Zenith Bank Plc Annual Report 2018

Plain-text annual report

(cid:49)(cid:38)(cid:48)(cid:49)(cid:45)(cid:38)(cid:1)(cid:53)(cid:38)(cid:36)(cid:41)(cid:47)(cid:48)(cid:45)(cid:48)(cid:40)(cid:58)(cid:52)(cid:38)(cid:51)(cid:55)(cid:42)(cid:36)(cid:38)(cid:21)(cid:19)(cid:20)(cid:27)(cid:40)(cid:83)(cid:80)(cid:86)(cid:81)(cid:1)(cid:34)(cid:79)(cid:79)(cid:86)(cid:66)(cid:77)(cid:1)(cid:51)(cid:70)(cid:81)(cid:80)(cid:83)(cid:85)(cid:1)(cid:7)(cid:1)(cid:39)(cid:74)(cid:79)(cid:66)(cid:79)(cid:68)(cid:74)(cid:66)(cid:77)(cid:1)(cid:52)(cid:85)(cid:66)(cid:85)(cid:70)(cid:78)(cid:70)(cid:79)(cid:85)(cid:84)01STRATEGIC REPORT 1. 2. 3. 4. 5. 6. 7. 8. 9. Corporate Information Results at a Glance/Key Performance Indices Group Financial Highlights Corporate Proﬁle & Strategy Notice of Annual General Meeting Chairman’s Statement Chief Executive Oﬃcer’s Review Board of Directors (in pictures) Directors’ Report 02GOVERNANCE & SUSTAINABILITY 10. 11. 12. 13. 14. Corporate Governance Report Report to the Directors on the outcome of the Board Evaluation Sustainability Report Statement of Directors’ Responsibilities Report of the Statutory Audit Committee 03FINANCIALS 15. 16. 17. 18. 19. 20. Independent Auditor’s Report Consolidated and Separate Statement of Proﬁt or Loss and Other Comprehensive Income Consolidated and Separate Statements of Financial Position Consolidated and Separate Statement of Changes in Equity Consolidated and Separate Statements of Cash Flows Notes to the Consolidated and Separate Financial Statements 04 OTHER NATIONAL DISCLOSURES 21. 22. 23. 24. 25. Value Added Statement Five Year Financial Summary Share Capital History Style by Zenith Forms s t n e t n o C 2 Contents 4 5 6 9 20 22 28 32 34 44 58 59 65 66 68 76 77 78 81 83 220 222 226 227 231 Strategic Report01Chairman Group Managing Director/CEO Non-Executive Director/ Independent Non-Executive Director Non-Executive Director Non-Executive Director/ Independent Non-Executive Director/ Independent Non-Executive Director/ Independent Deputy Managing Director Deputy Managing Director Executive Director Executive Director Executive Director Zenith Bank Plc Annual Report December 31, 2018 Zenith Bank Plc Annual Report December 31, 2018 Corporate Information Directors, Officers And Professional Advisers DIRECTORS Mr. Jim Ovia, CON. Mr. Peter Amangbo Alhaji Baba Tela* Prof. Chukuka Enwemeka Mr. Jeﬀrey Efeyini Prof. Oyewusi lbidapo-Obe Mr. Gabriel Ukpeh Engr. Mustafa Bello Ms. Adaora Umeoji Mr. Ebenezer Onyeagwu Mr. Ahmed Umar Shuaib Dr. Temitope Fasoranti Mr. Dennis Olisa *Retired from the Board eﬀective October 2, 2018 COMPANY SECRETARY Michael Osilama Otu REGISTERED OFFICE Zenith Bank Plc Zenith Heights Plot 87, Ajose Adeogun Street, Victoria Island, Lagos AUDITOR KPMG Professional Services KPMG Tower Bishop Aboyade Cole Street, Victoria Island, Lagos REGISTRAR AND TRANSFER OFFICE Veritas Registrars Limited (formerly Zenith Registrars Limited) Plot 89 A, Ajose Adeogun Street, Victoria Island, Lagos t r o p e R c g e t a r t S i 44 Results at a Glance/ Key Performance Indices Financial Highlights In millions of Naira 31-Dec-18 31-Dec-17 % Change Income statement Highlights Interest and similar income Net Interest income Operating income Operating expenses Profit before tax Profit after tax Earnings Per share (N) Balance sheet Highlights Gross loans and advances Customers' deposits Total assets Shareholders' fund Key ratios Return on average equity (ROAE) Return on average assets (ROAA) Net interest margin (NIM) Cost of funds Cost of risk Cost-to-income Liquidity ratio Loan to deposit ratio Capital adequacy ratio (CAR) Non-performing loans 440,052 295,594 457,185 (225,500) 231,685 193,424 6.15 2,016,520 3,690,295 5,955,710 815,751 23.8% 3.3% 8.90% 3.1% 0.9% 49.3% 72.0% 44.2% 25.0% 4.98% 474,628 257,991 422,730 (223,411) 199,319 173,791 5.53 2,252,172 3,437,915 5,595,253 812,116 22.9% 3.4% 8.94% 5.2% 4.3% 52.8% 69.7% 54.5% 27.0% 4. 70% -7% 15% 8% 1% 16% 11% 11% -10% 7% 6% 0.5% 4% -3% 0% -40% -79% -7% 3% -19% -7% 6% t r o p e R c g e t a r t S i 55 Total deposits grew by 7% (N252bn) reflecting public also rebalanced towards cheaper retail deposits. 16% growth in PBT is largely attributable to the effective management of the three levers of cost; cost of funds, cost of risk, and cost-to-income ratio. Total assets grew by 6% to close at N6trn enhancing Profit afterer tax increased by 11% (N19.6bn) driven by improved profit before tax as well as an efficient tax management strategy. confidence in the Zenith brand. The funding mix was our balance sheet.Group Financial HighlightsZenith Bank Plc Annual Report December 31, 201866Strategic ReportZenith Bank Plc Annual Report December 31, 2018 Shareholders’ funds grew year-on-year by 0.5% to close at N816bn providing adequate buffer for business expansion. Consistent and growing dividend payout in the last 7 years. The payout increased by 4% year-on-year. With this proposed dividend we are recording a dividend yield of 12% (2017: 11%). Return on Average Equity (RoAE) grew by 4% year-on-year while Return on Average Asset (RoAA) remained flat at 3.4% reflecting a strong commitment to delivering impressive retutrns to investors. Decrease in interest expense by 33% is as a result of efficient rebalaning of the Group’s deposit mix in favour of low cost deposits. 2018 2017 77Strategic 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Financial HighlightsZenith Bank Plc Annual Report December 31, 201888Strategic ReportZenith Bank Plc Annual Report December 31, 2018Corporate Proﬁle & Strategy its resilience O ver the past years, Zenith Group (“Zenith”) has redeﬁned customer service standards and created diverse service delivery channels through strategic deployment of its people, information and communication (ICT). Within twenty-eight years, Zenith has technology demonstrated irrespective of the business/ economic cycle and witnessed growth in virtually all areas. Its growth is driven principally by strategic business focus and a conservative business model. The Group has a stable and experienced management team that is well positioned for strong execution leading to signiﬁcant market share opportunities. Today, Zenith is undoubtedly, one of Nigeria’s strongest banking brands and one of the country’s largest banks by market capitalization, proﬁtability and total assets. Our branding has been anchored on continued investment in people, technology and excellent customer service. The combined intellectual capital and dedication of the staﬀ, Management and Board have shaped Zenith into the world-class institution that it is today. From inception Zenith clearly set out to distinguish itself in the banking industry through its service quality, drive for a unique customer experience and the calibre of its customer base. Over the years the Zenith brand has become synonymous with leadership in the use of Information and Communication Technology (ICT) in banking and general innovation in the Nigerian banking industry. The Group serves its customers through a variety of business location spread across Africa, Europe, Middle East and Asia. These comprise of a total of 596 business locations (see page 17 for more details) in Nigeria and the rest of the world. However, in line with advances in technology, the bank has also invested heavily in electronic and digital channels including ATMs, POS terminals, internet and mobile banking applications and as a result there has been an exponential upsurge in the volume of transactions consummated over digital channels with a corresponding decrease in transactions completed at physical outlets and branches. Zenith Bank has remained a Tier 1 bank and is adequately capitalised to meet and even surpass all our customers’ needs and expectations. The bank has eﬃciently deployed its competitive edge of excellent customer services, size, brand name, branch network and customer reach, stable management as well as motivated workforce, strong capital and liquidity base in order to eﬀectively compete in the Nigerian banking landscape. Today, Zenith is easily associated with the following attributes in the Nigerian banking industry: • • • • • • • Innovation Good financial performance Stable and dedicated management team Highly skilled personnel Leadership in the use of Information and Communication Technology Strategic distribution channels Good asset quality t r o p e R c g e t a r t S i 99 Our Vision“To build the Zenith brand into a reputable international ﬁnancial institution recognized for innovation, superior customer service and performance while creating premium value for all stakeholders”.Our Mission“Establish a presence in all major economic and ﬁnancial centres in Nigeria, Africa and indeed all over the world; creating premium value for all stakeholders”Core Values. Integrity. Professionalism. Excellence. Ethics. Commitment· Transparency· ServiceMISSIONVISIONCorporate Proﬁle & StrategyZenith Bank Plc Annual Report December 31, 20181010Strategic ReportZenith Bank Plc Annual Report December 31, 2018The Bank opted to and operates a commercial banking model and as a result Zenith now focuses and channels its resources only on its core business segments, international subsidiary its pension/custodian services and nominees businesses, business only. Core Business Segments a) The Bank’s core business segments provide a broad range of banking products and services to a diverse range of customers which include corporates, ﬁnancial institutions, investment funds, governments and individuals. These business activities are conducted through the following business units: Institutional and Investment Banking • Corporate Banking • Commercial/SMEs • Retail Banking • Public Sector Banking • Institutional and Investment Banking The Institutional and Investment Banking Unit (the “IIBU”) manages the Group’s business relationship with other banks, ﬁnancial institutions, multilateral agencies, securities houses, insurance companies, asset management companies and other non-bank ﬁnance companies, private equity and venture funds. The IIBU also assists individuals, corporations and governments in raising capital by underwriting and/or acting as the client’s agent in the issuance of securities as well as assisting companies in mergers and acquisitions processes. The unit through its Treasury sub unit provides ancillary services such as market-marking, derivatives trading, ﬁxed income instruments, foreign exchange, commodities and equity securities and manages the group’s correspondent banking relationships. The Treasury sub-group works closely with Business Focus branches and various business focus Groups as well as corporate customers and pension funds to deliver currency and ﬁxed income solutions tailored speciﬁcally for their requirements. The Treasury sub-group focuses on creating wealth while mitigating interest rate and foreign exchange risks for the Zenith Group and its customers.- Treasury oﬀers the Group’s customers a broad array of money market and foreign exchange services that enable them to carry out their business operations locally and internationally. The Treasury sub-group’s activities are carried out through four units: the Liability and Deposit Management Unit, Bonds Trading Unit, Foreign Currency Trading Unit and the Correspondent Banking Unit. Corporate Banking The Group’s Corporate Banking business unit oﬀers a wide variety of services to multinationals, large local conglomerates and corporate clients. The unit is focused on providing superior banking services and customized banking products to the top tier of the market. It is primarily focused on attracting, building and sustaining strong enduring relationships with its target market through the provision of innovative solutions together with excellent customer services to meet clients’ banking needs. It also looks at promoting the businesses of these corporate clients through the provision of services to the various stakeholders within the value chain of these corporate clients. This is aimed at building long-term relationships and partnership with our clients. Within Corporate Banking, industry speciﬁc desks or sub-units exist to facilitate the eﬃcient and eﬀective management of the relationships with the unit’s corporate customers. These sub- units include; a) b) c) Transport and Aviation, Conglomerates Breweries & Beverages t r o p e R c g e t a r t S i 1111 Zenith Bank Plc Annual Report December 31, 2018 Zenith Bank Plc Annual Report December 31, 2018 Corporate Proﬁle & Strategy d) e) f ) Oil and Gas Power, Infrastructure and Construction. Telecommunications and Fintechs Commercial/SMEs The Commercial/SME unit focuses on all small and medium enterprises (SMEs), commercial businesses which comprises of personal current, and savings accounts customers and all unincorporated entities (such as societies, clubs, churches, mosques etc). It oﬀers in the form of overdrafts, import ﬁnance lines, term loans and leases to the customers especially those involved in the sales and distribution of fast moving consumer good items and key distributors to major manufacturing companies. Credit facilities oﬀered by the unit are priced higher than those extended to corporate or institutional banking customers, in order to compensate for the relatively higher risk. loans and advances The Group oﬀers a wide range of generic banking services and products to meet the needs of the customers in this sub-sector. These include various lending and deposit products such as working capital lines (overdraft, invoice discounting, invoice/ contract ﬁnancing, stock ﬁnancing, etc), lease ﬁnance lines, Bonds and Guarantee lines, current account, domiciliary accounts and ﬁxed deposit accounts . Ancillary services rendered to this sub- sector include; local drafts issuance, local inter/intra bank funds transfers payroll services, bill payments, safe custody, duty/tax payments and remittances and so on. The Group aims to build a value chain synergy between this sub-sector and the corporate banking clients thereby promoting businesses across the various business units. Retail Banking Generally, the Group’s Retail Banking businesses are conducted through its extensive branch network, electronic and digital It oﬀers various banking services to primarily channels. individuals. t r o p e R c g e t a r t S i 1212 Personal banking is structured to develop and promote the retail business generally and provide banking services to individuals through traditional branches, as well as electronic banking channels. Attracting, winning and retaining this segment of customers is through the development of customer value propositions (CVPs) unique to each customer sub-segment and the delivery of these CVPs are principally through the branches, electronic and digital channels. The personal banking products and services range from standard to specialized savings, current, domiciliary and investment accounts modiﬁed to suit individuals of diﬀerent strata of life. Examples of such specialized products are the Zenith Children Accounts (ZECA), Individual Current and Savings Accounts, Easysave Classic and Premium Accounts (ﬁnancial inclusion institution customers), Aspire Savings Accounts students) and Platinum and Gold Current Accounts (high net worth individuals) etc. The sub-group also oﬀers credit products including personal loans, advances, mortgages, asset ﬁnance, and credit cards. E-business products oﬀered include internet banking and mobile banking services (mobile app) and *966# EazyBanking, Zenith Scan to Pay, EazyMoney etc. Numerous channels such as ATMs, cards, POS terminals, internet and mobile banking is to eﬀectively service this segment of the market. (tertiary institutional counterparties to support its funding needs. Through eﬀective treasury management, Zenith UK trades in ﬁxed income instruments which include government and institutional bonds and certiﬁcates of deposit. Zenith UK also has a wealth management unit which is dedicated to oﬀering long- term investment advisory and wealth management solutions to its customers. Zenith Bank West African Subsidiaries Public Sector Banking The Public Sector Group (PSG) provides services to meet the banking needs of all tiers of government (federal, state and local governments), ministries, departments and agencies, The focus of the PSG business is all institutions operating under the auspices of Government, including those within the executive, legislative and judiciary branches, and at the Federal, State and/ or Local Government levels. Some of the products and services oﬀered to the public sector include revenue collection schemes, cash management, deposit and investment, electronic payroll systems, oﬀshore remittances and foreign exchange and project ﬁnance. b) Overseas Subsidiaries The Group’s overseas subsidiaries carry out banking operations, providing traditional banking products and services tailored to meet the needs of those customers who are either located in countries where the subsidiaries are based or who have a business presence in such locations. Each of the Group’s overseas subsidiaries act as intermediary between the ﬁnancially surplus and deﬁcit units in their locations, oﬀering a wide range of products and services to attract deposits and extend loans and advances. The Group’s overseas subsidiaries include the following: Zenith Bank UK Limited Zenith Bank UK Limited (“Zenith UK”) leverages on trade and investment ﬂows between Nigeria and Europe to intermediary banking services which include post shipment ﬁnance, back to back letters of credit, standby letters of credit and contract guarantees. Zenith UK also provides facilities for working capital and capital expenditure directly to Nigerian borrowers through participation in syndicated loans. The subsidiary acts as the contact point for correspondent banking relationships with Nigerian and other West African banks by providing facilities for letter of credit conﬁrmation and treasury products. The operational mandate of Zenith UK also enables it to source deposits from institutions such as parastatals, corporate and Zenith Bank (Ghana) Limited, Zenith Bank (Sierra Leone) Limited and Zenith Bank (The Gambia) Limited make up our West African subsidiaries. They provide comprehensive trade services to major global corporations and medium sized enterprises operating in the region. With the support of the parent company and Zenith UK which operate an account with Citigroup, the West African subsidiaries have both a global reach and local market knowledge which allows them to provide high quality importing and exporting intermediary services to their respective customers. Solutions are customized to each subsidiary’s customers’ needs, integrating letters of credit and other trade ﬁnance alternatives or products for an end-to-end trade proposition. The West African subsidiaries source deposits from retail, corporate and institutional customers to support their respective t r o p e R c g e t a r t S i 1313 Zenith Bank Plc Annual Report December 31, 2018 Zenith Bank Plc Annual Report December 31, 2018 Corporate Proﬁle & Strategy funding needs. Each subsidiary also lends to customers in diﬀerent sectors of their respective economies, through term loans, short term overdrafts, trade ﬁnance facilities and bonds and guarantees. Investment in ﬁxed income instruments such as treasury bills, government and corporate bonds also form part of the banking activities carried out by each of the West African subsidiaries. Pension and Custodial Services c. The Group’s Pension Custodian services business is conducted through Zenith Pension Custodians Limited (“Zenith Pensions”) which oﬀers pension management and custodian services to pension funds administrators (PFAs). As at 31 December 2018, total funds under its custody amounted to approximately N3,531 billion. Zenith Pensions has 102 funds under its custody which are shared among seven open pension fund administrators, three closed pension fund administrators and two annuities. The main service oﬀerings provided by Zenith Pensions include; collecting pension contributions, paying beneﬁciaries from their respective retirement saving accounts, safe keeping of assets, managing real estate assets of the funds under its custody and the settlement of transactions in ﬁnancial investments such as equities, bonds and treasury bills. Zenith Pensions also provides administrative and record keeping services to the funds under its custody on a day-to-day basis. Zenith Nominees Limited d. Zenith Nominees Limited provides nominees, trustees, administrators and executorship services for non-pension assets. It started operations in 2018. Zenith Nominee seeks to be associated with the following attributes: • • • • • Innovation Good ﬁnancial performance Stable and dedicated management team Highly skilled personnel Leadership in the use of Information and Communication Technology Strategic Distribution Channels Good asset quality • • t r o p e R c g e t a r t S i 1414 Strategic Objectives The strategic objective of Zenith Bank remains the continuous improvement of its capacity to meet the customers’ changing and increasing banking needs as well as sustaining high quality growth in a volatile business environment through: • Continuous investment in branch network expansion and thus bringing quality banking services to our existing and potential customer base Continuous investment and deployment of state of the art technology and ICT platform Continue to seek, employ and retain the best personnel available Continuous investment in training and re-training of our personnel Maintain and reinforce our core customer service delivery charter Sustain strong proﬁtability and ensure adequate Return on Equity (ROE) Remain conservative but innovative Sustain strong balance sheet size with adequate liquidity and capital base Sustain our brand and premium customer services Cautious and synergistic global expansion Remain customer service focused Continuous emphasis on use of technology as a competitive tool Maintain governance practices risk management and corporate strong • • • • • • • • • • • • Locally, branches will continue to be located at commercial business districts in all the state of the federation, taking into consideration the existence of the following: • Commercial activities, enough to ensure that the branch breaks even within a year. Synergistic loop based on business line (i.e. ensuring that the branches are located in areas having similar business lines to facilitate needed synergy). Convenience to our customers. • Our international outlook will focus on consolidating our • presence in our selected African and European markets while we continue to evaluate opportunities in other markets as well. The key strategies that will be used to drive our vision and mission are as follows: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. risk management and corporate Continue to deliver superior and tailor-made service experience to all our customers at all times Continue to develop deeper and broader relationship with all clients and strive to understand their individual and industry peculiarities with a view to developing speciﬁc solutions for each segment of our customer base Continue to expand our operations by adding new distribution channels especially in the digital space Consolidate our leadership as a banking service provider in Nigeria by continuing to build on long standing relationships, capabilities and the strength of our brand and reputation to drive our international business network expansion Continually enhance our processing and systems platforms to deliver new capabilities and improve operational eﬃciencies and achieve economies of scale. Maintain strong governance culture Ensure proper pricing of our products and services Increase our market share of retail banking customers and deploy our E-business tools and enhanced customer service Develop compelling customer value proposition (CVP) for our various customer segments that ensures we can optimise our average revenue per customer. Continuous investment in technology as a driving tool for customer services Increasing corporate ﬁnance activities to boost fee income Leveraging on our existing branch network to drive our product delivery and deposit liability growth Leveraging on our understanding of speciﬁc trade and correspondent banking requirements to drive business relationships with banks and ﬁnancial institutions in the West African sub-region to encourage them to use our foreign subsidiaries for businesses they are currently transacting with other banks 14. Our foreign subsidiaries will target companies that currently have trade partners in Nigeria and other locations where we have presence across the globe and process their trade transactions through the Zenith Bank network. This approach is aimed at encouraging cross border marketing and the routing of a portion of their international trade transactions through the Group. The idea is to demonstrate to the local companies that their relationship with Zenith Bank in their country and dealing with Zenith Bank in another country will be mutually beneﬁcial. “Our Strategic Plan is part of a process of our development, and attempts to engender a commitment to continuous improvement, by focusing and harnessing the energies of everyone in the group. We believe that the concepts of strategic readiness, life-long learning and community engagement encourage and support quality in all aspects of the Bank’s performance.” The lending businesses in all our subsidiaries will focus primarily on international and export trade transactions. It will international trade bills for companies and also providing short-term credits to ﬁnancial institutions that use the bank as their correspondent bank. involve discounting 15. t r o p e R c g e t a r t S i 1515 MARKET AND BUSINESS STRATEGYAs a result of the Group’s decision to comply with CBN Banking Activities Regulation by divesting from its subsidiaries which carry out non-banking activities, the Group’s principal strategy is aimed at promoting the growth and proﬁtability of its banking activities. In the next ﬁve years, the Group will look to continue to pursue organic growth. In the longer term period it intends to improve (through creation and enhancement of new markets and products and services) and consolidate (through superior customer services) local and international awareness of its brand. Its growth and marketing plans will seek to optimize its strengths, maximize available opportunities and minimize identiﬁed threats while taking steps to mitigate the eﬀects of observed weaknesses.The strategic objectives of the Group in the next ﬁve years include:• to be amongst and remain one of the top tier banks in Africa in terms of proﬁtability, balance sheet size, risk assets quality, ﬁnancial stability and operational eﬃciency;• Re-channelling its eﬀorts in deploying more electronic banking products, following the divestment from non-core banking operations. • The Group will look to strengthen its retail banking business by doing a retail banking transformation exercise which will signiﬁcantly grow its retail banking revenue, deposit liabilities and risk assets and obtain a signiﬁcant share of the retail banking industry in Nigeria.