches represented across all the regions and commercially viable towns of Ghana. The expanded branch network will aid in the marketing of all the core businesses of the HFC group, especially the home loan business and investment banking services. Services to the non-resident mortgage market will also be enhanced by correspondent bank network in the European Union, United States, Canada, South Africa and the United Kingdom. Eventually, the improvement of products and services, the continuous growth in deposits, control of expenses, cost reduction and the satisfaction of customer needs would enable the bank to achieve its objectives, sustain its competitive advantage and enhance the long term viability of the Bank. HFC aspires to move from the second quartile to the first quartile of the banking industry, in terms of operating assets, by the year 2014.


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PART 5 - FINANCIAL OVERVIEW


25

PERIOD TO PERIOD TO30.09.09 30.09.2008

GH¢ GH¢

INCOMEInterest Income 34,350,130 24,153,641

Interest Expense 19,969,591 12,543,220

Net Interest Income 14,380,539 11,610,421

Commission & Fees 3,472,726 2,443,815

Other Operating income/(loss) 1,926,328 678,369 Net Operating income 19,779,593 14,732,605

Operating Expenses 13,485,775 9,249,424

Provision for Bad & doubtful debt 1,488,374 1,678,858

Operating profit 4,805,444 3,804,323

Other income 502,216 589,386

Profit before Tax 5,307,660 4,393,709

Taxation 1,153,845 934,298

Profit after Taxation transferred toincome surplus 4,153,815 3,459,411

Balance at 1 January 1,618,794 446,020

Profit for the period 4,153,815 3,459,411

Transfer to statutory reserve 2,076,908 1,729,706

Transfer to housing development assistance fund 207,691 172,971

Transfer to statutory credit reserve 372,093 0

Dividend approved 1,270,924 0

Balance at 30th September 1,844,994 2,002,755

INCOME STATEMENT FOR THE PERIODENDED 30TH SEPTEMBER 2009

INCOME SURPLUS ACCOUNT


26

HFC BANK GHANA LTD BALANCE SHEET AS AT 30TH SEPTEMBER 2009

AS AT AS AT 30.09.09 30.09.2008 GH¢ GH¢ ASSETS Cash & balances with Bank of Ghana 19,073,415 8,199,715 Due from Other Banks 14,476,596 18,058,240 Government Securities 29,060,041 29,674,421 Other Short term Investments 4,406,875 2,774,513 Loans and Advances to customers 155,492,188 135,575,864 Investment Securities 295,000 180,000 Investment in subsidiary and Associated co. 1,203,806 1,159,166 Interest Receivable and other assets 13,524,388 8,139,690 Fixed Assets 8,228,619 5,254,268 Tax 234,736 0 TOTAL ASSETS 245,995,664 209,015,877 LIABILITIES Customer Deposits 129,592,275 103,668,149 Due to Other Banks 17,000,000 17,500,000 Interest Payable and other Liabilities 9,871,295 6,381,775 Corporate Tax 0 519,039 Deferred Tax 323,705 58,060 Long Term Bonds 43,797,507 35,931,422 Long Term Loans 15,023,775 18,573,090 TOTAL LIABILITIES 215,608,557 182,631,535 SHAREHOLDERS FUNDS Stated Capital 16,943,859 16,943,859 Capital Surplus 546,366 546,366 Statutory Reserve Fund 9,152,994 6,465,318 Income Surplus 1,844,994 2,002,755 Statutory credit reserve 1,204,084 Share Deals Account 24,855 24,855 Housing Dev't Fund 669,955 401,189 30,387,107 26,384,342 TOTAL LIABILITIES & SHAREHOLDERS FUNDS 245,995,664 209,015,877


27


28


29

6.8 Financial Statements for the Past Two Years under International Financial

Reporting Standards (IFRSs) Balance sheet as at 31 December (All amounts are expressed in Ghana cedis)

Assets

The Bank 2008

The Bank 2007

Cash and Balances with Bank of Ghana

43,304,159

12,927,821

Due from other Banks 138,755,442 4,389,019 Government Securities 19,538,770 13,182,435 Pledged Assets (Repos) 13,217,150 16,552,558 Derivative Financial Assets 22,686 25,556 Loans and Advances to Customers 141,567,851 102,625,677 Loans and Advances to Banks and Financial Institutions 1,250,000 137,949 Investment Securities 194,141 266,059 Other Short-Term Investments 3,041,831 2,108,213 Interest Receivable and Other Assets 8,211,046 3,696,676 Investment in Subsidiaries and Associated Companies 1,159,166 1,159,166 Investment Properties - - Property and Equipment 6,196,639 4,066,265 Deferred Income Tax Assets - 296,587 Current Income Tax Assets -

