Ghana

NANAWARE NANABEDUADDO ABIMBOLASALAMI

Introduction: This paper provides a detailed and comprehensive analysis of the financial system of Ghana. Thepapercoverstheroleofthegovernment,centralbankandotherregulatorybodiesinthe financialsystems. Withtheregardstothegovernment,thepaperprovidesacomprehensivereviewofthemacro economic and political environment of Ghana (10 year macro economic data and forecast provided).ItalsoanalyzestheborrowingoftheGhanaiangovernmentintheinternalandthe external markets to carry out economic development. In addition it also covers various regulationsfordifferentsectionsofthefinancialmarket. ThepaperconsiderstheintegralroleplayedbytheBankofGhana(BoG)intheeconomy.BoGis responsible for monetary policy of the country and also assists the Ministry of Finance to ensureeconomicstability.Tothisenditmanagesinterestrates,inflationaswellasexchange rates.ThecentralbankisalsoresponsiblefortheregulationandsupervisionoftheGhanaian banking system as well as other non banking financial institutions. The paper provides informationonthebankingsystemwithregardstoownership,capitalizationprofitability,level ofcreditetc. Expanding beyond the role of the government and the Central Bank, the paper covers the Insurance,StockandBondmarkets.Thecoverageextendstotheregulation,performanceand expectationsforthesemarkets. Finally,thepapertakesabrieflookatothertypesoffinancialmarkets,othertypesoffinancing (PE,MicroFinance,etc.),GhanasbankruptcyCodeandCapitalControl. POLITICS: Ghana is a beacon of stability in the West African subregion. Since 1981, Ghana has enjoyedpeaceandpoliticalstabilityinaturbulentregion,andin1992thecountryusheredin theForthRepublicanconstitutionwiththeorganizationofthe1992democraticelection.The countrys multiparty democracy, which began in the early 1990s, is well entrenched. The National Democratic Congress (NDC), the ruling party and the New Patriotic Party (NPP) dominate the political scene. The NDC took over power from the NPP in the 2008 elections after losing power in the 2000 elections. The December 2008 elections, the countrys fourth presidential and parliamentary elections under the Fourth Republican Constitution saw a smooth transition from one government to another. Analyst of Ghana see limited risk of
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politicalsocialdisorderimpactingtheeconomy.Giventheeconomicaccomplishmentsinrecent years and the countrys reliance on donor support, little institutional or economic change is anticipatednomatterwhichpartyisinpower. ECONOMICS: On the economic front, Ghana has done really well compared to other developing economiesandthecountryhasenjoyedmacroeconomicstabilityforoveradecade.Foranet oilimportingcountry,Ghanahasliveduptoitsstandardandperformedparticularlywellover thepasttwoyears.GDPisestimatedtohavegrownby6%in2006,reflectingmainlyarecord yearforcocoaproductionandhighinternationalpricesforgold.In2007,despitesevereenergy shortagesandhighinternationalcrudeoilprices,theeconomymaintainedasolidgrowthrate of 6.2%. Ghanas firm growth of above 5% over the past two decades is well above Africas average and has resulted in one of the fastest rates of poverty reduction in Africa. Increased government expenditure on poverty reduction activities and the implementation of coherent andcomprehensivepolicieshavereducedpovertysignificantly.ResultsfromtheGhanaLiving StandardsSurvey(GLSS5)publishedinApril2007showadownwardtrendinpovertyfrom51% in the 1990s to 28.5% in 2005/06. Poverty related expenditures increased from GHc233.9 millionin2002toGDc1237.5millionin2006,representing21.7%and35%respectivelyoftotal governmentexpenditure. Significant expenditures have also been made by the government to improve the generation, transmission and distribution of electricity. A number of short, medium and long term interventions targeted at resolving the energy crises that besieged the country in the latter part of 2006 and 2007 were pursued in 2007. Significant among them is the successful negotiation of the US$622 million loan for the construction of the Bui Dam and Bui City. The investmentisthesecondlargestsingleinvestmentinthehistoryofthecountryafterAkosombo Dam and one of Africas largest hydropower projects. It also includes construction of 100km transmissionlines. Another unparalleled achievementis the successful entryof Ghana into the Eurobond market.Thegovernmentlisteda10yearEurobondontheLondonStockExchangeinSeptember 2007. The bond, which was scheduled to raise US$750 million, booked almost US$3 billion a clear demonstration of investors confidence in the economy. About 40% of the bond was placed with US investors, 36% with UK investors, with the remainder going to the rest of Europe.
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AlthoughGhanaseconomyhavebeenabletowithstandtheglobaleconomicslideand increase in food and energy prices, if the surge in global economic crisis dont recede in the shortterm,itcanwipeawaytheeconomicgainsthatGhanahasmadethepastdecade.Abig chunk of Ghanas GDP comes from remittances from Ghanaians abroad and this has slowed downsignificantlyduetotheglobaleconomicchallenges.Already,thegovernmentspolicyto reduceinflationtosingledigitsisnotachievablesinceinflationisontheupwardswingdueto increasegovernmentspendingonfoodandenergy. Withthecountrypoisedforacceleratedgrowth,amassiveinfusionofcapitalisrequired to undertake the necessary infrastructure to facilitate such growth. The discovery of oil in commerciallysignificantquantitiescouldthereforenothavecomeatamoreopportunetime. Productionofoilisexpectedtocomeonlinein2010andrepresentsafurtherspurtogrowth levels. History: Ghana was the first port of call in subSaharan Africa when the Europeans arrived to tradefirstingold,laterinslaves.ItwasalsothefirstblackAfricannationinthesubSahara Africa to achieve independence from Britain on March 6, 1957. The modern country Ghana wasformedfromthemergeroftheBritishcolonyoftheGoldCoastandtheBritishTogoland trustterritory(UNprotectorate). Population: According to the 2008 UN estimate, Ghanas population stands at 23.9 million (UN, 2008).TheethniccompositionofGhanaareAkans45.3%,MoleDagbon15.2%,Ewe11.7%,Ga Dangme7.3%,Guan4%,Gurma3.6%,Grusi2.6%,MandeBusanga1%,othertribes1.4%,and other7.8%(Ghana2000census). ThebreakdownofthelanguagesspokenbythepopulationareAsante14.8%,Ewe12.7%,Fante 9.9%,Bron(Brong)4.6%,Dagomba4.3%,Dangme4.3%,Dagarte(Dagaba)3.7%,Akyem3.4%, Ga 3.4%, Akuapem 2.9%, other 36.1% (includes English the official language) (Ghana 2000 census). And lastly, the religious makeup of the population are Christian 68.8% (Pentecostal/Charismatic24.1%,Protestant18.6%,Catholic15.1%,other11%),Muslim15.9%, traditional8.5%,other0.7%,none6.1%(Ghana2000census).
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ImportantIndustries: ThemostimportantindustriesforGhanaareAgriculturewhichemploysabout60%of the population followed by Cocoa, Gold, timber, tuna, bauxite, aluminum, manganese ore, diamonds,lightmanufacturing,andfoodprocessing. Withthediscoveryofoilincommercialquantitiesandwithproductionstartinginlate 2010,oilandgaswillbecomeamajorandimportantindustrywithintheGhanaianeconomy. Agriculture accounts for about 50% of GDP (including fishing and forestry); the major cash crop is cocoa; other principal crops are rice, coffee, cassava, peanuts, corn,Shea nuts, andtimber;Ghanaisnormallyselfsufficientinfood. Thedistributionsoflaborforcebyindustryare:agriculture60%,industry15%,andservices25% (2005BoGest.) MacroeconomicData:

BelowisthecomprehensivemacroeconomicdataforGhanafrom2002to2011bycourtesyof BMI.Also,seethemacroeconomicdataspreadsheetforGhanaseconomicactivityfromBMI andIMFIFSsystemsformoremacroeconomicdata.

GhanaMacro EconomicDataQ22009 Population,mn[5] NominalGDP,US$bn[6] GDPpercapita,US$[6] RealGDPgrowth,%changeyoy[7] GHSnominalgrowth,%changeyoy[7] Inflationrate,% Unemploymentrate,% Budgetbalance,GHSbn[7] 2002 2003 2004 20.8 21.2 21.7 6.2 7.5 8.8 297 352 407 4.5 5.2 5.6 n/a n/a n/a 38.00 23.00 22.00 18.00 17.10 18.23 0.3 0.4 0.2 2005 22.1 10.7 483 5.9 n/a 20.00 20.30 0.6 2006 23.00 12.90 557 6.4 21.70 18.00 18.95 0.4 2007 23.50 14.63 623 6.2 18.00 15.00 24.37 0.7 2008 23.90 14.34 598.00 6.40 20.90 14.30 23.01 2.50 2009f 24.50 14.73 601 5.1 24.70 18.23 25.00 1.8
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2010f 25.00 22.15 886 7.4 13.00 23.40 27.09 1.9

Budgetbalance,%ofGDP[6] ConsumerPriceIndex(CPI),%yoy,ave [1,8] Consumerprices,%yoy,eop[7] 91dayTbillrate,%,eop[1] Bankrate,eop[1] ExchangerateGHS/US$,ave[9] ExchangerateGHS/US$,eop[9] ExchangerateGHS/EUR,eop[9] Centralbankpolicyrate,%[1,7] Exports,US$bn[7] Exports,%changeyoy[6] Imports,US$bn[7] Imports,%changeyoy[6] Tradebalance,US$bn[6] Currentaccount,US$bn[2,7] Currentaccount,%ofGDP[2,6] Foreignreservesexgold,US$bn[3,8] Importcover,monthsg&s[4,10]

6.2 14.8 16.9 25.1 24.5 0.84 0.87 1.06 24.5

3.3 26.7 18.7 27.2 21.5 0.89 0.91 1.23 21.5

3.1 12.6 11.8 16.6 18.5 0.91 0.9 1.23 18.5

6.2 15.1 14.8 14.9 15.5 0.91 0.91 1.08 15.5 2.8 28.73 5.35 23.70 2.50 0.77 7.21 1.75 3.20

3.5 11.0 10.5 10.0 12.5 0.92 0.92 1.22 12.5 3.73 33.0 6.75 26.30 3.03 0.81 6.30 2.09 3.00