• improving its capacity to meet its customers’ changing and increasing banking needs as well as sustain high quality growth despite the volatile business environment;Core Banking TransformationThe Bank has begun implementation of a core banking system to replace existing core banking systems (Ethix/Phoenix) with MISYS suite of banking software and aﬃliated solutions which started in 2016. The bank has successfully gone live on a number of MISYS banking solutions including – Trade Innovation, TradeX, Zenith Trade Portal, Kondor, MPM and LoanIQ which are used to drive our trade services, treasury products/deals and loan processing related customer transactions. These implemented solutions have been seen to improve eﬃciency and streamline operations.Upcoming solutions include Datastore (a document management system that enables the Bank digitize its records using the system’s robust scanning, indexing & retrieval capabilities) which will replace the legacy system ADA. In addition to the Datastore, Essence is the new core banking solution to replace Phoenix and other in-house 3rd party applications. The Essence implementation has gained signiﬁcant traction with the just concluded System Integration Testing (SIT) which to be followed shortly with the User Acceptance Testing (UAT).Corporate Proﬁle & StrategyZenith Bank Plc Annual Report December 31, 20181616Strategic ReportZenith Bank Plc Annual Report December 31, 2018Enhancing the Group’s internal operating systems to reduce costs The Group expects to continue its drive to deploy the latest innovations in banking technology in order to maintain its position at the forefront of the changing banking landscape in Nigeria. In addition, the Group will aim to enhance its systems and internal procedures, in order to be able to improve its levels of customer service by delivering improved operational capabilities and eﬃciencies, whilst at the same time achieving economies of scale. The Group’s increased deployment of digital channels means more customers are able to carry out banking transactions its branches, thereby reducing operating without visiting costs. From an internal operating perspective, the Group has automated most of the operational activities, such as cheque conﬁrmation and clearing processes, account opening processes, credit administration process and internal audit processes. These automated processes have started yielding results in the form of reduced turnaround times in all operational activities as well as a reduction in operating costs. In addition to the above, other strategies that have been have been adopted to streamline our cost include: arranging with training agencies based abroad to train our staﬀ locally where a large number of staﬀ have to be trained thereby reducing cost of travelling, and retroﬁtting some of our equipment including lighting and replacing regular equipment with energy-eﬃcient ones to save on power and energy costs. Business Locations As at 31 December 2018, the geographical spread of the Group’s business locations is as follows: Geographical Locations Branches Cash Centers Non-Banking Operations 374 27 2 6 6 1 1 Federal Republic of Nigeria Republic of Ghana United Kingdom Sierra Leone The Gambia South Africa Representative Oﬃce China Representative Oﬃce Total Grand Total 155 3 10 - - - 11 - - - - - - - 3 596 417 176 As shown above, the Group also has 176 oﬀ-site locations, strategically located in various commercial centres around Nigeria and the African countries in addition to its network of branches. These oﬀ-site locations comprise small business oﬃces such as kiosks/cash oﬃces and are located in the airports, university campuses, large shopping malls or the premises of core customers of the Group. These oﬀ-site locations only oﬀer deposit taking services and the Bank expects their number to decrease over the coming years as the restrictions on the use of cash are put in place throughout Nigeria as part of the CBN’s cashless policy implementation. However, we expect an increase in e-centres where various electronic transactions can be consummated. t r o p e R c g e t a r t S i 1717 Zenith Bank Plc Annual Report December 31, 2018 Zenith Bank Plc Annual Report December 31, 2018 Corporate Proﬁle & Strategy ATM network The Group has a total of 1,891 ATM machines with 1,817 in Nigeria, 59 in Ghana, 9 in Sierra Leone and 6 in The Gambia. The ATM machines are mounted in branches and strategic locations such as airports, university campuses, large shopping malls and premises of large manufacturing ﬁrms employing large numbers of workers. Due to collaboration and shared services arrangements which the Bank has with other banks, ATM cards issued by the Bank are accepted by the ATM machines of other institutions. The Bank also collaborates with other card issuing agencies to oﬀer internationally recognised cards, such as MasterCard and Visa, in diﬀerent currencies to their customers. Distribution Channels Other distribution channels which the Group uses include electronic and digital channels which oﬀers products and services, including electronic fund transfers at points of sale (POS), telephone banking, internet banking, visa telebanking, mobile banking and the Group’s call centres. Furthermore, in addition to being able to use its branches, ATMs and the network of third party ATMs available throughout Nigeria under arrangements between the Bank and third party vendors, the Group’s customers are currently entitled to use the Bank’s card products to pay for goods and services at trade service outlets throughout Nigeria. t r o p e R c g e t a r t S i 1818 The Group has invested signiﬁcantly in software which enables electronic product platforms to interface with core banking applications, hardware to enable data storage and to improve processing speed and in training of its IT staﬀ. The Group has also developed electronic delivery systems in order to implement multiple delivery channels to its customers, including its ATM networks, on mobile devices and over the internet. The Group’s range of internet and mobile banking products and services oﬀer customers services such as collections and remittances of bills (including utility bills), real time internet banking, purchase of mobile phone airtime, funds transfers, cheque requisitions and conﬁrmations, balance enquiries, transfer of/receipt of funds between Visa Credit Cards and Prepaid Cards, and statement services. Speciﬁc electronic products oﬀered by the Group include: • Zenith Scan to Pay – this is a quick response (QR) code solution which involves customers scanning merchants QR displayed in their stores or on their websites using a smart device; *966*911# – this is a distress code to be dialled by Zenith customers to automatically block their accounts where customers’ smart phones has been stolen or privacy details have been compromised; • • USSD on POS – This allows customers to make payments at merchant stores using *966eazybanking even without their payment cards (debit, credit, prepaid);• Corporate i-Bank - a secure online solution that allows corporate customers to carry-out banking transactions on the internet;• Zenith Payroll (Branch i-Bank) - automates the [end-to-end] payroll process of the Group’s customers which eliminates the manual processes involved in the generation of monthly payroll while also remitting funds electronically to staﬀ accounts. The platform provides, database backup, payroll reports, customization option, secure payment authorization and salary payments;• Xpath (Customised Branch Collections) - allows customers to collect or receive remittance from their key distributors and customers through any branch of the Group. The platform also enables customers to capture speciﬁc information relating to their account. Other features of the product include the provision of electronic receipts, PIN Vending and direct integration; • Internet Banking - a real-time solution that provides customers with access to their account 24 hours a day, 7 days a week via the internet;• EaZymoney - Zenith Bank’s mobile money platform is a wallet payment solution that allows customers make withdrawals(cash-out), make deposits(cash-in), transfer funds, pay bills (DSTV, Electricity etc. ) make purchases and top up airtime using their mobile phones. It is a virtual account/wallet created for the subscriber. With this solution, the subscriber’s mobile number will be the account number. Payment for goods and services, cash withdrawals and deposits can be done from this mobile number through an AGENT or a Bank branch.• Global Pay - a convenient, ﬂexible and secure platform for receiving payments through the internet. This platform accepts multi-currency transactions and also provides online transaction monitoring capabilities; and• Electronic Multicard – this product enables merchants to receive payments from customers when they use a bank card issued either by the Group or another institution recognised by Group on this platform. The platform provides additional beneﬁts to customers as it enables merchant to accept payment after banking hours, provides online transaction monitoring, can be customised to capture speciﬁc data and provides an alternative mode of payment.• Visa Telebanking – this innovative oﬀering on the bank’s website allows customers to transfer/receive funds between Visa Credit and Prepaid Cards. It provides real time option for funds transfer between diﬀerent parties and allows you to your Visa Card account online.• *966 EazyBanking - is a convenient, fast, secure, and aﬀordable way to access your bank account 24 hours a day, 7 days a week through your mobile phone without internet data and is available to all individual account holders with any phone that runs on the GSM platform and runs with debit cards. • Zmart - is a free online retail system where the bank’s customers can list their products online in a customizable online mall for buyers. It is suitable for the bank’s customers involved in business with high end retail content who can take advantage of this platform to sell their wares online.1919Strategic ReportZenith Bank Plc Annual Report December 31, 2018 Zenith Bank Plc Annual Report December 31, 2018 Notice of Annual General Meeting NOTICE IS HEREBY GIVEN that the Twenty Eight Annual General Meeting of Zenith Bank Plc will hold at the Civic Centre, Ozumba Mbadiwe Street, Victoria Island, Lagos at 9.00 a.m. on Monday the 18th day of March, 2019 to transact the following business:- ORDINARY BUSINESS 1. To present and consider the Bank’s Audited Accounts for the ﬁnancial year ended 31st December, 2018, the Reports of the Directors, Auditors and Audit Committee thereon. 2. To declare a ﬁnal dividend. 3. To re-elect the following Directors retiring by rotation: (i) Prof. Chukuka Enwemeka (ii) Mr. Dennis Olisa (iii) Engr. Mustafa Bello 4. To authorize the Directors to ﬁx the remuneration of the Auditors. 5. To elect members of the Audit Committee. SPECIAL BUSINESS 6. To consider and if thought ﬁt, to pass the following as ordinary resolution: That the remuneration of the Directors of the Bank for the year ending December 31, 2019 be and is hereby ﬁxed at N20 million only. Dated this 19th day of February, 2019. NOTES: 1. PROXY: A member of the company entitled to attend and vote at the general meeting is entitled to appoint a proxy in his stead. All instruments of proxy should be completed, stamped and deposited at the oﬃce of the Company’s Registrars, Veritas Registrars Limited, 89A, Ajose Adeogun Street, Victoria Island, Lagos State not later than 48 hours before the time of holding the meeting. A proxy need not be a member of the company. 2. Closure of Register of Members The Register of Members and Transfer Books of the Company will be closed from March 11, 2019 to March 15, 2019 (both dates inclusive), to enable the Registrar prepare for the payment of dividend. 3. Dividend Warrants If approved, dividend warrants for the sum of N2.50K for every share of 50K (bringing the total dividend for the ﬁnancial year ended December 31, 2018 to N2.80K) will be paid via e-mandate on the 18th of March, 2019, to shareholders whose names are registered in the Register of Members at the close of business on 8th day of March 2019. Shareholders are advised to forward t r o p e R c g e t a r t S i 2020 particulars or their account details to the Registrar to enable direct credit of their dividend on same day. Note however, that holders of the Company’s Global Depository Receipts listed on the London Stock Exchange will receive their dividend payments after the local payment date. Audit Committee In accordance with Section 359(5) of the Companies and Allied Matters Act, 1990, any shareholder may nominate another shareholder for appointment to the Audit Committee. Such nomination should be in writing and should be forwarded to reach the Company Secretary at least 21 days before the Annual General Meeting. Rights of Shareholders/Securities’ Holders to ask Questions Shareholders/Securities’ Holders have a right to ask questions not only at the Meeting, but also in writing prior to the Meeting, and such questions must be submitted to the Company on or before the 15th day of March, 2019. 4. 5. 6. Unclaimed Dividend Warrants and Share Certiﬁcates Shareholders are hereby informed that a number of share certiﬁcates and dividend warrants have been returned to the Registrars as “unclaimed”. A list of all unclaimed dividend will be circulated with the Annual Report and Financial Statements. Any member aﬀected by this notice is advised to write to or call at the oﬃce of the Bank’s Registrars, Veritas Registrars Limited, Plot 89A, Ajose Adeogun Street, Victoria Island, Lagos during normal working hours. 7. E-Dividend Notice is hereby given to all shareholders to open bank accounts for the purpose of dividend payment in line with the Securities and Exchange Commission (SEC) directives. Detachable application forms for e-dividend and e-bonus are attached to the Annual Report to enable all shareholders furnish the particulars of their bank accounts/CCS details to the Registrars as soon as possible. 8. Proﬁle of Directors The proﬁle of all Directors are available for viewing on the bank’s website, www.zenithbank.com By Order of the Board MICHAEL OSILAMA OTU, ESQ. Company Secretary/General Counsel Plot 87, Ajose Adeogun Street Victoria Island, Lagos t r o p e R c g e t a r t S i 2121 Jim Ovia, CON Chairman’s Statement My Fellow Shareholders, Distinguished Guests, Ladies and Gentlemen; I am delighted to welcome you to the 28th Annual General Meeting of our great Bank and to present to you the Annual Report and Financial Statements for the ﬁnancial year ended December 31, 2018. Without any doubt, your unwavering support and loyalty to the Bank over the years, as evidenced by your large turnout here today, is appreciated. Clearly, 2018 was marked by signiﬁcant global and domestic economic developments with far-reaching implications for our business. The resilience of our Bank, however, enabled us to weather the socio-economic headwinds. It is, therefore, pertinent to review the economic and ﬁnancial environment in which our Bank operated during the period under review. MACRO-ECONOMIC REVIEW T he bank remains a clear leader in the digital space with several firsts in the deployment of innovative products, solutions and an assortment of alternative channels that ensure convenience, speed and safety of transactions for all. Zenith Bank Plc Annual Report December 31, 2018 Zenith Bank Plc Annual Report December 31, 2018 Chairman’s Statement The positive growth trajectory of the Nigerian economy which began in 2017 after exiting recession was maintained in 2018. Measured by real Gross Domestic Product (GDP), the Nigerian economy grew by 1.93 per cent in 2018, up from 0.82 per cent recorded in 2017, according to the National Bureau of Statistics (NBS). The growth performance of the economy was impacted by the dynamics of crude oil price in the international commodities market and domestic oil production. Oil price remained at appreciable levels through a signiﬁcant part of the year driven by the extension of the Declaration of Cooperation to cap production by the Organisation of Petroleum Exporting Countries (OPEC) and non-OPEC oil producers as well concerns about scarcity. The trend was reversed in the last quarter as fears of a glut combined with weak global economic growth to drive down prices. The net eﬀect of these developments was a signiﬁcant improvement in government revenue and accretion to the nation’s foreign reserves. During the year, the goal of the monetary and ﬁscal authorities, to a large extent, was the attainment and sustenance of macroeconomic stability. Thus, the ﬁscal and monetary eﬀorts resulted in the stability of interest and exchange rates. Inﬂationary pressures returned towards the end of the year after spiralling downwards from January to July. The Consumer Price Index (CPI), which measures inﬂation rate, was at 11.44 per cent (year- on-year) in December 2018, 0.16 per cent points higher than the rate recorded the previous month (11.28 per cent), making it the ﬁfth consecutive rise in headline year-on-year inﬂation since July 2018. Similarly, the national currency (the Naira), remained relatively stable at the inter-bank foreign exchange market throughout the year. The Investors’ and Exporters’ FX Window continued to bring some stability to the market and ensured increased availability of foreign exchange as it acted as a key driver of foreign portfolio investment inﬂow into the country. As a result, the quarterly average exchange rate in the interbank market stood at N306.70/$1 as at Q4 2018. Also, the quarterly average foreign exchange rate stood at N364.27/$1 for Q4 2018 in the I & E Window. t r o p e R c g e t a r t S i 2424 Increased foreign reserves played a signiﬁcant role in the stability of the value of the Naira against the US Dollar and other international currencies during the year under review. The sustained rise in the price of oil in the international market from the beginning of the year to early October contributed to the marked increase in the foreign reserves. OPEC production cap from which Nigeria was exempted and global concern about oil scarcity pushed up oil prices such that the OPEC Reference Basket (ORB) averaged $79.39 in October, the highest monthly average since October 2014, thereby increasing the nation’s receipts from oil export. Though the ORB nosedived in the last quarter and closed the year at $51.55, total oil receipts coupled with the various measures adopted by the Central Bank of Nigeria (CBN) in managing Zenith Bank Plc as a forward looking brand and a contending force in the Nigerian financial services industry has remained one of the biggest Corporate Social Responsibility contributors. Our sustainability and CSR initiatives are hinged on the belief that today’s business performance is not all about the financial numbers, but the achievement of a balanced scorecard as demonstrated by an organization’s contribution to inclusive economic growth through improvements in the condition of the host communities and the larger environment. foreign exchange, saw the nation’s gross external reserves, which stood at US$40.69 billion as at January 2018, close the year at US$43.12 billion. The increase in external reserves in 2018 did little to stave oﬀ a continued rise in the nation’s public debt stock during the period. Nigeria’s total public debt stock (external and domestic debt) which was US$70.99 billion (N21.725 trillion) as at end- December 2017, rose to US$73.21 billion (about N22.428 trillion) as at September 2018, according to data from the Debt Management Oﬃce (DMO) of the Federation. The sum distributed by the Federation Account Allocation Committee (FAAC) witnessed a marked increase in 2018. The sum of N655.18 billion was shared by the federal, state and local governments in January 2018 while N812.76 billion was distributed in December 2018. A total of N8.52 trillion was allocated to the three tiers of government in 2018 compared to N6.42 trillion in 2017. A bearish trend persisted in the Nigerian stock market in the year under review. The All-Share Index (ASI) of the Nigerian Stock Exchange (NSE), which opened trading for the year at 38,264.79, lost 6,834.29 points or 17.86 per cent to close trading on December 31, 2018, at 31,430.50. Similarly, market capitalisation shed N1.9 trillion or 16.21 per cent to close trading in the same period at N11.72 trillion as at December 31, 2018, against N13.61 trillion posted on December 29, 2017. The bearish performance of the capital market was attributable to the weak economic outlook, improving yields in advanced economies notably the United States, and general investor apathy usually associated with pre-election years. FINANCIAL RESULTS Owing to a number of global and domestic factors, 2018 was a very challenging year for operators in the Nigerian banking industry. True to our track record, however, we were able to fully exploit the opportunities within the environment to record a performance that attests to our durability and resilience as a brand. Clearly, the results are, once again, a reﬂection of the exceptional ﬁnancial health of the Bank and the Group. For the Bank, total deposits was N2.82trillion for the year ended December 31, 2018, representing a 2.9 per cent increase over the previous year’s ﬁgure of N2.74trillion. Proﬁt-Before-Tax rose by 13.6 per cent, from N169billion in 2017 to N192billion in 2018. Proﬁt-After-Tax similarly rose by 7.8 per cent, from N153billion in 2017 to N165billion in 2018. During the same period, total assets of the Bank grew by 2.7 per cent from N4.83trillion to N4.96trillion; while shareholders’ fund declined by 3.3 per cent, from N698billion to N675billion. Gross earnings similarly declined by 20.2 per cent from N674billion in year 2017 to N538billion in 2018. As a Group, the performance indices were no less remarkable. The Group Proﬁt-Before-Tax grew by 16.6 per cent, from N199billion in year 2017 to N232billion in 2018. Proﬁt-After-Tax thus grew by 10.9 per cent during the period, from N174billion in 2017 to N193billion in 2018. The Group total assets similarly rose by 6.4 per cent, from N5.60trillion in 2017 to N5.96trillion in 2018, while customers’ deposits grew by 7.3 per cent during the same period, from N3.44trillion to N3.69trillion. Group shareholders’ fund grew by 0.5 per cent, from N812billion in 2017 to N816billion in 2018; gross earnings dropped by 15.4 per cent, from N745billion in 2017 to N630billion in 2018. DIVIDEND Zenith Bank remains committed to delivering superior returns to our much-valued shareholders by ensuring that a good chunk of our proﬁt is set aside for you. In clear demonstration of this, we had declared and paid an interim dividend of 30kobo per share in the course of the 2018 ﬁnancial year. We hereby propose a ﬁnal dividend of 250kobo per share. If approved, this will bring the total dividend for the year ended December 31, 2018 to 280kobo per share as against 270kobo per share that was paid in the previous year. t r o p e R c g e t a r t S i 2525 Zenith Bank Plc Annual Report December 31, 2018 Zenith Bank Plc Annual Report December 31, 2018 Chairman’s Statement THE BOARD OF DIRECTORS During the year under review, Alhaji Baba Tela (an Independent Non-Executive Director) retired from the Board with eﬀect from October 2, 2018. This follows the expiration of his tenure of oﬃce, having served the Group for almost twelve (12) years. On behalf of the Board, Management and all shareholders of our great institution, I wish him success in his future endeavours. INVESTMENT IN TECHNOLOGY The Bank remains a clear leader in the digital space with several ﬁrsts in the deployment of innovative products, solutions and an assortment of alternative channels that ensure convenience, speed and safety of transactions. In order to continue to cater to the varied appetites of our customers in a constantly changing world and stay