___________ 17,938

__________ Total Assets 376,460,881

======== 161,451,919

======== Liabilities and Shareholders Funds Deposits from Customers

85,205,083

63,795,343

Deposits from Banks and Financial Institutions 21,736,041 19,763,969 Due to Other Banks 15,000,000 9,000,000 Derivative Financial Liability 197,816 79,707 Interest Payable and Other Liabilities 174,174,377 8,644,323 Deferred Income Tax Liabilities 323,705 - Current Income Tax Liabilities 208,680 - Long-Term Bonds 36,266,221 33,143,635 Long-Term Loans 15,844,743

__________ 14,130,142

__________ Total Liabilities 348,956,666

======= 148,557,119

======== Equity Stated Capital

16,943,859

7,025,239

Income Surplus Account 1,618,794 643,776 Statutory Reserve Fund 7,076,086 4,171,557 Capital Surplus Account 546,366 546,366 Housing Development Assistance Fund 462,264 171,812 Regulatory Credit Risk Reserve 831,991 311,195 Share Deals Account 24,855

___________ 24,855

__________ Total Shareholders Funds before non Controlling Interest

27,504,215

12,894,800

Minority Interest - ___________

- ___________

Total Liabilities and Shareholders’ Fund 376,460,881 ==========

161,451,919 ===========


30

INCOME STATEMENT (All amounts are expressed in Ghana cedis)

Year ended 31 December The The Bank Bank

2008 2007 Interest income 34,265,629 23,135,366Interest expense (17,843,959) (10,957,924) Net interest income 16,421,670 12,177,442 Fee and commission income 4,519,127 864,892Fee and commission expense (221,236) (91,664) Net fee and commission income 4,297,891 773,228 Other operating income 26,421 35,181 Operating income 20,745,982 12,985,851 Operating expenses (14,021,131) (8,990,087) Impairment charge for credit losses (2,318,823) (1,216,926) Operating profit 4,406,028 2,778,838 Other income 3,509,008 113,696 Profit before tax 7,915,036 2,892,534 Tax (2,207,641) (814,528)

Minority interest - -

Profit for the year 5,707,395 2,078,006

Attributable to: Equity holders of the parent 5,707,395 2,078,006Minority interest - -

5,707,395 2,078,006

Profit after taxation transferred to income surplus

5,707,395 2,078,006

Basic and diluted earnings per share (Ghana pesewas)

4.71 1.90


31

STATEMENT OF CHANGES IN EQUITY (All amounts are expressed in Ghana Cedis)

Attributable to equity holders of the Bank The Bank

Stated capital

Income surplus account

Statutory reserve

fund

Capital surplus account

Housing dev’pment assistance

fund

Share deals

account

Regulatory credit risk

reserve

Total Equity

Year ended

31 December 2008

At 1 January

7,025,239

643,776 4,171,557 546,366 171,812 24,855

311,195 12,894,800 Profit for the year

-

5,707,395 - - -

- 5,707,395

Transfer to statutory reserve

-

(2,904,529) 2,904,529 - - -

- -

Transfer to housing development assistance fund

-

(290,452) - - 290,452 -

- -Transfer to regulatory credit risk reserve

-

(520,796) - - - -

520,796 -

Right issue proceeds

9,918,620

9,918,620

Approved dividend

-

(1,016,600) - - - -

- (1,016,600)

16,943,859

1,618,794 7,076,086 546,366 462,264 24,855

831,991 27,504,215

Year ended

31 December 2007

At 1 January

7,025,239

578,998 3,132,554 546,366 67,912 24,855

- 11,375,924

Profit for the year

-

2,078,006 - - - -

2,078,006

Transfer to statutory reserve

-

(1,039,003) 1,039,003 - - -

- -

Transfer to housing development assistance fund

-

(103,900) - - 103,900 -

- -Transfer to regulatory credit risk reserve

-

(311,195) - - - -

311,195 -

Approved dividend

-

_(559,130) - - - -

- (559,130)

At 31 December

7,025,239

643,776 4,171,557 546,366 171,812 24,855

311,195 12,894,800


32

CASH FLOW STATEMENT (All amounts are expressed in Ghana Cedis)

The Bank 2008 2007 Cash flows from operating activities Cash generated from operations 160,249,542 2,222,043Interest paid (601,655) (400,679)Tax paid

(1,360,731) (928,870)

Net cash from operating activities 158,287,156 892,494 Cash flows from investing activities

Purchase of property and equipment (3,154,015) (1,308,116)Proceeds from sale of property and equipment

51,623 3,947

Sale/(purchase) of government securities (including pledged assets)

1,817,448 (8,356,849)

(Purchase)/sale of other investments (2,433,618) 844Proceeds from sale of investment properties - -(Sale)/purchase of investment securities 71,918 76,666 Net cash used in investing activities (3,646,644) (9,583,508) Cash flows from financing activities