5.1 10.7 12.8 9.0 11.5 0.93 0.95 1.39 13.5 4.19 12.6 8.07 19.50 3.88 1.88 12.60 2.24 2.70

14.90 16.50 18.10 8.50 11.00 1.08 1.26 1.77 17.00 5.97 42.30 10.47 29.70 4.50 3.04 19.39 2.00 1.90

8.6 14.9 10.0 8.0 10.0 1.43 1.60 2.03 17.00 5.69 4.7 8.95 14.5 3.26 2.04 13.19 1.96 2.1

8.0 9.0 8.0 8.0 9.5 1.52 1.45 1.96 16.00 5.52 3.0 9.26 3.50 3.74 2.39 13.99 2.57 2.7

2.00 0.3 2.7 24.3 19.91 36.03 2.70 3.20 4.30 28.01 27.44 19.78 0.70 3.00 1.60 0.20 0.30 0.32 4.30 4.04 3.56 0.54 1.35 1.63 2.40 5.10 3.60

Totalexternaldebtstock,US$mn[11] 5139.7 3993 3519 3033.3 3192.2 3586.70 4382.10 4560.1 4734.0 4 Totalexternaldebtstock,%ofGDP[12] 40.01 32.9 28.23 22.19 24.73 23.97 27.94 31.01 30.33 Totalexternaldebtstock%ofXGS[12] 59.12 48.91 53.89 55.56 62.31 59.34 55.77 59.90 63.28 Shorttermdebtasa%ofInternational 45.91 22.09 25.78 32.45 54.67 8.00 17.53 18.58 18.39 reserves[12] Shorttermforeigndebt,%oftotal[12] 18.91 14.09 21.77 20.96 35.80 5.00 8.00 8.00 10.00 Notes: [1]IMFdata19902002,BoGdata thereafter [2]Includingofficialtransfers [3]IMFdata19902006,BankofGhana thereafter [4]Forreserves,IMFdata19992006, BankofGhanathereafter Sources: [5]IMF
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[6]BankofGhana/BMIcalculation [7]BankofGhana [8]IMF/BankofGhana [9]BMI [10]IMF/BankofGhana/BMIcalculation [11]WorldBankGDF [12]WorldBankGDF/BMIcalculation TheBankingSystem: OverviewoftheBankingIndustry The banking sector in Ghana presents compelling opportunities for growth and development, fueled by key reforms to rules and regulations which have in turn,encouraged newentrantstothesectorandfuelledintensecompetitionwithintheindustry.Thedepthof importanceofthesectortotheeconomycannotbeunderestimatedin2000theAssettoGDP ratio stood at 43.6 percent and by the end of 2008, the ratio had scaled upwards to 65.6 percent. Over the same period (20002008), credit availability to the Private Sector saw a considerable expansion to 30 percent of GDP from 13 percent in 2000. Increasing banking competition has led to an extraordinary growth in branch network, (increased by 63% in the last two years) leading to growths in deposits, which increased by 41% in 2008, albeit, down fromthe45%recordedin2007. NetInterestIncomefortheindustryhasmorethandoubledoverthefiveyearsto2008 by123%,whileNetProfitfortheindustryhasincreasedbyapproximately120%overthesame period.IndustryNetProfitMarginhoweverhasremainedconstantat24.1%since2003,while industry Return on Equity (ROE) decreased from 34.8% in 2003 to 26.5% in 2007. Return on Assets(ROA)droppedfrom3.94%in2003to2.9%in2007,whichisindicativeoftheincreasing competitivenatureoftheGhanabankingindustry.

BANKINGOVERVIEW
SelectedIndicatorsoftheBankingIndustry BankBranches MarketShare(Top5banks) AssetstoGDP PrivateSectorCredit/GDP TotalCredittoGDP DepositstoGDP Dec00 65.6% 44% 19% 27% Dec06 Dec07 Dec08 391 596 639 57.4% 45% 13% 22% 30% 55.6% 56% 21% 30% 35% 51.9% 66% 30% 37% 43% BalanceSheetofBankingIndustry Dec07 Dec08 Dec07 Dec08

GHmillion

YearonYearGrowth(%)

TOTALASSETS
A.ForeignAssets B.DomesticAssets Investments i.Billls ii.Securities Advances(Net) GrossAdvances OtherAssets FixedAssets

7,796 10,692
632 7,164 1,372 470 883 3,919 4,146 442 242 4,914 1,050 667 335 233 99 6,295 353 130 4,815 955 279 806 979 9,713 1,548 993 530 5,594 5,967 507 345 6,949 1,360 906 342 372 192 8,591 548 98 6,757 1,263 446 1,113

50.4%
27.3% 52.8% 13.6% 0.8% 24.8% 67.9% 64.6% 64.3% 51.5%

37.1%
54.9% 35.6% 12.8% 111.3% 40.0% 42.7% 43.9% 14.7% 42.6%

IncomeStatementHighlights
InterestIncome InterestExpenes NetInterestIncome FeesandCommissions(Net) OtherInome OperatingIncome OperatingExpenses StaffCost otheroperatingexpenses NetOperatingIncome TotalProvision(Loanlosses,Depreciation&others) MonetaryLoss IncomeBeforeTax Tax NetIncome

Dec07 772.1 (269.5) 502.6 234.7 83.1 820.4 (461.9) (180.0) (281.9) 358.5 (114.3) 1.0 245.2 (68.3) 176.9

Dec08 1185.2 (481.5) 703.7 303.1 215.8 1,222.6 (736.3) (303.4) (432.9) 486.2 (188.1) 3.2 301.3 (74.1) 227.3

Dec07 37.5% 73.3% 23.7% 44.8% 36.0% 30.3% 32.0% 8.0% 53.8% 28.2% 78.3% 13.8% 3.2% 18.5%

Dec08 53.5% 78.7% 40.0% 29.1% 159.7% 49.0% 59.4% 68.6% 53.6% 35.6% 64.6% 22.9% 8.5% 28.5%

GHmillion

YearonYearGrowth(%)

TOTALLIABILITIESandCAPITAL
TotalDeposits TotalBorrowings ForeignLiabilities i.Shorttermborrowings ii.Longtermborrowings iii.Depositsofnonresidents DomesticLiabilities i.Shorttermborrowings ii.Longtermborrowings iii.DomesticDeposits OtherLiabilities Paidupcapital Shareholders'Funds

7,796 10,692

50.4%
45.3% 78.9% 12.6% 583.5% 52.4% 5.4% 47.4% 27.3% 19.8% 46.4% 72.4% 32.8% 32.8%

37.1%
41.4% 29.5% 35.8% 2.1% 59.7% 93.9% 36.5% 55.2% 24.6% 40.3% 32.3% 59.9% 38.1%

Theconsolidatedbalancesheetofthebankingindustryovertheyear2008expandedby 37.2% to GH10.7billion, from the GH7.8billion recorded in 2007. The continuous growth of industrytotalassetswasdrivenprincipally,bycreditexpansionsandgrowthinthenumberof banks.AsofDecember2008loansandadvancesoutstanding,stoodatGH5.6billion,a42.7% yearonyeargrowth,evenifdownonthe67.9%growthrecordedayearearlierin2007.Banks investments in government paper amounted to GH1,547.9 million in December 2008. An annualgrowthof12.8percentovertheyear,comparedtothe13.6percentgrowthrecorded inthe12monthperiodtoDecember2007. The banking systems Foreign assets rose by 54.9 per cent over the year to GH978.8 million compared to the 27.3 per cent growth recorded during the same period in 2007. The growthinthebankingindustryassetsizewasfundedmainlybydeposits,whichroseby41.4per centovertheyeartoGH6,949.0million,comparedtothe45.3percentgrowthrecordedfor year to December 2007. Growth in Total Borrowings however, slowed markedly to 29.5 per centattheendofDecember2008toGH1,360.0millioncomparedtoa78.9percentgrowthin theyeartoDecember2007.Shareholdersfundsroseby38.1percenttoGH1,112.8million
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over the year compared to 32.8 per cent growth in the corresponding period to December 2007. Theshareofdepositfundsintheoverallliabilitiesofthebankingsectorwas65percent upfromthe63percentshareoverthesameperiod.Ontheotherhand,theshareoftotal borrowingsdeclined0.8percentagepointsto12.7percentoverthesameperiod.Theshareof shareholdersfundsinoverallliabilitiesremainedat10.4percentoverthesameperiod indicatingthat10.4percentofthebankingsectorassetsarebackedbyequity. Theincreasingshareofdepositsinbanksliabilitiescoupledwiththedeclineintheshareof totalborrowingsisgoodfortheprofitabilityofthebankingindustryconsideringthatdeposits areacheapersourceoffundscomparedtoborrowing. Goingforward,banksabilitytospotandmanagehighriskandhighreturnsopportunities, effectivelycontrolcosts,andintroducerealdifferentiationinproductsandserviceswouldbe keytotheirgrowthandprofitability. StructureoftheBankingIndustry TheGhanaianbankingindustrycanbesplitinto3distinctareas.Namely:Commercial/Universal Banks,theCentralBankandRural/CommunityBanks. Banks: There are 25 registered banks in Ghana as at 2009 with the minimum capitalization expectedtototaloverGH935millionbytheendof2009.ThecentralbankBankofGhanas (BOG),newregulationrequiresbanksoperatinginthecountrytohaveastatedcapitalofnot lessthanGH60million.Fornewbanksenteringthemarket,thiswouldbeaconditionforthe issuance of an operating license. For others already established, the BOG timeline is end of 2009 for banks with majority foreign shareholding (foreign banks); and the end of 2012 for bankswithmajorityGhanaianshareholding(localbanks). BankcapitalinGhanaorshareholdersfundscomprisesstatedcapital,incomereserves, statutoryreserves,andcapitalreserves.In2003,BOGissuedadirectiverequiringallbanksto increase stated capital to GH7million (equivalent of 70billion old cedi) by the end of 2006. Thiswasatoencouragetheoperatingbanksatthetime,acquireuniversalbankinglicensesthat allowed them to undertake retail , merchant , development, and/or investment banking activities without the need to acquire separate licenses. All banks in operation at the time complied with this BOG directive before the deadline. The majority of banks raised the additionalcapitalrequiredthroughtransfersfromretainedearningsandincomesurpluses.In the process, the industrys stated capital was increased from GH29million (2003) to GH181million (2007), i.e. by morethan five times levels in 2003. A key result of compliance with this directive was that bank lending increased from GH1.055billion (2003) to
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GH2.464billion (2007), representing a 66% increase in one year. Prior to 2007, industry net loansandadvanceshadbeengrowingatasimpleaverageof32%between2003and2006.A similarresultisexpectedfromtherecentdirective. With new capital regulations set to come into force, Banking Analysts are forecasting difficulties ahead in raising the necessary capital, given current tightening global market conditions. Against this backdrop, analysts suggest some degree of market consolidation as likelyasthemorestronglycapitalizedbanksscrambleforweakerbanks. However, BOG has intimated that consolidation in the industry is not the principal objectiveofthisnewrequirement.Instead,thegoalistoinfusetheindustryandtheeconomy withhugevolumesoffreshcapital,thusmakingavailablemoreliquidityforfinancingnew,high value projects. However, it is acknowledged that such a development could very well lead to the incidence of survival of the fittest in the industry, as weaker banks get eliminated. A downside the BOG acknowledges could reduce the level of competition in the industry, and eliminatesomeofthebenefitsenjoyedbyindustrycustomerstoday.Reducedcompetitionmay alsosignaltheemergenceofanindustrylessresponsivetomarketforces. One anticipated benefit of the new capital requirement is the potential deepening of Ghanas capital markets. But this is very much dependent on the route to recapitalization chosen by the banks. We imagine that if the environment is right, banks might seek to raise some more capital through initial public offerings (IPOs), which would have the knockon benefitofbroadeningtheshareholderbaseofthebankswhilefurtherdevelopingthecorporate governance landscape. Furthermore, a more robust capital base of the industry would engender confidence in the business and investor communities, and in the general retail bankingpublic.

