SOGEGH: SOCIETE GENERALE GHANA LIMITED

Equity Report On SOCIETE GENERALE GHANA LIMITED 1

Amounts in SOGEGH: SOCIETE GENERALE GHANA LIMITED Societe Generale Ghana Limited is a public limited company listed on the Ghana Stock Exchange. The Bank is domiciled in Ghana with its registered office at Accra. SOGEGH was first incorporated in February 1975 under the name Security Guarantee Trust Limited. In 1976, SSNIT, the sole owner changed the company s name to Social Security Bank Limited (SSB) and obtained the licence to operate as a bank. On October, 1995 the company listed on the Ghana Stock Exchange. SSB was acquired by Societe Generale in March 2003 at a high price of 50 million Euros. Currently, Societe Generale has 52.24% share ownership of the bank, making the bank a subsidiary of the Societe Generale Group. The Bank is authorized and licensed to carry out the business of banking and to provide retail banking, corporate banking, investment banking and other financial intermediation activities. It also provides specialized financing activities such as leasing and consumer credits through its divisions across Ghana. It has one of the biggest banking networks in Ghana with over 45 fully networked branches. 2 2014 EARNINGS REVIEW IMPRESSIVE GROWTH IN CUSTOMER DEPOSITS With the high interest rate on money market instruments as an alternative to savings, the bank s ability to increase customer s deposits to 1,127,429,783, a 21.7% increase over 2013 s figure was appealing. Despite the challenging depositmobilization economy, current accounts grew by 61.4%. The bank had engaged in business with bulk oil distribution companies, which mainly accounted for this increase in call accounts. It intends to further this relationship aggressively as a key sale objective. 1,200,000,000 1,000,000,000 800,000,000 600,000,000 400,000,000 200,000,000 DEPOSITS FROM CUSTOMERS 37.27% 2011 2012 2013 2014 Year 7.80% 21.74% We expect customers deposits to increase further in 2015 by 500 bps to 26.73% increase. Share Price(311214) 1.00 Target Price 1.05 Expected Dividend Yield (2015) 0.06 Potential Yield 12.9% Primary Exchange Stock Exchange Symbol GSE SOGEGH 52 Weeks High Low 0.621.18 Website YTD (As at 311214) 33.33% ww.sg.ssb.com.gh Issued Shares 333,893,894 Authorized Share 500,000,000 Sector Banking HOLDING COMPANY SG Financial Services BOARD OF DIRECTORS Kofi Ampim Board Chairman Gilbert Hie Francois Michel Arnaud Crouzet Alexandre Maynaud Michel Miallles Pierre Wolmanians Teresa Ntim Nii Adja Nablah Christian Celin Kofi Asamoah Angela Nanansaa Bonsu Managing Director Deputy Managing Director Executive Director NonExecutive Director NonExecutive Director NonExecutive Director NonExecutive Director NonExecutive Director NonExecutive Director NonExecutive Director Secretary

Amount in SOGEGH: SOCIETE GENERALE GHANA LIMITED SUSTAINABLE GROWTH IN LOANS AND ADVANCES. Loans and advances have more than doubled in the four year period from 2011 to 2014 recording an average growth of 37%. However, the 2013 to 2014 growth rate was lower than the previous period at 19%. The high interest lending rates by the commercial banks in the economy rose to 29% from 25.6% in 2014. The increase had led to a general decline in loans and advances in the industry. It had also become riskier to give personal loans due to the weak economy. As a primary dealer in the Government of Ghana (GOG) Securities, the bank increased its activities in GOG securities as an alternative to giving out loans by 11% to generate an income increase of 34%. LOANS AND ADVANCES 1,000,000,000 900,000,000 800,000,000 700,000,000 600,000,000 500,000,000 400,000,000 300,000,000 200,000,000 100,000,000 14.39% 50.95% 2011 2012 2013 2014 Year 42.36% 19.27% Total Assets growth for 2014 leaped to 1.6 bill representing a 37.76 percentage growth, the highest growth in Assets in the period under review. Gross Advances for the banking industry averaged 46.8% increase in 2014 from an industry increase of 47.1% in 2013. We are projecting loan growth to increase by 33.66% in 2015. PROMOTIONAL EFFICIENCIES DRIVE UP PROFIT The bank added 2 new strategic branches to its network. Promotional campaigns launched by the various segments under the bank enhanced the brand image of the bank. 80,000,000 70,000,000 60,000,000 50,000,000 40,000,000 30,000,000 20,000,000 10,000,000 20.65% PROFIT BEFORE TAX 21.62% 25.11% 41.61% 2011 2012 2013 2014 Profit before tax growth for 2014 recorded 41.61% as against a growth 25.11% in 2013. 3