Dividend paid (956,636) (466,345)Bonds issued 2,330,000 3,637,678Redemption of bonds (4,065,961) -Loans repaid (11,521,956) (2,560,606)Loan drawdown 13,236,557 9,570,276Proceeds from right issue 9,918,620 - Net cash from financing activities 8,940,624 10,181,003

Increase in cash and cash equivalents 163,581,136 1,489,989 Movement in cash and cash equivalents At 1 January 8,624,884 8,634,895Increase during the year 163,581,136 1,489,989 At 31 December 172,206,020 10,124,884


33


34

2006 2005 2004

Interest income 12,649,935 9,870,483 9,877,092 Interest expense (6,149,563) (4,692,801) (4,841,294) Net interest income 6,500,373 5,177,682 5,035,799 Fee and commission income 1,325,425 659,853 250,330 Other operating income 305,238 49,080 397,092 Operating income 8,131,035 5,886,616 5,683,221 Operating expenses (5,866,737) (4,958,264) (3,283,122) Bad and doubtful debts expense (633,839) (161,795) (228,840) Operating profit 1,630,460 766,557 2,171,259 Other income 105,060 46,977 88,248 Adjustment - - - Adjusted other income - - - Profit before national reconstruction levy and tax 1,735,520 813,534 2,259,507 National reconstruction levy (85,779) (43,021) (169,463) Profit before Tax 1,649,741 770,514 2,090,044 Income Tax Expense (428,921) (53,587) (457,924) Profit after tax transferred to income surplus accounts 1,220,821 716,927 1,632,120

Income Surplus AccountBalance at 1 January 29,629 959,103 1,086,183 Profit for the year 1,220,821 716,927 1,632,120

1,250,449 1,676,030 2,718,304 Transfer to statutory reserve fund (610,410) (358,463) (816,060) Transfer from capital surplus account - - - Transfer to housing development fund (61,041) (35,846) (81,661) Transfer to stated capital - (794,691) -

Proposed dividend for the year (559,130) (457,400) (861,535) Balance at 31 December 19,868 29,629 959,048

Historical Financial Statements Financial Results for the past three years: under Ghana Accounting standards (GAS)

Profit and Loss Accounts for the three year period ended 31 Dec. 2006


35

2006 2005 2004Assets Cash and balances with Bank of Ghana 6,864,862 1,949,557 3,543,633

Due from other banks 5,425,312 4,100,814 4,876,563

Government securities 21,696,035 25,328,354 19,598,773

Interest receivable and other assets 1,983,428 3,525,780 1,664,259

Loans and advances to customers 65,934,161 29,768,399 23,053,898

Investment securities 342,725 387,791 132,212

Other short term investments 609,057 1,678,822 3,492,088 Investment in subsidiary and associated companies 534,499 334,499 149,773 Property and equipment 3,430,567 3,290,359 2,794,280

Investment properties - - -

Tax 410,859 90,873 43,757

Total assets 107,231,505 70,455,248 59,349,236

LiabilitiesCash and balances with Bank of Ghana - - - Customer deposits 55,476,168 28,026,232 17,289,130

4,000,000 - - Interest payable and other liabilities 3,296,586 2,388,298 1,760,692

Deferred tax 210,676 205,806 247,626

Long term bonds 26,310,809 28,489,152 27,136,186

Long term loans 7,120,472 811,406 3,212,378 Total liabilities 96,414,711 59,920,894 49,646,012

Shareholders' funds

Stated capital 7,025,239 7,025,239 4,679,195

Income surplus account 19,868 2,963 9,590,483

Statutory reserve fund 3,132,554 2,522,144 2,163,681

Capital surplus account 546,366 546,366 1,164,432 67,912 6,871 332,706

Share deals account 24,855 404,106 404,161

Total shareholders' funds 10,816,794 10,507,689 18,334,658

107,231,505 70,428,583 6,798,067

BALANCE SHEET AS AT DECEMBER 31, (All amounts are expressed in Ghana cedis)

Housing development assistance fund

Total liabilities and shareholders' funds

Due to banks and other financial institutions


36

2006 2005 2004

Operating activities

Net cash generated from operating activities (82,684) 8,098,547 12,433,190

Interest paid (589,463) (900,742) (849,275)

Tax paid (778,036) (213,774) (152,820)

Net cash generated from operating activities (1,450,183) 6,984,031 11,431,095

Investing activities

Purchase of property and equipment (1,080,521) (738,424) (815,467) Proceeds from sale of property and equipment 11,556 124,785 6,600 Sale /(Purchase) of government securities 2,819,025 (6,432,884) (8,838,601) Sale/(Purchase) of other investments 944,906 2,026,628 7,707,974 Equity investments (94,348) (255,579) -Bond repayment - - 59,327 Investment securities repayment 45,067 - - Proceeds from sale of investment property 100,155 - - Purchase of investment property (75,035) (90,900) 12,808 Net cash generated from/ (used in) investing activities 2,670,805 (5,366,374) (1,867,359)

