ghana international bank plc pillar 3 3 ghib 2016… · · 2017-05-22ghib pillar 3 disclosures st...

GHIB Pillar 3 Disclosures as at 31st December 2016

Prepared: February 2017 Regulatory Reporting

Ghana International Bank plc Pillar 3

As at 31st December 2016

Version 1.4

Prepared by: Regulatory Reporting Team February 2017


Prepared: February 2017 Regulatory Reporting Page i

Document Revision and Control

Version Report Issue/Revision Date

Description Author(s)

1.0 14-March-2017 First draft for review by Executive Director, Finance & Operations with Risk Manager

Regulatory Reporting

1.1 13-April-2017 Draft reviewed by Executive Director, Finance & Operations


1.2 21-April-2017 Draft reviewed by EXCO and ALCO Regulatory Reporting

1.3 27-April-2017 Draft reviewed by Incoming Chair of ARCC


1.4 12-May-2017 Draft reviewed by CEO and Executive Director, Finance & Operations


Document Review and Approval

Issued under the authority of the Chief Executive Officer to the following:

Recipient Title Review/Approval Date

EXCO Executive Committee

OPCO Operational Committee

ARCC Audit, Risk and Compliance Committee

GHIB Board Board Chairman & Directors

Document Distribution

Recipient Title Distribution Date

GHIB Board Board Chairman & Directors

ARCC Audit Risk & Compliance Committee

OPCO Operational Committee

EXCO Executive Committee

ALCO Asset and Liability Committee

Document Ownership and Maintenance

This Pillar 3 disclosure is driven by Regulatory Reporting Department, with input from Risk, Finance, HR and Treasury. EXCO has oversight responsibility. Approval, and ultimate responsibility and accountability are that of GHIB Board of Directors. It will be reviewed whenever there are material changes to the Bank’s risk profile. As minimum however, the document will be reviewed annually to ensure that it continues to reflect current risk profile and appetite.


Prepared: February 2017 Regulatory Reporting Page ii

CONTENTS

1. OVERVIEW 3

1.1 BACKGROUND 3 1.2 HIGHLIGHTS 3 1.3 SCOPE OF APPLICATION 4 1.4 FREQUENCY AND LOCATION 4 1.5 VERIFICATION AND SUPERVISION 5 1.6 KEY CAPITAL RATIOS 5

2. CHANGES TO DISCLOSURES 6

3. CAPITAL ADEQUACY 6

3.1 CAPITAL REQUIREMENTS / RISK WEIGHTED ASSETS 6 3.2 CAPITAL RESOURCES 7 3.3 CAPITAL INSTRUMENTS 7

4. RISK MANAGEMENT GOVERNANCE 8

4.1 RISK MANAGEMENT 8 4.2 RISK MANAGEMENT APPROACH 9 4.3 RISK APPETITE 9

5. RISKS AND THEIR MANAGEMENT 10

5.1 CREDIT RISK 10 5.1.1 CREDIT RISK MITIGATION FOR RISK MANAGEMENT 11 5.1.2 CREDIT RISK : DISCLOSURES 11 5.1.2.1 MAXIMUM EXPOSURE TO CREDIT RISK 11 5.1.2.2 GEOGRAPHIC ANALYSIS OF EXPOSURE 12 5.1.2.3 INDUSTRY ANALYSIS OF EXPOSURE 12 5.1.2.4 MATURITY ANALYSIS OF EXPOSURE 12 5.1.2.5 ASSET QUALITY 13 5.1.2.6 PROVISIONING 13 5.2 MARKET RISK 13 5.3 OPERATIONAL RISK 13 5.4 LIQUIDITY AND FUNDING RISK 14 5.5 CONDUCT RISK 15 5.6 REPUTATIONAL RISK 15 5.7 LEGAL RISK 16 5.8 FINANCE RISK 16 5.9 PENSION RISK 16 5.10 REGULATORY RISK 16 5.11 STRATEGIC AND BUSINESS RISK 16 5.12 GROUP RISK 17

6. REMUNERATION 18


Prepared: February 2017 Regulatory Reporting Page 3

1. Overview

1.1 Background Ghana International Bank plc (GHIB) is registered in England and based in London. GHIB is authorised by the Prudential Regulation Authority (PRA) and regulated by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA). Under the FCA’s conduct supervision regime which assigns firms to one of four categories C1 to C4, Ghana International Bank has been categorised a C4. The PRA has its own classifications for assessing a firm’s significance to the stability of the UK financial system. The categories range from 1 to 5. The Bank has been classified as a Category 4 firm. All shareholders are major Ghanaian Financial Institutions. The Bank focusses on selected African markets. It has a representative office in Accra and a representative officer operating out of Nairobi, marketing products and services across the West African and East African sub-regions. This disclosure report covers GHIB as a single regulated entity and although it is majority owned by the Bank of Ghana with a 51% shareholding, it is entirely self sufficient for capital purposes. This report is prepared in accordance with the Capital Requirements Regulation and Directive IV (‘CRR’ and ‘CRD IV’, also known as the ‘CRD IV legislative package’). It contains detailed information on the underlying drivers of risk-weighted assets (RWA) and capital ratios as at 31 December 2016 in accordance with the European Union’s (EU) Capital Requirements Regulation (CRR) as implemented in the United Kingdom (UK) by the Prudential Regulation Authority (PRA). CRD IV places emphasis on credit institutions’ underlying risks and on the three ‘pillars’ set out below: Pillar 1 covers the calculation of risk weighted assets for credit risk, counterparty credit risk, market risk and operational risk. Pillar 2 refers to the supervisory review process. Its main intention is to find out whether additional capital is required over and above the Pillar 1 risk calculations. A firm’s own internal models and assessments support this process. Pillar 3 covers external communication of risk and capital information by banks as specified in the Basel rules to promote transparency and good risk management. This document should be read in conjunction with the Bank’s Annual Report for the year ended 31 December 2016.

