As a senior credit risk manager with over 20 years in Ghanaian banking, including roles at banks like Ecobank Ghana, I would approach this lending proposition using established principles such as the CAMPARI framework (Character, Ability, Margin, Purpose, Amount, Repayment, Insurance/Security) and the 5Cs of Credit (Character, Capacity, Capital, Collateral, Conditions), aligned with Bank of Ghana’s Credit Risk Management Guidelines under the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930). Given the eroded profits in 2021 due to currency depreciation and competition, and assuming the provided financial statements and ratios (which appear incomplete but indicate declining performance from 2019-2021), my response would be cautious. I would recommend declining the facility in its current form or approving a reduced amount with stringent conditions, emphasizing risk mitigation to ensure compliance and protect the bank’s interests post the 2017-2019 banking cleanup.

Analysis Using CAMPARI Framework:

• Character: Joojo Banful, the majority shareholder and CEO, has a 20-year satisfactory banking relationship, indicating reliability. However, his noted support for the ruling government raises potential political exposure risks, which could lead to conflicts of interest or repayment issues if government contracts falter (e.g., delays in payments common in Ghanaian public projects). The silent partner Fifii Awotwe adds no active value, but the management team, including a chartered accountant wife and experienced factory manager, shows competence. No adverse credit bureau checks assumed, but I’d verify via Credit Reference Bureaus as per BoG directives.
• Ability: The company has skilled workers and assets like warehouses and trucks, supporting operational capacity. However, profits eroded in 2021 due to cedi depreciation (impacting imported ingots) and competition from China/Takoradi. Assuming ratios show declining profitability (e.g., falling ROE, increasing debt ratios from 2019-2021), ability to service additional debt is questionable. The expansion relies on government contracts, which are high-risk due to payment delays (e.g., similar to arrears in Ghana’s road projects post-DDEP 2022-2024).
• Margin: Base rate is 2% as per exam instructions, but in Ghana, lending rates are typically BoG policy rate (around 30% in 2022 context) plus margin. For working capital, I’d propose 2% base + 10-15% margin (total 12-17%), but given risks, a higher risk premium is warranted. Fees for arrangement and monitoring would apply.
• Purpose: Working capital for supplying iron rods to government projects is legitimate and aligns with manufacturing needs. It could boost turnover, but dependency on public sector exposes to fiscal risks (e.g., budget cuts).
• Amount: GHC 3.0 million seems excessive without detailed cash flow projections. I’d request breakdowns; perhaps approve GHC 1.5-2.0 million phased, tied to contract milestones.
• Repayment: Source from contract proceeds, but government payments are often delayed (e.g., 90-180 days). Assuming cash flow statements show negative trends, repayment capacity is weak. Require assignment of contract receivables.
• Insurance/Security: No security mentioned, but per instructions, indicate type without perfection details. Recommend charge over inventory/warehouses, assignment of government contracts, and personal guarantees from directors. Given assets in Tema, a fixed and floating charge on factory/land (valued via professional surveyors) would be appropriate, considering “gone concern” value under BoG’s security guidelines.

Risks and Mitigation:

• Currency risk: Hedge via forward contracts or source more locally.
• Competition: Diversify markets beyond government.
• Political risk: Monitor via BoG’s operational risk standards.
• Post-2022 DDEP impact: Ensure bank’s liquidity isn’t strained; align with Basel III-adapted capital requirements.

Recommendation: Decline outright due to eroded profits and high risks, or approve conditionally with reduced amount, enhanced security, and quarterly monitoring. This ensures ethical lending and BoG compliance, drawing from cases like UT Bank’s collapse due to poor credit decisions.