Amount in SOGEGH: SOCIETE GENERALE GHANA LIMITED HIGH PARALLEL CORRELATION IN TOTAL ASSET GROWTH AND TOTAL LIABILITIES GROWTH The year on year growth in assets for 2014 was 37.76% as compared to a growth in total liabilities of 42.05%. The 2013 growth for total assets and total liabilities was 11.72% and 11.36% respectively. This close correlation gives the bank a current ratio of 1.03 for 2014. Total Assets fell due to a decline in State loans. 1,800,000,000 1,600,000,000 1,400,000,000 1,200,000,000 1,000,000,000 800,000,000 600,000,000 400,000,000 200,000,000 TOTAL ASSETS AND LIABILITIES 29.47% 33.13% 11.72% 11.36% 37.76% 2011 2012 2013 2014 Total Assets Total Liabilities 42.05% 2011 SUMMARY TABLE 2012 2013 2014 2015F 2016F Net Interest Income 81,912,452 91,998,759 131,936,515 199,708,931 295,566,307 443,373,797 NonInterest Income 15,211,132 26,609,107 24,168,092 40,040,767 50,050,958 62,563,698 Total Income 105,565,287 121,898,921 167,030,109 133,228,770 198,510,867 295,781,192 Profit After Tax 22,872,030 30,266,314 36,364,192 49,811,545 69,736,163 97,630,628 Earnings Per Share 0.0675 0.0906 0.1089 0.150 0.210 0.294 Dividend Per Share 0.04 0.04 0.06 0 0.060 0.065 P/E 6.96 5.30 6.89 6.67 6.15 6.89 P/B 1.04 0.94 1.30 1.50 1.62 1.22 4

Amount in SOGEGH: SOCIETE GENERALE GHANA LIMITED EARNINGS RATIO COMMENTARY STRENGTHENING EQUITY TO DEPOSIT RATIO The equity to deposit ratio reduced from 7.76 points in 2013 to 0.20 points in 2014. A very encouraging improvement in the ratio. The 2013 ratio of 7.76 points was due to low customer deposits mobilization. An improvement in the bank s promotional strategies led to an increase in mobilization and low ratio in equity to customer deposits. COMPARING CUSTOMERS' DEPOSITS TO EQUITY 1,200,000,000 6 1,000,000,000 800,000,000 600,000,000 400,000,000 200,000,000 4.15 5.06 0.13 5.08 5 4 3 2 1 Customer deposits rose to 1.1 bill for the financial year 2014; a growth of 26.73%. 2011 2012 2013 2014 0 Total Equity Deposits from Customers Deposits to Equity Ratio We expect the ratio to inch up marginally to 6.91 due to the bank s embarking on raising it stated capital by the end of the 2015 financial year. INCREASING RISK DUE TO FALL IN CAR The Capital Adequacy Ratio which was at 26.90 points in 2011 kept falling to 19.79, 15.91 and 13.48 in 2012,2013 and 2014 respectively. The ability of the firm s capital to cover its risky investment keeps falling as their risky investment increases. SOGEGH is highly exposed to the derivatives markets and contracts a highly risky market that needs to be closely monitored. Management intends to increase their capital base as part of Basel III accord to improve the CAR. The CAR of the industry for 2014 had fallen to 17.9% in 2014 from 18.5% in 2013, although this ratio is however above the benchmark of 10%. 5