1.2 Highlights In 2016 the Bank has had to weather the impact of slow global economic growth in its target markets in Sub Saharan Africa as well as the challenges posed by regulatory issues. The Annual Report and Financial Statements as at 31 December 2016, demonstrate the Bank’s resilience, with shareholders funds more than sufficient to support the assets of the Bank. In Ghana, economic conditions remained challenging, driven by difficult financing conditions and energy sector challenges that contributed to a much lower growth in 2016 than in 2015. However, economic conditions showed some encouraging signs of improving in the last quarter of 2016, due to deficit reduction, partly achieved under the IMF Extended Credit Facility. The country also reduced liquidity risk, significantly improved reserve buffers and reduced currency volatility following a successful launch of the annual Cocobod Facility as well as successful issuance of a US$750 million Eurobond in September 2016, although the latter increased debt stock. Balance of payments also improved, driven by foreign direct investment inflows, brought about by continued investment in newer oil and gas fields including the TEN Field. Against the backdrop of challenges alluded to above, coupled with the Bank’s internal constraints, Profit before Tax for the year fell 16% to £12.9m from £15.4m in 2015. Internally, changes to the application of large exposure rules restricted our ability to grow our loan book in our chosen markets. The Bank has continued to face a demanding Regulatory agenda and is in the process of remediating and thereby strengthening its internal systems and controls in respect of Money Laundering and Financial Crime. We have also seen a significant increase in costs particularly in personnel (as we shore-up compliance and regulatory teams), consultancy costs, as well as legal costs. CET1: The Bank is well capitalised with a Common Equity Tier 1 (CET1) ratio of 24.71%, which is well above the PRA’s present Total Capital Requirement of 8%. The components of the Bank’s capital are shown in fig 1 below. Basle III Leverage Ratio: The Bank is not highly leveraged. This is borne out by the leverage ratio for 2016, (a measure of capital as a proportion of total assets), of 15.46% which is well ahead of the



prescribed minimum requirement of 3% defined in the Bank for International Settlements (BIS) via its document BCBS 270 dated January 2014.

Fig1:

The Bank complied with all externally imposed capital requirements throughout the year ending 2016. The Bank’s capital as at 31 December was £132.88m.

1.3 Scope of Application The Bank has complied with the PRA’s prudential capital regulations, as set out in CRD IV and CRR and supported by the EBA Regulatory Technical Standards (RTS) and the PRA Policy Statements throughout the year. This disclosure is presented in respect of the year to 31 December 2016. It should be noted that while some quantitative information in this document is based on financial data in the Bank’s 2016 Annual Report, other quantitative data is sourced from the Bank’s regulatory processes, which may be calculated according to a different set of rules. The difference between the data sourced from the Bank’s Annual Report and that sourced from the Bank’s regulatory reporting process is most evident for credit risk disclosures where Pillar 3 disclosures require the use of Exposure at Default (EAD). EAD is defined as the expected amount of exposure at default. It is reported net of provisions and includes consideration of any off balance sheet exposure adjusted by a regulatory credit conversion factor. Pillar 3 quantitative data is thus not always comparable with the quantitative data contained in the Bank’s Annual Report. GHIB calculates and maintains regulatory capital ratios based on the Bank’s accounting balance sheet as at the end of 2016.

1.4 Frequency and Location

These disclosures have been approved by the Directors of the Board and are made annually as at 31 December and are published on GHIB’s website www.ghanabank.co.uk. Pillar 3 disclosures have been prepared purely to explain the basis on which the Bank has prepared and disclosed certain capital requirements and information about the management of certain risks and not for any other purpose. Pillar 3 disclosures are a regulatory requirement.

Item AmountCapital £132,883

Total risk exposure amount £537,712

CET1 Capital ratio

24.71

Minimum amount of CET1 capital that

needs to be maintained, expressed as a %

of the total risk exposure amount.

Surplus(+)/Deficit(-) of CET1 capital108,686 4.50

T1 Capital ratio

24.71

Minimum amount of Tier1 capital that



Surplus(+)/Deficit(-) of T1 capital100,620 6.00

Total capital ratio

24.71

Minimum amount of total capital that



Surplus(+)/Deficit(-) of total capital89,866 8.00

http://www.ghanabank.co.uk/



1.5 Verification and Supervision These Pillar 3 disclosures are not subject to external audit, except where they are extracted from the Bank’s audited Annual Report and Financial Statements dated 31 December 2016. This Pillar 3 Disclosures report was reviewed by the Bank’s Executive Committee (EXCO), the Operational Committee (OPCO), and the Audit, Risk and Compliance Committee (ARCC) and subsequently recommended to the Board of Directors for approval. The review and approval process is in line with the internal guidelines for the publication of external disclosures such as the Annual Report and Financial Statements and the Pillar 3 report. The Bank is authorised by the Prudential Regulation Authority (PRA) and regulated by the Financial Conduct Authority (FCA) and the Prudential Regulatory Authority (PRA).

1.6 Key Capital Ratios

Throughout the 2016 financial year the Bank has maintained adequate capital resources in line with the regulatory requirements. The Bank is well capitalised in proportion to its risk appetite and scale of its business. As at 31 December 2016 it had a total regulatory capital base of £132.88m.

Table1: Bank’s key capital resources and capital ratios as at 31 December 2016.

The Bank experienced a rise of 5.53% in risk weighted assets (£463.48m in 2015 to £489.11m in 2016) which was in line with the measured approach taken by management in granting credit.

The Total tier 1 ratio is 24.71% which is slightly higher than the 2015 calculation of 24.2% and above the Bank’s regulatory requirement.

As at 31 December 2016 the composition of the GHIB’s high quality liquid assets (HQLA) was as follows: £151,122,000 in our Bank of England reserve account, and £195,000 held at the Bank in its vault.

The leverage ratio as at 31 December 2016 was 15.46%, which exceeds the minimum requirement of 3%.

Key Metrics

As at 31st December 2016

Available capital (amounts)

Common Equity Tier (CET1) (£'000) 132,883

Total Capital (£'000) 132,883

Risk-Weighted Assets (amounts)

Total Risk-Weighted Assets (£'000) 489,113

Risk-based capital ratios as a percentage of RWA

Common Equity Tier 1 ratio (%) 24.7

Total Capital Ratio (%) 24.7

Basel III leverage ratio

Total Basel III leverage ratio exposure measure (%) 15.46

Liquidity Coverage Ratio

Total HQLA (£'000) 151,317

Total net Cash Outflow (£'000) 62,987

LCR ratio (%) 240



2. Changes to disclosures The Bank continues to develop the transparency and quality of its disclosures to ensure they are as

clear and informative as possible.