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CapitalasatDecember2007andminimumCapitalby2009(GH000)
Bank MBG ADB GCB NIB CAL TTB PBL FAMBL HFC UGL Fidelity BBG SCB SSB EBG Stanbic ABL ZBL Intercont ICB GTB BPI Total Ownership Ghanaian Ghanaian Ghanaian Ghanaian Ghanaian Ghanaian Ghanaian Ghanaian Ghanaian Ghanaian Ghanaian NonGhanaian NonGhanaian NonGhanaian NonGhanaian NonGhanaian NonGhanaian NonGhanaian NonGhanaian NonGhanaian NonGhanaian NonGhanaian Stated Capital 7,000 20,000 72,000 7,000 8,008 7,000 7,180 7,012 7,025 7,035 7,172 7,000 13,131 7,000 16,400 7,322 7,200 10,838 8,991 7,759 10,143 7,630 259,846 Income Surplus 21,581 38,685 69,890 16,301 7,709 5,339 1,733 1,303 446 146 (750) 49,905 41,157 27,309 7,773 10,345 47 (3,629) (2,140) (1,083) (3,947) (1,735) 286,385 Available Capital 28,581 58,685 141,890 23,301 15,717 12,339 8,913 8,315 7,471 7,181 6,423 56,905 54,288 34,309 24,173 17,667 7,247 7,209 6,851 6,676 6,196 5,894 546,231 Minimum Capital (2009) 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 25,000 60,000 60,000 60,000 60,000 60,000 60,000 60,000 60,000 60,000 60,000 60,000 935,000

[See the embedded file for complete GSE listings and historical stock prices for the listed companies]. RuralBanks Theideaofruralbankingwasconceivedsome32yearsagobytheBankofGhanawiththeaim of broadening and deepening financial intermediation in the rural areas. Together with the MinistryofFinanceajuniorleagueofbankinginstitutionstoservethespecialneedsoftherural population was established. There are currently 129 Rural banks in the country serving rural communities.TheARBApexBankLtdistheminiCentralBankregulatingtheRural/Community Banks(RCBs). FunctionsofARBApexBank: Provision of cheque clearing services removes the constraints of delays in cheque clearingthroughthebigcommercialbanks. Handling cash movement and funds management services. This ensures effective and efficientmanagementofthecashofrural/communitybanks. Developmentofnewinnovativebankingproducts.Thisistoenablemoreruraldwellers tohaveaccesstobankingproductspurposelydesignedtomeettheirneeds.
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Provision of inspection services. The provision of both onsite and offsite inspection servicesaddresstheproblemsofinadequatebookkeeping,nonobservanceofinternal controlmeasuresandlackofregularinspectionoftherural/communitybanks. Provision of Information Technology support to computerize rural/community banks operationsandensureefficienthandlingofdata/informationwhichwillresultinquality customerservice. Sourcingoffundsforonlendingtotherural/communitybanks. Trainingofstaffanddirectorsofrural/communitybanks.Thisensuresthatthestaffand the management of rural/community banks possess the requisite skills to operate professionally. FinancialPerformanceofRuralandCommunityBanks PERFOMANCE INDICATOR TOTALASSETS TOTALADVANCES TOTAL INVESTMENTS TOTALDEPOSITS PROFITBEFORE TAX PAIDUPCAPITAL NETWORTH DepositInsurance: Ghanacurrentlydoesnothaveadepositinsuranceprograminplace.Rather,thecentralbank usesCapitalAdequacyregulationstoensuretheprotectionoffundsdepositedatthebank.Till 2006, the capital adequacy program required that Banks keep 9% of their assets in primary reserves of cash lodged at the Bank of Ghana, and a further 35% in secondary reserves of Government securities and maturities. Primary reserves receive no interest, while secondary reserves receive only the going market rate. The banks pass on the costs of these regulatory constraintsontheirliquidassetsthroughhighlendingratestoconsumers(borrowers). In2006,parliamentpassedanamendmenttothebankingactthatintroducedanewlicensing structure. Namely: Class I (domestic banking in the local currency), Class II (banking or
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DECEMBER2006 GH'm 298.75 115.10 84.63 226.46 8.87 9.35 38.53

DECEMBER2007 VARIAINCE(%) GHm INCREASE/(DECREASE) 375.80 167.97 90.75 285.46 12.51 11.18 47.40 25.8 45.9 7.2 26.1 41.0 19.6 23.0

investmentbankingincurrenciesotherthanthelocalcurrency)andGeneral(acombinationof ClassIandClassIIbusiness).Italsointroducedcapitaladequacyrequirementsforthevarious classesofbanks.AbankholdingaClassIorGeneralLicenseisrequiredtomaintainatalltimes, whileinoperation,aminimumcapitaladequacyratioof10%.AbankholdingaClassIIBanking LicensemustmaintainanycapitaladequacyratiodeterminedbytheBankofGhana.Thishas resultedinatotaldropofcapitaladequacyrequirementsbyabout15%overall. But various bodies have called on the government to seriously consider a the use of Deposit Insuranceasanalternativemechanismforsatisfyingatleastapartofcapitaladequacyrules,in ordertogeneratesomereliefforthemorestrivingbankswhichwouldalsolowerlendingrates fortheconsumers.Thebiggestobstacletoimplementinganexplicitdepositinsurancescheme, apartfromthetechnicalchallengesofcreatinganewsensitiveinstitutionfromscratch,isthe obvioustheissueofmoralhazardi.e.thenotionthataninsuranceschemecouldinterferewith traditionalrestraintsandweakenincentivesforprudenceandcautiononthepartofdepositors andbanksalike.Theexacttechnicalattributesofanydepositinsuranceprogrammayinfluence whattypesofhazardsemerge. InterestSpread TheYieldCurve

StrongnearterminflationexpectationsalongsidetheMPCspolicyratedecisionsresultedina significant realignment of rates on the auction market. There was thus a rotation and subsequentinversionoftheyieldcurve2inQ32008.Thebenchmark91dayTreasurybillrate increasedmarginallyby8bpsinQ4to24.66percentafteracumulativeincreaseof13.96per centintheyearthroughQ3.The182dayTreasurybillratesimilarlyroseby14bpsinQ42008 aftercumulativelyrisingby15.24percentuptoQ3.The1yearnoteandthe2yearfixednote however remained unchanged at their endQ3 levels of 20.0 per cent and 21.0 per cent
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respectively,increasingby770bpsand820bpsintheyearthroughQ3.The1yearnoteandthe 2yearfixedratenotefollowedsimilarpatterns(770bpsand820bpsrespectively),endingat20 percentand21percentrespectivelyatend2008. As shown in the graph below, commercial lending rates generally fell over the period, very rapidly initially as competition grew keener with the new entrant of banks from Nigeria. However,a3%increaseinannualaverageinflation(20042005)causedbankstosubsequently decreasethepaceofdropintheirlendingrates. ThisslackeninginbankspaceofdrivingtheircommerciallendingratesdownisinspiteofBOG continuing its policy of lowering the prime rate in substantial amounts. A key explanation offeredbybanksisthattheindustryisstillplaguedbystructuralweaknessesthatkeepscredit riskaloft,suchastheabsenceofcreditreferencebureau.