Financing activities

Dividend paid (457,400) (861,535) (707,266) Redemption of bonds (4,874,828) (1,116,795) (2,513,931) Proceeds from the issue of bonds - - 1,862,189 Repayment of loans/ Loans Received (598,607) (2,400,972) (1,080,856) Loan drawdown 6,907,673 - - Proceeds from the sale of shares in associate - 15,274 - Proceeds from rights issue - - - Investment in HFC Brokerage - (100,000) - Proceeds from share options exercised - 25,239 26,533 Purchase of own shares - - - (Purchase)/Proceeds from the issue of treasury shares (379,251) - - Proceeds from share options - - - Net cash generated from financing activities 597,587 (4,438,789) (2,413,331)

Increase/(decrease) in cash and cash balances 1,818,209 (2,821,132) 7,150,405

Movement in cash and cash equivalents

At 1 January 7,080,740 9,901,872 2,751,467 Increase/(decrease) in cash and cash equivalents 1,818,209 (2,821,132) 7,150,405

CASH FLOW STATEMENTS

(All amounts are expressed in Ghana cedis)FOR THE THREE YEAR PERIOD ENDED 31 DECEMBER 2006


37


38

Year 2010 Year 2011 Year 2012 Year 2013 Year 2014

INFLATION (Trends) 16.96% 16.11% 15.30% 14.54% 15.27%EXCHANGE RATE 1.523 1.599 1.679 1.762 1.851 WACC 0.210 0.200 0.209 0.199 0.209 TREASURY NOTE (Infl Linked) 23.96% 23.11% 22.30% 21.54% 21.27%MORTGAGE LENDING RATE (WACC Linked) 26.80% 27.75% 27.75% 25.70% 0.257 ADVANCES LENDING RATE (T/N Linked) 29.76% 28.11% 25.30% 24.54% 23.27%FIXED DEPOSIT BORROWING RAT (Infl Linked) 20.96% 20.11% 19.30% 18.54% 19.27%CERTIFICATE OF DEPOSIT RATE (Infl Linked) 20.96% 20.11% 19.30% 18.54% 19.27%SAVINGS RATE (Infl Linked) 7.96% 7.11% 6.30% 5.54% 6.27%DEMAND DEPOSITS RATE 1.68% 1.62% 1.56% 1.51% 1.49%

DEPOSITS 181,500 226,875 293,799 376,478 470,918 Fixed Deposits 35% 63,525 79,406 102,830 131,767 164,821 Savings 25% 45,375 56,719 73,450 94,119 117,729 Demand Deposits 40% 72,600 90,750 117,520 150,591 188,367

100%

DOLLAR HOUSBONDS BAL 14,400 19,400 20,500 25,500 25,100 DOLLAR HOUSBONDS ISSUED 5,000 5,000 5,000 5,000 5,000 DOLLAR HOUSBONDS REDEEMED 2,500 3,900 5,400 STERLING HOUSBONDS BAL - - - - - STERLING HOUSBONDS ISSUED - - - - - STERLING HOUSBONDS REDEEMED - - - -

MORTGAGESNUMBER OF CEDI LOANS 60 65 70 76 82 CEDI LOANS 70 77 85 93 102

NUMBER OF FOREX LOANS 70 76 82 88 95 FOREX LOANS (US$) '000 60 60 60 60 60

CORPORATE LOANSNUMBER OF LOANS 550 605 666 732 805 AMOUNT (GH¢)000 200 220 242 266 293

PERSONAL LOANSNUMBER OF LOANS 100 140 196 274 384 AMOUNT(GH¢) 10 11 12 13 15

MICROFINANCE 4,000 8,000 16,000 17,680 20,036

RESERVES 13,000 19,500 29,250 43,875 65,813 98,719

OTHER FUNDING $ 5.00 5.00 5.00 5.00 5.00

BAD DEBTS PROV 4.00% 4.00% 3.50% 3.50% 4.00%

SUMMARY OF ASSUMPTIONS UNDERLYING THE FINANCIAL PROJECTIONS


39

YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 52010 2011 2012 2013 2014

NOTES GH¢'000 GH¢'000 GH¢'000 GH¢'000 GH¢'000INCOMEInterest Income 1 70,655 81,735 96,227 114,622 135,921

Interest Expense 2 28,353 35,083 38,943 44,652 55,337 ---------------- ----------------------- ------------------- --------------- -----------------