Amount in SOGEGH: SOCIETE GENERALE GHANA LIMITED Capital Capital Adequacy Adequacy Ratio Ratio 30 25 20 15 10 5 0 2011 2012 2013 2014 The falling CAR of SOGEGH will affect the leverage of the company. The 2011 CAR of the bank was a better position in solvency. The bank has reported improving equity to total assets coverage. The equity to total assets ratio which had increased to 5.93 in 2013 improved significantly to fall at 0.132 points. STABLE LIQUIDITY POSITION OF THE BANK The change of cash and cash equivalent to deposits slightly increased from 0.156 points to 0.160 points, a decline to the performance of 2012 and 2011. Net loans to deposits ratio however also fell slightly from 0.79 points in 2013 to 0.78 points in 2014. This is not encouraging as we would expect it to fall in accordance with the increasing growth of the bank. We thus hope that if the retail banking and corporate banking segments of the bank sticks to their new objective to give out more individual and corporate loans, this ratio would improve significantly. 1,200,000,000 1,000,000,000 800,000,000 600,000,000 400,000,000 200,000,000 Liquidity Ratio of the Bank Bank 37.27% 2011 2012 2013 2014 2015 Cash and Cash Equivalents Deposits from Customers Net Loans to Customers Deposits Cash and Cash Equivalents to Deposits 7.80% 21.73% 0.9000 0.8000 0.7000 0.6000 0.5000 0.4000 0.3000 0.2000 0.1000 0.0000 The cash and cash equivalents of the bank has been fluctuating over the period under review going from 181 mill to 144mill and back to 180 mill in 2012,2013 and 2014 respectively. 6

Amount in SOGEGH: SOCIETE GENERALE GHANA LIMITED GROSS NPL RISES STEADILY The NPL ratio of the bank increased by 87.07% in 2014 as against 1.61% fall in 2013. This weak operational performance in NPL was due to deterioration in many corporate accounts. However, term loans increased by 33.2% in 2014 as compared to 14.6% in the previous year. The net NPL ratio almost doubled from 7.35 in 2013 to 13.75 in 2014. The ratio of nonperforming loans to total loans increase shows an adverse effect on the profit of the bank. NONNon PERFORMING Performing Loans LOANS The net NPL ratio almost doubled 1,200,000,000.00 1,000,000,000.00 800,000,000.00 600,000,000.00 8.17 7.47 7.35 13.75 16.00 14.00 12.00 10.00 8.00 from 7.35 in 2013 to 13.75 in 2014. The ratio of nonperforming loans to total loans increase indicates an adverse 400,000,000.00 6.00 4.00 effect on the profit of the bank. 200,000,000.00 2.00 2011 2012 2013 2014 Gross Loans and Advances() Net Loans() Net NPL Ratio We expect the NPL ratio to decline to 10.25 in 2015 on the beck of increasing operational efficiencies by the bank s management. The NPL increment for the banking industry was 5.6% in 2014 from 4.61% the previous year but the NPL ratio for the industry declined to 11.32% from a 12% increase in 2013. 7

OPERATIONAL EFFICIENCY MODERATES COST OF OPERATION Operational Cost to Total Income 300,000,000 0.8 250,000,000 200,000,000 0.67 0.60 0.53 0.56 0.7 0.6 0.5 150,000,000 100,000,000 50,000,000 2011 2012 2013 2014 2015 0.4 0.3 0.2 0.1 0 Cost to Income is expected to inchup marginally by 30 basis points to 0.56 points in the year 2015. Total Income() Operating Expenses() Cost to Income After experiencing a 23.27% increase in operating expenses in 2013 as against 11.30% increase in 2012 operational expenditures, the bank embarked to make improvements in reducing the operating expenses. Nevertheless, the percentage increase in total operational expenses was 33.18% to 133,228,770.00. Consequently, the total income increase in 2013 to total income for 2014 declined by 20.23%. We are projecting the cost to income ratio to increase by 30 bps to 0.56 points for 2015. It is expected that in the bank s objective to increase its total income, extra promotional cost will be incurred. GALLOPING INCREASE IN COST OF RISK 2014 increase in cost of risk shot up by an increase of 126% to an absolute figure of 38 million from a 2013 absolute figure of 16.8 million. The bank has made an increase in provisions to cover some major corporate accounts in the year 2014. Consequently there was an increase in basis point of the Net Cost of Risk from 214.42 basis points in 2013 to 389.62 basis points in 2014. 8