The huge gap in 2003 of about 14% has closed considerably to 7%, in the face of increased competitionandhigherliquidity(resultingfromtheabolitionofthe15%secondaryreservesin 2006). TheCreditReportingAct2007isexpectedtoconsiderablyreducetheriskasitservestocreate alegalandregulatoryframeworkforcreditreportinginGhana.TheCreditReportingAct mandatestheBankofGhanatoestablishguidingprinciplesforthecreditreportingsystemand providesforcreditdatasubmission,management,protectionanddissemination.Itstrikesa balancebetweentheborrowersprivacyrightsandtheneedtosharecreditinformationon borrowerswithfinancialinstitutions Thetablebelowshowsthenetspreadsperbankfrom2003to2007andtheirrankings. NetSpreadsperBankandIndustry
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Banks BBG GCB SCB EBG MBG ADB SGSSB Stanbic NIB PBL CAL TTB FAMBL HFC ZBL Fidelity ABL Intercont ICB UGL GTB BPI Industry

2007 9.9% 7.7% 9.1% 8.2% 13.5% 9.6% 10.1% 9.2% 13.6% 9.9% 10.5% 16.8% 9.3% 7.0% 7.0% 0.8% 8.2% 12.2% 9.4% 12.0% 8.3% 14.7% 9.4%

R 10 19 15 18 4 11 8 14 3 9 7 1 13 20 21 22 17 5 12 6 16 2

2006 12.3% 15.0% 14.1% 11.1% 8.1% 12.6% 14.2% 8.5% 12.1% 9.0% 7.8% 15.3% 5.2% 3.0% 4.2% 13.6% 10.1% 18.5% 18.1% 11.9%

R 9 4 6 11 15 8 5 14 10 13 16 3 17 19 18 7 12 1 2

2005 12.3% 13.0% 12.2% 9.9% 12.2% 11.7% 11.8% 12.2% 17.0% 7.8% 16.6% 14.5% 8.0% 1.4% 0.6% 20.7% 12.6% 13.9% 24.1% 12.2%

R 9 7 10 15 12 14 13 11 3 17 4 5 16 19 18 2 8 6 1

2004 13.0% 14.0% 12.7% 15.1% 11.5% 15.8% 18.5% 6.7% 11.4% 8.4% 12.7% 21.3% 12.1% 0.7%

R 10 8 11 7 14 6 5 17 15 16 12 3 13 18

2003 13.2% 10.7% 16.3% 12.7% 11.6% 11.0% 17.2% 7.5% 10.6% 14.5% 13.5% 16.8% 5.7% 10.1%

R 10 14 6 11 12 13 3 16 15 7 9 5 17 18

21.2% 13.0% 25.1% 21.5% 13.6%

4 9 1 2

17.1% 13.6% 31.1% 31.0% 12.7%

4 8 1 2

BankCredit Thebalancesheetstructureofthebankingindustryhasseenacontinuousshiftinasset portfoliofrominvestmentsingovernmentpaperstoloanstotheprivatesector

Credit to Total Assets (flow) ratio has seen a gradual increase over the period with strong substitutioninfavorofloanstotheprivatesectorandlessindebtinstrumentsandsecurities. Thisdevelopmentsignalsanincreaseincreditrisk.Thecompositionofbanksloanportfolioby type of borrower shows Private enterprises accounting for 63.4 per cent in December 2008
15

downfromthe64percentin2007.Credittothehouseholdsis,however,onasteadyrise.The shareofhouseholdloansrosemarginallyto17.6percentasofDecember2008from17.5per cent for the corresponding period in 2007. Credit to the government, public enterprises and publicinstitutionsalsoedgedupto19percentoverthesameperiod(Table2). DistributionoftheannualflowofCredittothePrivateSector

Distribution of the annual credit flow remains broadbased, but continued to be skewed in favoroftheservicessectorinparticular(35.5percentin2008comparedwith31.8percentat end2007),commerceandfinance(19.1percentin2008comparedwith17.1percentatend 2007),manufacturing(10.3percentin2008comparedwith3.8percentatend2007),import trade(6.7percentin2008comparedwith2.3percentatend2007),andconstruction(4.7per centin2008comparedwith9.9percentatend2007).Theremainingsectorsrecordedvarying levelsofincreasesrangingbetween0.4and4.2percent.Theshareoftheagriculturalsector roseto4.2percentin2008from3.7percentatend2007. SupplyofCredit: InthethreemonthsendedDecember2008,thenetpercentageofbanksreportingnet tightening of credit stance for loans to both enterprises and households moved up. Cost of funds and expectation regarding tightening economic activities continued to be the most important factors cited by lenders for the tightening of credit stance. Similarly risk related to the current performance of the banks 50 largest borrowers also contributed to the net
16

tighteningofcreditstance.Competitionfromotherbankshowevercontributedtoaneteasing ofcreditstance. DemandforCredit: Overallnetdemandforloansbyenterprisesandhouseholdsdeclinedinthelastquarter of 2008 reflecting the high cost of funds and the low expectations on the economic outlook. Changesinfinancingneedsforplantandequipment,inventoriesandworkingcapital,property anddebtrestructuringwerethekeyfactorscontributingtothedeclineinnetloandemandfor enterprises. IndividualBankPerformance
Operatingassets(GH'000) Change 2007 Change(%) (GHC) 1,090,673 733,963 206 1,087,686 621,077 133 730,913 388,271 113 595,220 435,487 273 445,240 350,858 372 443,707 148,835 50 389,874 195,303 100 334,001 293,836 732 291,410 195,667 204 226,737 169,664 297 219,167 162,255 285 205,155 145,908 246 160,425 121,759 315 154,713 107,588 228 145,179 145,179 n/a 142,195 142,195 n/a 133,933 105,243 367 86,627 86,627 n/a 73,881 53,453 262 57,255 48,116 527 34,367 34,367 n/a 26,659 15,794 145 QuartileGroup 2003 1 1 1 2 2 1 1 3 2 3 3 2 4 3 n/a n/a 4 n/a 4 4 n/a 4 2007 1 1 1 1 1 1 2 2 2 2 2 3 3 3 3 3 4 4 4 4 4 4 Cross over None None None Up Up None Down Up None Up Up Down Up None n/a n/a None n/a None None n/a None 2003 2 1 3 6 8 4 5 13 7 10 11 9 14 12 n/a n/a 15 n/a 16 18 n/a 17 IndustryRanking 2007 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Change 1 1 0 2 3 2 2 5 2 0 0 3 1 2 n/a n/a 2 n/a 3 2 n/a 5

Bank BBG GCB SCB EBG MBG ADB SGSSB Stanbic NIB PBL CAL TTB FAMBL HFC ZBL FBL ABL InterCont ICB UGL GTB BPI

2003 356,710 466,609 342,642 159,733 94,382 294,872 194,572 40,165 95,743 57,073 56,912 59,248 38,666 47,125 n/a n/a 28,690 n/a 20,428 9,139 n/a 10,865

17


MarketShareAnalysis Shareofindustrytotal operatingincome Bank 2007 R 2003 R BBG 15.9% 2 17.5% 2 GCB 16.6% 1 21.6% 1 SCB 11.9% 3 15.8% 3 EBG 7.9% 4 6.5% 6 MBG 6.2% 7 3.6% 8 ADB 6.3% 6 9.2% 5 SGSSB 7.0% 5 9.9% 4 Stanbic 3.8% 9 1.3% 12 NIB 5.0% 8 3.9% 7 PBL 2.7% 12 1.7% 11 CAL 2.9% 11 2.2% 10 TTB 3.3% 10 2.5% 9 FAMBL 2.0% 13 1.1% 14 HFC 1.9% 14 1.2% 13 ZBL 1.5% 15 1.3% 23 Fidelity 0.9% 19 ABL 1.4% 16 0.7% 15 InterCont 1.2% 17 ICB 0.9% 20 0.6% 16 UGL 1.1% 18 0.4% 18 GTB 0.3% 22 1.0% 22 BPI 0.5% 21 0.6% 17 Industry AssetQuality ReturntoShareholders Returnonequity(RoE) 2007 45.8% 19.6% 39.1% 48.4% 28.0% 11.6% 20.0% 48.4% 14.5% 33.3% 24.0% 48.2% 22.4% 26.9% 1.0% 4.7% 10.1% 1.8% 14.4% 10.7% 26.5% 5.3% 26.5% R 4 12 5 2 7 15 11 1 13 6 9 3 10 8 21 19 17 20 14 16 22 18 2003 61.5% 20.9% 51.3% 45.0% 17.3% 18.5% 30.0% 16.8% 51.4% 49.1% 33.1% 46.1% 10.7% 24.5% R 1 11 3 6 13 12 8 15 2 4 7 5 18 9 DividendPayoutRatio 2007 13.8% 36.5% 73.0% 67.5% 0.0% 10.8% 90.8% 0.0% 28.9% 0.4% 28.6% 25.0% 14.8% 31.7% 0.0% 0.0% 10.5% 0.0% 0.0% 0.0% 0.0% 0.0% 37.5% R 11 5 2 3 15 12 1 15 7 14 8 9 10 6 15 15 13 15 15 15 15 15 2003 60.1% 44.2% 87.5% 40.3% 0.0% 6.3% 56.7% 0.0% 13.0% 1.5% 16.9% 45.0% 26.1% 39.6% R 2 6 1 7 14 12 3 14 11 13 10 5 9 8 Capitalstructureand financialrisk Totalassets/equity 2007 12.5 6.93 9.15 14.59 10.58 5.18 7.15 14.05 7.91 21.42 8.05 11.1 16.95 12.37 21.57 21.79 11 13.95 7.22 8.07 6.65 4.3 9.49 R 8 19 13 5 12 21 18 6 16 3 15 10 4 9 2 1 11 7 17 14 20 22 2003 9.72 10.73 9.4 11.13 9.83 6.45 6.4 5.1 7.92 20.41 8.24 13.19 15.01 5.75 R 9 7 10 6 8 14 15 17 12 2 11 4 3 16