Net Interest Income 42,302 46,652 57,283 69,970 80,583

Fees & Commissions 3 5,855 6,831 7,958 9,287 10,836

Other Operating income 4 3,422 5,870 8,298 10,854 13,567 ---------------- ---------------------- -------------------- --------------- ------------------

Net Operating Income 51,580 59,353 73,540 90,111 104,987

Impairment Charge 5 3,166 3,928 3,738 4,089 5,079

Operating Expenses 6 25,774 28,391 33,718 43,149 47,132 ---------------- --------------------- ---------------------- --------------- ------------------

Net (Loss) Operating Profit 22,640 27,034 36,084 42,872 52,776

Other Income 7 4,550 5,510 6,612 7,934 7,925 ---------------- ---------------------- --------------------- --------------- ------------------

Profit before Tax 27,190 32,544 42,696 50,806 60,701

Taxation 8 (6,273) (7,343) (8,962) (11,103) (12,985) ---------------- -------------------- ----------------- --------------- -----------------

Profit after Taxation 20,917 25,201 33,734 39,703 47,716

Transfer to Statutory Reserves 0.5 9 10,458 12,600 8,433 9,926 5,965

Approved Dividends 0.4 10 4,183 5,040 10,120 11,911 16,701 ---------------- ---------------------- ------------------- --------------- -----------------

Transfer to Income Surplus 11 6,275 7,560 15,180 17,866 25,051 ======================== ======================= ==========

PROJECTED PROFIT & LOSS ACCOUNTS


40

YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5NOTES GH¢'000 GH¢'000 GH¢'000 GH¢'000 GH¢'000

ASSETSCash & Short Term Funds 10 12 37,372 42,175 54,403 73,152 104,556 Investments 27 13 102,159 114,136 147,235 198,085 261,130 Loans & Advances 5 14 189,967 235,677 294,437 322,148 348,259 Other Assets & Receivables 50 15 17,575 20,318 24,495 30,054 36,996 Investments in subsidiary 5 16 17,000 17,000 24,000 24,000 31,000 Fixed Assets 3 17 12,779 21,674 36,692 46,531 50,092

---------------- ---------------------- ------------------- --------------- ------------------TOTAL ASSETS 376,852 450,979 581,261 693,969 832,033

---------------- ---------------------- ------------------- --------------- ------------------

LIABILITIES Deposits & Current Accounts 18 181,500 226,875 293,799 376,478 470,918 Creditors & Accruals 19 26,743 35,409 50,065 50,138 54,010 Inter-bank Borrowings 21 5,000 5,000 5,000 5,000 5,000 Long Term Bonds 22 53,471 50,596 52,007 53,421 45,705 Long Term Loans 22(a) 17,636 18,913 19,884 20,252 20,465

---------------- ------------------ ------------------ --------------- ------------------TOTAL LIABILITIES 284,349 336,793 420,755 505,288 596,097

---------------- ------------------ ------------------ --------------- ------------------

SHAREHOLDERS' FUNDSStated Capital 23 62,618 62,618 85,275 85,275 100,275 Income Surplus 11 6,848 13,148 26,642 42,523 65,188 Statutory Reserves 9 20,958 33,559 41,992 51,918 57,882 Share Deals Account 24 48 96 480 720 Housing Dev't Fund 11(a) 1,508 2,768 4,455 6,440 8,825 Capital Surplus 24 546 2,046 2,046 2,046 3,046 ---------------- -------------------- ------------------ --------------- ------------------

92,502 114,187 160,506 188,681 235,937 ---------------- ---------------------- --------------- --------------- ------------------

TOTAL LIABILITIES & SHAREHOLDERS' FUNDS 376,852 450,980 581,261 693,970 832,034

========== =========== ================= ==========

0 0 0 0 0

NOTE:-Contingencies & Off Balance Sheet Items 20,697 25,268 47,766 51,922 66,370

PROJECTED BALANCE SHEET


41

NOTES GH¢'000 GH¢'000 GH¢'000 GH¢'000 GH¢'000OPERATING ACTIVITIES:-Profit before Tax 27,190 32,544 42,696 50,806 60,701 Depreciation 1,980 2,881 4,549 9,740 10,341 (Profit) on F/A sales (250) (300) (360) (432) (441) (Increase) in other Assets (6,695) (2,743) (4,177) (5,559) (6,942) Increase in Creditors & Accruals 14,670 8,666 14,657 72 3,872 Increase in Provisions 3,166 3,928 3,738 4,089 5,079

---------------- ------------------- ------------------- --------------- -------------------40,061 44,976 61,103 58,716 72,610

RETURNS ON INVESTMENT& SERVICING OF FINANCE:-Interest Received 52,991 61,302 72,170 85,966 101,941 Interest paid (18,902) (23,389) (25,962) (29,768) (36,892) Dividends paid (3,777) (4,914) (9,599) (11,680) (16,199)