ahead of the competition, therefore, we have invested massively in new technologies and innovative solutions in the last ﬁnancial year. This is geared towards ensuring that we continue to provide best-in-class quality service that create value for all our stakeholders. CORPORATE SOCIAL RESPONSIBILITY Zenith Bank made signiﬁcant progress in its adoption and integration of sustainable banking principles into our business operations, especially the credit administration process. At Zenith Bank, sustainability goes beyond a regulatory requirement. It is the springboard to the future we desire. Hence the Bank is committed to reconsidering its business processes, products and services to ensure compliance with globally acceptable economic, environmental and social norms. Our Corporate Social Responsibility (CSR) and community investments initiatives are targeted to align with the global objectives to end extreme poverty and hunger, protect the planet and create sustainable wealth for all, in line with the United Nations’ Sustainable Development Goals (SDGs). Healthcare improvement, education and skills development, sports development, youth and women economic empowerment, as well as public infrastructure development formed the bedrock of our CSR endeavours. Zenith Bank Plc as a forward looking bank has remained one of the biggest Corporate Social Responsibility contributors. Our sustainability and CSR initiatives are hinged on the belief that today’s business performance is not all about the ﬁnancial numbers, but the achievement of a balanced scorecard as demonstrated by an organization’s contribution to inclusive economic growth through improvements in the condition of the host communities and the larger environment. Through our strategic CSR focus, we have been able to deliver projects that have long-term social and economic beneﬁts for our host communities. In the course of the year, Zenith Bank made donations towards the wellbeing of many individuals and healthcare organizations. In our quest to support government’s eﬀorts at improving the standard of education and human capital development, we supported capacity building workshops and the setting up of ultramodern ICT centres in several educational institutions across the country, among others. We also encouraged youth development through our support for sports at the grassroots and professional levels. In addition to making donations to various State Governments’ Security Trust Fund to improve security and safety of lives and properties, the Bank sponsored various summits, conferences, and seminars organized by governmental and non-governmental agencies targeted at creating platforms to improve policymaking that will sustain economic growth across the local, state and federal levels. A detailed breakdown of our Corporate Social Responsibility initiatives for the year is contained in Note 13 under the Directors’ Report. MACROECONOMIC OUTLOOK It is with a great deal of pleasure that I share our perceptions and approach to business in 2019. It is a known fact that Zenith Bank has maintained its culture of outstanding performance and industry leadership even in a very challenging operating environment. We are constantly monitoring developments in the local and global economic environment, and appropriately t r o p e R c g e t a r t S i 2626 applying pragmatic and dynamic approaches to the banking business. Our strategic focus on the pursuit of shared prosperity has positioned us to seek and leverage new opportunities in the market. We recognise the demands and obligations that exist in the environment where we operate. This has continued to inform our commitment to sustainability principles and global best practices, anchored on good corporate governance and citizenship, and ﬁrst-class risk management. It is a thread that runs through the fabric of our operations. In 2018, the federal government sought to frame the budget to build on the Economic Recovery and Growth Plan (ERGP), the medium-term strategy for 2017-2020, designed to advance macroeconomic stability and economic diversiﬁcation. The proposed 2019 budget seeks to maintain the growth momentum in the ERGP. The aggregate expenditure proposed for 2019 is N8.83 trillion, comprising capital expenditure of N2.03 trillion (inclusive of capital in Statutory Transfers), recurrent expenditure of N4.04 trillion, debt service of N2.14 trillion, statutory transfers of N492 billion, and sinking fund of N120billion. The 2019 federal government budget is predicated on projected crude oil production of 2.3 million barrels per day (mpd); crude oil price of US$60 per barrel; and an average exchange rate of N305/dollar. The ﬁscal deﬁcit is projected at N1.86 trillion or 1.3 per cent of GDP to be ﬁnanced partly by new borrowings estimated at N1.65 trillion. The federal government expects the economy, measured by Gross Domestic Product (GDP), to grow at 3.01 per cent in 2019, up from 1.93 per cent in 2018. The International Monetary Fund (IMF) and the World Bank, however, expect the Nigerian economy to expand by 2 per cent and 2.2 per cent respectively. The subdued growth outlook for the Nigerian economy in 2019 is based on expectations of a decline in oil revenue due to falling oil prices and crude oil production cap of 1.68 (mpd) mandated by OPEC and non-OPEC oil producers. The domestic and global economic environment remain susceptible to several vagaries. Subdued growth is expected in the Nigerian economy similar to 2018, albeit the growth prospect for 2019 is brighter. The beacon of optimism in the outlook for 2019 is the gradual improvement in the performance of the non-oil sectors and their contribution to GDP which is expected to continue in the short to medium term. The major downsides to Nigeria’s growth outlook for 2019 are signiﬁcant fall in global crude oil price, and disruption to optimal oil production. The downsides to global growth outlook are weak commodities prices and international trade tension. In view of these, we shall continue to be pragmatic in our projections while continually creating value for all our stakeholders. APPRECIATION In conclusion, 2018 has been an interesting, challenging but successful year for Zenith Bank. Indeed, the collective eﬀorts of all our staﬀ, Management and Board made it possible for us to sustain our superior performance in the year. I am, therefore, very thankful to our customers for their unﬂinching loyalty; our staﬀ and Management, whose passion and commitment have sustained our very good performances over the years; and our Board, whose vision and exemplary leadership ensure that our Bank does not falter in the pursuit of its mission and objectives. Ladies and gentlemen, I welcome you to the 2019 ﬁnancial year, with unwavering assurance of continued improved performance by our Bank. Thank you. Jim Ovia. CON Chairman t r o p e R c g e t a r t S i 2727 Peter AmangboI n the year under review, we harnessed the enormous potential of our human capital, digital solutions, excellent service culture, and cost control strategies to grow our business and enhance efficiency, which culminated in a stellar performance.GMD/CEO’s ReviewIn 2018, the Nigerian economy continued its recovery from recession albeit slowly, while trade tensions exacerbated in the global economy with attendant economic headwinds on the operating environment. However, a considerable increase in the price of oil in the international commodities market, relative stability in domestic oil production output, and exemption of Nigeria from production cuts by member countries of the Organisation of Petroleum Exporting Countries (OPEC) and non-OPEC members helped ease pressure on the Nigerian foreign exchange market. As a pragmatic institution, we were primed to take advantage of the opportunities availed by the changing dynamics in the domestic and global economy to create value for our stakeholders, while mitigating the negative impacts of macroeconomic headwinds.Zenith Bank Plc Annual Report December 31, 2018 Zenith Bank Plc Annual Report December 31, 2018 GMD/CEO’s Review In the year under review, we harnessed the enormous potential of our human capital, digital solutions, excellent service culture, and cost control strategies to grow our business and enhance eﬃciency, which culminated in a stellar performance. Since its inception, the Zenith brand has been synonymous with innovation and the deployment of cutting-edge technology to cater to the expectations of our customers. Our array of products, services and alternative channels that ensure convenience, speed and security of transactions, and our readiness to deploy state-of-the-art technology has assured that we maintain our leadership in the digital space. Riding on the success of the inaugural “Style by Zenith” – our ﬂagship lifestyle, beauty, fashion, and entertainment fair, we shall continue to intensify eﬀorts towards making further in-roads into the retail segment of the market with new and innovative products that support small and medium-sized enterprises. Our drive towards entrenching sustainable principles in our business operations gained further momentum in the year under review. Our corporate social responsibility initiatives and investments are hinged on the ﬁrm belief that our performance is not all about proﬁt – we believe that our social investments, contributions to inclusive economic growth and development, as well as improvements in the condition of the physical environment all constitute our balanced scorecard in line with the Sustainable Development Goals. As a ﬁnancial institution, we continue to place a high premium on developing a robust risk management framework which has helped in promoting the soundness of the bank, protecting its assets, and ensuring its growth. We are committed to entrenching a robust enterprise risk management, global best practices in corporate governance and sustainability in the coming years. In the year under review, Zenith Bank was recognised as the “Best Bank in Corporate Governance” (World Finance), “Bank of the Year” for the second consecutive year (BusinessDay Awards), and “Best Institution in Sustainability Reporting in Africa” for the second consecutive year (SERAS Awards). These awards and recognition amongst several others attest to our market leadership. The operating domestic and global macroeconomic environment in 2019 will be challenging for myriad reasons including weak recovery of commodity prices and continuing trade tensions. However, we are optimistic and primed to harness potential opportunities for astounding performance. We shall continue to be guided by our core strategy of adapting to market dynamics and the evolving needs of our customers as we seek to continually delight and surpass their expectations. As a customer-centric organisation, our people are the most valuable asset that is vital to our long-term sustainable success, competitive advantage, and brand diﬀerentiation strategy. The skills, experience and commitment of our employees are critical for stakeholders’ engagement and delivery of exceptional services to our customers. Consequently, our focus in the years ahead is to continually create an environment for our people to thrive, while creating value for all stakeholders. W e shall continue to intensify efforts towards making further in-roads into the retail segment of the market with new and innovative products that support small and medium-sized enterprises. Thankyou. Peter Amangbo Group Managing Director/CEO t r o p e R c g e t a r t S i 3030 Board of Directors Zenith Bank Plc Annual Report December 31, 20183232Strategic ReportZenith Bank Plc Annual Report December 31, 2018Board of DirectorsChairmanJim Ovia, CONPeter AmangboGroup Managing Director/CEOAdaora UmeojiDeputy Managing DirectorEbenezer OnyeagwuDeputy Managing Director(cid:35)(cid:48)(cid:34)(cid:51)(cid:37)(cid:1)(cid:48)(cid:39)(cid:1)(cid:37)(cid:42)(cid:51)(cid:38)(cid:36)(cid:53)(cid:48)(cid:51)(cid:52)3333Strategic ReportGabriel UkpehNon-Executive DirectorJeffrey EfeyiniNon-Executive DirectorDennis OlisaExecutive DirectorUmar Shuaib AhmedExecutive DirectorDr. Temitope FasorantiExecutive DirectorProf. Oyewusi Ibidapo-ObeNon-Executive DirectorEngr. Mustafa BelloNon-Executive DirectorProf. Chukuka S. EnwemekaNon-Executive DirectorZenith Bank Plc Annual Report December 31, 2018 Directors’ Report for the Year Ended December 31, 2018 The directors present their report on the aﬀairs of ZENITH BANK PLC, together with the ﬁnancial statements and independent auditor’s report for the year ended 31 December, 2018. 1. Legal form The Bank was incorporated in Nigeria under the Companies and Allied Matters Act as a private limited liability company on 30 May,1990. It was granted a banking licence in June 1990, to carry on the business of commercial banking and commenced business on June 16, 1990. The Bank was converted into a Public Limited Liability Company on 20 May 2004. The Bank’s shares were listed on the ﬂoor of the Nigerian Stock Exchange on 21 October 2004. In August 2015, the Bank was admitted into the premium Board of the Nigerian Stock Exchange. There have been no material changes to the nature of the Group’s business from the previous year. 2. Principal activities and business review The principal activity of the Bank is the provision of banking and other ﬁnancial services to corporate and individual customers. Such services include obtaining deposits from the public, granting of loans and advances, corporate ﬁnance and money market activities. The Bank has six subsidiary companies namely, Zenith Bank (Ghana) Limited, Zenith Pensions Custodian Limited, Zenith Bank (UK) Limited, Zenith Bank (Sierra Leone) Limited, Zenith Bank (The Gambia) Limited and Zenith Nominees Limited. During the year, the Bank opened ﬁve new branches and no branch was closed. As at 31 December, 2018 the Group had 417 branches, 256 cash centers; 1,891 ATM terminals; 34,006 POS terminals and 5,732,820 cards issued to its customers. 3. Operating results Gross earnings of the Group decreased by 15.4% and proﬁt before tax increased by 16.2% . This is largely due to the reduction of 25% in expenses. Highlights of the Group’s operating results for the year under review are as follows: Gross earnings Proﬁt before tax Minimum tax Income tax expense Proﬁt after tax Non- controlling interest Profit attributable to the equity holders of the parent Appropriations Transfer to statutory reserve Transfer to retained earnings and other reserves Basic and Diluted earnings per share (kobo) Non-performing loan ratio % *See Note 43 t r o p e R c g e t a r t S i 3434 31-Dec-18 N’ Million 630,344 231,685 (4,052) (34,209) 193,424 (277) 193,147 32,456 160,691 193,147 6.15 4.98 31-Dec-17 N’ Million Restated* 745,189 199,319 (4,350) (21,178) 173,791 (319) 173,472 22,950 150,522 173,472 5.53 4.70 4. Dividends The Board of Directors, pursuant to the powers vested in it by the provisions of section 379 of the Companies and Allied Matters Act (CAMA) of Nigeria, proposed a ﬁnal dividend of N2.50 per share which in addition to the N0.30 per share paid as interim dividend amounts to N2.80 per share (2017: Interim of N0.25 per share and ﬁnal of N2.45 per share) from the retained earnings account as at December 31, 2018. This will be presented for ratiﬁcation by the shareholders at the next Annual General Meeting. If the proposed dividend is approved by the shareholders, the Bank will be liable to pay additional corporate tax estimated at N22.3 billion representing the diﬀerence between the tax liability calculated at 30% of the dividend approved and the tax charge reported in the statement of proﬁt or loss and other comprehensive income for the year ended December 31, 2018. Payment of dividends is subject to withholding tax at a rate of 10% in the hand of qualiﬁed recipients. 5. Directors’ shareholding The direct and indirect interests of directors in the issued share capital of Zenith Bank Plc as recorded in the register of directors shareholding and/or as notiﬁed by the directors for the purposes of sections 275 and 276 of the Companies and Allied Matters Act (CAMA) and the listing requirements of the Nigerian Stock Exchange is as follows: Interests in shares Number of Shareholding December 31, 2018 December 31, 2017 Director Designation Direct Indirect Direct Indirect Mr. Jim Ovia, CON. * Chairman/ Non-Executive Director 3,546,199,395 1,513,137,010 2,946,199,395 1,593,494,151 Prof. Chukuka Enwemeka Non-Executive Director Mr. Jeﬀrey Efeyini Non Executive Director Prof. Oyewusi lbidapo-Obe Non Executive Director/ Independent Mr. Gabriel Ukpeh Non Executive Director/ Independent Engr. Mustafa Bello Non Executive Director/ Independent 127,137 541,690 421,426 32,660 - - - - - - 127,137 541,690 321,426 32,660 - - - - - - Mr. Peter Amangbo * Group Managing Director 15,000,000 21,000,000 5,000,000 2,300,000 Ms. Adaora Umeoji * Deputy Managing Director 53,873,169 1,710,123 31,620,141 1,710,123 Mr. Ebenezer Onyeagwu Deputy Managing Director Mr. Ahmed Umar Shuaib Executive Director Dr. Temitope Fasoranti Executive Director Mr. Dennis Olisa Executive Director 36,000,000 7,077,343 5,075,000 7,122,316 - - - - 7,000,000 1,077,343 1,875,000 4,122,316 - - - - * The indirect holdings relate to the holdings of the Directors in the underlisted companies: . • Jim Ovia: (Institutional investors Ltd, Lurot Burca Ltd, Jovis Nigeria Ltd, Veritas Registrars Ltd, Zenith General Insurance Ltd, Zenith Securities Ltd) • Peter Amangbo: (Apeaches Ventures Limited, Pocenc Limited) • Adaora Umeoji: (Palaise Vendome Limited) t r o p e R c g e t a r t S i 3535 Zenith Bank Plc Annual Report December 31, 2018 Directors’ Report for the Year Ended December 31, 2018 6. Directors’ Remuneration The Bank ensures that remuneration paid to its Directors complies with the provisions of the codes of corporate governance issued by its regulators. In compliance with Section 34(5) of the Code of Corporate Governance for Public Companies as issued by Securities and Exchange Commission, the Bank makes disclosure of the remuneration paid to its directors as follows: Type of package Fixed Description Basic Salary Other allowances - Part of gross salary package for Executive Directors only. Reﬂects the banking industry competitive salary package and the extent to which the Bank’s objectives have been met for the ﬁnancial year. - Part of gross salary package for Executive Directors only. Reﬂects the banking industry competitive salary package and the extent to which the Bank’s objectives have been met for the ﬁnancial year. Paid at periodic intervals during the ﬁnancial year Timing Paid monthly during the ﬁnancial year. Productivity bonus -Paid to executive directors only and tied to performance of the line report. It is also a function of the extent to which the Bank’s objectives have been met for the ﬁnancial year. Paid annually in arrears. Director fees - Paid annually on the day of the Annual General Meeting (‘AGM’) to Non-Executive Paid annually on the Directors only. day of the AGM. Sitting allowances - Allowances paid to Non-Executive Directors only, for attending Board and Board Paid after each Committee Meetings Meeting. 7. Changes on the Board In the course of the ﬁnancial year ended December 31, 2018, Alhaji Baba Tela (an Independent Non-executive Director) retired from the Board with eﬀect from October 2, 2018. This follows the expiration of his tenure of oﬃce. 8. Directors’ interests in contracts For the purpose of section 277(1) and (3) of Companies and Allied Matters Act of Nigeria, (GAMA), all contracts with related parties during the year were conducted at arm’s length. Information relating to related parties transactions are contained in Note 37 to the ﬁnancial statements. 9. Acquisition of own shares The shares of the Bank are held in accordance with the Articles of Association of the Bank. The Bank has no beneﬁcial interest in any of its shares. 10. Property and equipment Information relating to changes in property and equipment is given in Note 25 to the ﬁnancial statements. In the opinion of the directors, the market value of the Group’s property and equipment is not less than the value shown in the ﬁnancial statements. t r o p e R c g e t a r t S i 3636 11. Shareholding analysis The shareholding pattern of the Bank as at 31 December, 2018 is as stated below: Share range 1-9,999 10,000 - 50,000 50,001 - 1,000,000 1,000,001 - 5,000,000 5,000,001 - 10,000,000 10,000,001 - 50,000,000 50,000,001 - 100,000,000 100,000,001 - 500,000,000 500,000,001 - 1,000,000,000 Above 1,000,000,000 No. of Shareholders Percentage of Shareholders Number of holdings Percentage Holdings (%) 537,935 80,329 20,032 791 141 116 26 23 4 6 84.1308 % 1,596,747,902 12.5631 % 1,638,639,586 3.1329 % 3,108,802,557 0.1237 % 1,682,858,529 0.0221 % 966,504,587 0.0181 % 2,567,943,284 0.0041 % 1,791,562,895 0.0036 % 4, 138,595,598 0.0006 % 2,279,638,965 0.0009 % 11,625,199,884 639,403 100 % 31,396,493,787 5.09 % 5.22 % 9.90 % 5.36 % 3.08 % 8.18 % 5.71 % 13.18 % 7.26 % 37.02 % 100 % The shareholding pattern of the Bank as at 31 December 2017 is as stated below: Share range 1-9,999 10,000 - 50,000 50,001 - 1,000,000 1,000,001 - 5,000,000 5,000,001 - 10,000,000 10,000,001 - 50,000,000 50,000,001 - 100,000,000 100,000,001 - 500,000,000 500,000,001 - 1,000,000,000 Above 1,000,000,000 No. of Shareholders Percentage of Shareholders Number of holdings Percentage Holdings (%) 539,481 81,858 20,122 736 118 89 21 22 2 6 83.9718 % 1,621,763, 173 12.7414 % 1,698,673,987 3.1320 % 3,211,097,112 0.1146% 1,649,481,195 0.0184 % 879,516,903 0.0139 % 2,210,108,463 0.0033 % 1,435,220,409 0.0034 % 4,880,206,479 0.0003 % 2,421,682,932 0.0009 % 11,388,743,134 642,455 100 % 31,396,493,787 5.17 % 5.41 % 10.23 % 5.25 % 2.80 % 7.04 % 4.57 % 15.54 % 7.71 % 36.27 % 100 % t r o p e R c g e t a r t S i 3737 Zenith Bank Plc Annual Report December 31, 2018 Directors’ Report for the Year Ended December 31, 2018 12. Substantial interest in shares According to the register of members as at 31 December, 2018, the following shareholders held more than 5% of the issued share capital of the Bank. Jim Ovia, CON Stanbic Nominees Nigeria Limited/C011 - MAIN Stanbic Nominees Nigeria Limited/C001 - TRAD Stanbic Nominees Nigeria Limited/C002 - MAIN Number of Shares Held Number of Shares Held 3,546,199,395 2,075,323,002 1,820,956,539 1,774,705,532 11.29 % 6.61 % 5.80 % 5.65 % According to the register of members as at 31 December 2017, the following shareholders held more than 5% of the issued share capital of the Bank. Jim Ovia, CON Stanbic Nominees Nigeria Limited/C011 - MAIN Stanbic Nominees Nigeria Limited/C002 - MAIN Stanbic Nominees Nigeria Limited/C001 - TRAD Number of Shares Held Number of Shares Held 2,946,199,395 3,242,344,702 2,438,670,039 1,809,897,790 9.38 % 10.33 % 7.77 % 5.76 % 13. Donations and charitable gifts The Bank made contributions to charitable and non-political organisations amounting to N3,065 million during the year ended 31 December 2018 (31 December 2017: N2,611 million). The beneﬁciaries are as follows: Various States' Governments Security Trust Funds Various Sports Organisations i.e. NFF, NBBF etc. Seed contribution to private health sector alliance Financial Inclusion Project (Central Bank of Nigeria) Medical assistance to the underpriviledged Educational support to Nigerian schools ICT centres for educational institutions Economic Summit Delta State Principal Cup Second Edition CFA Society of Nigeria Louisville Girls High School Centre for Value in Leadership Youth Empowerment St. Saviours School lkoyi Nigeria Academy of Neurological Surgeons Musical Society of Nigeria Other donations individually below N10 million t r o p e R c g e t a r t S i 3838 31-Dec-18 N’ Million 1,571 363 305 200 158 131 85 61 43 30 30 25 20 10 14 19 3,065 Educational support to Nigerian schools Sport organisations States Security Trust Funds Economic summits and conferences sponsorship Private Sector Health Alliance Medical Assistance to the Underpriviledged The Africa Fundraiser Contribution North-East Children Trust Fund Relief support Maternity clinic construction support ICT Centres for Educational Institutions Musical Society of Nigeria Other donations individually below N10 million 31-Dec-17 N’ Million 598 486 300 257 200 156 150 129 110 100 37 17 71 2,611 14. Events after the reporting period There were no signiﬁcant events after the reporting date that could aﬀect the reported amount of assets and liabilities as of the reporting date. 15. Disclosure of customer complaints in financial statements for the period ended 31 December, 2018 Description Number Amount claimed Amount refunded 31-Dec-18 31-Dec-17 31-Dec-18 N 31-Dec-17 N 31-Dec-18 N 31-Dec-17 N Pending complaints brought forward Received Complaints Resolved Complaints Unresolved Complaints escalated to CBN for intervention I carried forward 86 224 122 188 154 220 288 9,783,412,201 1,571,817,766 11,026,857,556 10 045,190,151 N/A N/A N/A N/A 3,776,775,251 1,833,595,716 800,131,355 346,672,659 86 17,033,494,506 9,783,412,201 - - *Other refunds made to customers during the year amounted to N9,372,176 t r o p e R c g e t a r t S i 3939 Zenith Bank Plc Annual Report December 31, 2018 Directors’ Report for the Year Ended December 31, 2018 Human Resources 16. Employment of disabled persons (i) The Group maintains a policy of giving fair consideration to the application for employment made by disabled persons with due regard to their abilities and aptitude. The Group’s policy prohibits discrimination against disabled persons in the recruitment, training and career development of its employees. In the event of members of staﬀ becoming disabled, eﬀorts will be made to ensure that their employment continues and appropriate training arranged to ensure that they ﬁt into the Group’s working environment. Health, safety and welfare at work (ii) The Group enforces strict health and safety rules and practices at the work environment, which are reviewed and tested regularly. The Group retains top-class private hospitals where medical facilities are provided for staﬀ and their immediate families at the Group’s expense. Fire prevention and ﬁre-ﬁghting equipment are installed in strategic locations within the Group’s premises, while occassional ﬁre drills are conducted to create awareness amongst staﬀ. The Group operates both a Group Personal Accident and the Workmen’s Compensation Insurance covers for the beneﬁt of its employees. It also operates a contributory pension plan in line with the Pension Reform Act. Employee training and development (iii) The Group ensures, through various fora, that employees are informed on matters concerning them. Formal and informal channels are also employed in communication with employees with an appropriate two-way feedback mechanism. In accordance with the Group’s policy of continuous development, training facilities are provided in well-equipped training centres. In addition, employees of the Group are nominated to attend both locally and internationally organized training programmes. These are complemented by on-the-job training. t r o p e R c g e t a r t S i 4040 (iv) Gender analysis of staff The average number of employees of the Bank during the year by gender and level is as follows; a. Analysis of total employees Gender NumberGender PercentageMaleFemaleTotalMaleFemaleEmployees3,236 3,017 6,253 52 %48 %3,236 3,017 6,253 52 %48 %(b) Analysis of Board and top management staﬀGender NumberGender PercentageMaleFemaleTotalMaleFemaleBoard members(Executive and Non-executive directors)11 1 12 92 % 8% Top management staﬀ (AGM-GM)43 21 64 67 % 33 % 54 22 76 71 % 29 % (c) Further analysis of board and top management staﬀGender NumberGender PercentageMaleFemaleTotalMaleFemaleAssistant general managers25143964%36 %Deputy general managers1021283%17%General managers851362%38%Board members (Non-executive directors)6-6100%-%Executive directors (excluding MD and DMDs)3-3100%-%Deputy managing director11250%50%Managing director/CEO1-1100%-%54227671%29%17. AuditorsThe auditors, Messrs KPMG Professional Services, having satisﬁed the relevant corporate govemance rules on their tenure in oﬃce, have indicated their willingness to continue in oﬃce as auditors to the Bank, In accordance with section 357 (2) of the Companies and Allied Mailers Act of Nigeria, therefore, the auditors will be reappointed at the next annual general meeting of the Bank without any resolution being passed.By order of the BoardMichael Osilama Otu (Esq.) Company SecretaryJanuary 18 ,2019FRC/2013/MULTI/000000010844141Strategic Report(cid:42)(cid:85)(cid:169)(cid:84)(cid:1)(cid:52)(cid:85)(cid:74)(cid:77)(cid:77)(cid:1)(cid:35)(cid:66)(cid:79)(cid:76)(cid:74)(cid:79)(cid:72)(cid:15)(cid:15)(cid:15)(cid:1)(cid:48)(cid:79)(cid:77)(cid:90)(cid:1)(cid:38)(cid:66)(cid:91)(cid:74)(cid:70)(cid:83)(cid:37)(cid:74)(cid:66)(cid:77)(cid:1)(cid:1)(cid:85)(cid:80)(cid:1)(cid:72)(cid:70)(cid:85)(cid:1)(cid:84)(cid:85)(cid:66)(cid:83)(cid:85)(cid:70)(cid:69)(cid:11)(cid:26)(cid:23)(cid:23)(cid:11)(cid:17)(cid:4)02Governance & SustainabilityZenith Bank Plc Annual Report December 31, 2018 Corporate Governance Report for the Year Ended December 31, 2018 1. Introduction Zenith Bank Plc maintains the highest standards of Corporate Governance and best practice both within the bank and the Group. This is reviewed from time to time to ensure we keep pace with global standards. 