a) Sovereign lending involves loans to governments or state entities, fraught with unique risks due to immunity and politics. From my experience in risk management at GCB Bank, especially post-2017 collapses like UT Bank from poor sovereign exposure, five key risks are:

• Political Risk: Changes in government policy or instability leading to repudiation, as in Ghana’s DDEP restructuring affecting bondholders.
• Sovereign Immunity: Legal barriers to enforcement under the State Immunity Act 1978, complicating asset seizure in Ghanaian courts.
• Transfer Risk: Restrictions on currency conversion/transfer due to exchange controls under Act 723, exacerbated by BoG interventions.
• Economic Risk: Downturns reducing repayment capacity, like Ghana’s 2023 inflation post-DDEP.
• Legal Risk: Jurisdictional issues in enforcing judgments, per Brussels/Lugano Conventions, with act of state doctrine shielding actions.

b) Bonds are debt instruments issued for funding, key in Ghana’s market post-recapitalization. Five characteristics:

• Fixed Income: Pay periodic interest (coupon) and principal at maturity, e.g., Ghana’s Eurobonds with semi-annual coupons.
• Maturity: Defined term (short/long), redeemable at par; callable bonds allow early redemption.
• Credit Rating: Assessed by agencies (e.g., Moody’s), influencing yield; Ghana’s bonds downgraded during DDEP.
• Secured/Unsecured: Backed by assets or general credit; sovereign bonds often unsecured.
• Transferability: Tradable on secondary markets, enhancing liquidity under BoG’s sustainable banking principles.

c) Default constitutes failure to meet obligations under a term loan agreement, triggering remedies like acceleration. It’s a breach allowing lender action, per covenants in facility letters. Five events constituting default by a customer:

• Non-Payment: Missing principal/interest, after grace period (e.g., 5 days), common in Ghana amid liquidity crunches.
• Breach of Covenant: Violating financial ratios (e.g., debt-service coverage <1.5x) or negative pledges, monitored under BoG’s CRD.
• Cross-Default: Default on other debts exceeding threshold (e.g., GH₵1M), amplifying risk as in syndicated loans.
• Insolvency: Bankruptcy proceedings or inability to pay debts, per Insolvency Act, 2006 (Act 708).
• Material Adverse Change (MAC): Significant deterioration in borrower’s position, subjective but key in volatile sectors like Ghana’s oil post-DDEP.