New information has been provided in 2017 as per BIPRU 11: Disclosure (Pillar 3) on remuneration

broken down by senior management and material risk takers.

3. Capital adequacy

Capital Management

The Bank’s capital management objectives are to comply with regulatory capital requirements at all times, and to ensure that the Bank has sufficient capital to cover the risks in stable and stressed conditions to support its strategy. Capital adequacy and its effective management are crucial to the Bank’s ability to operate its business lines, to grow organically and to pursue its strategy. The Bank is aware that its business and financial status could be negatively impacted if it is not able to manage its capital effectively or if the amount and quality of capital held is insufficient due to a materially worse than expected financial performance.

Capital requirements and resources

The Bank complied with all of its regulatory capital requirements throughout 2016. The Bank manages its capital resources to ensure that the overall amount and quality of resources exceeds the Bank’s capital requirements. The Bank’s capital requirements are primarily driven by credit risk and operational risk. The Bank’s capital requirements also incorporate a regulatory capital planning buffer, the size of which is determined by stress testing as part of the Internal Capital Adequacy Assessment Process (ICAAP).

Stress testing and capital planning

The Bank uses stress testing as a key risk management tool to gain a better understanding of its resilience to internal and external shocks. In addition, stress testing provides a key input to the Bank’s capital assessments and related risk management and measurement assumptions. The purpose of the Bank’s stress testing is to ensure the following:

confirm the Bank has sufficient capital resources;

ensure the Bank remains within its risk appetite;

ensure the alignment between the Bank’s risk management framework and senior management decision making; and

provide sufficiently severe and forward looking scenarios.

The Bank assesses its existing and future capital adequacy under a range of scenarios, using a combination of quantitative and qualitative analyses in the ICAAP, which is reviewed by the regulator on a periodic basis. The ICAAP, which acts as a link between the Bank’s strategy, capital and risk under stress, is approved annually by the Board.

3.1 Capital Requirements / Risk Weighted Assets

Table 2: shows the amount of capital the Bank is required to set aside to meet the minimum total capital ratio of 8% of RWAs set by the CRR.



3.2 Capital Resources Table 3:

3.3 Capital Instruments

The Bank’s authorised capital is made up of Common Equity tier 1 only and has no debt capital hence it does not have any capital instruments to report.

Breakdown of the Bank's Regulatory Capital

Requirement as at 31-Dec-16

Capital

Requirement

(£ '000)

RWA (£ '000)Exposure at

Default (£ '000)

Central Gov/Central Banks 5,102 63,769 63,360

Claim on Inst & Corp with CR assessment 11,501 143,766 306,654

Corporates 15,421 192,759 263,687

Insitutions 2,917 36,468 49,324

Other Items 421 5,259 5,259

Public Sector Entities 3,750 46,874 66,929

Retail 17 218 291

Total 39,129 489,113 755,504

Credit and counterparty risk 39,129

Operational Risk basic Indicator Approach 3,876

Market risk 310

Total Pillar 1 Requirement 43,315

Reconciliation of Accounting Capital to Regulatory Capital

Bank's Balance Sheet

31st December 2016

(£ '000)

Capital Base

Total Equity 132,883

Ordinary Shares 75,000

-Retained Earnings 59,166

-AFS revaluation Reserve (1,283)

Common Equity Tier 1 (CET 1) capital regulatory

adjustments 132,883

Total Tier 1 Capital 132,883

Total Capital Base 132,883



4. Risk Management governance

4.1 Risk Management GHIB`s business activities are mainly centred on the following: Correspondent Banking – GHIB acts as Sterling, US Dollar and Euro correspondent bank for forty seven banks operating in Ghana and selected West African countries. Corporate Banking – GHIB provides banking services to major corporates in Ghana and other parts of Africa which have the need for offshore banking products and services, providing support in key areas such as transaction banking and lending which includes bilateral debt facilities, syndicated loan facilities and trade finance. Trade Finance and International Payments – GHIB provides the full range of international trade finance services to banks and major corporates primarily in Ghana and in selected African countries. The Bank is actively involved in trade finance related risk participations in London originated by major international banks as well as African banks. Treasury - GHIB offers time deposits in all major currencies and for periods tailored to customers’ expected cash flows and the Bank’s liquidity needs. It also provides foreign exchange services to its customers. Retail Banking - The Bank provides a suite of Sterling, Euro and US dollar non credit related products, a GBP MasterCard debit card and internet banking facilities. The Bank does not offer any investment advice or sell regulated products. The Bank’s Risk Management Framework (“RMF”) is the framework through which the Board of Directors and Senior Management establish the Bank’s risk strategy and articulate how the bank adheres to the monitoring of its risk appetite as well as the policies, procedures, governance, systems and tools that it uses to enable effective risk management at the Bank. The objective of the RMF is to set out a clear and consistent methodology for the management of the Bank’s risks, additionally providing guidance and standards for the use of risk tools and techniques. The RMF is written at an enterprise level and incorporates all the material risks of the Bank.

Fig 2: Outlined below is the GHIB Enterprise Wide Risk Structure:

The RMF is supported by detailed policies and procedures. These combine to ensure that the Bank’s risks are managed in a manner which is consistent with the size and nature of its operations. These policies and procedures are aligned to regulatory requirements and reflect industry best practice.

GHIB Board

Assurance Evaluation

Committee Representation

Committee Representation

Audit Risk and Compliance Committee(ARCC)

Board Standing Committtee (BoardCo)

Remuneration & Nominations Committee

(REMCo)

Operational Committee(OPCo)

Executive Committee(EXCo)

Assets & Liabilities Committee (ALCo)

Risk Oversight Committee

(ROC)

Risk Officer

Compliance Officer

Internal Audit

External Auditors

Risk Reporting

Compliance Reporting

Assurance Reporting

Audit Findings

Committee/CEO Representation

Review Strategic Tactical Operational

Issues

Risk register & Risk Models

Business strategy & Plans

Risk Management Policy



The Board of Directors recognises the importance of on-going risk identification & management, and commits to providing sufficient resources to ensure that the Bank’s risk management program is implemented and embedded. The RMF is a living document, which evolves continuously as the Bank’s approach and appetite to risk develops. The RMF applies to all employees and consultants, and as a result all are encouraged to regularly evaluate their current practices to protect the Bank from financial and/or reputational damage. This approach to risk management is designed to reflect the Bank`s values, influence culture and direct operations which are aligned to its profile and strategic objectives.