TAXATIONTaxation paid (5,080) (6,777) (8,416) (10,432) (12,346)

INVESTING ACTIVITIES(Increase) in Short Term Investments (44,454) (11,977) (33,099) (50,850) (63,045) (Increase) in Loans & Advances (26,684) (45,710) (58,760) (27,711) (26,112) (Increase) in investments in subsidiary (14,841) - (7,000) - (7,000) Fixed Assets purchased (6,141) (11,776) (14,039) (16,635) (18,513) Proceeds on F/A sold 250 300 360 432 441

FINANCING ACTIVITIESIssue of shares 45,675 - 22,657 - 15,000 Increase in Long Term Bonds & Loans 5,842 (1,597) 2,382 1,781 (7,503) Increase in Deposits, Borrowings & Other Debts 25,596 54,041 81,580 82,751 98,312

---------------- ------------------ ------------------ --------------- ------------------INCREASE/(DECREASE) IN CASH& CASH EQUIVALENTS 50,537 54,478 83,376 82,572 100,695

CASH/CASH EQUIV. AT 1st JAN 56,000 106,537 161,015 244,391 326,963 ---------------- ------------------ ------------------ --------------- ------------------

CASH/CASH EQUIV. AT 31st DEC. 106,537 161,015 244,391 326,963 427,658 ========= ========== ========== ===================

PROJECTED CASH FLOW STATEMENTS


42

PART 6 - RISK FACTORS

Investing in the securities of any company exposes the investor to some risks. Before deciding to purchase HFC shares, investors should carefully consider the following potential risks of an investment in the bank, and also any relevant information contained in this Information Memorandum. i. Financial Risk: HFC’s core business of managing financial assets and liabilities exposes the company to financial

risks. These include credit risk, liquidity risk, interest rate risk and foreign exchange risk. HFC through its sound and efficient risk management systems and procedures has kept these risks under control.

ii. Liquidity: The additional HFC shares on offer in this Private Placement will be listed on the GSE. There is however

the possibility that investors may not be able to sell their shares on the market at the price they desire when they want to.

iii. Dilution: An existing shareholder’s holding in HFC shares may be diluted after this offer since this offer is not being

made to all existing shareholders of HFC. iv. Competition: The bank operates in a very dynamic and competitive financial services industry. The bank therefore

faces an increasingly intense competition for all its products from other service providers which can affect its financial performance. The bank has however been able to maintain a steady increase in market share for its commercial banking products and even gained grounds in its flagship mortgage products.

v. Macro Economic Environment: The state of the national economy provides the context for the financial services

industry. Interest rates, the dominant variable in the industry is susceptible to changes in inflation, currency depreciation, the size of the national debt and other macro-economic indices. Adverse movements in these variables can therefore affect the performance of the bank and its ability to achieve set targets.

vi. Fraud: Fraudulent practices by employees and customers can adversely affect the operations and financial

performance of the bank. The bank counters this risk through the adoption of efficient verification and reporting systems.

vii. Computer Systems Failure: Computers and other information and communication installations have inherent risks in

their use. Any malfunction in the system or any of its components could affect normal operations of the bank. This risk is mitigated by the close monitoring of the system by competent staff.


43

PART 7 - ADDITIONAL INFORMATION ON THE OFFER

1 Application A qualifying applicant to this Offer is either an existing HFC shareholder in the top ten (10) category or a strategic investor who may or may not be an HFC shareholder, but is interested in acquiring HFC shares under the terms of this Offer.

2 Offer to Purchase As an applicant, you offer to subscribe for shares under this offer and on the terms and conditions of this Offer and on the basis of the information set out in this Document and subject to the Regulations of HFC.

You agree that your application to acquire shares cannot be revoked after December 10, 2009 or such later date and the Directors and Advisors may agree, and promise that cheque, banker’s draft or money or postal order will be honoured on first presentation and that this paragraph constitutes an agreement between you and HFC. It becomes binding when your application is posted, in the case of delivery by hand, received by the receiving agents. However the Bank will not be held liable if you use a wrong address in posting. You must pay all bank commissions, transfer and other bank charges related to your application.

A thumb print on an Application Form will be accepted instead of a signature thereon only if it is duly certified in accordance with the Laws of Ghana.

If your Application Form is not completed correctly or is amended, or if any cheque, banker’s

Draft, money or postal order is found to be less than the amount stated on your Application Form, it may still be treated as valid. In such case, the Bank’s decision as to whether to treat the application as valid, and how to construe, amend or complete it shall be final. You will not, however, be treated as having applied to purchase a number of shares which if multiplied by the offer price, gives a value greater than the amount remitted.