600 400 200 2 1.5 1 0.5 0 0 COST OF RISK 2011 2012 2013 2014 2015F Cost of Risk(Absolute terms: millions) SHARE PRICE VALUATION Cost of Risk(bps) The company s share price had a net assets value of 0.66 as at the end of December 2014. The share price inched up from 0.45, 0.51 and 0.58 through the years 2011, 2012 to 2013 respectively. 126% SOGEGH SHARE PRICE TREND 6/25/2007 6/25/2008 6/25/2009 6/25/2010 6/25/2011 6/25/2012 6/25/2013 6/25/2014 SGSSB Chart Title SOGEGH MARKET SHARE PRICE AGAINST ASSETS VALUE OF SHARE() 40 30 20 10 0 The Net Cost of Risk increased by 126%; in absolute terms to 38.0 mill in 2014 from 16.8 mill as at December 2013 as a result of amended provisions made to cover the deterioration of some key business accounts in the year. Thus, there was an increase in basis point of the Net Cost of Risk from 214.42 bp in 2013 to 389.62 bp in 2014. 1.00 0.80 0.60 0.40 0.20 2011 2012 2013 2014 Net assets method Average Daily Share Price 9

Market Capitalization () COMPARABLE ANALYSIS Net Profit () Equity () Div. Yield ROE EPS P/E P/B P/Sales SOGEGH 333,890,000.00 21,365,038.00 150,673,780.00 0 14.18 0.15 7 1.04 15.63 CAL 553,740,000.00 143,151,000.00 659,896,000.00 7.71 35.80 0.26 4 0.84 3.87 HFC 444,961,377.00 57,895,000.00 248,736,000.00 3.87 23.28 0.18 8 1.79 7.69 ECOBANK 2,228,540,000.00 319,965,000.00 798,423,000.00 2.47 40.07 1.09 7 2.79 6.97 UT 114,080,000.00 10,956,000.00 85,275,000.00 0 12.85 0.02 8 1.34 10.41 GCB 1,404,500,000.00 270,057,000.00 659,896,000.00 6.03 40.92 1.06 5 2.13 5.20 SCB 2,350,570,000.00 208,271,000.00 528,927,000.00 5.65 39.38 1.78 9 4.44 11.29 Source: Annual Reports Ghana (Data as at 31/12/2014) Comparing Net Profit and Total Equity of other listed banks()) SCB GCB UT ECOBANK HFC CAL Equity Equity Net Profit SOGEGH 100.00 200.00 300.00 400.00 500.00 600.00 700.00 800.00 900.00 Millions Source: Annual Reports Ghana (Data as at 31/12/2014) 10

LISTED FINANCIAL COMPANIES DIVIDEND YIELD AND ROE AS AT 311214 DIVIDEND YIELD, ROE AND EPS 45 40 35 30 25 20 15 10 5 0 SOGEGH CAL HFC ECOBANK UT GCB SCB DIVIDEND YIELD ROE EPS Source: Annual Reports Ghana (Data as at 31/12/2014) 2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 SOGEGH has the second lowest ROE amongst the listed financial companies in Ghana with an ROE of 14.18 points as at the year end of 2014. SOGEGH s inability to pay dividend for the 2014 financial year resulted in a nil dividend yield. MARKET PRICE EARNING CURVES OF SOGEGH AND OTHER LISTED COMPANIES 18.00 16.00 14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 MARKET CAPT TO OTHER INDICATORS SOGEGH CAL HFC ECOBANK UT GCB SCB P/E P/B P/Sales EPS of SOGEGH was slightly lower than HFC bank by 0.04 points at 0.1492 points, though the bank still remained the second with the lowest EPS amongst the listed financial companies. Source: Annual Reports Ghana (Data as at 31/12/2014) 11

