HFC Bank Ghana: Banking

THE COMPANY: HFC Bank Ghana was incorporated in May 1990 as the Home Finance Company under the Companies’ Act 1963 (Act 179), and obtained its licence as a non-bank financial institution in August 1994. The bank, which commenced operations as a mortgage finance institution in July 1990, has since evolved into a fully fledged bank. It went public in October 1994 and listed on the Ghana Stock Exchange in March 1995.

HFC operates under three divisions, namely commercial banking, mortgage and consumer loans, and investment banking. The bank has three wholly owned subsidiaries: HFC Investment Services, HFC Realty and HFC Brokerage Services and a 51% equity holding in HFC Boafo Microfinance Services.

Over the past five years, the bank has maintained an average dividend payout ratio of approximately 24%, which is within range of its peers by asset size. In addition, between 2008 and 2011, the bank reported an average net income growth of 64%, despite a 6% decline during 2009.

Loans and advances (L&A) to customers has grown at an average of 20% over the past four years. L&A grew by 38% in 2008 but levelled to 13% over the following three years due to increased competition from the IFC-backed Ghana Home Loans and a focus on high-quality loans only. As a result, HFC has reduced its exposure to the mortgage market over the years, and currently has over 50% of its portfolio in the commercial segment.

The bank recently also started a pension fund custodian and fund management business, and it will continue to seek opportunities tied to the National Pensions Act 2008 (Act 766).

DEVELOPMENT STRATEGY: HFC’s strategy is to strengthen all of its business units and improve profitability and efficiency across branch operations in spite of an increasingly competitive landscape. The bank expects to improve its liquidity position and build a robust structure to mitigate (non-) specific risks.

Key on the bank’s agenda is the establishment of strategic alliances and overseas networks. HFC will do this by expanding its operations in the West African sub-region, South Africa, North America and the EU (with the UK specifically targeted).

External funding is required to support these strategies and HFC intends to do this through strategic investors. In 2011, and in accordance with Bank of Ghana directives, HFC increased its stated capital to GHS45m ($26.7m).

At the annual general meeting held on April 26, 2012, the bank’s board and shareholders passed a resolution to raise up to GHS50m ($29.6m) in ordinary shares through a private placement to increase the stated capital further.

Management expects to complete the capitalraising effort by the end of 2012 through which it will recapitalise the bank, increasing its stated capital to circa GHS100m ($59.3m). More importantly, the injection will enable the bank make measured investments in its subsidiaries, upgrade its processes to meet ISO banking standards, develop its human capital and seek investment opportunities in other West African countries.

Proceeds from the recapitalisation exercise will also fund the full automation of the bank’s operations. Also, a bigger balance sheet will fund the bank’s small and medium-sized enterprises business, help it participate in large-sized oil and gas syndications and support the issuance of good quality infrastructural and residential estate advances.

In the interim, HFC will continue to consolidate its market position by actively pursuing the ongoing rebranding exercise, which will increase its visibility and drive forward growth by attracting new clients to the bank’s growing non-traditional businesses. The expected future growth will depend on management’s ability to provide efficient services supported by the full realisation of HFC’s headline strategies and an enabling macroeconomic environment.