An application may be rejected in whole or in part at the discretion of the Advisors and Management of HFC if the application is incomplete or illegible, or if it is determined that the application is not eligible to participate in this offer.

3 Acceptance of the Offer Acceptance of the Offer will be made (if your application is received, valid, processed and not rejected) by notifying acceptance to the receiving agents. Acceptance of your offer may be of the whole or any part thereof. If your application to purchase shares is accepted (in whole or in part) there will be a binding contract under which you will be required to purchase the shares in respect of which your application has been accepted.

4 Payment for Shares You undertake to pay the purchase price of the shares in respect of which your application is accepted. The cheque or banker’s draft or other remittances may be presented for payment before acceptance of your application, but this will not constitute acceptance of your application, either in whole or in part. In the case of excess applications, if your application is invalid, rejected or not accepted in full, or if the amount of the application divided by the offer price does not result in a whole number of shares, the proceeds of the cheque or other remittances or the unused balance of those proceeds (as the case may be) will be refunded to you without interest.


44

If the remittances are not honoured on first presentation, then at any time until the bank has received cleared funds in respect of your application, the Advisors, on behalf of HFC may terminate the agreement to purchase that share. The termination will be effected by notifying the receiving agent whom you submitted your application to.

7 Warranties You warrant that:

• You are qualified to apply; • You will submit a complete application including all supporting documents required under the terms of this

Offer;

• In making your application you are not relying on any information or representation concerning the bank not contained in this Information Memorandum. . You agree that no person responsible for this Document or any

part of it will have liability for any such other information or representation;

• If any person signing, or making a thumb print on the Application Form is not the applicant, that person warrants that he/she has authority to do so on behalf of the applicant and that this authority is vested in him or her; and

• If the applicant is other than a natural person, the person signing the Application Form warrants that he/she

has authority to do so on behalf of the applicant.

8 Supply and Disclosure of Information

The bank, its Directors, Advisors and their agents shall have full access to all information relating to, or deriving from, the cheque or banker’s draft or other remittance accompanying your application and its processing. If the Directors or their agents request any information about your application you must promptly disclose it to them

9 Listing of New Ordinary Shares

The GSE has granted permission to list up to 86,400,000 New Ordinary HFC shares to be issued under the Private Placement on the First Official List of the GSE, alongside the existing 127,092,359 ordinary shares listed. It is expected that dealings in the additional shares will commence alongside the existing shares on the GSE by December 17, 2009.

10 Share Certificates / GSE Securities Depository

Share certificates will not be issued in respect of the new ordinary shares. All shares under this offer will be allotted electronically on the GSE Securities Depository to each successful applicant. All qualifying applicants who already have depository accounts should quote their GSD number on the appropriate section of the application form.

11 Exchange Controls

The Foreign Exchange Act 2006, (Act 723) allows foreigners to hold shares of a listed company without any restrictions. It also assures full and free foreign exchange transfer of original capital or principal amounts, any gains, dividends or interest payments and related earnings and refunds in respect of investments made by non- residents in such securities.


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12 Restrictions on Ownership in Banks

The Bank of Ghana has regulatory oversight of the banking industry. The Banking Act provides that a direct or indirect acquisition or disposal of shareholdings amounting to 10% or more of the capital or voting rights of a bank or resulting in the exercise of a significant influence over the management of a bank may not be effected without the prior notification and approval of the Bank of Ghana

13 Regulatory Approval

The SEC has indicated that the Information Memorandum does not require its approval.

14 Taxation

Withholding Tax on Dividend Under current Ghanaian Tax law, all dividend payments are subject to a dividend withholding tax of 8%. No further tax is payable on dividends received. Capital Gains Tax The securities of a company listed on the GSE are currently exempt from capital gains tax in Ghana until 2010. No capital gains tax would therefore be payable on any realization of capital gains from the sale of shares of HFC until 2010 Gift Tax Liability to gift tax may arise by gift of shares in the Bank if the open market value of the shares at the time of the gift exceeds GH¢50.00 (subject to certain exemptions). The tax is payable by the recipient of the gift. The applicable statutory rate varies as follows:

i. Up to GH¢50.00 – Nil ii. More than GH¢50.00 – 10% of excess over GH¢50.00

Stamp Duty Under the Stamp Duty Act, 2005 (Act 689), transfer of listed shares is exempt from Stamp duty. Corporate Tax The Internal Revenue Act 2000, Act 592, prescribes a corporate income tax of 25% for all listed companies.