INCOME STATEMENT FINANCIALS: SUMMARY FINANCIAL STATEMENTS 2011 2012 2013 2014 2015F Interest Income 81,912,452 91,998,759 131,936,515.00 199,708,931.00 279,592,503.40 Interest Expense 13,556,856 17,461,225 24,154,747.00 44,186,330.00 53,023,596.00 Net Interest Income 68,355,596 74,537,534 107,781,768.00 155,522,601.00 226,568,907.40 Net Fees and Commission 22,906,506 29,098,312 4,310,540.00 47,307,796.00 56,769,355.20 Net Trading and Other Income 15,211,132 26,609,107 24,168,092.00 40,040,767.00 46,447,289.72 Total Income 105,565,287 121,898,921 167,030,109.00 242,871,164.00 320,589,936.48 Operating Expenses 72,926,038 81,168,824 100,055,063.00 133,228,770.00 166,535,962.50 Profit before Tax 32,958,777 40,083,353 50,149,477.00 71,016,619.00 91,611,438.51 Profit After Tax 22,872,030 30,266,314 36,364,192.00 49,811,545.00 72,226,740.25 EPS(Diluted) 0.0675 0.0906 0.1089 0.15 0.22 2011 2012 2013 2014 2015F ASSETS Cash and Cash Equivalent 125,508,159 181,127,380.00 144,920,392.00 180,766,261.00 227,765,488.86 Advances to Banks 110,457,803 180,787,174.00 80,751,719.00 170,171,026.00 214,415,492.76 Loans & Advances 344,545,558 520,100,260.00 740,402,911.00 883,044,221.00 1,147,957,487.30 Property & Equipment 63,339,491 67,914,664.00 82,726,831.00 79,141,492.00 91,012,715.80 Total Assets 841,077,204 1,088,926,547.00 1,216,553,205.00 1,675,949,364.00 2,111,696,198.64 2011 2012 2013 2014 2015F LIABILITIES Deposits from Customers 625,822,657 859,085,205.00 926,129,603.00 1,127,429,783.00 1,420,561,526.58 Borrowings 15,800,867 20,425,407.00 35,473,369.00 236,247,094.00 297,671,338.44 Total Liabilities 690,403,424 919,112,242.00 1,023,552,804.00 1,453,966,199.00 1,977,394,030.64 EQUITY Stated Capital 62,393,558 62,393,558.00 62,393,558.00 62,393,558.00 100,000,000.00 Retained Earnings 18,987,445.00 35,978,519.00 50,345,751.00 39,216,585.71 Total Equity 150,673,780 169,814,305.00 193,000,401.00 221,983,165.00 337,414,410.80 12

FINANCIALS: RATIOS 2011 2012 2013 2014 2015F GROWTH% Revenue 15.99 21.09 31.40 49.72 64.13 Total Assets Growth 21.72 29.47 11.35 38.22 47.77 Loan Growth 47.87 43.12 24.40 33.67 Customer Deposits 26.33 37.27 7.80 21.74 26.73 Net Profits 7.58 40.38 21.25 36.98 46.59 CAPITALISATION 2011 2012 2013 2014 2015F CAR 26.90 19.79 15.91 13.48 19.02 Deposits to Equity Ratio 4.15 5.06 0.13 5.08 5.91 Equity to Net Loans 0.44 0.33 9.72 0.25 0.32 Equity to Total Assets 0.18 0.16 5.93 0.13 0.21 LIQUIDITY 2011 2012 2013 2014 2015F Net Loans to Deposits 0.55 0.61 0.80 0.78 0.68 Cash and Equivalents to Deposits 0.20 0.21 0.16 0.16 0.18 Gross NPL Ratio 8.17 7.47 7.35 13.75 10.25 PROFITABILITY 2011 2012 2013 2014 2015F Net Interest Margin 0.55 0.50 0.55 0.53 0.53 NII 6.04 5.27 5.46 4.52 5.32 Cost to Income 0.69 0.67 0.60 0.55 0.56 PBT Margin 0.27 0.27 0.25 0.24 0.3 Net Profit Margin 0.18 0.20 0.18 0.17 0.2 VALUATION 2011 2012 2013 2014 2015F P/E 6.96 5.30 6.89 6.67 6.45 P/B 1.04 0.94 1.30 1.50 1.79 P/S 1.26 1.07 1.27 1.13 1.18 13