Shareofindustryprofit Newloanlossprovision/ MarketShareofDeposits MarketShareofAdvances Loanportfolioprofitability beforetaxes grossloansandadvances 2007 21.3% 15.8% 17.6% 6.0% 6.0% 3.8% 6.3% 5.4% 2.8% 2.0% 3.2% 4.3% 1.2% 1.8% 0.4% 0.7% 0.7% 0.3% 0.0% 0.2% R 2003 R 2007 R 2003 R 2007 R 2003 R 1 24.3% 1 18.2% 1 17.7% 2 16.5% 2 17.9% 2 3 15.9% 3 15.9% 2 19.4% 1 19.2% 1 19.7% 1 2 22.0% 2 10.3% 3 17.7% 3 7.4% 4 15.9% 3 5 8.0% 5 8.3% 4 7.7% 6 7.4% 5 7.0% 6 5 2.3% 10 5.7% 5 4.9% 7 7.6% 3 4.1% 8 9 6.5% 6 4.8% 7 9.2% 4 5.8% 6 9.7% 4 4 8.5% 4 5.0% 6 7.7% 5 5.5% 7 8.4% 5 7 0.9% 13 4.7% 8 1.8% 12 5.0% 8 1.2% 14 11 3.1% 7 4.3% 9 2.1% 10 5.0% 9 4.2% 7 12 1.1% 12 3.2% 10 1.9% 11 3.0% 10 1.6% 13 10 2.4% 9 2.2% 15 2.3% 9 2.9% 11 2.5% 9 8 2.7% 8 2.7% 11 2.8% 8 2.8% 12 2.0% 11 14 0.3% 15 1.8% 16 1.3% 13 1.8% 15 1.8% 12 13 1.4% 11 1.5% 17 0.7% 17 2.6% 13 2.4% 10 20 2.5% 12 1.7% 16 2.3% 13 0.9% 19 16 0.3% 16 2.2% 14 0.9% 15 1.8% 14 0.5% 15 1.5% 18 0.9% 18 15 0.5% 14 1.1% 19 1.0% 14 0.6% 20 0.4% 16 17 0.1% 17 1.0% 20 0.5% 18 1.0% 17 0.3% 18 19 0.6% 21 0.3% 22 18 0.1% 18 0.4% 22 0.7% 16 0.3% 21 0.4% 17 2007 0.8% 1.1% 0.6% 1.2% 3.2% 4.3% 3.4% 1.1% 3.0% 1.9% 0.9% 2.1% 4.4% 1.4% 1.3% 1.3% 2.1% 3.1% 1.5% 1.4% 2.9% 2.9% 1.8% R 2 5 1 6 19 21 20 4 17 12 3 13 22 10 7 8 14 18 11 9 16 15 2003 3.1% 5.5% 0.9% 2.0% 7.3% 8.4% 7.2% 2.7% 6.3% 3.0% 3.1% 3.7% 6.8% 2.0% 1.0% R 9 11 1 3 16 18 15 6 12 7 8 10 14 2 1 2007 11.5% 9.0% 12.9% 9.4% 15.9% 9.4% 9.1% 9.8% 13.4% 14.3% 15.1% 16.6% 14.2% 12.3% 9.4% 5.4% 12.5% 11.7% 14.8% 14.6% 9.1% 15.4% 11.2% R 14 21 10 17 2 18 19 15 9 7 4 1 8 12 16 22 11 13 5 6 20 3 2003 12.3% 9.5% 17.9% 13.7% 8.9% 4.5% 12.1% 8.4% 5.5% 24.8% 20.1% 19.4% 14.8% 0.0% R 11 13 8 10 14 17 12 15 16 2 5 6 9 18

6.8% 13 2.1% 4 2.6% 5 7.5% 17 4.3%

18.0% 7 21.2% 4 32.0% 1 23.3% 3 11.9%

23.3% 10 16.9% 14 11.2% 17 11.4% 16 28.4%

0.0% 14 0.0% 14 0.0% 14 0.0% 14 51.5%

27.36 1 7 13 11.71 5 6.71 18 8.53

18

TheInsuranceIndustry Overview Ghanastotalinsurancepremiumin2007amountedto$219MMwithasplitof$147MMfrom Non Life (67% of total premium) and $72MM from Life (33% of total premium). The industry overthelastfiveyearshasexperiencedconsiderablegrowth(rangingfrom20%toover50%) with the highest growth experienced by the life sector. It must be noted however that the growthhasbeenachievedfromarelativelylowbase. YearoverYearGrowthInsurancePremium YOYGrowthReinsurance Market
70% 60% 50% 40% 30% 20% 10% 0% 2002 2003 NonLife 2004 Life 2005 2006 TotalPremium 2007

200% 0% 200%

2002

2003

2004

2005

2006

Insurancedensityandpenetration Onapercapitabasis,anaverageof$3,577wasspentoninsuranceinindustrializedcountriesin 2007; of this amount $2,143 was spent on life insurance while $1,434 was spent on nonlife insurance. Insurance penetration (measured as premium as a percentage of GDP) remained unchangedat9%.Incomparison,insurancepenetrationinGhana,likeotherpeereconomiesin theregion,remainsatthelowendwithpremiumpercapitaat$9,splitbetweenNonLifeand Lifeat$6and$3forrespectively.Thisrepresentsapenetrationrateofonly1.5%andsuggests considerableroomforfutureimprovement.
Insurance penetration: premiums in % of GDP in 2007 Total Life Non-Life Business 15.3% South Africa 12.5% 2.8% 8.1% Namibia 5.7% 2.4% 4.3% Africa 3.1% 1.2% 3.9% Botswana 2.8% 1.1% 2.5% Kenya 0.8% 1.7% 1.5% Ghana 0.5% 1.0% 0.9% Egypt 0.4% 0.4% 0.6% Nigeria 0.1% 0.5% Insurance density: premiums per capita in USD in 2007 Total Non-Life Life Business 875.5 South Africa 159.5 719.0 289.6 Namibia 86.0 203.5 55.3 Africa 15.8 39.6 221.1 Botswana 60.1 162.0 19.2 Kenya 13.1 6.1 9.3 Ghana 6.3 3.0 14.4 Egypt 7.6 6.8 5.5 Nigeria 4.6 0.9

NonLife(Reinsurance)

Structure GhanasindustryisregulatedandsupervisedbytheNationalInsuranceCommission.Bythe endof2008,theindustrywasmadeof 18NonLifeInsurancecompanies; 16LifeInsurancecompanies; 2ReinsuranceCompanies; 36InsuranceBrokingcompanies; Onereinsurancebrokingcompany;and Onelossadjustingcompany. InsurancecompaniesarealsoallowedtouseReinsurancecompaniesoutsideGhanain2007 reinsurancepremiumpaidtooverseascompanieswasabout$5Million. Regulation In1989,PNDCLaw227waspassed,settinguptheNationalInsuranceCommission(NIC)asthe independent regulator. The Commission is the regulatory body responsible for supervising, regulating, monitoring and control of insurance to protect insurance policy holders and the insurance industry. In 2006 a new insurance act (Act 724), replaced PNDC Law 227. The aim was to create a law that complied with the regulatory standards of the International AssociationofInsuranceSupervisors(IAIS). InsuranceAct2006LiberalizingtheInsuranceIndustry: The new Act brought along the following modifications and new regulations, aimed at liberalizingandstrengtheningthesector: 1. RemovalofmonopolyenjoyedbythestateownedinsurancecompanyStateInsurance CompanyLtdtoinsureallgovernmentbusiness; 2. TerminationofcompulsorypaymentstoGhanaReinsuranceCompanyLtd(GhanaRe)by allinsurancecompanies(effective1stJanuary,2009) 3. Complete removal of investment restrictions previously 75% of non life investments was to be in government bills and 25% in other securities approved by the NIC; Life investments was supposed to be 50% in Government bills and 50% in NIC approved securities 4. RemovalofminimumGhanaianshareholdingofatleast40%insurancecompaniescan be100%foreignowned 5. Separation of general business from life business. This is to give the life sector the capitalization,managerialandmarketingexpertiseneededtogrow. 6. Strengthening reporting requirements by establishing quarterly and annual returns to NIC 7. Minimumcapitalbaseforoperatinggeneralbusinessandlifebusinesssetat$1Meach, Reinsuranceissetat$2.5Mandbrokeragesetat$25K.NICalsohastherighttorequest theinjectionofadditionalcapitalifthebusinessrequiresit.
20

8. Whistle blowing provision auditors and actuaries to report to the NIC any contraventionsoftheACT 9. Compulsorylifeandalliedperilsinsuranceforcommercialbuildingsunderconstruction andexistingcommercialbuildings Performance GrossPremiumIncomeAnalysis %of Premi um %of Premi um 38% 16% 8% 14% %of Premi um 40% 14% 8% 13% %of Premi um 36% 14% 6% 14% %of Premi um 33% 18% 5% 12%

USD Motor

2003

2004

2005 53,88 4,152 19,57 2,466 10,28 0,170 16,90 0,681 100,6 37,46 8 34,53 2,535 135,1 70,00 3

2006 66,90 1,524 25,25 5,825 11,04 7,377 26,52 0,175 129,7 24,90 1 56,15 7,724 185,8 82,62 5

2007 71,71 3,279 39,37 6,018 10,34 2,710 25,58 7,174 147,0 19,18 1 71,59 6,914 218,6 16,09 5

33,50 39,92 40% 6,927 0,171 Accide 14,08 16,77 17% nt 3,905 6,717 6,458 8,201, Marine 8% ,150 867 12,77 14,09 fire 15% 0,801 3,713 Total 66,81 78,99 Non 80% 9,782 2,469 Life Life/He 16,58 25,07 20% alth 2,473 0,987 Total 104,0 83,40 Premiu 100% 63,45 2,255 m 6 ReinsuranceGrossPremiumAnalysis %of Premiu m 99%

76%

74%

70%

67%

24%

26%

30%

33%

100%

100%

100%

100%

USD NonLife

2003 22,47 3,361

2004 24,113 ,437

%of Premiu m 97%

2005 26,554 ,086

%of Premiu m 98%

2006 36,243 ,783

%of Premiu m 98%

2007 39,896 ,809

%of Premiu m 99%

21

Life Total Reinsura nce

323,2 55 22,79 6,615

1%

100%

626,12 1 24,739 ,559

3%

100%

506,46 2 27,060 ,548

2%

100%

928,44 4 37,172 ,226

2%

100%

562,61 9 40,459 ,428

1%

100%

ProfitabilityandFinancialStrength Theindustryisquiteprofitableclaimsandexpensetogetheraccountforroughly55%ofthe premium,leaving45%ofthepremiumasexcessfunds.Inadditiontothistheyhaveinvestment incomeaveraging10%oftheindustriespremiumasadditionalincome. FiguresBasedonIndustryAverage

40% 20% 0% 20% 40% 60% 80%
34% 34% 36% 36% 32% 13% 18% 9% 20% 9% 23% 9% 20% 10% 22%

2003

2004

2005

20062007

InvestmentIncome/Premium ClaimsRatio/Premium EpenseRatio/Premium

TheCentralBankanditsroleintheEconomy: THEROLEofTHEBANKOFGHANA (http://www.bog.gov.gh/index1.php?linkid=270#597) UndertheBankofGhanaAct(Act612),thegoverningbodyoftheBankistheBoardof Directors.TheBoardconsistsoftheGovernorasChairman,theFirstandSecondDeputy Governors,andnineDirectors,where,oneofthenineDirectorsisarepresentativeofthe MinistryofFinanceandEconomicPlanning.TheBoardofDirectorsisappointedbythe PresidentofGhanainconsultationwiththeCouncilofState.AllthemembersoftheBoard, otherthantheGovernorandhistwodeputies,holdofficeforathreeyearperiod,butare eligibleforreappointment. TheresponsibilitiesoftheBoardasprovidedbytheActinvolvesformulatingpoliciesnecessary fortheachievementofstabilityingenerallevelofprices,aswellaseffectiveandefficient
22

bankingandcreditsystemsinthecountry.TheActalsoestablishedaMonetaryPolicy Committee(MPC)oftheBankwiththefollowingresponsibilities: i. ii. Initiatingproposalsfortheformulationofmonetarypoliciesofthebank;and Providing the statistical data and advice necessary for the formulation of monetary policy.