15 Documents Available for Inspection

Copies of the following documents in respect of the establishment and operations of HFC Bank and the Private Placement may be inspected at the registered office of HFC Bank during normal business hours of any working day during the Offer period:

(i) The Resolution passed by shareholders at the Annual General Meeting held on April 16, 2009; (ii) The audited financial reports of the Bank for the past five years; (iii) The Resolution of the board of directors of HFC approving the Private Placement dated November 17, 2009. (iv) The Escrow Account Agreement. (v) The Private Placement Information Memorandum; (vi) The Financial Due Diligence Report; and (vii) The Legal Due Diligence Report.


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PART 8 - RECEIVING AGENTS

1. HFC Investment Services Ltd 6, Sixth Avenue, Ridge Ambassadorial Enclave West Ridge, Accra Tel: +233 (0)21 665095, 664214, 664203, 664372

2. HFC Bank Branches at the addresses below: Head Office “Ebankese” #35, Sixth Avenue, North Ridge P. O. Box CT 4603, Cantonments, Accra. Tel. 021 242090-4

Ridge Branch 6 Sixth Avenue Ridge Ambassadorial Enclave West Ridge, Accra Tel. 021 683891-3, 683895-9

Accra Central Branch 31-33 Kwame Nkrumah Avenue SIC Building, Okaishie, Accra Tel. 021 683756-9

Legon Branch (University of Ghana) The UG-Credit Union Building Noguchi Road University of Ghana, Legon Tel. 021 519154-6

Tema Branch Asafoatse Kotei Offices and Commercial Complex Private Mail Bag, Community One, Tema Tel. 022 201432, 208385-6

Kumasi Branch OTB 571 Asomfo Road Adum Roundabout, Adum Private Mail Bag, G.P.O. Kumasi Tel. 051 32597, 31579

Abossey Okai Branch Crystal Plaza Building Opposite Presby Church Main Spare Parts Lane Abossey Okai, Accra Tel. 021 673181, 673475

Techiman (Jubilee) Branch Plot 415 Abanim Techiman Tamale Main Street P. O. Box TM 515 Techiman Tel. 0653 22411-2

Boafo Micro Finance Office TUDU Branch G2, 1st Floor St. Francis Building Kinbu Road – Makola Adjacent to Tudu Lorry Park Tel. 021 666203, 657114


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PART 9 - APPLICATION FORM I. SUBSCRIPTION INSTRUCTIONS (Please choose only one of the options stated below):

Option 1 Please tick your option

I, ………………………………………………………………….………….………………….. wish to subscribe fully for my Rights only I/We make payment of GH¢/ US$.……………………………………………………………covering my rights. Kindly sign the declaration below and return this signed form together with the amount above to the receiving agent. Option 2 I, ……………………………………………………………… wish to subscribe fully for my Rights and apply for extra shares If you ticked Yes, please put in the number of extra shares you wish to apply for and amount payable covering your total application below:

I/We wish to subscribe for ………………………………………………………… ….extra shares in addition to my allotted Rights. I/We make payment of GH¢/US$…………………………………………………….. covering my rights and the extra shares. I/We understand and accept that receiving these additional shares depends upon the number of unsubscribed shares available after the closure of the Offer and will be at the discretion of the Directors of HFC.

Option 3 I, ……………………………………………………………………………… wish to partially subscribe for my Rights I/We make payment of GH¢/ US$.………………………………………… covering my subscribed rights of …………………………….. shares.

Kindly sign the declaration below and return this signed form together with the amount above to the receiving agent. To be completed by Strategic Investors (Non-shareholder)

Option 4 I, …………………………………………………………………………………………. wish to apply for shares under this offer I/We make payment of GH¢/ US$.…………………………………………………… covering my application.

Kindly sign the declaration below and return this signed form together with the amount above to the receiving agent. DECLARATION I/We hereby apply for shares of HFC under the terms and conditions set out in the Information Memorandum. I/We certify that all statements made in this application to enable me take part in HFC’s private placement of shares are correct and the responses are my own.

Applicant’s Signature Date Receiving Agent’s Stamp/Signature

II. APPLICANTS DETAILS (All Applicants should kindly provide an update of their contact details):

GSE Depository Account Code:

ID Type Passport Drivers Licence Voters ID NHIS Card ID Number:

SURNAME/COMPANY NAME:

FIRST NAME: DIVIDEND MANDATE MIDDLE NAME: Bank Name: TITLE: Branch Name: TELEPHONE NUMBER: Account Name:: EMAIL: Account Number: ADDRESS (PHYSICAL ADDRESS / POSTAL BOX):

Please Tear Along This Line

To be completed by the Receiving Agent and then signed and retained by applicant as evidence of application

HFC BANK PRIVATE PLACEMENT - APPLICATION COUNTER FOIL

Applicant’s Name and Address Applicants Signature or Thumbprint

Receiving Agent’s Stamp/Signature/Date

Name:

Address:

No. of Shares Applied For: Amt paid (GH¢/US$): Date:


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