CAPITAL RESTRUCTURING STRATEGIES AND OUTLOOK OF THE BANK The bank has by far been restricted in the volume of financial transactions it could undertake because of its capital base. To fulfill its appetite to engage in higher volumes of financial transactions, the board is seeking to increase their share capital to 100mill. The board expects this to improve their Single Obligor Limit and fee income generation. It will also give the bank a competitive edge in dealing with new challenges. HIGH GROWTH IN TREASURY MAY NOT BE SUSTAINED The bank, as a primary dealer in Government of Ghana treasury, increased its volume by 11% in both the money market and bond trading. Interest rates are high in the country as part of the MPC of Ghana s policy s contractionary measure to reduce the money supply available in the economy and to reduce inflation. Interest rates had increased to 21% in 2014. The MPC is however, projecting that it would be able to achieve its objective by midyear of 2015. Interest rates would also fall in accordance with this achievement. An unattractive avenue of treasury market will lead to a fall in treasury trading by the bank which had fetched them an income increase of 34% in 2014. INCREASE IN BANKING PRODUCTS AND SERVICES An effective EChannel has been added to the banks products with the objective of decongesting the banking halls. Visible improvement was noticed after its introduction with almost 6500 users already patronizing the product. An alliance has also been formed with Allianz Assurance to launch Bancassurance, an assurance product. CONCLUSION The Ghanaian economy is growing and the banking industry will continue to experience profitable growth. Responding successfully to emerging external threats, will require industry players to focus on developing an efficient, effective, and flexible banking infrastructure. To remain competitive and be sustainable in the long term requires the bank (SOGEGH) to innovate and transform its operations. Increased competition, growing customer demands, and new regulations will continue to add complexities to the operations of Societe Generale Ghana limited. These complexities can lead to an inability to capture opportunities or respond successfully to global or local challenges. The bank has already begun to innovate and transform its operations. Though this is returning a slow growth, we hope that it will make them sustainable in the long run. 14

Strategic Hedge Capital () is a Ghanaian leading financial institution that engages in investment banking, securities and investment management primarily with institutional clients with its corporate headquarters in Ghana's Gold mining, Oil and Cocoa City, Takoradi. Under brand, it serves hundreds of consumers in Ghana and many of the Ghana's most prominent corporate and institutional clients. The firm is Authorised and Regulated by the Securities and Exchange Commission (SEC) of Ghana. Its three major businesses are: Investment Banking Asset & Private Wealth Global Markets Ghana s most important corporations and institutions entrust us with their business in more than six sectors. With strong portfolio of assets under custody, the Investment Bank provides strategic advice, raises capital, manages risk and extends liquidity across banking and financial markets around the country. 15

Investment Banking Industry Coverage: Energy & Infrastructure Finance Financial Institutions Healthcare Consumer & Retail Product Coverage: Equity Capital Markets Debt Capital markets Mergers & Acquisitions Strategic Advisory Syndicated & Leverage Finance THE TEAM Terex Tedeku Delali Business Analyst Kwame Amamoo Otoo Research Analyst Asiamah Pokuaa Fixed Income Analyst Nana Abena Kwansa Financial Analyst terex@strategichedgecapital.com kwame@strategichedgecapital.com pokuaa@strategichedgecapital.com abena@strategichedgecapital.com 16

Corporate Office 3rd Floor, ARCCU House 60/40 Lorna Avenue, Top Ten Takoradi P.O. Box TD 447 CAL Bank Takoradi, Ghana Email: ibd@ strategichedgecapital.com info@strategichedgecapital.com Tel: 0508994442/0508994444/0508994445 Publisher Disclaimer 17 Every effort has been made to ensure that the information provided in this report is accurate. The update is provided for information purposes only and neither intended for solicitation for the purchase or sale of any financial security. and its employees cannot be held responsible for any errors and no liability is accepted for any losses which may arise from the