4.2 Risk Management Approach The Bank has in place a bank wide Register that reports various risks within the risk types. The GHIB approach to risk management including operational risk management includes Risk Identification, Assessment, Control Monitoring, right through to Risk Reporting. The Bank`s approach will include identification of Gross Risks and a definition of Residual Risks after taking into account related controls and mitigants in place. The Risk Register is used to monitor the range of operational risks identified under BASEL II and to ensure each risk is regularly assessed by both line and senior management. Discussions on Operational Risk matters are held in EXCO, but also by line management at the monthly meeting of the Risk Oversight Committee. Additionally, line management by way of a certification process, report quarterly to Compliance confirming that they have highlighted any operational issues in the reporting period. Short lines of communication ensure that all operational issues are dealt with immediately and measures taken commensurate with the circumstance.

4.3 Risk Appetite The Bank takes a conservative approach to risk. All shareholders consider stability and prudence to be of overriding importance to sustained profitability. This is reflected in the Bank`s Risk Appetite Statement which is articulated as follows: The level of risk appetite is formulated by way of quantitative measures, qualitative measures and zero tolerance risks. Risk appetite is based mainly on credit, market, liquidity and operational risk factors. For legal and regulatory risk, the Bank has zero risk appetite. Zero tolerance is driven by high ethical standards. There is a strong legal and regulatory compliance culture, led from the top, with procedures to inform staff so that they comply with legal and regulatory requirements and a whistleblowing policy. Management articulates its risk appetite through individual risk appetite statements addressing key and significant risks which are managed using a series of risk metrics and limits. In general GHIB takes a conservative approach to risk, meaning that it is risk averse. For example, the Bank will only lend up to 90% of its Large Exposure Capital Base (LECB) limit, to allow room for exchange rate movements. The Bank has strict treasury limits, maintains a positive 30 day liquidity cover coupled with sufficient liquid resources to protect the Bank against any severe yet plausible adverse liquidity scenario for at least 3 months. The Bank will maintain sufficient capital resources to cover identified risks. For regulatory capital if the total minimum amount of capital falls below 19.0% of RWAs, Asset and Liability Committee (ALCO) will convene and recommend immediate remedial action. Capital adequacy ratios under BASEL III are monitored regularly to ensure capital held is always adequate to support the business. The level of capital has remained well in excess of regulatory requirements. GHIB wishes to take and manage risk that is proportionate to its strategy. In doing so management will seek to preserve strong capital and liquidity positions; to ensure that the Bank’s behaviours and activities protect and enhance its reputation; and operate within set risk related policies, limits and thresholds. In doing so management will seek to preserve strong capital and liquidity positions; to ensure that the Bank’s behaviours and activities protect and enhance the Bank`s reputation; and operate within set risk related policies, limits and thresholds. In accordance with its strategy, the Bank has an appetite for lending of up to £430m, and for its bond portfolio of £100m. This excludes the assets held as part of the liquidity buffer which should at all times exceed the liquidity buffer requirement. The Bank`s liquidity appetite is to maintain an adequate liquidity position at all times to meet its obligations both to customers and to meet both the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) requirements. Risk appetite also forms the basis for the calibration and setting of the delegated authorities and financial limits for all aspects of market, credit, liquidity and operational risk.



The business model is intended to provide the Bank with a sustainable profit. A series of risk indicators is used to assess overall risk appetite. Should the performance of these indicators vary from plan (whether alone or collectively) in a material way, management is alerted to take a series of actions which may, for example include reducing business activity, slowing or stopping lending activity, generating additional liquidity and protecting capital levels. Risk appetite also forms the basis for the calibration and setting of the delegated authorities and financial limits for all aspects of market, credit, liquidity and operational risk. The risk appetite statements address both quantitative and qualitative aspects of risk taking. The Bank takes a comprehensive approach to risk management, with the defined risk framework and articulated risk appetite approved annually by the Board. Risk management planning is integrated with strategic and financial planning so that goals and responsibilities are aligned across the Bank. Management have categorised the desired level of inherent risk to each of its key and material risks.

5. Risks and their management

5.1 Credit Risk

We maintain a medium risk appetite for inherent credit risk. The Bank is cognisant of the fact that it is primarily an emerging market focused institution with significant concentration in countries like Ghana and Nigeria. Credit risk associated with these emerging economies is greater than that for more developed economies due to the increased risk of potential political and economic volatility. The Bank is exposed to credit risk in relation to loans to customers, loans and advances including deposits in nostro account balances and bonds as well as in its secondary participations portfolio and contingent exposures. The Bank`s credit philosophy is to accept only risks that it understands, can control and which are appropriately priced. The Bank maintains a medium/low risk appetite for credit risk. Thus, its quantitative credit appetite for non marketable customer lending is kept at 40% of total assets. Contingent risk is maintained at 35% of total liabilities and undrawn commitments at 25% of total lending. Credit risk associated with these emerging economies is greater than that for more developed economies due to the increased risk of potential political and economic volatility. Our appetite is therefore constrained by the economic performance of these main concentrations. Because of the present funding base, the Bank has a low appetite for medium and long term risks, and has a low appetite for provisions. Medium term risks are those in excess of two years, where the Bank does not have matching deposits, and provisions are kept low by way of a strong credit process, and there is a history of low provisions. Country limits are in place and assessed individually according to economic and political conditions for each country where exposure exists. The largest country appetite relates to Ghana with a lower appetite for Nigeria and Kenya. These three countries represent the largest aggregate risk exposure for the Bank, being the home country and two larger Sub Saharan economies. Appetite for other countries is relatively low due to underwhelming economic, geographic and political factors. Sector limits are also in place to ensure that the Bank is not overexposed to any one sector. There is an Available for Sale portfolio, where appetite is constrained by the interest rate risk prevalent in purchasing longer dated fixed rate assets. The Bank has appetite for counterparties which meet an acceptance criterion of A1/P1 and a select/approved group of A2/P2 counterparties for foreign exchange and money market dealings as approved by the Operational Committee and reported to the Board of Directors in accordance with the Bank’s Large Exposures policy. The Board of Directors approves the credit risk appetite taking into consideration past performance and future plans. The senior management are responsible for implementing the credit risk strategy approved by the Board and for developing the policies and procedures for the identification, measurement, monitoring and controlling of credit risk. There is a risk manager responsible for co-ordinating matters of a risk nature and a credit administration manager responsible for recording and monitoring all credit risk exposure. The Pillar 1 minimum capital requirement for credit risk, based on the Basel 2 framework under the Standardised Approach, is taken as the starting point in considering what internal capital may be required. An assessment is first made as to whether the capital calculation fully captures the credit risk faced by the Bank.