2 The Directors and other key personnel During the period under review, the Directors and other key personnel of the Bank complied with the following Codes of Corporate Governance, which it subscribes to: a. The Central Bank of Nigeria (CBN) issued Code of Corporate Governance for Banks and Discount Houses in Nigeria 2014. The Securities and Exchange Commission (SEC) issued Code of Corporate Governance for public companies. b. In addition to the above Codes, the Bank complies with relevant disclosure requirements in other jurisdictions where it operates. 3. Shareholding The Bank has a diverse shareholding structure with no single ultimate individual shareholder holding more than 20% of the Bank’s total shares. 4. Board of directors The Board has the overall responsibility for setting the strategic direction of the Bank and also oversight of senior Management. It also ensures that good Corporate Governance processes and best practices are implemented across the Bank and the Group. The Board of the Bank consists of persons of diverse discipline and skills, chosen on the basis of professional background and expertise, business experience and integrity as well as knowledge of the Bank’s business. fully abreast of responsibilities and Directors are knowledgeable in the business and are therefore able to exercise good judgment on issues relating to the bank’s business. They their y t i l i i b a n a t s u S & e c n a n r e v o G 44 have on the basis of this acted in good faith with due diligence and skill and in the overall best interest of the Bank and relevant stakeholders during the period of review. The Board has a Charter which regulates its operations. The Charter has been forwarded to the Central Bank of Nigeria in line with the CBN Code of Corporate Governance. 5. Board structure The Board is made up of a Non-Executive Chairman, ﬁve (5) Non- Executive Directors and Six (6) Executive Directors including the GMD/CEO. Three (3) of the Non-Executive Directors are independent directors, appointed in compliance with the Central Bank of Nigeria (CBN) circular on Appointment of Independent Directors by Banks. The Group Managing Director/Chief Executive is responsible for the day to day running of the bank and oversees the group structure, assisted by the Executive Committee (EXCO). EXCO comprises the Executive Directors, Deputy Managing Directors as well as the Group Managing Director/Chief Executive as its Chairman. 6. Responsibilities of the Board The Board is responsible for the following amongst others: a. b. c. reviewing and approving the Bank’s strategic plans for implementation by management; review and approving the Bank’s ﬁnancial Statements; reviewing and approving the Bank’s ﬁnancial objectives, business plans and budgets, including capital allocations and expenditures; d. monitoring corporate performance against the strategic plans and business, operating and capital budgets; implementing the Bank’s succession planning; approving acquisitions and divestitures of business operations, strategic investments and alliances and major business development initiatives; approving delegation of authority for any unbudgeted expenditure; e. f. g. h. i. setting the tone for and supervising the Corporate Governance Structure of the Bank, including corporate structure of the bank and the Board and any changes and strategic plans of the Bank and the Group; assessing its its own eﬀectiveness responsibilities, including monitoring the eﬀectiveness of individual directors. fulﬁlling in The membership of the Board during the period is as follows: Board of Directors NAME Mr. Jim Ovia, CON Alhaji Baba Tela* Prof. Chukuka S. Enwemeka Mr Jeﬀrey Efeyini Prof. Oyewusi Ibidapo-Obe Mr. Gabriel Ukpeh Engr. Mustafa Bello Mr. Peter Amangbo Ms. Adaora Umeoji Mr. Ebenezer Onyeagwu Mr. Umar Shuaib Ahmed Dr. Temitope Fasoranti Mr. Dennis Olisa POSITION Chairman Independent/Non-Executive Director Non-Executive Director Non-Executive Director Independent/Non-Executive Director Independent/Non-Executive Director Independent/Non-Executive Director Group Managing Director/ CEO Deputy Managing Director Deputy Managing Director Executive Director Executive Director Executive Director * Retired from the Board eﬀective October 2, 2018. least every quarter but may hold The Board meets at extraordinary sessions to address urgent matters requiring the attention of the Board main responsibility is to lead and manage the Board to ensure that it operates eﬀectively and fully discharges its legal and regulatory responsibilities. The Chairman is responsible for ensuring that Directors receive accurate, timely and clear information to enable the Board take informed decisions and provide advice to promote the success of the Bank. The Chairman also facilitates the contribution of Directors and promotes eﬀective relationships and open communications between Executive and Non-Executive Directors, both inside and outside the Boardroom. The Board has delegated the responsibility for the day-to- day management of the Bank to the Managing Director/Chief Executive Oﬃcer, who is supported by Executive Management. The Managing Director executes the powers delegated to him in accordance with guidelines approved by the Board of Directors. Executive Management is accountable to the Board for the development and implementation of strategies and policies. The Board regularly reviews group performance, matters of strategic concern and any other matter it regards as material. 8. Director Nomination Process The Board Nomination and Remuneration Committee is charged with the responsibility of leading the process for Board appointments and for identifying and nominating suitable candidates for the approval of the Board. With respect to new appointments, the Board Governance, nomination and rumeneration committee identiﬁes, reviews and recommends candidates for potential appointment as Directors. In identifying suitable candidates, the Committee considers candidates on merit against objective criteria and with due regard for the beneﬁts of diversity on the Board, including gender as well as the balance and mix of appropriate skills and experience. 7. Roles of Chairman and Chief Executive The roles of the Chairman and Chief Executive are separate and no one individual combines the two positions. The Chairman’s Shareholding in the Bank is not the only considered criterion for the nomination or appointment of a Director. The appointment of Directors is subject to the approval of the shareholders and the Central Bank of Nigeria. y t i l i i b a n a t s u S & e c n a n r e v o G 45 Zenith Bank Plc Annual Report December 31, 2018 Corporate Governance Report for the Year Ended December 31, 2018 9. Induction and continuous training Upon appointment to the Board and to Board Committees, all Directors receive an induction tailored to meet their individual requirements. The induction, which is arranged by the Company Secretary, may include meetings with senior management staﬀ and key external advisors, to assist Directors in acquiring a detailed understanding of the Bank’s operations, its strategic plan, its business environment, the key issues the Bank faces, and to introduce Directors to their ﬁduciary duties and responsibilities. The Bank attaches great importance to training its Directors and for this purpose, continuously oﬀers training and education from onshore and oﬀshore institutions to its Directors, in order to enhance their performance on the Board and the various committees to which they belong. 10. Non-Executive Directors’ remuneration The Bank’s policy on remuneration of Non-Executive Directors is guided by the provisions of the CBN Code which stipulates that Non-Executive Directors’ remuneration should be limited to sitting allowances, Directors’ fees and reimbursable travel and hotel expenses. 11. Board committees The Board carries out its oversight functions using its various Board Committees. This makes for eﬃciency and allows for a deeper attention to speciﬁc matters for the Board. Membership of the Committees of the Board is intended to make the best use of the skills and experience of non-executive directors in particular. The Board has established the various Committees with well deﬁned terms of reference and Charters deﬁning their scope of responsibilities in such a way as to avoid overlap or duplication of functions. • • • • y t i l i i b a n a t s u S & e c n a n r e v o G 46 The Committees of the Board meet quarterly but may hold extraordinary sessions as the business of the Bank demands. The following are the current standing Committees of the Board: 11.1 Board credit committee The Committee is currently made up of eight (8) members comprising four (4) non-Executive Directors and four (4) Executive Directors of the Bank. The Board Credit Committee is chaired by a non-Executive Director who is well versed in credit matters. The Committee considers loan applications above the level of Management Credit Committee. It also determines the credit policy of the Bank or changes therein. The membership of the Committee during the period is as follows: Mr. Jeﬀrey Efeyini - Chairman Alhaji Baba Tela* Prof. Chukuka Enwemeka Mr. Gabriel Ukpeh Mr. Peter Amangbo Mr. Ebenezer Onyeagwu Ms. Adaora Umeoji Dr. Temitope Fasoranti * Retired from the Board with eﬀect from 02 October 2018 Terms of reference • To conduct a quarterly review of all collateral security for Board consideration and approval; To recommend criteria by which the Board of Directors can evaluate the credit facilities presented from various customers; To review the credit portfolio of the Bank; To approve all credit facilities above Management approval limit; To establish and periodically review the bank’s credit portfolio in order to align organizational strategies, goals and performance; • • • • • To evaluate on an annual basis the components of total credit facilities as well as market competitive data and other factors as deemed appropriate, and to determine the credit level based upon this evaluation; To make recommendations to the Board of Directors with respect to credit facilities based upon performance, market competitive data, and other factors as deemed appropriate; To recommend to the Board of Directors, as appropriate, new credit proposals, restructure plans, and amendments to existing plans; To recommend non-performing credits for write-oﬀ by the Board; To perform such other duties and responsibilities as the Board of Directors may assign from time to time. 11.2 Staff Welfare, Finance and General Purpose Committee This Committee is made up of six (6) members: three (3) non Executive Directors and three (3) Executive Directors. It is chaired by a non-executive Director. The Committee considers large scale procurement by the Bank, as well as matters relating to staﬀ welfare, discipline, staﬀ remuneration and promotion. The membership of the Committee during the year is as follows: Alhaji Baba Tela* – Chairman Prof. Chukuka Enwemeka Prof. Oyewusi Ibidapo-Obe** Mr. Peter Amangbo Ms. Adaora Umeoji Mr. Ahmed Umar Shuaib * Retired from the Board with eﬀect from 02 October 2018 ** Appointed as acting Chairman from 18 January 2019 Terms of reference • Approval of large scale procurements by the bank and other items of major expenditure by the bank; Recommendation of the bank’s Capital Expenditure (CAPEX) and major Operating Expenditure (OPEX) limits for • • • • • • • • • • consideration by the Board; Consideration of management requests for branch set up and other business locations; Consideration of management request for establishment of oﬀshore subsidiaries and other oﬀshore business oﬃces; Consideration of the dividend policy of the Group and the declaration of dividends or other forms of distribution and recommendation to the Board; Consideration of capital expenditures, divestments, acquisitions, joint ventures and other investments, and other major capital transactions; Consideration of senior management promotions as recommended by the GMD/CEO; Review and recommendations on recruitment, promotion, and disciplinary actions for senior management and staﬀ; To discharge the Board’s responsibility relating to oversight of the management of the health and welfare plans that cover the company’s employees; Review and recommendation to the Board, salary revisions and service conditions for senior management and staﬀ, based on the recommendation of the Executives; Oversight of broad-based employee compensation policies and programs; 11.3 Board risk management committee: The Board Risk Management Committee has oversight responsibility for the overall risk assessment of various areas of the Bank’s operations and compliance. The Chief Risk Oﬃcer and the Chief Inspector have access to this Committee and make quarterly presentations for the consideration of the Committee. Chaired by Prof. Chukuka (a non executive Director), the Committee’s Enwemeka membership comprises the following: Prof. Chukuka S. Enwemeka - Chairman Mr. Jeﬀrey Efeyini Mr. Gabriel Ukpeh Mr. Peter Amangbo y t i l i i b a n a t s u S & e c n a n r e v o G 47 Zenith Bank Plc Annual Report December 31, 2018 Corporate Governance Report for the Year Ended December 31, 2018 Mr. Ebenezer Onyeagwu Mr. Dennis Olisa Terms of reference • implement The primary responsibility of the Committee is to ensure that sound policies, procedures and practices are in place for the risk-wide management of the Bank’s material risks and to report the results of the Committee’s activities to the Board of Directors; risk management practices, Design and speciﬁcally provide ongoing guidance and support for the reﬁnement of the overall risk management framework and ensuring that best practices are incorporated; Ensure that management understands and accepts its responsibility for identifying, assessing and managing risk; Ensure and monitor risk management practices, speciﬁcally determine which enterprise risks are most signiﬁcant and approve resource allocation for risk monitoring and improvement activities, assign risk owners and approve action plans; Periodically review and monitor risk mitigation process and periodically review and report to the Board of Directors: (a) the magnitude of all material business risks; (b) the processes, procedures and controls in place to (c) manage material risks; and the overall eﬀectiveness of the risk management process; Facilitate the development of a comprehensive risk management framework for the Bank and develop the risk management policies and processes and enforce its compliance; To perform such other duties and responsibilities as the Board of Directors may assign from time to time. • • • • • • 11.4 Board audit and compliance committee: The Committee is chaired by an Independent Non Executive Director - Mr. Gabriel Ukpeh, who is a Fellow of the Institute of the Chartered Accountants of Nigeria (ICAN) and who is knowledgeable in ﬁnancial matters. The Chief Inspector and y t i l i i b a n a t s u S & e c n a n r e v o G 48 Chief Compliance Oﬃcer have access to this Committee and make quarterly presentations for the consideration of the Committee. The committee membership comprises the following: Mr. Gabriel Ukpeh - Chairman Alhaji Baba Tela* Mr. Jeﬀrey Efeyini Engr. Mustafa Bello * Retired from the Board with eﬀect from 02 October 2018 Committee’s terms of reference The Board Audit and compliance Committee have the following responsibilities as delegated by the Board of Directors:: • Ascertain whether the accounting and reporting policies of the Bank are in accordance with legal requirements and acceptable ethical practices; Review the scope and planning of audit requirements; Review the ﬁndings on management matters (Management Letter) in conjunction with the external auditors and Management’s responses thereon; Keep under review the eﬀectiveness of the Bank’s system of accounting and internal control; • • • • • • Make recommendations to the Board with regard to the appointment, removal and remuneration of the external auditors of the Bank; Authorize the internal auditor to carry out investigations into any activities of the Bank which may be of interest or concern to the Committee; Assist in the oversight of compliance with legal and other regulatory requirements, assessment of qualiﬁcations and independence of the external auditors and performance of the Bank’s internal audit function as well as that of the external auditors; Ensure that the internal audit function is ﬁrmly established and that there are other reliable means of obtaining suﬃcient assurance of regular review or appraisal of the system of internal control in the Bank; Oversee management’s processes for the identiﬁcation of signiﬁcant fraud risks across the Bank and ensure that • • • • adequate prevention, detection and reporting mechanisms are in place; On a quarterly basis, obtain and review reports by the internal auditor on the strength and quality of internal controls, including any issues or recommendations for improvement, raised during the most recent control review of the Bank; Discuss and review the Bank’s unaudited quarterly, audited half year and annual ﬁnancial statements with management and external auditors to include disclosures, management control reports, independent reports and external auditors’ reports before submission to the Board, in advance of publication; • • • • • Meet separately and periodically with management, the internal auditor and the external auditors, respectively; Review and ensure that adequate whistle - blowing procedures are in place and that a summary of issues reported is highlighted to the Board, where necessary; Review with external auditors, any audit scope limitations or problems encountered and management responses to them; Review the independence of the external auditors and ensure that they do not provide restricted services to the Bank; Appraise and make recommendation to the Board on the appointment of internal auditor of the Bank and review his/ her performance appraisal annually; Review the response of management to the observations and recommendation of the Auditors and Bank regulatory authorities; Agree Internal Audit Plan for the year annually with the Internal auditor and ensure that the internal audit function is adequately resourced and has appropriate standing within the Bank; Review quarterly Internal Audit progress against Plan for the period and review outstanding Agreed Actions and follow up; To develop a comprehensive internal control framework for the Bank and obtain assurances on the operating • • • • • • • • • eﬀectiveness of the Bank’s internal control framework; To establish management’s processes for the identiﬁcation of signiﬁcant fraud risks across the Bank and ensure that adequate prevention, detection and reporting mechanisms are in place; To work with the Internal Auditor to develop the Internal Audit Plan for the year and ensure that the internal audit function is adequately resourced to carry out the plan; .To review periodically the Internal Audit progress against Plan for the period and review outstanding Agreed Actions and follow up; To review the report of the Chief Compliance Oﬃcer as it relates to Anti-Money Laundering policies of the Bank and other law enforcement issues. To perform such other duties and responsibilities as the Board of Directors may assign from time to time. 11.5 Board governance, nominations and remuneration committee:: The Committee is made up of ﬁve (5) non Executive Directors and one of the non-executive Directors chairs the Committee. The membership of the committee is as follows: Mr. Jeﬀrey Efeyini - (Chairman) Alhaji Baba Tela* Prof. Chukuka Enwemeka Prof. Oyewusi Ibidapo Obe Mr. Gabriel Ukpeh * Retired from the Board with eﬀect from 02 October 2018 • Committee’s terms of reference To determine a reasonable and competitive fair • compensation practices for Executive Directors of the bank which are consistent with the bank’s objectives; Determining the amount and structure of compensation and beneﬁts for Executive Directors; Ensuring the existence of an appropriate remuneration policy and philosophy for Executive Directors; Review and recommendation for Board ratiﬁcation, all terminal compensation arrangements for Directors; • • y t i l i i b a n a t s u S & e c n a n r e v o G 49 Zenith Bank Plc Annual Report December 31, 2018 Corporate Governance Report for the Year Ended December 31, 2018 • • • • • • • • • • • • Recommendation of appropriate compensation for Non- Executive Directors for Board and Annual General Meeting consideration; Review and approval of any recommended compensation actions for the Company’s Executive Committee members, including base salary, annual incentive bonus, long-term incentive awards, severance beneﬁts, and perquisites; Review and continuous assessment of the size and composition of the Board and Board Committees, and recommend the appropriate Board structure, size, age, skills, competencies, composition, knowledge, experience and background in line with needs of the Group and diversity required to fully discharge the Board’s duties; Recommendation of membership criteria for the Group Board, Board Committees and subsidiary companies Boards. Identiﬁcation at the request of the Board of speciﬁc individuals for nomination to the Group and subsidiary companies Boards and to make recommendations on the appointment and election of New Directors (including the Group MD) to the Board, in line with the Group’s approved Director Selection criteria; Review of the eﬀectiveness of the process for the selection and removal of Directors and to make recommendations where appropriate; Ensuring that there is an approved training policy for Directors, and monitor compliance with the policy; Review and make recommendations on the Group’s succession plan for Directors and other senior management staﬀ for the consideration of the Board; Regular monitoring of compliance with Group’s code of ethics and business conduct for Directors and staﬀ; Review the Group’s organization structure and make recommendations to the Board for approval; Review the agreement at the beginning of the year, of the key performance indicators for the Group MD and Executive Directors; Ensure annual review or appraisal of the performance of the Board is conducted. This review/appraisal covers the Board’s structure, composition, all aspects of responsibilities, individual competencies, Board operations, Board’s role in strategy setting, oversight over corporate culture, monitoring role and evaluation of management performance and stewardship towards shareholders. 