MembershipoftheMPCcomprisestheGovernorandthetwodeputies,theheadsofMonetary Policy Analysis and Banking departments and two appointees of the Ministry of Finance and Economic Planning. TheActalsoprovidesfortheappointmentofcommitteesthatarenecessaryforthepurposeof advising the Board. Accordingly, the Board has appointed five committees namely, Human Resource, Corporate Governance, Economy and Research, Strategic Planning and Budget and Audit. PRIMARYOBJECTIVESOFTHECENTRALBANK (http://www.bog.gov.gh/privatecontent/File/Secretarys/bogact.pdf) TheBankhasthedualroleof: 1. Maintainingpricestability; 2. Supporting the general economic policy of the Government and promoting economic growth and the effective and efficient operation of banking and credit systems in the country,independentofinstructionsfromtheGovernmentoranyotherauthority. KEYFUNCTIONSOFTHEBANK Thekeyfunctionsofbankinclude: a. Formulatingandimplementingmonetarypolicyaimedatachievingtheobjectivesofthe Bank; b. Promotingbymonetarymeasures,stabilizationofthevalueofthecurrencywithinand outsideGhana; c. Institutingmeasureswhicharelikelytohavefavourableeffectsonthebalanceof payments,thestateofpublicfinancesandthegeneraldevelopmentofthenational economy; d. Regulating,supervisinganddirectingthebankingandcreditsystemstoensurethe smoothoperationofthefinancialsector; e. Promoting,regulatingandsupervisingthepaymentandsettlementsystems;
23

f. Issuingandredeemingthecurrencynotesandcoins; g. EnsuringtheeffectivemaintenanceandmanagementofGhana'sexternalfinancial services; h. Licensing,regulating,promotingandsupervisingnonbankingfinancialinstitutions; i. ActasthebankerandfinancialadvisertotheGovernment; j. Promotingandmaintainingrelationswithinternationalbankingandfinancial institutionsandsubjecttotheConstitutionoranyotherrelevantenactment, implementinginternationalmonetaryagreementstowhichGhanaisaparty;and k. Doingallotherthingsthatareincidentalorconducivetotheefficientperformanceofits functionsunderthisActandanyotherenactment. RoleoftheMonetaryPolicyCommittee(MPC) TheMPCisresponsiblefor: a. Initiatingproposalsfortheformulationofthemonetarypoliciesofthebank;and b. Providingthestatisticaldataandadvicenecessaryfortheformulationofmonetary policies. Since2007,inflationtargetinghasbecomeakeyobjectiveoftheBankandlikewise,thatofthe MPC. Under Bank of Ghana Act 2002, the Bank became one of the growing numbers of statutorilyindependentcentralbanksintheworld,allowingtheBankofGhanatoadoptatrend towardsgreaterclarity,transparencyandspecificityincommunicationwiththepublic. Globally, transparency and communication with the public regarding information relevant for thepolicymakingprocess,hasbecomethenewparadigminthepracticeofmonetarypolicy. Withthisinmind,theMPCrecognizesmonetarypolicytobemoreeffectivewhenprovidedto the public with guidance on its objectives, activities and outlook. Accordingly, there are in place, practices that have come to place the new monetary policy framework highly on the transparency scale, even though the MPC does not publish minutes of it meetings. However, five volumes of statistical releases containing enough information to make policy understandable to those outside the policy process are made to the public after each policy meeting. TheTablebelowshowsGhanaincomparisontoselectedadvancedeconomieswithrespectto themostwidelyacceptedissuesofmonetarypolicytransparency.

24

 ExchangeRatePolicy (http://www.imf.org/external/np/mfd/er/2006/eng/0706.htm) TheBoardoftheBank,inconsultationwiththeMinister,formulateexchangeratepolicy. GhanaoperatesaManagedfloatingregimewithnopredeterminedpathfortheexchangerate butanchoredbyamonetarypolicyframeworkbasedoninflationtargeting.TheBankattempts toinfluencetheexchangeratewithouthavingaspecificexchangeratepathortarget. Indicatorsformanagingtheratearebroadlyjudgmental(e.g.,balanceofpaymentsposition, internationalreserves,parallelmarketdevelopments),andadjustmentsmaynotbeautomatic. Interventionmaybedirectorindirect.TheBankalsousesitsinstrumentstoachieveatarget growthrateforamonetaryaggregate,suchasreservemoney,M1,orM2,andthetargeted aggregatethenbecomesthenominalanchororintermediatetargetofmonetarypolicy.
25

 THEGOVERNMENTBONDMARKET: GovernmentSecurities Thebondmarketisnascent,andtherehasbeenaconsciouseffortonthepartoftheBankof Ghana (BoG) and Ministry of Finance and Economic Planning (MoFEP) to effect a change by promotingbondmarketdevelopment.Thegovernmentisthemainissuerofdebtsecurities.As ofMarch2009,totaloutstandinggovernmentsecuritiesstoodatGHS3,440mn(USD2,529mn) comprising mostly of short term bills, and to a smaller extent notes and longer term bonds. Bondslistedonthelocalexchangecompriseoflongerdatedgovernmentsecurities(maturities of two years and above) and a few corporate bonds (including issues under HFC Bank shelf registrationprogramandStandardCharteredBankMTNProgramme).Thelegalframeworkof thecapitalmarketsisdefinedbytheSecuritiesIndustryLawof1993(amendedin2000)andthe Securities and Exchange Commission (SEC) Regulations (2003). The SEC acts as the primary regulator of capital market activities in Ghana. The Ghana Stock Exchange (GSE) has its own separateregulationsthatgovernadmissionstolistingsecuritiesonthestockexchange. GhanaSovereignRating LongTerm LocalCurrency ForeignCurrency Fitch B+ B+ S&P B+ B+ TheBankofGhanaholdsweeklyauctionsonFridaysforthesaleofBoGtreasurybillsandbonds to 17 primary dealers, known as Government Securities Dealers. There is no set issuance calendar for the longerterm treasury bonds. Issuance of treasury bills is via a multiple price auctionwhiletreasurybondsareissuedviaauniformpriceauction. ThefollowingBoGsecuritiesareissuedinthedebtmarket: Treasurybills(91,182day) 1yearnote 2yearfixedrate 2yearfloatingrate 3yearfixedrate 3yearfloatingrate 5yearfixedrate(Since2007)

26

Breakdown of Outstanding Government Securities' Maturities

Bills (91, 182 days) Notes (1-2 yrs) Bonds (2+ yrs)

28% 61% 11%

Themarkethasbeenveryilliquid,withmajoractivityoccurringinmoneymarketinstruments. Theinterestrateonthe2yearfloatingratenoteistiedtothe91dayTbillrate,whilethe3 yearfloatingnoteisissuedataspreadoverthe182dayTbillrate.Thesenotesareanoffshoot oftheGovernmentofGhanaIndexLinkedBonds(GGILBs)thatwereintroducedin2001aspart oftheaimtoconvertshorttermliabilitiesintolongertermobligations.TheGGILBsarebeing phasedoutbythenew2and3yearfixedandfloatingratenotes.The5yearbondwasissued forthefirsttimeinDecember2006,andisthegovernmentslongestdatedsecurity. InterestRateTermStructure Overnight 21.5% 91day 25.7% 182day 28.0% 1year 21.0% 2years 21.0% 3years n/a 5years n/a ThisissuanceispartoftheGovernmentsplantoextendtheyieldcurvetoprovidelongerdated securities in the market. As inflation declined through 2005/2007, interest rates on treasury securities fell significantly to match inflation expectations. There was a significant decline in yields on 2 and 3year bonds when the BoG cut its prime rate by 200 basis points to 12.5 percent at the end of 2006. However, much of that progress has been eroded with inflation graduallycreepingbackupandprimerateincreasingto18.5%and91dayTbillratesat25%by theendofthefirstquarterof2009.Furthermore,demandforgovernmentsecuritieshavebeen limitedtotheshortendoftheyieldcurveduetohighinflationexpectations.
27

 GovernmentBondsOutstanding(Q1'09) IssueDate 21Jul08 21Jul08 11Sep06 5May08 17Dec07 21Dec06 29Jan07 10Mar08 17Dec07 19Mar07 18Jun07 2Apr07 6Aug07 14May07 11Jun07 Maturity 20Jul09 19Jul10 7Sep09 2May11 10Dec12 15Dec11 25Jan10 7Mar11 13Dec10 15Mar10 11Jun12 29Mar10 2Aug10 10May10 7Jun10 Coupon 18.00 17.50 16.00 16.00 15.00 14.47 14.00 14.00 13.95 13.69 13.67 13.50 13.00 12.39 12.08 Amount Outstanding(GHS) Tenor(years) 1,738,033.00 1 2,513,365.00 2 67,000,000.00 3 53,287,000.00 3 50,730,000.00 5 75,600,000.00 5 24,172,400.00 3 64,502,000.00 3 35,450,000.00 3 71,000,000.00 3 142,300,000.00 5 72,800,000.00 3 101,000,000.00 3 107,800,000.00 3 100,000,000.00 3 969,892,798.00