The Bank is exposed to credit risk in relation to loans to customers, loans and advances including deposits in nostro account balances and bonds as well as in its secondary participations portfolio and contingent exposures. The Bank`s credit philosophy is to accept only risks that it understands, can control and which are appropriately priced. The ultimate responsibility for credit risk lies with the Board, and the Bank`s credit risk appetite is articulated in the annual Strategic Review prepared for the Board. Country limits are in place and assessed individually according to economic and political conditions for each country where exposure exists. Sector limits are also in place to ensure that the Bank is not overexposed to any one sector. There are also Counterparty limits covering placement needs. Exposures against all limits are reviewed daily by management and quarterly by OPCO which is the main credit committee. There is a limit assessment and sanctioning procedure in place ensuring quality control is maintained, and informed decisions are made. A number of stress tests are undertaken periodically and include hypothetical and historical credit risk scenarios. Hypothetical stress tests calculate the loss that would occur if a specific set of adverse events were to occur. Historical tests take account of the historic level of provisions and other factors, applied to current and projected business levels. Part of the loan portfolio is held within the medium term limits of over two years duration. For the Available for Sale portfolio, there is a limit under this portfolio to restrict the interest rate risk prevalent in purchasing longer dated fixed rate bonds. The Bank uses the standardised approach for the calculation of credit risk capital requirements. The credit risk information disclosed in this document includes a breakdown of the Bank’s exposures by CRD IV exposure class, by location, sector, maturity and asset quality.

5.1.1 Credit Risk Mitigation for Risk Management

An in-depth credit analysis is undertaken in respect of our risk exposures, and a tight sanctioning structure is observed. This provides our main mitigant against credit risk, but additionally, security may be taken where necessary. A system of controls and limits enables the Bank monitor and assess changes in risk quality. Longer dated exposure is kept to a minimum to control the inherent risk in such exposure. The Bank pays close attention to economic and political risks and is able to react quickly to changes in outside influences. The Bank has very short lines of communication; ensuring quick action can be taken in adverse situations.

5.1.2 Credit Risk : Disclosures

5.1.2.1 Maximum Exposure to Credit Risk

Table 4: shows the Exposure at Default (EAD) by standardised asset class as at 31 December 2016

31st December 2016

Exposure Class EAD (£'000) RWA (£'000)

Agriculture, Forestry and Fishing 8,699 1,380

Sovereigns 96,991 64,257

Finance Industry 548,216 345,106

Personal 291 219

Other Items 5,259 5,259

Business Services 25,417 25,609

Transport, Utilities & Storage 70,633 47,283

755,505 489,113



5.1.2.2 Geographic Analysis of Exposure

Table 5: shows the geographic location of credit exposures based on Exposure at Default (EAD)

5.1.2.3 Industry Analysis of Exposure

Table 6: shows the Exposure at Default (EAD) displayed by the industry classification based on the

purposes of the loan.

5.1.2.4 Maturity Analysis of Exposure

Table 7: show’s the Bank’s credit exposures by residual contractual maturity date.

As at 31 December 2016

Exposure Class EAD RWA EAD RWA EAD RWA EAD RWA EAD RWA

Central governments /

central banks 63,360 63,769 0 0 0 0 0 0 63,360 63,769Claims on inst & corp with

CR assessment 20,233 20,234 66,919 33,433 100,343 20,943 119,159 69,156 306,654 143,766

Corporates 239,494 168,565 0 0 0 0 24,193 24,193 263,687 192,759

Institutions 0 0 135 27 20,013 10,015 29,177 26,426 49,324 36,468

Other items 0 0 5,259 5,259 0 0 0 0 5,259 5,259

Public sector entities 52,369 32,308 0 0 0 0 14,561 14,566 66,929 46,874

Retail 71 54 213 160 2 2 5 4 291 219

Total 375,526 284,929 72,526 38,878 120,358 30,960 187,094 134,345 755,505 489,113

Sub-Saharan Africa (£'000) UK (£'000) Other European (£'000) Rest of the World (£'000) Total (£'000)

As at 31 December 2016

Exposure Class Agriculture

Business-

Services

Finance Industry-

Banks Personal Real Estate Sovereign

Transport, utilities

and Storage

Central governments / central

banks 63,360

Claims on inst & corp with CR

assessment 8 306,646

Corporates 25,409 192,246 33,631 12,402

Institutions 49,324

Other items 5,259

Public sector entities 8,699 58,231

Retail 291

Total 8,699 30,676 548,216 291 96,991 70,633

Maturity Analysis of Exposure 31st December 2016

<1 Year £'000 >1-5 years £'000 >5 Years £'000 Total £'000

Central Gov/Central Banks 6,517 41,378 15,465 63,360

Claim on Inst & Corp with CR assessment 306,654 - - 306,654

Corporates 234,769 28,918 - 263,687

Insitutions 49,324 - - 49,324

Other Items 5,259 - - 5,259

Public Sector Entities 44,730 9,757 12,443 66,930

Retail 73 209 9 291



5.1.2.5 Asset Quality

Under the standardised approach, credit risk is measured by applying risk weights outlined in the

CRR based on the exposure class to which the exposure is allocated.