11.6 Statutory Audit committee of the Bank The Committee is established in line with Section 359(6) of the Companies and Allied Matters Act, 1990. The Committee’s membership consists of three (3) representatives of the shareholders elected at the Annual General Meeting (AGM) and three (3) non-executive Directors. The Committee is chaired by a shareholder’s representative. The Committee meets every quarter, but could also meet at any other time, should the need arise. The Chief Inspector, the Chief Financial Oﬃcer, as well as the External Auditors are invited from time to time to make presentation to the Committee. All members of the Committee are ﬁnancially literate. The membership of the Committee is as follows: Shareholders’ Representative Mrs. Adebimpe Balogun (Chairman) Prof (Prince) L.F.O. Obika Mr. Michael Olusoji Ajayi Non-Executive Directors / Director’s Representatives Alhaji Baba Tela* Mr. Jeﬀrey Efeyini Mr. Gabriel Ukpeh * Retired from the Board with eﬀect from 02 October 2018 Committee’s terms of reference • To meet with the independent Auditors, Chief Financial y t i l i i b a n a t s u S & e c n a n r e v o G 50 Oﬃcer, internal Auditor and any other Bank executive both individually and/or together, as the Committee deems appropriate at such times as the Committee shall determine to discuss and review: the bank’s quarterly and audited ﬁnancial statements, including any related notes, the bank’s speciﬁc disclosures and discussion under “Managements Control Report” and the independent auditors’ report, in advance of publication; the performance and results of the external and internal audits, including the independent auditor’s management letter, and management’s responses thereto; the eﬀectiveness of the Bank’s system of internal controls, including computerized information systems and security; any recommendations by the independent auditor and internal auditor regarding internal control issues and any actions taken in response thereto; and, the internal control certiﬁcation and attestation required to be made in connection with the Bank’s quarterly and annual ﬁnancial reports; such other matters in connection with overseeing the ﬁnancial reporting process and the maintenance of internal controls as the committee shall deem appropriate. To prepare the Committee’s report for inclusion in the Bank’s annual report; To report to the entire Board at such times as the Committee shall determine. • • • • • • 11.7 Executive committee (EXCO) The EXCO comprises the Group Managing Director, Deputy Managing Directors as well as all the Executive Directors. EXCO has the GMD/CEO as its Chairman. The Committee meets weekly (or such other times as business exigency may require) to deliberate and take policy decisions on the eﬀective and eﬃcient management of the bank. It also serves as a ﬁrst review platform for issues to be discussed at the Board level. EXCO’s primary responsibility is to ensure the implementation of strategies approved by the Board, provide leadership to the Management team and ensure eﬃcient deployment and management of the bank’s resources. Its Chairman is responsible for the day-to-day running and performance of the Bank. 11.8 Other committees IIn addition to the afore-mentioned committees, the Bank has in place, other standing management committees. They include: (a) Management Committee (MANCO); (b) Assets and Liabilities Committee (ALCO); (c) Management Global Credit Committee (MGCC); (d) Risk Management Committee (RMC) (e) Information Technology (IT) Steering Committee (f ) Sustainability Steering Committee the comprises (a) Management committee (MANCO) senior The Management Committee management of the Bank and has been established to identify, analyze, and make recommendations on risks arising from day- to-day activities. They also ensure that risk limits as contained in the Board and Regulatory policies are complied with. Members of the management committee make contributions to the respective Board Committees and also ensure that recommendations of the Board Committees are eﬀectively and eﬃciently implemented. They meet weekly and as frequently as the need arises. (b) Assets and liabilities committee (ALCO) The ALCO is responsible for the management of a variety of risks arising from the Bank’s business including market and liquidity risk management, loan to deposit ratio analysis, cost of funds analysis, establishing guidelines for pricing on deposit and credit facilities, exchange rate risks analysis, balance sheet structuring, regulatory considerations and monitoring of the status of implemented assets and liability strategies. The members of the Committee include the Managing Director, Executive Directors, the Treasurer, the Head of Financial Control, Group Head, Risk Management Group and a representative of the Assets and Liability Management Unit. A representative of the Asset and Liability Management Department serves as the secretary of this Committee. y t i l i i b a n a t s u S & e c n a n r e v o G 51 Zenith Bank Plc Annual Report December 31, 2018 Corporate Governance Report for the Year Ended December 31, 2018 The Committee meets weekly and as frequently as the need arises. (c) Management global credit committee (MGCC) The Management Global Credit Committee is responsible for ensuring that the Bank complies with the credit policy guide as the Board. The Committee also makes established by contributions to the Board Credit Committee. The Committee can approve credit facilities to individual obligors not exceeding in aggregate a sum as pre-determined by the Board from time to time. The Committee is responsible for reviewing and approving extensions of credit, including one-obligor commitments that exceed an amount as may be determined by the Board. The Committee reviews the entire credit portfolio of the Bank and conducts periodic assessment of the quality of risk assets in the Bank. It also ensures that adequate monitoring of performance is carried out. The secretary of the committee is the Head of the Credit Administration Department. The Committee meets weekly or fortnightly depending on the number of credit applications to be considered. The members of the Committee include the Group Managing Director, the Executive Directors and all divisional and group heads. is responsible (d) Risk management committee (RMC) This Committee for regular analysis and consideration of risks other than credit risk in the Bank. It meets [at least once in a month or as the need arises] to review environmental and other risk issues and policies aﬀecting the Bank and recommend steps to be taken. The Committee’s approach is entirely risk based. The Committee makes contributions to the Board Risk and Audit Committee and also ensures that the Committee’s decisions and policies are implemented. The members of the Committee include the Managing Director, two Executive Directors, the Chief Risk Oﬃcer and all divisional and group heads. (e) Information technology (IT) steering committee The is responsible for amongst others, development of corporate (IT) Steering Committee Information Technology information technology (IT) strategies and plans that ensure cost eﬀective application and management of resources throughout the organization. Membership of the committee is as follows: 1 2 3 4 5 6 7 8 9 10 11 12 The Group Managing Director/Chief Executive Oﬃcer; One (1) Deputy Managing Director Two (2) Executive Directors; Chief Financial Oﬃcer; Chief Inspector; Chief Risk Oﬃcer; Chief Information Oﬃcer/Head of Infotech; Head of Infotech - Software; Head of Infotech - Enginering; Head of Card Services; Group Head of IT Audit; Head of e-Business; The committee meets monthly or as the need arises. (f ) Sustainability Steering Committee (SSC) This Committee is responsible for regular analysis and review of sustainable banking policies and practices within the bank to ensure compliance with globally acceptable economic, environmental and social norms. The Bank recognized that every institution is as strong as the strength of its relationship and that the ability to nurture existing relationships and develop new ones will invariably play a signiﬁcant role in the ﬁnancial stability of the organization. Therefore, the bank believes that an organization must forge a closer relationship with its stakeholders, including customers, employees, local communities, suppliers, among others, to ensure triple bottom line proﬁt. The Committee present quarterly reports to the Board Risk and Audit Committee and also ensures that the Committee’s decisions and policies are implemented. The members of the Committee include representatives from various marketing and operations departments and groups within the bank as well as y t i l i i b a n a t s u S & e c n a n r e v o G 52 the CSR and Research Group. 12. Policy on trade in the Bank’s securities The Bank has in place a policy on trading on the Bank’s Securities by Directors and other key personnel of the Bank. This is to guide against situations where such personnel in possession of conﬁdential and price sensitive information deal with Bank’s securities in a manner that amounts to insider trading. 13. Relationship with shareholders Zenith Bank maintains an eﬀective communication with its shareholders, which enables them understand our business, ﬁnancial condition and operating performance and trends. Apart from our annual report and accounts, proxy statements and formal shareholders’ meetings, we maintain a rich website (with suggestion boxes) that provide information on a wide range of issues for all stakeholders. Also, a quarterly publication of the Bank and group performance is made in line with the disclosure requirements of the Nigeria Stock Exchange. The Bank has an Investors Relations Unit which holds regular forum to brief all stakeholders on operations of the Bank. The Bank also, from time to time, holds brieﬁng sessions with market operators (stockbrokers, dealers, institutional investors, issuing houses, stock analysts, mainly through investors conference) to update them with the state of business. These professionals, as advisers and purveyors of information, relate with and relay to the shareholders useful informtion about the Bank. The Bank also regularly briefs the regulatory authorities, and ﬁle statutory returns which are usually accessible to the shareholders. 14. Directors remuneration policy The Bank’s remuneration policy is structured taking into account the environment in which it operates and the results it achieves at the end of each ﬁnancial year. It includes the following elements: Non-executive directors • Components of remuneration is annual fee and sitting allowances which are based on levels of responsibilities. Directors are also sponsored for training programmes that they require to enhance their duties to the Bank. • Executive directors The remuneration policy for Executive Directors considers various elements, including the following: remuneration, • into account level Fixed taking of responsibility, and ensuring this remuneration is competitive with remuneration paid for equivalent posts in banks of equivalent status both within and outside Nigeria. Variable annual remuneration linked to the Zenith Bank ﬁnancial results. The amount of this remuneration is subject to achieving speciﬁc quantiﬁable targets, aligned directly with shareholders’ interest. the • 15. Monitoring Compliance With Corporate Governance Chief Compliance Officer The Chief Compliance Oﬃcer monitors compliance with money laundering requirements and the implementation of the Code of Corporate Governance of the Bank. The Chief Compliance Oﬃcer and the Company Secretary forward regular returns to the Central Bank of Nigeria on all whistle-blowing reports and also on corporate governance compliance. Whistle Blowing Procedures The Bank has a whistle-blowing procedure that ensures anonymity for whistle-blowers. The Bank has a direct link on the bank’s website, provided for the purpose of whistle-blowing. link on Internally, the Bank has a direct intranet for dissemination of information, to enable members of staﬀ report all identiﬁed breaches of the Bank’s Code of Corporate Governance. All reports are investigated and necessary sanctions applied for breaches. its y t i l i i b a n a t s u S & e c n a n r e v o G 53 Zenith Bank Plc Annual Report December 31, 2018 Corporate Governance Report for the Year Ended December 31, 2018 During the year the Bank ﬁled quarterly returns in line with the provision on whistle blowing. Codes of Conduct The Bank has an internal Code of Professional Conduct for Employees, which all members of staﬀ subscribe to upon assumption of duties. The Bank also has a Code of Conduct for Directors. 16. Foreign Subsidiaries Governance Structure The Bank as at 31 December, 2018 has four (4) foreign subsidiaries, two (2) local subsidiaries and two (2) representative oﬃces. Their activities are governed by the foreign subsidiaries governance structure put in place by the Group Head Oﬃce to ensure eﬃcient and eﬀective operations. The framework establishes the scope, method of performance management, periodic reviews and feedback mechanism for operating within the local laws in their jurisdiction. The activities of the subsidiaries are closely monitored by Zenith Bank Plc using the following strategies: Liaison and Oversight Function The Foreign Subsidiaries Department is charged with the responsibility of overseeing the growth and implementation of the Bank’s global expansion strategy into new territories/regions. The Department serves as an interface between the bank and its oﬀshore subsidiaries. It also provides guidance on how to optimize synergy within the Group. Reports from the Group is presented to the Board at its quarterly meetings. Representation on the Subsidiary Board Zenith Bank Plc exercise control over the subsidiaries by maintaining adequate representation on the Board of each subsidiary. The representatives are chosen on the basis of professional competencies, business experience and integrity as well as knowledge of the Bank’s business. The subsidiaries Board of Directors are responsible for reviewing and approving the strategic plans and ﬁnancial objectives as well as monitoring the corporate performance against these objectives. y t i l i i b a n a t s u S & e c n a n r e v o G 54 Local Board and Board Committees To ensure that the activities of the subsidiaries reﬂect the same values, ethics, controls and processes, Zenith Bank Plc is represented by at least two (2) non-executive directors in the local board and board committee of each foreign subsidiary. These directors provide eﬀective oversight function over each subsidiary and ensure that there is consistency with the strategic direction of the Bank. They also act as link with the parent board at the Group Head Oﬃce in Nigeria. Subsidiary Board Committees The Subsidiary Board meets at least every quarter and exercises oversight function on the business of each location through the following committee structure • Board Credit Committee which is charged with the responsibility of considering the approval of new loans and renewal of existing ones above the threshold set for the Management Credit Committee. It also determines the credit policy or changes therein. Board Risk Management Committee which has oversight responsibility for the overall risk management of various areas of the Bank’s operations and compliance. This includes advising the Board on risk-related matters arising from its business. Board Audit and Compliance Committee is responsible for the review of accounting and reporting policies to ensure compliance with regulatory and ﬁnancial reporting requirements. The Board, through the committee exercises oversight on the Compliance and AML/CFT activities of the Bank. Overall, it monitors the eﬀectiveness of the Bank’s system of internal control to safeguard its assets for shareholders. Board Governance, Nomination and Remuneration Committee (BGNRC) saddled with the responsibility of determining a fair, reasonable and competitive structure for senior management of the Bank as well as administering the Governance structure for the Bank. Board Staﬀ Welfare, Finance & General Purpose Committee has the responsibility of approving large scale procurements by the Bank, as well as matters relating to staﬀ welfare, discipline, staﬀ remuneration and promotion. • • • • Management of Subsidiaries Zenith Bank Plc appoints one of its senior management staﬀ to act as the Managing Director of each subsidiary. Other key staﬀ are seconded to assist the managing director in the supervision of critical departments of the Bank. The objective of this management structure is to ensure that the core values and principles of the Zenith Bank brand are instilled seamlessly across its oﬀshore subsidiaries. It also oﬀers the Group an opportunity to adopt a uniform culture of best practices in the area of corporate governance, technology, controls and customer service excellence. Monthly and Quarterly Reports The subsidiaries furnish Zenith Bank Plc with monthly and quarterly reports on their business and operational activities. These reports cover the subsidiaries’ ﬁnancial performance, risk assessment, regulatory and compliance matters amongst others. The reports are analyzed and presented to Executive Management and the Group Board of Directors for decision making and fulﬁlment of its oversight function. Group Performance & Strategy Review/Budget Session The Managing Directors and senior management team of the respective Subsidiaries of the Bank attend the annual Group’s Performance & Strategy Review/Budget Session during which their performances are analyzed and recommendations made towards achieving continuous improvement in ﬁnancial, social and environmental performance. The annual budgets of the subsidiaries are discussed at this session. This session also serves as a forum for sharing business ideas, tapping into identiﬁed synergy within the Group and disseminating information on relevant best practices that could enhance our sustained growth in the banking landscape. Annual Internal Control Audit The Internal Control & Audit Department of Zenith Bank Plc carries out an annual audit of each of the oﬀshore subsidiaries in line with the Group’s Annual Audit Programme. This audit exercise covers all operational areas of the subsidiaries and the outcome is discussed with Executive Management at the home oﬃce for timely intervention on identiﬁed lapses. It is important to note that this exercise is distinct from the daily operations audit carried out by the respective internal audit unit within the subsidiaries. Annual Loan Review/Audit This audit is carried out by the Loan Review & Monitoring Unit of Zenith Bank Plc. The core areas of concentration during this audit exercise include asset quality assessment, loan performance, review of security pledged, loan conformity with credit policy, documentation check and review of central liability report among others. Group Compliance Function Zenith Bank Plc is committed to complying with regulatory requirements in all locations where it operates. To this end, The Bank’s Compliance Group monitors ongoing developments in the regulatory environment of each location where it operates and ensuring compliance with same. This includes conducting periodic compliance checks on each subsidiary annually to ascertain compliance with local banking laws and regulations. Report of External Auditors In line with global best practices and regulatory guidelines, the bank undertakes review of Management letters from external Auditors on periodic audit of the subsidiary companies. This is to ensure that all exceptions are complied with and for implementation of the Auditors’ recommendations. 17. Complaints management policy The Bank has put in place a complaints management policy framework to resolve complaints arising from issues covered under the Investments and Securities Act, 2007 (ISA). This can be found on the Bank’s website. y t i l i i b a n a t s u S & e c n a n r e v o G 55 Zenith Bank Plc Annual Report December 31, 2018 Corporate Governance Report for the Year Ended December 31, 2018 18. Schedule of board and board committees meeting held during the year The table below shows the frequency of meetings of the Board of directors, board committees and members’ attendance at these meetings during the year under review. Director Board Board credit committee Finance and general purpose committee Board governance, nomination and remuneration committee Board risk management committee Board audit and compliance committee Attendance/no of meetings Mr. Jim Ovia, CON Alhaji Baba Tela Mr. Jeﬀrey Efeyini Prof. Chukuka S.Enwemeka Prof. Oyewusi Ibidapo-Obe Mr. Gabriel Ukpeh Engr. Mustafa Bello Ms. Adaora Umeoji Mr. Ebenezer Onyeagwu Mr. Ahmed Umar Shuaib Dr. Temitope Fasoranti Mr. Dennis Olisa Mr. Peter Amangbo 6 6 5* 6 6 6 6 5 6 6 6 6 6 6 4 N/A 4 4 4 N/A 4 N/A  4 1** 3*** N/A 4 4 N/A 4 N/A 4 4 N/A N/A  N/A 4 N/A N/A 4 4 N/A 4 4 4 4 4 N/A N/A N/A N/A N/A N/A N/A 4 N/A N/A 4 4 N/A 4 N/A N/A 4 N/A N/A 3**** 4 4 N/A 4 4 N/A N/A 4 3 N/A N/A N/A N/A N/A N/A Note: * Retired from the Board with eﬀect from October 2, 2018 and approved by the Board on November 15, 2018 ** Mr. Ahmed Umar Shuaib stepped down as a member of the Committee on January 22, 2018 following Board Committee’s reconstitution. *** Dr. Temitope Fasoranti was appointed as a member of the committee at the board meeting of January 22, 2018 following Board committees’ reconstitution. **** Mr Dennis Olisa was appointed as a member of the committee at the board meeting of January 22, 2018 following Board committees’ reconstitution N/A - Not Applicable (Not a Committee member) y t i l i i b a n a t s u S & e c n a n r e v o G 56 Dates for Board and Board Committee meetings held in the year ended 31 December 2018 Board meetings 22-Jan-18 13-Apr-18 02-May-18 24-Jul-18 17-Oct-18 15-Nov-18 Board credit committee meeting 22-Jan-18 12-Apr-18 Finance and general purpose committee 22-Jan-18 12-Apr-18 Board risk management committee meeting 22-Jan-18 12-Apr-18 Board audit and compliance committee meeting 22-Jan-18 12-Apr-18 Board governance, nomination and remuneration 22-Jan-18 12-Apr-18 committee Audit committee meeting 22-Jan-18 12-Apr-18 - - - - - - 23 July, 2018 16-Oct-18 23 July, 2018 16-Oct-18 23 July, 2018 16-Oct-18 23 July, 2018 16-Oct-18 23 July, 2018 16-Oct-18 23 July, 2018 30-Oct-18 19. Audit Committee The table below shows the frequency of meetings of the audit committee and members’ attendance at these meetings during the period under review. Date of meetings held during the period: Members Number of Meetings attended Mrs. Adebimpe Balogun (SR) Prof. (Prince) L.F.O Obika (SR) Mr. Michael Olusoji Ajayi (SR) Alhaji Baba Tela* (NED) Mr. Jeﬀrey Efeyini (NED) Mr. Gabriel Ukpeh (NED) * Retired from the Board with eﬀect from October 2, 2018 SR - Shareholders representative 20. Analysis of Fraud and Forgeries Returns 4 4 4 4 3 4 Nature of Fraud ATM/Electronic fraud Staﬀ Perpetrate Impersonation Stolen/Forged Instrument Internet Banking Others Total December 31, 2018 December 31, 2017 No. 44 32 32 146 20 43 317 % Loss - 67 22 11 - - Actual Loss to the Bank (N) Jan-Dec 2018 - 316,910,400 4,250,103 107,534,526 413,841 - No. 39 19 166 34 1 20 % Loss - 34 37 25 - 4 100 429,098,870 279 100 Actual Loss to the Bank (N) Jan - Dec 2017 - 11,689,602 12,789,868 8,644,515 - 1,624,830 34,748,815 y t i l i i b a n a t s u S & e c n a n r e v o G 57 Zenith Bank Plc Annual Report December 31, 2018 20 February 2019 The Chairman Zenith Bank Plc. Plot 84, Ajose Adeogun Street Victoria Island Lagos Nigeria 20 February 2019 The Chairman Zenith Bank Plc. Plot 84, Ajose Adeogun Street Victoria Island Lagos Nigeria Report to the Directors of Zenith Bank Plc. on the Outcome of the 2018 Board Performance Assessment PricewaterhouseCoopers Chartered Accountants (“PwC”) was engaged to carry out an evaluation of the Board of Directors of Zenith Bank Plc. (“the Bank”) as required by Section 2.8.1 of the Central Bank of Nigeria (CBN) Code of Corporate Governance for Banks and Discount Houses in Nigeria (“the CBN Code”). The evaluation covered the Board’s structure and composition, responsibilities, processes and procedures, relationships and performance of the Board Committees for year ended 31 December 2018. Report to the Directors of Zenith Bank Plc. on the Outcome of the 2018 Board Performance Assessment PricewaterhouseCoopers Chartered Accountants (“PwC”) was engaged to carry out an evaluation of the Board of Directors of Zenith Bank Plc. (“the Bank”) as required by Section 2.8.1 of the Central Bank of Nigeria (CBN) Code of Corporate Governance for Banks and Discount Houses in Nigeria (“the CBN Code”). The evaluation covered the Board’s structure and composition, responsibilities, processes and procedures, relationships and performance of the Board Committees for year ended 31 December 2018. The Board is responsible for the