NonCentralGovernmentIssuance: CorporatebondissuanceinGhana gainedgroundin2005/2006when therewasafull yieldcurve,lowinflationandgeneraloptimismabouttheoutlookfortheeconomy.However, issuersstillremainlimitedinnumberandthereislittletonosecondarymarketactivity.Thishas dampenedthesentimentssurroundingcorporatebondissuance;therehasbeennoactivityin thatspacesince2007.Thegovernmentiscurrentlyworkingonanamendmentoftheexisting Actthatrestrictsborrowingsbymunicipalities;uponconclusion,municipalbondsarescheduled to be launched in the near future to create access to cheaper and longterm funding for municipalauthorities.Belowisalistofcurrentcorporatebondsinissue AMOUNT ISSUER ISSUEDATE INDUSTRY ('mln) TENOR COUPON BarclaysBankofGhana 2006 Banking GHS10 10 14% Standard Chartered Bank Ghana 2005 Banking GHS3.5 3 TB+2%
28

Standard Chartered Bank Ghana 2005 HomeFinanceCompanyLtd 2004

Banking Mortgage

GHS9.15 USD2.5

undated TB+3% 5 5%

In October 2006, the African Development Bank (AfDB) became the first supranational borrower to issue a bond denominated in Ghanaian Cedis. This twoyear bond, worth USD 45mn (equivalent of GHS 42mn) linked to the Ghanaian Cedi. On the back of strong foreign investordemand,theAfDBwasabletoupsizetheissueby50%. TheAfDBisalsointheprocessofissuingcedidenominatedbondsinthelocalmarket,withthe aim of providing longterm local currency financing to support development projects through directprojectlendingorlinesofcreditstofinancialinstitutionsandsimultaneouslydeepening thebondmarketinGhana. SecondaryMarket: Secondary market trading of government securities used to take place only overthe counter through a network of primary dealers. However, in 2006, the Government, aware of theshortcomingsofanilliquidbondmarket,listedalloutstanding2and3yearBoGbondson theGSE,bothfloatingandfixedrateissues. The new 5year bond was also listed on the Exchange, all in a bid to enhance the secondary tradingofthesebonds,toensureliquidity.Thishasbeenviewedasapositivedevelopmentin themarket,especiallysincetheaimoftheGovernmentistoprovidebenchmarksecuritiesfor corporate issuers, and promote a deepening of the market. The listing would also provide enhanced access for investors to bid for securities, rather than submitting a bid through a licensed dealer. Workshops and seminars have been held by authorities geared towards equippingallauthorizedprimarydealersandLicensedDealingMembersoftheExchangewith bondmarketfundamentalsuchasbondpricing,issuancedynamicsandtrading. ClearingandSettlement: Clearing and settlement is still largely done by manual processes. The government is taking steps to introduce a Real Time Gross Settlement (RTGS) system. A central depository systemhasbeenimplementedforgovernmentsecuritiesandwillsoonbeextendedtocoverall securities listed on the Ghana Stock Exchange after an appropriate enabling law is passed. Settlement of government securities is at T+1 and through central bank clearing. GSElisted stocksaresettledmanuallyatT+3.
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GhanaStockMarket: CapitalmarketsaredevelopingquicklyinGhanaandareregulatedbytheGhanaStock Exchange (GSE) which started operations in 1990. As of March 2009, the GSE had 31 listed companies,withamarketcapitalizationofapproximatelyGHS14.54bln(USD10.6bn).TheGSE setstherulesandregulationsforcompaniesandotherentitiesseekingtobepubliclylistedon the GSE. The GSE is governed by a Council (Board of Directors) with representation from licenseddealingmembers,listedcompanies,banks,insurancecompaniesandotherpersonsof the Ghanaian finance and public service sectors. The All share Index of the Ghana Stock Exchangehasgrownata10yearcompoundedannualgrowthrateof30.6%whilethe10year averageannualreturnis37%.Themanufacturing,breweryandbankingsectorsdominatethe exchange.Themarketcurrentlyhas31listedcompanieswithtotalcapitalizationofGHC14.5bln or105%ofGDP.Thetop10firmsbycapitalizationrepresent95%oftotalmarketcap.Thetop3 firmsrepresent81%oftotalmarketcap.Itisimportanttonotethatthetwolargestlistingsare multinationalcorporationssimultaneouslylistedinotherstockmarkets,hencetheirrelatively largecapitalizationcomparedtotheotherlistedcompanies.In2008,546millionsharesworth GHC381mlntradedontheexchange,anincreaseof90%and170%respectivelyover2007.

GSE All Share Index Returns

160% 140% 120% 100% 80% 60% 40% 20% 0% -20% -40% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Q1'09

The exchange enjoyed a sharp bull run from 20022004; this was attributed to significant macroeconomic advancements during that period. However, it was followed by a selloff in 2005/2006 and the overvaluation that resulted from that period has systematically corrected over the past four years. Liquidity in the market is relatively low; many of the smaller stocks rarelytrade.Forinstance,sevenofthe31listedcompanieshavehadnotradingactivityintheir

30

shares since the start of 2009. Trading activity is concentrated in the top 12 14 stocks by capitalization. Clearing and settlement was done manually until December 2008. The exchange launched its automatedtradingplatforminJanuary2009andalsoestablishedacentralsecuritiesdepository foruniformclearing;however,settlementisstillatT+3.Holdingsinthemarketarestillmostly localandconcentratedamongstindividualandretailinvestors.Thereisincreasingpresenceof indigenous institutional investors on the exchange as the nascent mutual fund industry picks up. Regionalintegrationinitiatives: The three stock exchanges in the West Africanregion; The Nigerian Stock Exchange, The GhanaStockExchangeandtheBRVMinCoteDivoireareinanongoingharmonizationtalksto establishuniformrules,regulationsandoperationalprocedures.Theaimistoallowfreeaccess toinvestorsandissuersacrossthethreemarkets. Inaddition,theGSEhassignedMemorandaofUnderstandingwiththeKenyanStockExchange andtheNigerianStockExchangeforcrossborderlistingofsecuritiesquotedontheirmarkets. The first success was the simultaneous listing of Ecobank Transnational Incorporated on the NigerianStockExchange,theGhanaStockExchangeandtheBVRMinCotedVoire. ForeignParticipation: Current regulations allow foreigners to invest in securities listed on the Ghana Stock Exchangewithoutexchangecontrolrestrictions.InDecember2006,thenewForeignExchange Act 2006 (Act 723) came into effect, allowing nonresidents and foreign investors to bid for securitiesissuedbytheGovernmentofGhana.Foreigninvestorsandnonresidentsareallowed toinvestincapitalmarketinstrumentsofatenorofthreeyearsormore. Therearesomerestrictionsonportfolioinvestmentsbyforeignersandnonresidents.Asingle investor(institutionorindividual)maynotownmorethan10%equityinanylistedcompany. Furthermore, listed companies may not exceed 74% cumulative foreign ownership (Ashanti Goldfieldsisexemptfromthislaw).Therearenoregulatorycontrolsofremittanceoforiginal investment capital, capital gains, dividends, interest, and other related earnings. To facilitate this, nonresidents are also allowed to maintain foreign currency accounts with local banks, whichcanbecreditedwithtransfersinforeigncurrencyfromabroadorotherforeigncurrency accounts.ThisdevelopmentresultedinastrongforeigninvestorparticipationlevelintheBoGs new 5year bond issue in January 2007. Furthermore, the capital account was partially
31

liberalizedinDecember2006asaresultofthepassingofthenewForeignExchangeBill.The approval of the central bank is no longer required to repatriate funds out of the country, althoughitstillneedstobenotifiedofsuchactions. Companieslisted Average Shares Bloomberg MKT CAP % of daily Name Outstandin Ticker (GHS'mln) Total trading g(mln) Volume 51.08 AngloGoldAshanti AGAGN 263.64 7,404.38 % n/a 25.31 1,233,00 ETI ETIGN 8,733.44 3,668.04 % 0 GoldenStarResources GSRGN 235.43 729.83 5.04% n/a Standard Chartered Bank Ghana SCBGN 17.60 668.80 4.61% 41,974 EcobankGhana EBGGN 152.95 481.79 3.32% 38,605 GuinnessGhanaBreweries GGBLGN 164.67 296.41 2.04% 54,828 UnileverGhana UNILGN 62.50 218.75 1.51% 140,140 SGSSB SGSSBGN 142.50 162.45 1.12% 39,325 Producebuyingcoltd PBCGN 480.00 100.80 0.70% 41,920 FanMilkLtd FMLGN 19.79 75.18 0.52% 76,090 GhanaCommercialBankltd GCBGN 165.00 74.25 0.51% 107,994 SICInsuranceCoLtd SICGN 195.65 68.45 0.47% 442,719 EnterpriseInsuranceColtd EIC GN 25.57 68.01 0.47% 23,312 GhanaOilCo GOILGN 210.19 63.06 0.44% 160,770 HFCBankGhana HFCGN 100.16 62.10 0.43% 64,609 2,368,00 CALBankLTD CALGN 155.09 52.73 0.36% 0 CocoaProcessingCoLtd CPCGN 861.48 43.07 0.30% 64,852 TrustBankLtdGambia TBLGN 30.00 39.90 0.28% n/a TotalPetroleumGhana TOTALGN 4.73 35.91 0.25% 1,007 PZCussonsGhana PZGN 28.00 33.60 0.23% 3,028 BensoOilPalmPlantation BOPPGN 34.80 30.62 0.21% 50,916 AyrtonDrugmnuf. AYRTNGN 180.00 28.80 0.20% 85,103 AccraBreweriesLTD ABLGN 249.45 28.69 0.20% n/a AluworksGhana ALWGN 41.68 22.92 0.16% 391,612 MechanicalLloydCoLtd MLCGN 50.10 10.52 0.07% n/a
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CFAOGhana TransactionsSolutionsGhana ClydestoneGhana SuperPaperProducts StarwinProducts PioneerKitchenware TOTAL

CFAOGN TRANSOL GN CLYDGN SPPCGN SPLGN PKLGN

224.00 80.00 34.00 19.44 37.38 16.50 13,015.71

8.96 0.06% 8.80 2.72 1.94 1.87 1.16 0.06% 0.02% 0.01% 0.01% 0.01%

92,148 750 n/a 16,855 23,340 n/a 179,448

14,494.51 100%

15yearTrendintheGSEAllShareIndexlevel
12,000 10,000 8,000 6,000 4,000 2,000

12MonthTrendinGSEAllShareIndexLevel

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12,000 10,000 8,000 6,000 4,000 2,000