Table 8: shows Exposure at Default (EAD) displayed by risk weight band.

5.1.2.6 Provisioning

Impairment provisions if necessary are made on the basis of the Bank’s estimation of future cash flows and realisable value of any collateral held. The Bank has not recorded any bad debt provisions as at the year end 2016. The Bank has not

foreclosed on any facility and therefore it has not been necessary to take possession of any collateral

in the years ending 31 December 2016, 2015 and 2014.

5.2 Market Risk

The Bank has a medium appetite for market related risks.

For each of the 3 key market risks (interest rate, foreign exchange and asset pricing), the Bank does

not undertake any hedging activities using derivatives and is therefore exposed to market

movements, and on this basis market risk appetite is deemed to be medium.

Because the Bank mainly engages in GBP, USD and EUR transactions, market risk appetite is

deemed to be medium. In support of this assessment, it should be noted that the Bank only

undertakes spot foreign exchange transactions, but that there is a mismatch between the capital of

the Bank which is in sterling, and much of the lending which is in US Dollars. The Bank will not have a

net open FX position of more than £2m

The Bank`s interest rate risk appetite is kept within a figure of £5m using a net present value

movement of 2%.

5.3 Operational risk GHIB has exposure to operational risk as a result of the manual nature of operations and key man risk. Individual department managers are responsible for identifying and managing the risks inherent in the products, activities, processes and systems for which they are accountable. Operational Risk Appetite is described as the operational risk Ghana International Bank is prepared to tolerate. Operational Risk appetite is based on qualitative and quantitative measures. Quantitative expressions of Operational Risk Appetite are based on hard data derived from management information. Qualitative risks are those unavoidable risks which are not measurable but may be ameliorated by other means, for example, operational policies, controls and disaster recovery arrangements.

Risk Weight Band Analysis of Exposure 31st December 2016

Central

Gov/Central

Banks (£'000)

Claim on Inst & Corp

with CR assessment

(£'000)

Corporates

(£'000)

Institutions

(£'000)

Other Items

(£'000)

Public Sector

Entities (£'000) Retail (£'000)

0% - - - - - - -

1-20% - 32,372 1,436 29 - 1,177 -

21-50% - 33,415 - 12,765 - - -

51-75% - - - - - - 219

76-100% 63,769 77,979 191,323 23,673 5,259 45,697 -

101-150% - - - - - - -

>150% - - - - - - -

Total 63,769 143,766 192,759 36,467 5,259 46,874 219



The Bank`s objective is to manage operational risk to ensure it is maintained within the cost effective targets set against the overall risk appetite of the Bank and related to average profit. The Bank`s risk appetite is well below the basic indicator measure according to established Basel guidelines, and the historical record of such losses is very low. For the purposes of assessing risk according to Basel the Bank uses the Basic Indicator Approach as defined under BASEL II Operational Risk Methodology. This defines the operational risk capital charge for the Bank as the average over three years of gross income X 15%. GHIB has significant exposure to operational risk as a result of the manual nature of some operations and key man risk. Because of the short lines of communication in the Bank and the use of the four eyes principle, residual risk is considered low. The Bank has zero appetite for internal fraud. The Bank has a low residual appetite for operational losses of approximately £100,000 per annum. Consequently, although the Bank historically has a low level of operational losses, nevertheless, in view of the possibility of the risk of fraud, IT and cyber crime, the Bank has a medium appetite for inherent operational risks.

5.4 Liquidity and Funding Risk The Board approves the liquidity risk appetite taking into consideration past experience, counterparty risk, maturity mismatches, gap analysis, stress testing and other factors that may have a bearing on liquidity. The Bank has a high degree of liquidity and low leverage with the ability to repay all depositors from short term liquid investments as they fall due. Wherever possible, the Bank matches maturity of risk assets with liabilities of like or longer maturities. The Bank’s liquid asset levels are maintained at a level such that the Bank can meet its 30 day survival horizon. Additionally, it is the Bank`s policy to ensure it has sufficient liquid resources to protect the Bank against any severe yet plausible adverse liquidity scenario for at least 3 months. The Bank`s policy is for the Liquid Asset Buffer always to exceed the total net cash outflows over the next 30 calendar days coupled with sufficient liquid resources to protect the Bank against any severe yet plausible adverse liquidity scenario for at least 3 months. The Bank endeavours to have sufficient liquid assets to meet maturing obligations. The Bank has a short duration lending book, is well capitalised but because of the high concentration level considers the liquidity risk is medium. A maximum lending/deposits ratio of 70% is in place. The Bank is constrained in the amount of lending it can undertake in view of the large level of short term wholesale deposits. As at 31-Dec-2016, the Banks Liquidity Coverage Ratio (LCR) was 240.23% and the Net Stable Funding Ratio (NSFR) was . The LCR represents a surplus to the UK regulatory minimum requirement. Table 9: LCR as at 31-Dec-2016

LIQUIDITY COVERAGE - CALCULATIONS

Currency GBP

Value /

Percentage

Row ID Item 010

010 1 Liquidity buffer 151,316,739

020 2 Net liquidity outflow 62,987,244

030 3 Liquidity coverage ratio (%) 240.23%

Numerator, denominator, ratio

CALCULATIONS



5.5 Conduct Risk The Bank has a low tolerance to poor conduct risk driven by high ethical standards. Appropriate conduct is a key component of the Bank’s strategic objectives and business model. GHIB seeks to operate at the highest levels of ethical and compliance standards in line with regulatory requirements and best practices. This bank has three over-riding goals:

to serve customers well

to operate with a sustainable and conservative risk profile; and

to continue to build sustainable value for all shareholders.

The Bank takes proactive action to prevent or mitigate the risk of poor conduct, and to put things right when they have gone wrong. The mitigation of bad conduct risk is an integral part of the Bank`s employees’ duties and responsibilities. Employees are pivotal in the mitigation of conduct risk. The Bank is committed to training all staff to ensure that they clearly understand and are aware of their responsibilities in this area. The Bank encourages and embeds the right culture to achieve the objectives of this policy. The Bank trains and continuously tests the behaviour and understanding of all employees. The Bank has no appetite for unfair outcomes arising from any element of the conduct risk lifecycle, which includes product design, sales or after sales processes and culture. Where an operational risk that may result in potential conduct risk for a customer is identified, the Bank will be proactive in escalating, agreeing appropriate action and communicating clearly with our customers to ensure that a fair outcome is achieved. Regular reviews and active management of the portfolio of products is done to ensure that the Bank continues to deliver value for its customers, identify areas of potential detriment and, where appropriate, take proactive action to mitigate any impact to its customers.