preparation and presentation of the information relevant to its performance. Our responsibility was to reach a conclusion on the Board’s performance based on work carried out within the scope of our engagement as contained in our Letter of Engagement. In carrying out the evaluation, we relied on representations made by members of the Board and Management and on the documents provided for our review. The Board has complied significantly with the provisions of the CBN Code. Areas of compliance include the wealth of experience and diversity of skill on the Board, clear delegation of responsibility to Management and effective monitoring of the Bank’s performance against its strategic objectives. Furthermore, the Board exercises strong oversight of the Bank’s risk management practices and compliance systems. The Board is responsible for the preparation and presentation of the information relevant to its performance. Our responsibility was to reach a conclusion on the Board’s performance based on work carried out within the scope of our engagement as contained in our Letter of Engagement. In carrying out the evaluation, we relied on representations made by members of the Board and Management and on the documents provided for our review. We have also identified some areas of improvement. The Board should ensure that the External Auditors report on the Bank’s risk management practices. Furthermore, the Board should expedite the appointment of an additional Non- Executive Director, to increase the ratio of Non-Executive Directors to Executive Directors. The Board has complied significantly with the provisions of the CBN Code. Areas of compliance include the wealth of experience and diversity of skill on the Board, clear delegation of responsibility to Management and effective monitoring of the Bank’s performance against its strategic objectives. Furthermore, the Board exercises strong oversight of the Bank’s risk management practices and compliance systems. We also facilitated a Self and Peer Assessment of each Director’s performance in the year under review. This assessment covered the Director’s time commitment to the business of the Bank, commitment to continuous learning and development and a self-and-peer assessment. Each Individual Director’s Assessment Report was prepared and will be made available to them respectively, while a consolidated report of the performance of all Directors will be submitted to the Chairman. We have also identified some areas of improvement. The Board should ensure that the External Auditors report on the Bank’s risk management practices. Furthermore, the Board should expedite the appointment of an additional Non- Executive Director, to increase the ratio of Non-Executive Directors to Executive Directors. We also facilitated a Self and Peer Assessment of each Director’s performance in the year under review. This assessment covered the Director’s time commitment to the business of the Bank, commitment to continuous learning and development and a self-and-peer assessment. Each Individual Director’s Assessment Report was prepared and will be made available to them respectively, while a consolidated report of the performance of all Directors will be submitted to the Chairman. Yours faithfully For: PricewaterhouseCoopers Chartered Accountants Femi Osinubi FRC/2017/ICAN/0000001665 Yours faithfully For: PricewaterhouseCoopers Chartered Accountants PricewaterhouseCoopers Chartered Accountants Landmark Towers, 5B Water Corporation Road, Victoria Island, Lagos, Nigeria T: +234 1 271 1700, www.pwc.com/ng TIN: 01556757-0001 Femi Osinubi FRC/2017/ICAN/0000001665 Partners: S Abu, O Adeola, W Adetokunbo-Ajayi, UN Akpata, O Alakhume, C Azobu, E Erhie, D McGraw, U Muogilim, P Obianwa, T Ogundipe, C Ojechi, O Oladipo, P Omontuemhen, O Osinubi, T Oyedele, AB Rahji, O Ubah PricewaterhouseCoopers Chartered Accountants Landmark Towers, 5B Water Corporation Road, Victoria Island, Lagos, Nigeria T: +234 1 271 1700, www.pwc.com/ng TIN: 01556757-0001 Partners: S Abu, O Adeola, W Adetokunbo-Ajayi, UN Akpata, O Alakhume, C Azobu, E Erhie, D McGraw, U Muogilim, P Obianwa, T Ogundipe, C Ojechi, O Oladipo, P Omontuemhen, O Osinubi, T Oyedele, AB Rahji, O Ubah y t i l i i b a n a t s u S & e c n a n r e v o G 58 Z enith Bank is a reputable brand that creates superior value for its esteemed stakeholders. The bank remains outstanding in the quest for excellence and commitment to high-quality service, innovation and sustainable banking. In line with global best practices, Zenith Bank has embraced sustainable business prin- ciples and standards and has fully integrated environmental and social risks considerations into its credit and investment deci- sions. All credit proposals are now screened for environmental and social risks before they are presented to our Global Credit Committee for consideration. The bank is poised to promoting sustainable banking practices and green finance initiatives in communities where we operate. Sustainable Wealth Creation In our business investments and lending activities, we are conscious of the need to accelerate economic growth and development, create wealth and generate employ- ment opportunities for the over 20 million Nigerian youths that are actively seeking employment. The wealth we create is increasingly our most significant competitive edge. Our strategy is to support the government’s efforts at diversify- ing the economy through ongo- ing funding and investments in the real sector of the economy such as agriculture, power, manufacturing, solid minerals, in- dustries and construction. The bank also prioritizes economic areas with the highest potential to enhance the condition and wellbeing of the broader economy and bring develop- ment closer to the people. In the same vein, the Bank is com- mitted to promoting green in- vestments with priority attention to projects that promote the y t i l i i b a n a t s u S & e c n a n r e v o G 59 Zenith Bank Plc Annual Report December 31, 2018 wellbeing of the larger society and the physical en- vironment. We have continued to invest responsi- bly in the best interest and per capita wealth of our stakeholders. We understand that we can only be as prosperous as our customers, investors and the larger economy. We remain focused on product in- novation, fair pricing, value addition and responsible competition and marketing. Environmental Sustainability and Carbon Footprint Management Zenith Bank’s Environmental and Social Manage- ment System (ESMS) provides a clear framework for the management of E&S risks of the bank concern- ing its borrowers and investees. We take measures to avoid, mitigate and minimise the risks identified in our E&S risk due diligence. The ESMS of the Bank is based on the Equator Principles, the International Finance Corporation (IFC) Performance Standards, among other global sustainability principles. Zenith Bank has completed the automation of E&S Risk Exposure Assessment Workflow, in a move to implement our Environmental and Social Manage- ment System. Our goal is to ensure sustainable fi- nancing of every project we invest in and adopt re- sponsible practices in line with the Sustainable De- velopment Goals and principles of responsible bank- ing of the United Nations Environment Programme Finance Initiative (UNEP-FI). Indeed, our target is to broaden our E&S risk cover- age to all major projects, irrespective of the sector, by 2020; and to all projects, major and minor, by 2025. In 2018, about 90 per cent of all our transac- tions valued at over N3.4 trillion were screened and accessed for E&S risk. This was a remarkable improve- y t i l i i b a n a t s u S & e c n a n r e v o G 60 ment over 2017 figures where 26 per cent of all trans- actions valued at N1.4 trillion were screened and as- sessed for E&S risk. We hope to cover up to 100 per cent of our credit transactions by 2019 and to im- prove significantly in our E&S monitoring of existing credit customers and projects. Zenith Bank is consistently working towards power- ing all our operations from alternative (renewable) sources, such as solar energy. As at end of the year 2018, we have grown the number of our build- ings powered by solar energy to nearly 413 of- fices. Specifically, about 632 ATMs are currently powered by solar energy, with 142 installed in 2018. We have also put in place, policies to re- duce consumption of paper and water in our daily operations. This includes recycling of pa- per and automation of some banking processes. In line with our carbon footprint emission re- duction strategy, Zenith Bank is committed to significantly reducing its environmental foot- prints. Again, the bank contracted V4 Advisors to measure its carbon footprint/emissions within the period under review, in line with regulatory and global expectations. To achieve success in this regard, we continually organised carbon footprint training for relevant Key Per- formance Indicator (KPI) owners in the different de- partments in the bank. Social Investments and Community Development The year 2018 witnessed slow economic growth, challenging business environment and rising unem- ployment rate, which are reflections of the socioeco- nomic difficulties experienced by households in our host communities. Because we are mindful of the vulnerabilities that these communities and house- eration (NBBF), a real female empower- ment initiative that has produced national and international basketball stars. Simi- larly, our sponsorship of the Nigerian Foot- ball Federation (NFF) underscores our pas- sion for the development of grassroots sports and the empowerment of future Ni- gerian football stars. With a total of about N406 million, sports received a large chunk of our social investment in 2018 in line with the high priority we place on this critical sector. Health: Our health initiatives in the year under review were mostly focused on ma- ternal healthcare and medical assistance to the underprivileged. In 2018, we sus- tained our support for the Private Sector Health Alliance of Nigeria with a seed con- tribution of N305m. The goal of this initia- tive is to positively influence private and public policies towards addressing women and children’s health and wellbeing issues, including maternal and neonatal mortal- ity. Other health initiatives in 2018 include N158 million investment in medical inter- ventions for low-income individuals faced with various life-threatening medical con- ditions, all geared towards complement- ing government’s efforts at improving life expectancy in the country. Education: In line with our resolute com- mitment to the development of the Nige- rian educational sector, we expended about N266million towards this initiative Our health initiatives in the year under review were mostly focused on maternal healthcare and medical assistance to the underprivileged. y t i l i i b a n a t s u S & e c n a n r e v o G 61 holds face, we remained committed to enhancing our social investments. In the year under review, Zenith Bank’s total Corporate Social Responsibility in- vestment was the biggest, reaching a record high of N3.1 billion at the end of the year. Healthcare improvement; education and skills development; sports devel- opment; youth, women and economic empowerment; and public infrastruc- ture development remained the focus of our CSR endeavours during the year. Security: Our most significant social in- vestment in 2018 was on promoting the security of lives and property of local communities. Our need-gap analysis re- vealed that security remains the cardi- nal need of our communities. We are committed to collaborating with the lo- cal communities, the federal, state and local governments, and other relevant agencies to preserve public peace, and ensure a crime-free environment. In the year under review and as part of our corporate social responsibility, we in- vested N1.57 billion in this initiative which covers the contributions to sev- eral State Security Funds across the fed- eration. Sports: In 2018, our sports develop- ment initiatives included title sponsor- ship of the Delta State Principal’s Cup; the Nigerian Football Federation (NFF); and our flagship Zenith National Women’s Basketball League in partner- ship with the Nigerian Basketball Fed- Zenith Bank Plc Annual Report December 31, 2018 In line with our resolute commitment to the development of the Nigerian educational sector, we expended about N266million towards this initiative in the 2018 financial year. in the 2018 financial year. Our educational empow- erment initiatives in the year under review include a flagship vocational training centre in Maiduguri; an ICT Centre in the University of Nigeria, Nsukka; do- nation of ICT facilities to Ambrose Ali University, Ekpoma; support for the North-East Children’s Fund; educational support for Louisville Girls High School, Ijebu-Itele, Ogun State; the Zenith Academic Excel- lence Award for Best Graduating Students in some Federal Universities and the Zenith Scholarship Fund for the Nigerian Computer Society, among others. Because we understand the critical importance of education in our developmental agenda as a coun- try, we will continue to invest in this all-important sector towards improving people’s skills to enhance their standard of living. Workplace Zenith Bank has approved the constitution of Health, Safety and Environment Management Committee to ensure a safe and secure workplace for its employ- ees, vendors, contractors and other stakeholders. We have also developed the Health, Safety and Environ- ment Management Plan, in line with the provisions y t i l i i b a n a t s u S & e c n a n r e v o G 62 of ISO45001. In 2018, we trained 441 employ- ees in Basic Emergency Response & First Aid. Also, 63 participants were trained in Occupa- tional, Health & Safety. The Bank has continued to enforce a mandatory 5 pm closing time for all staff bank-wide. This is a significant work/life balance initiative that saves a substantial amount for the bank in terms of energy costs, while also reducing our overall carbon footprint. Human Rights Zenith Bank prohibits discrimination in all its ramifications. Our organisation maintains an equal pay for equal work policy where employ- ees receive the same remuneration across the same level, irrespective of gender in all our busi- ness locations. Ours is an inclusive work envi- ronment, and we are committed to SDG 5 of gender equality where people are valued equally and can rise in the corporate ladder based on merit and competence. Zenith Bank has a robust Human Rights Policy which lay down guidelines on how our employ- ees are expected to relate among themselves and with all other stakeholders within our busi- ness operations. Besides, our employees, con- tractors, agents, consultants and other business partners are encouraged to conform to the United Nations Universal Declaration of Human pliers etc.) to ensure their E&S compliance and avert potential reputational risks. ICT facilities and equip- ments constituted a substantial part of our procure- ments. We empower local communities and businesses by ensuring that our procurement policy deliberately promotes the patronage of local ICT vendors. Our relations with IT vendors are guided by laid down service level agreements and compliance with our Code of Conduct, while our Tender Committee over- sees the process of selection of vendors. Zenith Bank’s procurement practices have positively im- pacted the economy, creating jobs, income and eco- nomic empowerment for households. Financial Inclusion Zenith Bank has continued to support financial in- clusion and literacy in the country. In 2018, the bank invested N200 million to support the Financial In- clusion Project of the Central Bank of Nigeria. The Rights (UDHR). The Bank has developed a human right assessment course, “Introduction to Human Rights Framework and the Rights of the child” to train staff across all levels on the basics of human rights. This course has been deployed on our Learning Management Por- tal and made mandatory for staff, from entry level to executive management level. During the year un- der review, the bank assessed about 795 credit trans- actions for human rights-related risks such as child labour, discrimination by gender, ethnicity, and reli- gion, among others. Women Empowerment Zenith Bank operates a gender-inclusive workplace culture. In our business operations, we seek to pro- vide products and services designed specifically for women. The female gender make-up of our total workforce remained 48 per cent relative to 52 per cent of male employees. Our male/female ratio for management level staff for 2018 was 74:26. In the year under review, we spent over N346 bil- lion in capacity building for our female employ- ees, and about 1,976 employees took our Online Women’s Right training. Zenith Bank has supported female participation in sports with its title sponsorship of the Zenith National Women Basketball League. Many alumni of the league currently have successful careers in national and international basketball teams around the world. Sustainable Supply Chain Management Our procurement policies prioritise excellent product quality, service delivery and after-sales support. As part of efforts to comply with the principles of responsible consumption and pro- duction as enshrined in SDG 12, we have inte- grated environmental and social conditions into our Code of Conduct for Suppliers, Vendors and Contractors, among others. This promotes socio- environmental friendly business practices, and also to ensure high-quality products and ser- vices, value for money and responsible sourc- ing of raw materials in our supply chain. In 2018, we administered our “Code of Conduct” on all major vendors, suppliers and contractors of the bank and periodically screen all third party business partners (investees, contractors, sup- y t i l i i b a n a t s u S & e c n a n r e v o G 63 Zenith Bank Plc Annual Report December 31, 2018 Capacity building and awareness creation remained one of the key people-oriented strategies we adopted in the year under review. bank has developed winning strategies for nurtur- ing financial inclusion in the country. Our financial literacy strategy is aimed at empowering the finan- cially excluded groups with necessary information and adequate knowledge of the various types of fi- nancial products and services that are available to them. In the year under review, 538,910 previously unbanked individuals received financial services or products for the first time from Zenith Bank. We were able to achieve this through our several retail prod- ucts, such as the Zenith Children’s Account (ZECA), Zenith Integrated Student Account (ZISA), Aspire Ac- count, easy save Accounts (Classic & Premium), EazyMoney, Mobile Phone enabled, Agent Banking, and Zenith Mobile Banking. Zenith Bank’s mobile app, agency banking initiative and short messaging codes (*966#) have continued to drive the financial inclusion of the unbanked population in Nigeria. In the year under review, the Bank organised programmes to mark the Financial Literacy and World Savings Day in March and October, respec- tively. This covered six (6) schools in each of the six (6) geopolitical zones of the country. Within this pe- riod, we also increased the number of branches that can be easily accessed by physically challenged per- sons, from 25 to 30. Training and Capacity Building Capacity building and awareness creation remained one of the key people-oriented strategies of the bank. In 2018, we continued to carry out E&S risk management training for all our employees using classrooms and online platforms. As part of our sustainability acculturation strategy, we made sig- nificant progress with the integration of Environmen- tal and Social Risk Management sessions into our quarterly Anti-Money Laundering and Operational Risks trainings bank-wide, as well as the quarterly Business Summit of the decision makers of the Bank and Zenith orientation program during on boarding of new employees. We also publish “Sustainability Titbits”, Sustainability Lifestyle Tips” and “Sustainability Headlines” daily using official staff emails, while our intranet portal is continuously used to create E&S awareness. Reporting In 2018, Zenith Bank endorsed the draft principles of responsible banking under the auspices of the United Nations Environment Programme Finance Initiative (UNEP-FI). The bank also signed on for the Board Session of the United Nations Global Compact (UNGC) aimed at setting a three-year strategic plan and direction for the Local Network. Zenith Bank is a member of the United Nations Global Compact; the United Nations Environment Programme’s Finance Initiative, (UNEP-FI); and is signatory to the Central Bank of Nigeria’s Nigerian Sustainable Banking Prin- ciples (NSBP). Consequently, we remain fully com- mitted to sustainability reporting. Our third standalone Sustainability Report titled “Sustaining the Strong Momentum” uniquely feature the bank’s significant footprints in line with the Sus- tainable Development Goals (SDGs) of the United Nations. The report followed the adoption of the new GRI standard and earned the bank the Award of the Best Company in Sustainability Reporting in Africa at the 2018 SERAS CSR Awards. Additionally, Zenith Bank sends biannual progress reports to the CBN as well as annual reports to the IFC, UNGC, PROPARCO, among others. Conclusion Zenith Bank has in place a strong governance struc- ture that supports its sustainable lending, wealth creation and community empowerment strategies. We understand that our brand thrives on the sus- tainable value we create for our stakeholders. As such, we shall continue to be strategic and proac- tive in pursuing our sustainability targets in line with globally acceptable environmental and social prac- tices. y t i l i i b a n a t s u S & e c n a n r e v o G 64 Statement of Directors’ Responsibilities in Relation to the Financial Statements for the Year Ended December 31,2018 The Directors accept responsibility for the preparation of the annual consolidated and seperate ﬁnancial statements that give a true and fair view in accordance with International Financial Reporting Standards (IFRS) and in the manner required by the Companies and Allied Matters Act Cap C20, Laws of the Federation of Nigeria 2004, Financial Reporting Council of Nigeria Act, 2011, the Banks and Other Financial Institutions Act Cap B3, Laws of the Federation of Nigeria 2004 relevant Central Bank of Nigeria (CBN) Guidelines and circulars. The Directors further accept responsibility for maintaining adequate accounting records as required by the Companies and Allied Matters Act Cap C20, Laws of the Federation of Nigeria, 2004 and for such internal control as the directors determines necessary to enable the preparation of ﬁnancial statements that are free from material misstatements whether due to fraud or error. The Directors have made assessment of the Bank and Group’s ability to continue as a going concern and have no reason to believe that the Bank and the Group will not remain a going concern in the year ahead. SIGNED ON BEHALF OF THE BOARD OF DIRECTORS BY: __________________________ Mr. Jim Ovia, CON. Chairman FRC/2013/CIBN/00000002406 January 18, 2019 _______________________ Mr. Peter Amangbo Managing Director FRC/2013/ICAN/00000001310 January 18, 2019 ___________________________ Mr. Ebenezer Onyeagwu Deputy Managing Director FRC/2013/ICAN/00000003788 January 18, 2019 y t i l i i b a n a t s u S & e c n a n r e v o G 65 Zenith Bank Plc Annual Report December 31, 2018 Report of the Audit Committee for the Year Ended December 31,2018 y t i l i i b a n a t s u S & e c n a n r e v o G 66 03FinancialsZenith Bank Plc Annual Report December 31, 2018 i s l a c n a n F i 68 i s l a c n a n F i 69 Zenith Bank Plc Annual Report December 31, 2018 i s l a c n a n F i 70 i s l a c n a n F i 71 Zenith Bank Plc Annual Report December 31, 2018 i s l a c n a n F i 72 i s l a c n a n F i 73 Zenith Bank Plc Annual Report December 31, 2018 i s l a c n a n F i 74 75FinancialsZenith Bank Plc Annual Report December 31, 2018 Consolidated and Separate Statements of Proﬁt or Loss and other Comprehensive Income for the Year Ended 31 December, 2018 In millions of Naira Gross earnings Interest and similar income Interest and similar expense Net interest income Impairment loss on ﬁnancial and non-ﬁnancial instruments Net interest income after impairment loss on financial and non-financial instruments Net income on fees and commission Trading gains Other operating income Depreciation of property and equipment Amortisation of intangible assets Personnel expenses Operating expenses Profit before tax Minimum tax Income tax expense Profit for the year after tax Other comprehensive income: Items that will never be reclassified to profit or loss: Group Bank Note(s) 31-Dec-18 31-Dec-17 Restated* 31-Dec-18 31-Dec-17 Restated* 6 7 8 9 11 10 25 26 36 12 13a 13a 630,344 745,189 440,052 474,628 538,004 367,816 673,636 420,210 (144,458) (216,637) (124,156) (200,672) 295,594 257,991 243,660 219,538 (18,372) (98,227) (15,313) (95,244) 277,222 159,764 228,347 124,294 81,814 82,548 80,202 157,974 17,947 22,444 64,124 80,202 17,479 65,561 157,974 22,606 (16,648) (12,428) (14,625) (11,059) (2,399) (1,631) (2,187) (1,431) (68,556) (64,459) (56,657) (55,672) (137,897) (144,893) (124,576) (132,852) 231,685 199,319 192,107 169,421 (4,052) (4,350) (4,052) (4,350) (34,209) (21,178) (22,575) (12,068) 193,424 173,791 165,480 153,003 Fair value movements on equity instruments at FVOCI 21(b) 1,459 (2,551) 1,459 (2,551) Items that are or may be reclassified to profit or