InvestmentTaxation: Awithholdingtaxrateof10%isapplicabletointerestincome.Dividendsaresubjecttoa withholdingandfinaltaxof8%.Atemporaryexemptiononcapitalgainsonsecuritieslistedon the Ghana Stock Exchange is also in force, which is expected to last until 2015. Ghana has double tax treaties with the United Kingdom, France, South Africa and Italy. Other tax obligationsinclude:corporatetaxat25%,taxondividendsat7.5%,capitalgainstaxat10%and VATat15%(notleviedonnonGhanaianinvestors). Venture capital companies receive a 5year tax holiday. Financial institutions investing in venture capital subsidiaries may deduct 100% of their equity investment from their taxable incomefortheyearofinvestment. Derivatives: Ghana does not have a fixed income derivatives market. Enhanced liquidity in the foreign exchangemarketcouldleadtoagrowthinforeignexchangederivativeinstrumentsinthenear term.
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 OthertypesofFinancing: Thetablebelowshowsthevarioustypesofnonbankingfinancialinstitutionsallowedto operateinthecountry LICENCE CORELINESOFBUSINESS 1. DiscountHouse 2. Tradinginshortdatedfinancialsecuritiesintermediationbetween banks,commerceandindustryforcalldepositstoinvestinshortdated financialsecurities. LeasingandHire Financingtheacquisitionofequipment,vehiclesandconsumer Purchase durable,etc.throughfinanceleaseand/orhirepurchase Companies Savingsand Deposittakingandlendingtoindividuals,groups,businessenterprises, LoansCompanies consumercreditandhirepurchasefinancing. Mortgages Lendingfundsforresidentialandcommercialpropertyacquisition,up Finance gradingofexistingpropertyandtakingamortgageontheproperty Companies financed.DealinginSecuritiescollateralizedbysuchmortgages. BuildingSocieties Mobilizingfundsfrommembersforthepurposeofassistingmembers toacquireresidentialpropertiesandland.Loansextendedaresecured byMortgagesontheproperty. Acceptance Financialinstitutionswhichspecializeinacceptingbillsdrawnonthem Houses undercreditestablishedinfavororapprovedcustomers.The substantialpartofthebusinessofthesehousesshouldconsistof acceptingbillstofinancethetradeofothers.Asacceptors,these houseshavetohonorandpaythebillsdrawnatmaturity.Basically theyshouldbecompaniesmainlyengagedintradebillsandoperating inthemoneymarkettosupplementthediscounthousesandbanksin theshorttermmarket. Finance Provideconsumercredit,businessfinanceandsubscribingtoshort Companies termsecurities. Financialcooperativesformedtomobilizesavingsfromandlendtoits ownmembers. PEandVCcompanieshavesprungupintheWestAfricasubregion andtheyinvestequitycapitalinprivatecompaniesandstartups.PEs andVCsprovidelongtermfinancingneedswhichthefinancial institutionsarenotwillingtoprovideforcompanies.Majorityoftheir financinghasbeeninoilandgas,banks,telecommunication(wireless), ManufacturingandInformationTechnologyservicecompanies.

3. 4.

5.

6.

7.

8. CreditUnion 9 PEs&VCs

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10 International Development Finance Institutions (IDFIs)

InternationalDevelopmentalInstitutionslikeIFC,AFDB,TheWorld Bank,FMO,CDC,etcwhospecializesleveragingtheirAAAratingsto raisecapitalintheinternationalcapitalmarketsandthenlendthese moniestothegovernmentandtheprivatesector.LikePEs/VCsIDFIs providelongtermfinancing.

AsatApril2008thenumberofregisterednonbankingfinancialinstitutionregisteredand operatinginthecountrywere:
TypeofInstitution DiscountHouse FianceHouse ExportFinancing Leasing Mortgage Savings&Loans Total Numberin theCountry 1 19 1 7 1 15 44

Thesecompaniesareallprivatecompaniesthuswewereunabletoobtaindataastotheir currentrevenueandcapitalizationbase. BankruptcyCode: TheGhanacompaniescodewhichgovernshowbusinessesareformedandliquidated, follows the British bankruptcy jurisprudence. There are two ways by which a bankruptcy or insolvency can be sought in Ghanaian courts. The first one is for a complete liquidation of a company.Ifcompleteliquidationissought,thenthecourtwillappointabankruptcytrusteeto selltheassetsofthecompanytopaycreditorsbaseonaformuladeterminebyabankruptcy judge. ThesecondwaybywhichbankruptcycanbesoughtinGhanaisforrestructuringofacompany tomakeitcompetitiveandsolvent.Herethecourtappointedtrusteewillinstructionsfromthe courtwilldeterminethehaircutorlossesthatcreditors,investorsandbusinesspartnerswill taketohelpthecompanytobesolvent. In 2003, the World Bank recommended to the Ghana government that Ghanas bankruptcy code need to be reformed if the country wants to attract foreign investors and business into thecountry.
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According to a 2005 Memorandum of Economic and Financial Policies of the Government of Ghana,theGhanaianauthorityplanstoreformandimprovetheInsolvencyBillandCompanies Codethatwilladdressthelackofclarityregardingtherightsofbothcreditorsandborrowers. AccordingtotheU.S.DepartmentofCommerce's2006editionofitsCountryCommercialGuide to doing business, in Ghana, there is no effective bankruptcy law on the books yet. The CompaniesCodeofGhanaspecifiesproceduresfordebtcollectionandliquidationprocedures foragoingconcern. The World Bank's 2007 "Doing Business" evaluation of Ghana discloses that, in the sphere of businessliquidation,Ghanadoessomewhatbetterthantheregionalaverages,butsignificantly underperforms in comparison with the average experienced by members of the Organization forEconomicCooperationandDevelopment(OECD).InGhana,ittakesanaverageof1.9years tocloseabusiness,atanaveragecostof22%,andwithanaveragerecoveryrateof$0.24on thedollar.Thiscompareswitharegionalaverageof3.4years,20%,and$0.171onthedollar. The average performance experienced by members of the OECD is 1.3 years, 7.5%, and a recoveryrateof$0.741onthedollar. In 2008, the Ghana parliament passed laws to reform the Insolvency Act, Bill and Companies Code to give more clarity as to the rights of creditors and borrowers and the process for winding down or restructuring a company. Although parliament has passed the legislation to reformandimprovethebankruptcycodeinGhana,manyobservershavesaidthatthereforms dontgofarenoughandalsotherearenolegalstructurestoimplementthereformsefficiently andeffectively. CapitalControls: AsaresultofWorldBank/IMFStructuralAdjustmentreformsinitiatedbyGhana in the 1980s and 1990s, capital controls was loosened by the Bank ofGhana (BoG) to attract foreigninvestorstoparticipateintheGhanaianeconomy.Althoughcapitalcontrolrestrictions havebeenloosened,theBoGstillregulateshowmuchforeignexchangecanbetransferredout of Ghana as part of its monetary policy to stabilize the Ghana currency, the Cedi. Also, the regulationofforeignexchangethatcanbetransferredoutofGhanaisanothertoolusebythe Ghanaianauthoritiestofightmoneylaundering. Also, the Ghana Company Act and Investment Promotion Act allow foreign investors to have 100%ownershipofacompanyorbusinessoperatingintheGhanafreezoneboard.Butifthe company is not establish to operate in the Ghana freezone then a foreign investor can have 100%ownership,butratherheorsheshouldpartnerwithGhanacitizen(s).
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 TheCompanyCodeofGhanaandtheforeignInvestmentActstipulatesthepercentageofprofit thatcanberepatriatedbyforeignersdoingbusinessinGhana.Currently,foreigninvestorscan repatriate100%ofprofitstotheirhomecountryannually. Also,companiesthatoperateintheGhanaalsoenjoythefollowingprofitrepatriationbenefits.

Noconditionsorrestrictionsonrepatriationofdividendsornetprofit; Noconditionsorrestrictionsonpaymentsforforeignloanservicing; Nopaymentsoffeesandchargesfortechnologytransferagreements; Noconditionsorrestrictionsontheremittanceofproceedsfromthesaleofanyinterest inafreezoneinvestment.

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 Sources: o o o o o o o BankofGhana,www.bog.gov.gh GhanaStockExchange,www.gse.com.gh Standard&Poors,www.standardandpoors.com FitchRatings,www.fitchratings.com Cowan,David,SubSaharanAfrica,How?CitiEconomics&MarketAnalysis, September18,2007 Teal,Francis,CommissionforAfricaandEconomicResearchonGrowth,Centre fortheStudyofAfricanEconomies,ResearchSummary2004/05 Matin,Imranetal.FinancialServicesforthePoorandPoorest:Deepening UnderstandingtoImproveProvisionDevelopmentInitiative,WorkingPaper9 http://devinit.org/findev/Working%20Paper9.htm InternationalMonetaryFund,RegionalEconomicOutlook,SubSaharanAfrica, variouseditions SelectedStatisticsonAfricanCountries,AfricanDevelopmentBankResearch (2006,2007,2008) AfricaFixedIncomeGuidebook,AfricanDevelopmentBankResearch(2006) AfDBStatisticsPocketbook,AfricanDevelopmentBankResearch(2006,2007, 2008) AfricaInvestmentClimateReport,AfricanDevelopmentBankResearch(2007) BankofGhanaFinancialStabilityReport,Feb2009 BankofGhanaFiscalDevelopmentReport,Feb2009 BankofGhanaMonetary&FinancialDevelopmentReport,Feb2009 GhanaBankingSurvey2008byPWC NationalInsuranceCommission2007AnnualReport BusinessMonitorInternationalGhanacountryreports2007Q12009 http://www.ghanaembassy.or.kr/greetings/ecomy.html

o o o o o o o o o o o o

o http://www.bog.gov.gh/privatecontent/File/Secretarys/bogact.pdf o http://www.imf.org/external/np/mfd/er/2006/eng/0706.htm o http://www.bog.gov.gh/index1.php?linkid=270#597

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 a. EmbeddedFiles

GSE Listed Companies

GHANA MACROECONOMIC D

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