5.6 Reputational Risk The Bank has a low tolerance to deterioration in its reputation which is driven by high ethical standards. GHIB considers the protection of its reputation and brand as paramount. The Bank will not conduct its business or engage with stakeholders in a manner that could adversely impact its reputation. In addition, the Bank seeks to protect and enhance its reputation at all times through on-going identification and assessment of reputational risk events and establishment of clear mitigating plans and actions. The Bank has taken a number of actions to strengthen governance and to embed good cultural practices in the organisation. Every member of staff is encouraged to take responsibility for managing reputation risk in their day-to-day decisions. The Bank has a whistle-blowing policy to encourage staff to report any actions that may be of detriment to the Bank. Training in many aspects of the Bank`s business is given including anti-bribery, complaints handling, financial crime prevention, fraud prevention, money laundering prevention, conflicts of interest and treating customers fairly. Reputational Risk is the failure to meet stakeholder expectations as a result of any event, behaviour, action or inaction either by the Bank itself, employees of the Bank or those associated with the Bank that might cause stakeholders to form a negative view of the Bank. The Bank has a strong appetite to ensure high ethical standards are maintained. The Bank has a zero tolerance for behaviour that puts its reputation at risk. The short chain of command instils in all staff the importance of maintaining the Bank`s good reputation. Continuous training is given in good conduct essentials and treating customers fairly.



5.7 Legal Risk There is a strong legal culture led from the top, with procedures to inform staff so that they comply with legal requirements. Being pan-African focused, the Bank is subject to a range of legal challenges in the countries in which it operates. Risks include:

- Breach of applicable local laws;

- Perfection and enforceability of security; and

- Ever increasing need to clamp down on tax-evasion prompting the introduction by the United

States of the Foreign Account Tax Compliance Act (FATCA) and the more recent

international developments resulting in the Common Reporting Standard (CRS) being

implemented under UK domestic legislation.

Local knowledge is paramount to mitigating legal risks. Thus, as well as using reputable legal counsel (overseas and local) for documentation, developing an in-house knowledge pool with frequent visits to target markets and developing strategic alliances with local agencies, are invaluable risk mitigants.

5.8 Finance Risk Finance Risk is the risk that the Bank`s financial data is not materially accurate resulting in incorrect reporting to internal and external stakeholders. The Bank has a number of target ratios forming its finance risk appetite, and these include the cost/income ratio which the Bank intends to keep below 40%, capital adequacy ratio to be better than 18.68%, return on equity at least 9%, return on assets minimum 1.5%, provisions to loans no more than 1% and the rate of increase in the loan portfolio to be restrained to no more than 20% in one year.

5.9 Pension Risk

Pension obligation risk relates to defined benefit pension schemes and defined contribution schemes offering guaranteed returns that are not fully matched by underlying investments. The Bank’s pension is a defined contribution scheme with no guaranteed returns, it is therefore not considered to be a material risk. The Bank is of the view that it does not need to hold additional capital in respect of this risk.

5.10 Regulatory Risk Regulatory risk arises from a failure or inability to comply fully with the laws, regulations or codes applicable specifically to the financial services industry which are currently subject to significant changes. Non-compliance could lead to fines, public reprimands, damage to reputation, increased prudential requirements, enforced suspension of operations or, in extreme cases, withdrawal of authorisations to operate. The banking industry faces a major challenge in meeting the new Capital Requirements Directive (CRD) IV rules, which has now come into effect, and will impact the calculation of capital and risk weighted assets. The Bank has a dedicated regulatory risk team in place and a competent compliance function. The Bank has categorised this risk as medium. The Bank is of the view that it does not need to hold additional capital in respect of this risk.

5.11 Strategic and business risk Business risk represents the risk that a business will be materially altered or even rendered unviable through a shock or other change, as happened to the securitization and structured-finance businesses during the 2008-09 financial crises.



Business risk is evaluated through a Business and Strategy Development process. Each year the risk manager evaluates the risks in the Business Plan. Subsequently, the actual quarterly performance is compared with the detailed financial budget, including the historical volatility in earnings, which supports both the decision making and the planning process. The Bank is of the view that it does not need to hold additional capital in respect of this risk.

5.12 Group Risk Group risk, as defined in the PRA Rulebook, represents the risk that the financial position of a firm may be adversely affected by its relationships (financial or non-financial) with other entities in the same group or by risk which may affect the financial position of the whole group, including reputational contagion. GHIB’s parent is a central bank in a politically stable African country and therefore both the nature of the parent’s activities and the track record of the country lead to a perceived “Low” group risk. The Bank is of the view that it does not need to hold additional capital in respect of this risk.



6. Remuneration REMA Remuneration Policy

(A) Information relating to the bodies that oversee remuneration

The main body overseeing remuneration in GHIB is the Remuneration and Nominations Committee

which meets quarterly. The Committee is chaired by an independent Non Executive Director (NED)

and all the members are NEDs, the CEO attends by invitation.

The Bank’s remuneration policy applies to all employees in the London office and also to the 4 based

in Africa.

Types of Employees considered Material Risk Takers and Senior Managers

For the purposes of this remuneration policy, Senior Managers and Material Risk Takers have been

defined using the Regulatory Technical Standards from the European Banking Authority. Senior

Manager staff are defined irrespective of employment status (i.e. they include Non Executive Board

Members) who have decision making powers e.g. member of a senior management body, holder of a

senior manager post, able to commit significantly to risk exposures. Other Material Risk Takers have

also been defined using the criteria.