loss: Foreign currency translation diﬀerences for foreign operations Other comprehensive income/(loss) for the year 4,828 6,287 5,233 2,682 - - 1,459 (2,551) Total comprehensive income for the year 199,711 176,473 166,939 150,452 Profit attributable to: Equity holders of the parent Non controlling interest Total comprehensive income attributable to: Equity holders of the parent Non controlling interest Earnings per share Basic and diluted (Naira) 193,147 173,472 165,480 153,003 277 319 - - 199,437 176,139 166,939 150,452 274 334 - - 14 6.15 5.53 5.27 4.87 The accompanying notes are an integral part of these consolidated and separate ﬁnancial statements. i s l a c n a n F i 76 Consolidated and Separate Statements of Financial Position as at 31 December, 2018 In millions of Naira Note(s) 31-Dec-18 31-Dec-17 01-Jan-17 31-Dec-18 31-Dec-17 01-Jan-17 Group Bank Restated* Restated* Restated* Restated* Assets Cash and balances with central banks Treasury bills Assets pledged as collateral Due from other banks Derivative assets Loans and advances Investment securities Investment in subsidiaries Deferred tax asset Other assets Property and equipment Intangible assets Total assets Liabilities Customers' deposits Derivative liabilities Current income tax payable Deferred tax liabilities Other liabilities On-lending facilities Borrowings Debt securities issued Total liabilitles Capital and reserves Share capital Share premium Retained earnings Other reserves Attributable to equity holders of the parent Non-controlling interest Total shareholders' equity Total liabilities and equity 15 16 17 18 19 20 21 22 23 24 25 26 27 32 13 23 28 29 30 31 33 34 34 34 34 954,416 957,663 669,058 902,073 907,265 627,385 1,000,560 936,817 557,359 592,935 674,274 88,826 468,010 328,343 495,803 459,457 57,219 82,860 817,043 592,935 393,466 88,826 799,992 463,787 468,010 325,575 273,331 354,405 57,219 82,860 1,823,111 2,100,362 2,289,365 1,736,066 1,980,464 2,138,132 565,312 330,951 199,478 156,673 117,814 118,622 - 9,513 80,948 149,137 16,678 - - 9,561 6,440 92,494 37,536 34,003 9,197 75,910 34,003 9,197 56,052 133,384 105,284 133,854 118,223 12,989 4,645 15,399 12,088 33,003 6,041 35,410 94,613 3,903 5,955,710 5,595,253 4,739,825 4,955,445 4,833,658 4,283,736 3,690,295 3,437,915 2,983,621 2,821,066 2,744,525 2,552,963 16,995 9,154 67 20,805 66,834 8,915 18 8,953 45 16,995 5,954 - 20,805 6,069 - 66,834 6,927 - 231,716 243,023 214,080 223,463 229,332 249,136 393,295 437,260 361,177 383,034 350,657 356,496 263,106 332,931 153,464 393,295 458,463 361,177 383,034 350,657 418,979 292,802 332,931 153,464 5,139,959 4,783,137 4,040,760 4,280,413 4,135,675 3,672,783 15,698 255,047 322,237 221,231 814,213 1,538 15,698 15,698 255,047 255,047 356,837 261,608 183,217 165,729 810,799 698,082 1317 983 15,698 255,047 238,635 165,652 675,032 - 15,698 255,047 287,867 139,371 697,983 - 15,698 255,047 213,107 127,101 610,953 - 815,751 812,116 699,065 675,032 697,983 610,953 5,955,710 5,595,253 4,739,825 4,955,445 4,833,658 4,283,736 The accompanying notes are an integral part of these consolidated and separate ﬁnancial statements. The ﬁnancial statements were approved by the Board of Directors for issue on 18 January, 2019 and signed on its behalf by: Jim Ovia, CON (Chairman) FRC/2013/CIBN/00000002406 Peter Amangbo (Group Managing Director and Chief Executive) FRC/2013/lCAN/00000001310 Ebenezer Onyeagwu (Deputy Managing Director) FRC/2013/ICAN/00000003788 Mukhtar Adam, PhD (Chief Financial Officer) FRC/2013/MUL Tl/00000003196 i s l a c n a n F i 77 Zenith Bank Plc Annual Report December 31, 2018 Consolidated and Separate Statements of Changes in Equity as at 31 December, 2018 Group In millions of Naira Attributable to equity holders of the Parent Share capital Share premium Foreign currency translation reserve Fair value reserve Statutory SMIEIS reserve reserve Credit risk reserve Retained earnings Total Non- cotrolling Interest Total equity At 1 January, 2017 15,698 255,047 28,465 10,950 112,114 3,729 10,471 267,008 703,482 983 704,465 Correction of errors (see note 43) - - - - Restated 1 January, 2017 15,698 255,047 - 28,465 10,950 112,114 3,729 10,471 261,608 698,082 Restated Proﬁt for the period (see note 43) Foreign currency translation diﬀerences Fair value movements on equity instruments Total comprehensive income for the period Transfer between reserves Transactions with owners of the Parent Dividends - - - - - - - - - - - 5,218 - - - (2,551) 5,218 (2,551) - - At 31 December, 2017 (restated) 15,698 255,047 33,683 8,399 135,064 3,729 2,342 356,837 810,799 1,317 812,116 At January 1, 2018 15,698 255,047 33,683 8,399 135,064 3,729 2,342 356,837 810,799 Adjustment on initial application of IFRS 9, (see note 34c(ii)) Restated balance at 1 January, 2018 15,698 255,047 33,683 8,399 135,064 3,729 2,342 Proﬁt for the period Foreign currency translation diﬀerences Fair value movements on equity instruments Total comprehensive income for the period Transfer between reserves Transactions with owners of the Parent Dividends Cost of transfer from income to stated capital - - - - - - - - - - - - - - - 4,831 - 4,831 - - - - - 1,459 1,459 - - - 32,456 (732) At 31 December, 2018 15,698 255,047 38,514 9,858 167,520 3,729 1,610 322,237 814,213 1,538 815,751 22,950 (8,129) (14,821) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (5,400) (5,400) 173,472 173,472 - - 5,218 (2,551) 983 319 15 (5,400) 699,065 173,791 5,233 (2,551) 173,472 176,139 334 176,473 (63,422) (63,422) (63,422) - - - - - - - - - 1,317 812,116 (53) (108,169) 1,264 277 (3) 274 199,711 703,947 193,424 4,828 1,459 (86,340) (1,567) (108,116) (108,116) 248,721 702,683 193,147 193,147 - - 4,831 1,459 193,147 199,437 (31,724) - (86,340) (86,340) (1,567) (1,567) i s l a c n a n F i 78 Group In millions of Naira Attributable to equity holders of the Parent Share Share Foreign currency Fair value capital premium translation reserve reserve Statutory reserve SMIEIS reserve Credit risk reserve Retained earnings Total Non- cotrolling Interest Total equity - - - - 267,008 703,482 (5,400) (5,400) 261,608 698,082 173,472 173,472 - - 5,218 (2,551) 173,472 176,139 At 1 January, 2017 15,698 255,047 28,465 10,950 Restated 1 January, 2017 15,698 255,047 28,465 10,950 112,114 3,729 - - 112,114 3,729 10,471 - 10,471 5,218 (2,551) 5,218 (2,551) - - - - 22,950 - - - - - Correction of errors (see note 43) Restated Proﬁt for the period (see note 43) Foreign currency translation diﬀerences Fair value movements on equity instruments Total comprehensive income for the period Transfer between reserves Transactions with owners of the Parent Dividends Adjustment on initial application of IFRS 9, (see note 34c(ii)) Proﬁt for the period Foreign currency translation diﬀerences Fair value movements on equity instruments Total comprehensive income for the period Transfer between reserves Transactions with owners of the Parent Dividends Cost of transfer from income to stated capital - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - At 31 December, 2017 (restated) 15,698 255,047 33,683 8,399 135,064 3,729 2,342 356,837 810,799 1,317 812,116 (63,422) (63,422) (63,422) At January 1, 2018 15,698 255,047 33,683 8,399 135,064 3,729 2,342 356,837 810,799 Restated balance at 1 January, 2018 15,698 255,047 33,683 8,399 135,064 3,729 2,342 4,831 4,831 1,459 1,459 - - - - 32,456 - - - - - - - - - - - - - (732) - - (108,116) (108,116) 248,721 702,683 193,147 193,147 - - 4,831 1,459 193,147 199,437 (31,724) - (86,340) (86,340) (1,567) (1,567) 1,317 812,116 (53) (108,169) 1,264 277 (3) - 274 - - - 703,947 193,424 4,828 1,459 199,711 - (86,340) (1,567) At 31 December, 2018 15,698 255,047 38,514 9,858 167,520 3,729 1,610 322,237 814,213 1,538 815,751 983 704,465 - 983 319 15 - (5,400) 699,065 173,791 5,233 (2,551) 334 176,473 - - (8,129) (14,821) - i s l a c n a n F i 79 Zenith Bank Plc Annual Report December 31, 2018 Consolidated and Separate Statements of Changes in Equity as at 31 December, 2018 Bank In millions of Naira Share capital Share premium Fair value reserve Statutory reserve SMIEIS reserve Credit risk reserve Retained earnings Total equity Balance at 1 January, 2017 15,698 255,047 10,950 104,293 3,729 8,129 218,507 616,353 Correction of errors (see note 43) - - - - - - (5,400) (5,400) Restated 1 January, 2017 15,698 255,047 10,950 104,293 3,729 8,129 213,107 610,953 Restated proﬁt for the period (see noe 43) Fair value movements on equity lnsturnents Total comprehensive income for the period Transfer between reserves Dividend At 31 December, 2017 (restated) At 01 January 2018 Adjustment on initial applicationof IFRS 9, (see note 34c(ii)) - - - - - - - - - - 15,698 15,698 - 255,047 255,047 - - (2,551) (2,551) - - 8,399 8,399 - - - - 22,950 - 127,243 127,243 - - - - - - 3,729 3,729 - Restated balance at 1 January 2018 15,698 255,047 8,399 127,243 3,729 Proﬁt for the year period Fair value movements on equity instruments Total comprehensive income for the period Transfer between reserves Dividends - - - - - - - - - - - 1,459 1,459 - - - - - 24,822 - - - - - - Balance at 31 December, 2018 15,698 255,047 9,858 152,065 3,729 - - - 153,003 153,003 - {2,551) 153,003 150,452 (8,129) (14,821) - - - - - - - - - - - - (63,422) (63,422) 287,867 697,983 287,867 697,983 (103,550) (103,550) 184,317 594,433 165,480 165,480 1,459 165,480 166,939 (24,822) - (86,340) (86,340) 238,635 675,032 The accompanying notes are an inteqral part of these consolidated and separate ﬁnancial statements. i s l a c n a n F i 80 Consolidated and Separate Statement of Cash Flows for the Year Ended 31 December, 2018 In millions of Naira Cash flows from operating activities Proﬁt after tax for the period Adjustments for: Impairment loss/(reversal) Loans and Advances Treasury bills, investment securities, assets pledged and due from Banks Oﬀ balance sheet On other assets Fair value changes in trading bond Depreciation of property and equipment Amortisation of intangible assets Dividend income Foreign exchange loss on debt securities issued Interest income Interest expense Proﬁt on sale of property and equipment Tax expense Changes in operating assets and liabilities: Net decrease/(increase) in loans and advances Net increase in other assets Net decrease/(increase) in treasury bills with maturities greater than three months Net increase in treasury bills (FVTPL) Net increase in assets pledged as collateral Net (increase)/decrease in investment securities Net (increase) in restricted balances (cash reserves) Net decrease in customer deposits Net decrease/(increase) in other liabilities Net increase/(decrease) in derivative assets Net (decrease)/increase in derivative liabilities Interest received Dividend received Interest paid Tax paid VAT paid Group Bank Note(s) 2018 2017 2018 2017 193,424 173,791 165,480 153,003 8 8 8 8 45(i) 25 26 10 31 6 7 10 13 45(iv) 45(x) 45(ii) 45(iii) 45(xi) 45(i) 45(xiii) 45(v) 45(vi) 45(xii) 45(xiv) 13,303 98,204 (807) 5,337 539 1,990 16,648 2,399 (1,795) 27,778 - - 23 - 12,428 1,631 (900) 6,064 9,396 (1,051) 6,441 527 1,990 14,625 2,187 (5,395) 27,778 95,244 - - - - 11,059 1,431 (4,500) 6,064 (440,052) (474,628) (367,816) (420,210) 144,458 216,637 124,156 200,672 (259) 38,261 (57) 25,528 (241) 26,627 (22) 16,418 1,224 58,721 4,704 59,159 161,690 94,906 3,050 (54,981) (187,329) 76,739 - - 135,770 (28,366) (33,619) - 37,343 (473,275) 37,343 (124,925) (139,667) (124,925) (203,264) (132,704) (5,755) 62,424 (20,642) 24,495 - (473,275) (142,435) (1,375) (58,357) (118,930) (58,386) (119,078) 252,380 454,294 (16,298) (31,607) 26,709 25,641 76,541 (10,860) (31,607) 191,562 (17,990) 25,641 (3,810) (46,029) (3,810) (46,029) (169,903) (228,576) (42,970) (457,543) 45 (viii) 434,846 474,628 365,125 420,210 10 45 (ix) 13(c) 45(vi) 1,795 900 5,395 4,500 (134,201) (195,473) (116,234) (179,508) (37,925) (28,522) (26,742) (260) (2,235) (260) (20,431) (1,814) Net cash flows (used in)/generated from operations 94,352 20,722 184,314 (234,586) i s l a c n a n F i 81 Zenith Bank Plc Annual Report December 31, 2018 Consolidated and Separate Statement of Cash Flows for the Year Ended 31 December, 2018 In millions of Naira Cash flows from investing activities Purchase of property and equipment Proceeds from sale of property and equipment Purchase of intangible assets Note(s) 2018 Group 2017 2018 Bank 2017 25 (35,712) (41,883) (30,501) (38,180) 45(vii) 26 3,490 (3,928) 241 (6,694) (1,000) 406 (3,260) (34,200) 206 (6,288) (1,000) Purchase of equity securities 21 (34,200) Net cash (used in)/generated from investing activities (70,350) (49,336) (67,555) (45,262) Cash flows from financing activities Proceeds from debt securities Borrowed funds Proceeds of long term borrowing Repayment of long term borrowing Net inﬂow from On-lending facilities Finance lease payments Dividends paid to shareholders 31 30 30 29 45(vi) 39 - - 152,239 - - - 152,239 - 370,606 102,373 391,810 193,088 (289,842) 10,261 (2,760) (8,983) 32,377 (370) (352,326) (66,911) 10,261 (2,760) 32,377 (370) (86,340) (63,422) (86,340) (63,422) Net cash generated from / (used in) financing activities 1,925 214,214 (39,355) 247,001 Net (decrease)/increase in cash and cash equivalents 25,927 185,600 77,404 (32,847) Analysis of changes in cash and cash equivalents : Cash and cash equivalent at the beginning of the year 916,342 727,399 533,511 566,358 (decrease)/increase in cash and cash equivalents 25,927 185,600 77,404 (32,847) Eﬀect of exchange rate movement on cash balances 4,769 3,343 - - Cash and cash equivalents at the end of the period 40 947,038 916,342 610,915 533,511 The accompanying notes are an integral part of these consolidated and separate ﬁnancial statements i s l a c n a n F i 82 NotesZenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 1General information Zenith Bank Plc (the “Bank”) was incorporated in Nigeria under the Companies and Allied Matters Act as a private limited liability company on May 30, 1990. It was granted a banking licence in June 1990, to carry on the business of commercial banking and commenced business on June 16, 1990. The Bank was converted into a Public Limited Liability Company on May 20, 2004. The Bank’s shares were listed on October 21, 2004 on the Nigerian Stock Exchange. In August 2015, the Bank was admitted into the Premium Board of the Nigerian Stock Exchange. The principal activity of the Bank is the provision of banking and other ﬁnancial services to corporate and individual customers. Such services include granting of loans and advances, corporate ﬁnance and money market activities. The Bank has six subsidiary companies namely, Zenith Bank (Ghana) Limited, Zenith Pensions Custodian Limited, Zenith Bank (UK) Limited, Zenith Bank (Sierra Leone) Limited, Zenith Bank (Gambia) Limited and Zenith Nominee. The Bank also has representative oﬃces in South Africa and China in addition to operating a branch of Zenith Bank (UK) Limited in the United Arab Emirates. The consolidated ﬁnancial statements for the year ended 31 December, 2018 comprise the Bank and its subsidiaries (together referred to as “the Group” and individually as “Group entities”) and the Group’s interest in associates. The separate ﬁnancial statements comprise the Bank. The consolidated and separate ﬁnancial statements for the year ended 31 December, 2018 were approved for issue by the Board of Directors on 18 January, 2019. The Group does not have any unconsolidated structured entity. (a) Changes in accounting policies Except as noted below, the Group has consistently applied the accounting policies as set out in Note 2(b) to all periods presented in these consolidated and separate ﬁnancial statements. The Group has adopted the following new standards and amendments including any consequential amendments to other standards with initial date of application of January 1, 2018. The eﬀect of initially applying these standards is mainly attributed to the following, 1) An increase in impairment losses recognised on ﬁnancial instruments (see note 3.2.18) 2) Additional disclosures related to IFRS 9 (see note 2.8,3.2.9 - 3.2.18) 3) Additional disclosures related to IFRS 15 (see note 9) i) IFRS 9 Financial Instruments. The Group has adopted IFRS 9 Financial Instruments as issued by the IASB in July 2014 with a date of transition of 1 January 2018, which resulted in changes in accounting policies and adjustments to the amounts previously recognised in the ﬁnancial statements. The Group had previously adopted IFRS 9 as issued by the IASB in 2010 which covered the classiﬁcation and measurement of ﬁnancial assets and ﬁnancial liabilities. The major change in the current adoption relates to the impairment of ﬁnancial assets. As permitted by the transitional provisions of IFRS 9, the Group elected not to restate comparative ﬁgures. Adjustments to the carrying amounts of ﬁnancial assets and ﬁnancial liabilities at the date of the transition were recognised in the opening retained earnings and other reserves of the current period. The adoption of IFRS 9 also signiﬁcantly amends other standards dealing with ﬁnancial instruments such as IFRS 7 Financial Instrument Disclosures. Consequently for notes disclosure, the consequential amendments to IFRS 7 disclosures have also only been applied in the current period as shown in note 3.2.9. The comparative period disclosures repeat those disclosure made in the prior year. ii) IFRS 15 Revenue from contracts with customers The standard contains a single model that applies to contracts with customers and two approaches to recognising revenue: i s l a c n a n F i 84 at a point in time or over time. The model features a contract- based ﬁve-step analysis of transactions to determine whether how much and when revenue is recognised. The Group has adopted the following new standards and amendments including any consequential amendments to other standards with initial date of application of January 1, 2018. The adoption of IFRS 15 did not impact the timing or amount of fee and commission income from contracts with customers and the related assets and liabilities recognised by the Group. Accordingly the impact on the comparative information is limited to new disclosure requirements. Transition IFRS 15 on 1 January 2018 The Group retrospectively in accordance with IAS 8 without any practical expedients. initially applied iii) IFRIC 22 Foreign currency transactions and advance consideration The amendments clariﬁes the transaction date to be used in determining the exchange rate for translation of foreign currency transactions involving an advance payment or receipt. The amendments clariﬁes that the transaction date is the date on which the Group initially recognises the prepayment or deferred income arising from the advance consideration. • 2Significant accounting policies (b) Significant accounting policies Except as noted in Note 2(a), the Group has consistently applied the following accounting policies to all periods presented in these consolidated and separate ﬁnancial statements, unless otherwise stated. 2.1 Basis of preparation (a). Statement of compliance The ﬁnancial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standard Board (IASB) and in the manner required by the Companies and Allied Matters Act of Nigeria, the Financial Reporting Council of Nigeria Act, the Banks and other Financial Institutions Act of Nigeria, and relevant Central Bank of Nigeria circulars. (b). Basis of measurement The ﬁnancial statements have been prepared under the historical cost convention with the exception of the following: • • Assets and liabilities measured at amortised cost; Derivative ﬁnancial instruments which are measured at fair value; and Non-derivative ﬁnancial fair value through proﬁt or loss, or fair value through OCI are measured at fair value. instruments, carried at For transactions involving multiple payments or receipts, each payment or receipt gives rise to a separate transaction date. The interpretation applies when the Group: • • pays or receives consideration in a foreign currency; and recognises – – non-refundable recognising liability or consideration item advance the eg. before non-monetary related asset a (c) Use of estimates and judgements The preparation of ﬁnancial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are signiﬁcant to the consolidated and separate ﬁnancial statements are disclosed in Note 4. i s l a c n a n F i 85 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 2.2 New standards, interpretations and amendments to existing standards that are not yet effective 2.3 Basis of Consolidation (a) Subsidiaries (i) IFRS 16 Leases This standard sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e the customer (‘lessee’) and the supplier (‘lessor’). IFRS 16 eliminates the classiﬁcation of leases as required by IAS 17 and introduces a single lease accounting model. Applying that model, a lessee is required to recognise: • • assets and liabilities for leases with a term of more than 12 months, unless the underlying assets is of low value; depreciation of lease assets seperately from interest on lease liabilities in proﬁt or loss Subsidiaries are entities controlled by the Group. The Group controls an entity if it is exposed to, or has the rights to variable returns from its involvement with the entity and has the ability to aﬀect those returns through its power over the entity. The Group reassesses whether it has control if there are changes to one or more elements of control. This includes circumstances in which protective rights held become substantive and lead to the Group having control over an investee. The ﬁnancial statements of subsidiaries are consolidated from the date the Group acquires control, up to the date that such eﬀective control ceases. For the lessor, IFRS 16 substantially carries forward the lessor lessor accounting requirements continues to classify its leases or ﬁnance leases, and to account for these two types of leasers diﬀerently. IAS 17. Accordingly, a in The Group is currently in the process of assessing the impact that the initial application would have on its business and will adopt the standard for the annual period commencing January 1, 2019. (ii) IFRIC 23 Uncertainty over income tax treatments These amendments provide clarity on the accounting for income tax treatments that have yet to be accepted by the tax authorities. The amendments clariﬁes that the key test for determining the amounts to be recognised in the ﬁnancial statements is whether it is probable that the tax authority will accept the chosen tax treatment; this could result in an increase in the tax liability or a recognition of an asset depending on the current practice of the Group. The Group will adopt the amendments for the year ending 31 December 2019. Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions (transactions with owners). When the proportion of the equity held by Non Controlling Interests (NCIs) changes, the carrying amounts of the controlling and NCIs are adjusted to reﬂect the changes in their relative interests in the Subsidiary. Any diﬀerence between the amount by which the non-controlling interest is adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to the Group. Inter-company transactions, balances and unrealised gains on transactions between companies within the Group are eliminated on consolidation. Unrealised losses are also eliminated in the same manner as unrealised gains, but only to the extent that there is no evidence of impairment. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. In the separate ﬁnancial statements, invesments in subsidiaries are measured at cost. i s l a c n a n F i 86 (b) Loss of Control On loss of control, the Group derecognises the assets and liabilities of the subsidiary, any related non-controlling interests and the other components of equity relating to a subsidiary. Any surplus or deﬁcit arising on the loss of control is recognised in proﬁt or loss. If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently, that retained interest is accounted for as an equity-accounted investee or as a ﬁnancial asset depending on the level of inﬂuence retained. (c) Associates Associates are all entities over which the Group has signiﬁcant inﬂuence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost. The Group’s investment in associates includes goodwill identiﬁed on acquisition, net of any accumulated impairment loss. in reserves are recognised The Group’s share of its associates’ post-acquisition proﬁts or losses is recognised in proﬁt or loss, and its share of postacquisition movements in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. in the associate, Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group. Dilution gains and losses arising in investments in associates are recognised in proﬁt or loss. Significant accounting policies (d) Non-controlling interests Non-controlling interests are measured at their proportionate share of the acquiree’s identiﬁable net assets at the acquisition date. Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. 