Senior Managers

1. CEO (SMF) 2. Executive Director Finance and Operations (SMF) 3. Risk Manager (SMF) 4. Head of Compliance & MLRO (SMF) 5. Chairman (NED) 6. Chair of ARCC (SMF) 7. Chair of RemCO (SMF) 8. 4 X Non Executive Directors 9. Vacant post Executive Director Banking Services (SMF)

Other Material Risk Takers

1. GM Business Development 2. Head of Treasury

(B) Information regarding the design and structure of the remuneration processes:

Key Features & Objectives of the Remuneration Policy

The Bank’s policy is to attract and retain the requisite staff with the necessary skills and experience to

ensure that its strategic objectives are achieved.

Salaries of all London employees, including those engaged in control functions are benchmarked

annually to similar positions in the London market and maintained within +/-10% of the median.

Likewise, the Accra employees are benchmarked to the local market.

Similarly, the Bank’s Annual Incentive Plan (AIP) is reviewed annually relative to the external market

to ensure that it is in line with schemes in similar sized Banks in London. These benchmarked values

are subject to approval by the Board.

The Bank’s Annual Incentive Plan (AIP) provides a method for the creation of a bonus pool out of

which cash bonus awards (‘Awards’) can be paid to eligible employees following authorisation by the

Remuneration & Nominations Committee (‘Committee’) and ratification by the Board.

The bonus pool (’Pool’) is created out of profit before tax (‘PBT’) in excess of a hurdle based on the

cost of equity capital (‘risk-adjusted PBT’).



Awards are allocated to employees in accordance with their performance rating against annual

objectives.

Awards are paid in cash as soon as practicable after the end of the Performance Period.

All GHIB employees are eligible to receive Awards.

Awards will be paid at the discretion of the Committee and do not form part of employees’ contracts of

employment.

The Committee determines annually:

The cost of equity and risk adjusted PBT;

Corresponding level of Pool funding;

The Performance Objectives applicable to the CEO; and

The performance rating applicable and Award payable to the CEO.

The CEO or his delegate(s) determines annually:

Individual Performance Objectives applicable to all other employees;

Allocation of Awards for the CEO and the Executive Director (ED) will be at the discretion of the Board

and at the discretion of the CEO or his delegate(s) for other employees.

Individual Awards are determined by an assigned rating subject to moderation based on available

Pool funding and the distribution of Ratings across all GHIB employees i.e. the allocation of awards is

predicated on a broadly normal distribution of Ratings across all GHIB employees. If the distribution is

skewed such that more employees are rated 4 and 5 than are rated 1 and 2, funding will be

insufficient and Final Awards will be lower on average.

Pool funding is absolute and may not be exceeded without the express authorisation of the

Committee and Board.

A review of the general principles of the Bank’s Remuneration Policy takes place at least once a year

and the last time a review took place was as part of the Committee’s meeting held on 22nd April 2016.

There were no material changes to the policy.

The Heads of Compliance and Risk report to Executive Management, but with dotted reporting lines

to the Chairman of the Audit, Risk and Compliance Committee.

The Heads of the control functions are fully empowered with direct access to Board members and are

not directly controlled or constrained by management.

Remuneration of the Heads of Control functions is determined following prior consultation with the

Committee. The objectives for these personnel are pre-approved by Audit, Risk and Compliance

Committee annually.

Both the Head of Compliance and the Risk Manager are remunerated against external management

data for fixed remuneration and against personal objectives for bonus purposes linked to Compliance

and Risk Management deliverables.

(C) Description of Ways in Which the Current and Future Risks are taken into account in the

remuneration processes. Disclosures should include an overview of the key risks, their measurement

and how these measures affect remuneration.

The performance measures are for the current year only. No future earnings streams feature in the

bonus pool calculation. Approximately 85% of annual revenues fall due in the current year. The

Bank’s risk weighted assets are typically short-term in nature. Certain fees which are not considered

material are applied upfront and all other earnings are spread over the life of the asset.



The Bonus Awards for Executive Directors are adjusted on the recommendation of the Audit, Risk and

Compliance Committee as to whether or not risk and compliance objectives have been met.

(D) Overview of the main performance metrics for the Bank

The categories of Performance Objectives are reviewed and agreed annually by the Committee. This

includes four categories for the Executive Directors as follows:

Growth;

Liquidity and capital management;

Operational development; and

Risk.

The score card determined for the CEO by the Committee is cascaded down through the Bank as

individual objectives.

Allocation of awards to the CEO and Executive Director are done on a discretionary basis by the

Committee after risk adjustment factors are considered on recommendation by the Audit Risk and

Compliance Committee.

Individual Awards are allocated as follows;

Rating assigned by Line Managers;

Indicative Award determined;

Indicative Award subject to moderation based on Pool funding and distribution of Ratings

across all GHIB employees; and

Final Award determined.

The AIP is discretionary and has in-built mechanisms for determining a bonus pool. In the event that

performance is weak or loss-making the determination to make any bonus award is at the discretion

of the Board and on the recommendation of the Committee.

(E) Adjusting Remuneration to take account of longer-term performance.

Due to the Bank being proportionality level 3, the Bank has dis-applied the rules on deferral of

variable remuneration in 2016.

(F) The Bank only offers cash variable remuneration to all employees eligible. Other instruments

are not applicable.



REM 1 Remuneration during the Financial Year

A B

Remuneration Amount Senior Management Other Material Risk Takers

1 Fi

xed

Rem

un

erat

ion

Number of Employees 12 2

2 Total fixed remuneration (3+5+7) £1,148,240 £122,884

3 of which cash based £1,148,240 £122,884

4 of which deferred Na Na

5 of which shares or other share linked instruments Na Na


7 of which other forms Na Na


9

Var

iab

le r

emu

ner

atio

n

Number of Employees 4 2

10 Total variable remuneration (11+13+15) £327,794 £60,355

11 of which cash based £327,794 £60,355


13 of which shares or other share linked instruments Na Na


15 of which other forms Na Na



NB:

Fixed remuneration consists of base salary, company pension and any other fixed

allowances. Variable remuneration consists of the discretionary annual bonus awarded in

respect of performance during 2016.

REM 2 Special Payments

There were no special payments made in 2016 (We do not have guaranteed bonus

payments; sign on awards and no severance payments were made in 2016).

Template REM 3 Deferred Remuneration

Due to the Bank being proportionality level 3, the Bank has dis-applied the rules on deferral

of variable remuneration in 2016.

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