2.4 Translation of foreign currencies Foreign currency transactions and balances (a) Functional and presentation currency Items included in the ﬁnancial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (functional currency). The parent entity’s functional currency (Nigerian Naira) is adopted as the presentation currency for the consolidated ﬁnancial statements. Except as otherwise indicated, ﬁnancial information presented in Naira has been rounded to the nearest million. (b) Group companies The results and ﬁnancial position of all the Group entities (none of which has the currency of a hyper-inﬂationary economy) that have a functional currency diﬀerent from the presentation currency are translated into the presentation currency as follows: (i) (ii) assets and liabilities for statement of ﬁnancial position presented are translated at the closing rate at the reporting date; income and expenses for each statement of proﬁt or loss and other comprehensive income are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative eﬀect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and (iii) all resulting exchange diﬀerences are recognised in other comprehensive income and presented within equity as foreign currency translation reserves. i s l a c n a n F i 87 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 On the disposal of a foreign operation, the Group recognises in proﬁt or loss the cumulative amount of exchange diﬀerences relating to that foreign operation. When a subsidiary that includes a foreign operation is partially disposed of or sold, the Group re-attributes the proportionate share of the cumulative amount of the exchange diﬀerences recognised in other comprehensive income to the non-controlling interests in that foreign operation. In the case of any other partial disposal of a foreign operation, the Group reclassiﬁes to proﬁt or loss only the proportionate share of the cumulative amount of exchange diﬀerences recognised in other comprehensive income. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate at the reporting date. (c) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in proﬁt or loss. Non-monetary assets and liabilities denominated in foreign currencies that are measured at historical cost are translated to the functional currency using the exchange rate at the transaction date, and those measured at fair value are translated to the functional currency at the exchange rate at the date that the fair value was determined and are recognised in the proﬁt or loss. Exchange diﬀerences on non-monetary assets are accounted for based on the classiﬁcation of the underlying items. Translation diﬀerences on equities measured at fair value through other comprehensive income are included in other comprehensive income and transferred to the fair value reserve in equity. Foreign currency gains and losses on intra-group loans are recognised in proﬁt or loss unless settlement of the loan is neither planned nor likely to occur in the foreseeable future, in which case the foreign currency gains and losses are initially recognised in the foreign currency translation reserve in the consolidated ﬁnancial statements. Those gains and losses are recognised in proﬁt or loss at the earlier of settling the loan or at the time at which the foreign operation is disposed. 2.5 Cash and cash equivalents For the purposes of the statement of cash ﬂow, cash and cash equivalents comprise balances with original maturities of three (3) months or less than three months from the date of acquisition that are subject to an insigniﬁcant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments. They include cash and nonrestricted balances with central banks, treasury bills and other eligible bills, amounts due from other banks and short-term government securities. 2.6 Financial instruments (a) Initial recognition and measurement Financial instruments are recognised initially when the Group becomes a party to the contractual provisions of the instruments. Financial instruments carried at fair value through proﬁt or loss are initially recognised at fair value with transaction costs, which are directly attributable to the acquisition or issue of the ﬁnancial instruments, being recognised immediately through proﬁt or loss. Financial instruments that are not carried at fair value through proﬁt or loss are initially measured at fair value plus transaction costs that are directly attributable to the acquisition or issue of the ﬁnancial instruments. Financial instruments are recognised or de-recognised on the date the Group commits to purchase or sell the instruments (trade day accounting). i s l a c n a n F i 88 (b) Subsequent measurement Subsequent to initial measurement, ﬁnancial instruments are measured either at amortised cost or fair value depending on their classiﬁcation category. (c) Classification (i) Financial assets Subsequent to initial recognition, all ﬁnancial assets within the Group are measured at: amortised cost; • fair value through other comprehensive income (FVOCI); or • fair value through proﬁt or loss (FVTPL) • The Group’s ﬁnancial assets are subsequently measured at amortised cost if they meet both of the following criteria and are not designated as at FVTPL: • • ‘Hold to collect’ business model test - The asset is held within a business model whose objective is to hold the ﬁnancial asset in other to collect contractual cash ﬂows; and ‘SPPI’ contractual cash ﬂow characteristics test - The contractual terms of the ﬁnancial asset give rise to cash ﬂows that are solely payments of principal and interest (SPPI) on the principal amount outstanding on a speciﬁed date. Interest in this context is the consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time. Debt instruments are measured at amortised cost by the Group if they meet both of the following criteria and are not designated as at FVTPL: • • ‘Hold to collect and sell’ business model test: The asset is held within a business model whose objective is achieved by both holding the ﬁnancial asset in order to collect contractual cash ﬂows and selling the ﬁnancial asset; and ‘SPPI’ contractual cash ﬂow characteristics test: The contractual terms of the ﬁnancial asset give rise on speciﬁed dates to cash ﬂows that are solely payments of principal and interest on the principal amount outstanding. Significant accounting policies All other ﬁnancial assets (equity investments) are measured at fair value. A ﬁnancial asset is classiﬁed and measured at fair value through proﬁt or loss (FVTPL) by the Group if the ﬁnancial asset is: A debt instrument that does not qualify to be measured at amortised cost or FVOCI; An equity investment which the Group has not irrevocably elected to classify as at FVOCI and present subsequent changes in fair value in OCI; A ﬁnancial asset where the Group has elected to measure the asset at FVTPL under the fair value option. • • • (ii) Financial liabilities Financial liabilities are either classiﬁed by the Group as: • • Financial liabilities at amortised cost; or Financial liabilities as at fair value through proﬁt or loss (FVTPL). Financial liabilities are measured at amortised cost by the Group unless either: • • The ﬁnancial liability is held for trading and is therefore required to be measured at FVTPL, or The Group liability at FVTPL ﬁnancial fair value option). to measure the (using elects the (iii) Financial guarantees contracts and loan commitments A ﬁnancial guarantee contract is a contract that requires the Group (issuer) to make speciﬁed payments to reimburse the holder for a loss it incurs because a speciﬁed debtor fails to make payment when due in accordance with the original or modiﬁed terms of a debt instrument. Loan commitments’ are ﬁrm commitments to provide credit under pre-speciﬁed terms and conditions. Financial guarantees issued or commitments to provide a loan at a below-market interest rate are initially measured at fair value. Subsequently, they are measured as follows: – from 1 January 2018: at the higher of the loss allowance i s l a c n a n F i 89 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 initially determined in accordance with IFRS 9 (see note 3.2.18) and the amount less, when appropriate, the cumulative amount of income recognised in accordance with the principles of IFRS 15; and recognised – before 1 January 2018: at the higher of the amount representing the initial fair value amortised over the life of the guarantee or the commitment and the present value of any expected payment to settle the liability when a payment under the contract has become probable. The Group has issued no loan commitments that are measured at FVTPL. For other loan commitments: – from 1 January 2018: the Group recognises a loss allowance – before 1 January 2018: the Group recognised a provision in accordance with IAS 37 if the contract was considered to be onerous. Liabilities arising commitments are included within provisions. from ﬁnancial guarantees and loan The Group conducts business involving commitments to customers. The majority of these facilities are set-oﬀ by corresponding obligations of third parties. Contingent liabilities and commitments comprise usance lines and letters of credit. Usance and letters of credit are agreements to lend to a customer in the future subject to certain conditions. An acceptance is an undertaking by a bank to pay a bill of exchange drawn on a customer. Letters of credit are given as security to support the performance of a customer to third parties. As the Group will only be required to meet these obligations in the event of the Customer’s default, the cash requirements of these instruments are expected to be considerably below their nominal amounts. Contingent liabilities and commitments are initially recognized at fair value which is also generally equal to the fees received and amortized over the life of the commitment. The carrying amount of contingent liabilities are subsequently measured at the higher of the present value of any expected payment when a payment under the contingent liability has become probable and the unamortised fee. (d) Derecognition (i) Financial assets The Group derecognises a ﬁnancial asset when the contractual rights to the cash ﬂows from the ﬁnancial asset expire (see also (e)), or it transfers the rights to receive the contractual cash ﬂows in a transaction in which substantially all of the risks and rewards of ownership of the ﬁnancial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the ﬁnancial asset. On derecognition of a ﬁnancial asset, the diﬀerence between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset derecognised) and the sum of (i) the consideration received (including any new asset obtained less any new liability assumed) and (ii) any cumulative gain or loss that had been recognised in OCI is recognised in proﬁt or loss. Any cumulative gain/loss recognised in OCI in respect of equity investment securities designated as at FVOCI is not recognised in proﬁt or loss on derecognition of such securities. Any interest in transferred ﬁnancial assets that qualify for derecognition that is created or retained by the Group is recognised as a separate asset or liability. The Group sometimes enters into transactions whereby it transfers assets recognised on its statement of ﬁnancial position, but retains either all or substantially all of the risks and rewards of the transferred assets or a portion of them. In such cases, the transferred assets are not derecognised. Examples of such transactions are securities lending and sale-andrepurchase transactions. i s l a c n a n F i 90 Significant accounting policies When assets are sold to a third party with a concurrent total rate of return swap on the transferred assets, the transaction is accounted for as a secured ﬁnancing transaction similar to sale- and-repurchase transactions, because the Group retains all or substantially all of the risks and rewards of ownership of such assets. In transactions in which the Group neither retains nor transfers substantially all of the risks and rewards of ownership of a ﬁnancial asset and it retains control over the asset, the Group continues to recognise the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes in the value of the transferred asset. In certain transactions, the Group retains the obligation to service the transferred ﬁnancial asset for a fee. The transferred asset is derecognised if it meets the derecognition criteria. An asset or liability is recognised for the servicing contract if the servicing fee is more than adequate (asset) or is less than adequate (liability) for performing the servicing. (ii) Financial liabilities The Group derecognises a ﬁnancial liability when its contractual obligations are discharged or cancelled, or expire. (e) Modifications of financial assets and financial liabilities Financial assets If the terms of a ﬁnancial asset are modiﬁed, then the Group evaluates whether the cash ﬂows of the modiﬁed asset are substantially diﬀerent. If the cash ﬂows are substantially diﬀerent, then the contractual rights to cash ﬂows from the original ﬁnancial asset are deemed to have expired. In this case, the original ﬁnancial asset is derecognized (see (d)) and a new ﬁnancial asset is recognised at fair value plus any eligible transaction costs. Any fees received as part of the modiﬁcation are accounted for as follows: - fees that are considered in determining the fair value of the new asset and fees that represent reimbursement of eligible transaction costs are included in the initial measurement of the asset; and - other fees are included in proﬁt or loss as part of the gain or loss on derecognition. If cash ﬂows are modiﬁed when the borrower is in ﬁnancial diﬃculties, then the objective of the modiﬁcation is usually to maximize recovery of the original contractual terms rather than to originate a new asset with substantially diﬀerent terms. If the Group plans to modify a ﬁnancial asset in a way that would result in forgiveness of cash ﬂows, then it ﬁrst considers whether a portion of the asset should be written oﬀ before the modiﬁcation takes place (see below for write oﬀ policy). This approach impacts the result of the quantitative evaluation and means that the derecognition criteria are not usually met in such cases. If the modiﬁcation of a ﬁnancial asset measured at amortised cost or FVOCI does not result in derecognition of the ﬁnancial asset, then the Group ﬁrst recalculates the gross carrying amount of the ﬁnancial asset using the original eﬀective interest rate of the asset and recognises the resulting adjustment as a modiﬁcation gain or loss in proﬁt or loss. For ﬂoating-rate ﬁnancial assets, the original eﬀective interest rate used to calculate the modiﬁcation gain or loss is adjusted to reﬂect current market terms at the time of the modiﬁcation. Any costs or fees incurred and fees received as part of the modiﬁcation adjust the gross carrying amount of the modiﬁed ﬁnancial asset and are amortised over the remaining term of the modiﬁed ﬁnancial asset. If such a modiﬁcation is carried out because of ﬁnancial diﬃculties of the borrower (see (2.8)), then the gain or loss is presented together with impairment losses. In other cases, it is presented as interest income calculated using the eﬀective interest rate method. Financial liabilities The Group derecognises a ﬁnancial liability when its terms are modiﬁed and the cash ﬂows of the modiﬁed liability are substantially diﬀerent. In this case, a new ﬁnancial liability based on the modiﬁed terms is recognised at fair value. The i s l a c n a n F i 91 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 diﬀerence between the carrying amount of the ﬁnancial liability derecognised and consideration paid is recognised in proﬁt or loss. Consideration paid includes non-ﬁnancial assets transferred, if any, and the assumption of liabilities, including the new modiﬁed ﬁnancial liability. If the modiﬁcation of a ﬁnancial liability is not accounted for as derecognition, then the amortised cost of the liability is recalculated by discounting the modiﬁed cash ﬂows at the original eﬀective interest rate and the resulting gain or loss is recognised in proﬁt or loss. For ﬂoating-rate ﬁnancial liabilities, the original eﬀective interest rate used to calculate the modiﬁcation gain or loss is adjusted to reﬂect current market terms at the time of the modiﬁcation. Any costs and fees incurred are recognised as an adjustment to the carrying amount of the liability and amortised over the remaining term of the modiﬁed ﬁnancial liability by re-computing the eﬀective interest rate on the instrument. (f) Offsetting Financial assets and ﬁnancial liabilities are oﬀset and the net amount presented in the statement of ﬁnancial position when, and only when, the Group currently has a legally enforceable right to set oﬀ the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously. Income and expenses are presented on a net basis only when permitted under IFRS, or for gains and losses arising from a group of similar transactions such as in the Group’s trading activity. (g) Amortised cost measurement The amortised cost of a ﬁnancial asset or liability is the amount at which the ﬁnancial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the eﬀective interest rate method of any diﬀerence between the initial amount recognised and the maturity amount, minus any reduction for impairment. (h) Fair value measurement ‘Fair value’ is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at that date. The fair value of a liability reﬂects its non-performance risk. The best evidence of the fair value of a ﬁnancial instrument at initial recognition is the transaction price – i.e. the fair value of the consideration given or received. However, in some cases the initial estimate of fair value of a ﬁnancial instrument on initial recognition may be diﬀerent from its transaction price. If this estimated fair value is evidenced by comparison with other observable current market transactions in the same instrument (without modiﬁcation or repackaging) or based on a valuation technique whose variables include only data from observable markets, then the diﬀerence is recognised in proﬁt or loss on initial recognition of the instrument. In other cases, the fair value at initial recognition is considered to be the transaction price and the diﬀerence is not recognised in proﬁt or loss immediately but is recognised over the life of the instrument on an appropriate basis or when the instrument is redeemed, transferred or sold, or the fair value becomes observable. If an asset or a liability measured at fair value has a bid price and an ask price, then the Group measures assets and long positions at a bid price and liabilities and short positions at an ask price. Where the Bank has positions with oﬀsetting risks, mid market prices are used to measure the oﬀsetting risk positions and a bid or ask price adjustment is applied only to the net open position as appropriate. The fair value of a demand deposit is not less than the amount payable on demand, discounted from the ﬁrst date on which the amount could be required to be paid. The Group recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which the change has occurred. i s l a c n a n F i 92 Significant accounting policies a ﬁnancial asset and a ﬁnancial liability is recognised for the obligation to pay the repurchase price. Because the Group sells the contractual rights to the cash ﬂows of the securities, it does not have the ability to use the transferred assets during the term of the arrangement. 2.7 Derivative instruments The Group recognizes the derivative instruments on the statement of ﬁnancial position at their fair value. The Group designates the derivative as an instrument held for trading or non-hedging purposes (a “trading” or “non-hedging” instrument). Trading or non-hedging derivatives assets and liabilities are those derivative assets and liabilities such as swaps and forward contracts that the Group acquires or incurs for the purpose of selling or purchasing in the near term, or holds as part of a portfolio that is managed together for short-term proﬁt or position taking. liabilities are Non-hedging derivative assets and initially recognized and subsequently measured at fair value in the statement of ﬁnancial position. All changes in fair value are recognized as part of net trading income in proﬁt or loss. Nonhedging derivative assets and liabilities are not reclassiﬁed subsequent to their initial recognition. Subsequent to initial recognition, the fair value of a ﬁnancial instrument is based on quoted market prices or dealer price quotation for ﬁnancial instruments. If a market for a ﬁnancial instrument is not active, then the Group establishes fair value using a valuation technique. Valuation techniques include using recent arm’s length transactions between knowledgeable, willing parties (if available), reference to the current fair value of other instruments that are substantially the same, discounted cash ﬂow analyses and option pricing models. The chosen valuation technique makes maximum use of market inputs, relies as little as possible on estimates speciﬁc to the Group, incorporates all factors that market participants would consider in setting a price, and is consistent with accepted economic methodologies for pricing ﬁnancial instruments. Inputs into valuation techniques reasonably represent market expectations and measures of the risk-return factors inherent in the ﬁnancial instrument. See note 3.5 on fair valuation methods and assumptions. (i) Assets pledged as collateral Financial assets transferred to external parties and which do not qualify for de-recognition are reclassiﬁed in the statement of ﬁnancial position from treasury bills and investment securities to assets pledged as collateral, if the transferee has received the right to sell or re-pledge them in the event of default from agreed terms. Assets pledged as collateral are initially recognised at fair value, and are subsequently measured at amortised cost or fair value as appropriate. These transactions are performed in accordance with the usual terms of securities lending and borrowing. (j) Assets under repurchase agreement Assets under repurchase agreement are transactions in which the Group sells a security and simultaneously agrees to repurchase it (or an asset that is substantially the same as the one sold) at a ﬁxed price on a future date. The Group continues to recognise the securities in their entirety in the statement of ﬁnancial position because it retains substantially all of the risks and rewards of ownership. The cash consideration received is recognised as i s l a c n a n F i 93 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 2.8 Impairment Policy applicable before 1 January 2018 2.8.1 Objective evidence of impairment At each reporting date, the Group assessed whether there was objective evidence that ﬁnancial assets not carried at FVTPL were impaired. A ﬁnancial asset or a group of ﬁnancial assets was ‘impaired’ when objective evidence demonstrated that a loss event had occurred after the initial recognition of the asset(s) and that the loss event had an impact on the future cash ﬂows of the asset(s) that could be estimated reliably. – Objective evidence that ﬁnancial assets were impaired included: Delinquency in contractual payments of principal or – interest; Cash ﬂow diﬃculties experienced by the borrower (for example, equity ratio, net income percentage of sales); Breach of loan covenants or conditions; Initiation of bankruptcy proceedings; Deterioration of the borrower’s competitive position; Deterioration in the value of collateral; and Downgrading below investment grade level. – – – – – 2.8.2 Individual or collective assessment The Group ﬁrst assessed whether objective evidence of impairment existed individually for ﬁnancial assets that are individually or collectively for individually signiﬁcant, and ﬁnancial assets that are not individually signiﬁcant. If the Group determined that no objective evidence of impairment exists for an individually assessed ﬁnancial asset, whether signiﬁcant or not, it included the asset in a group of ﬁnancial assets with similar credit risk characteristics and collectively assessed them for impairment. Assets that were individually assessed for impairment and for which an impairment loss existed were not included in a collective assessment of impairment. 2.8.3 Measurement of impairment The amount of impairment loss for ﬁnancial assets carried at amortised cost was measured as the diﬀerence between the asset’s carrying amount and the present value of estimated future cash ﬂows (excluding future credit losses that had not been incurred) discounted at the ﬁnancial asset’s original eﬀective interest rate. The carrying amount of the asset was reduced through the use of an allowance account and the amount of the loss was recognised in proﬁt or loss. If a ﬁnancial instrument had variable interest rates, the discount rate for measuring any impairment loss was the current eﬀective interest rate determined under the contract. The calculation of the present value of the estimated future cash ﬂows of a collateralised ﬁnancial asset reﬂected the cash ﬂows that may have resulted from foreclosure less costs of obtaining and selling the collateral, whether or not foreclosure was probable. For the purposes of a collective evaluation of impairment, ﬁnancial assets were grouped on the basis of similar credit risk characteristics (i.e. on the basis of the Group’s grading process that considered asset type, industry, geographical location, collateral type, past-due status and other relevant factors). Those characteristics were relevant to the estimation of future cash ﬂows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated. Future cash ﬂows in a group of ﬁnancial assets that were collectively evaluated for impairment were estimated on the basis of the contractual cash ﬂows of the assets in the group and historical loss experience for assets with credit risk characteristics similar to those in the Group. Historical loss experience was adjusted on the basis of current observable data to reﬂect the eﬀects of current conditions that did not aﬀect the period on which the historical loss experience was based and to remove the eﬀects of conditions in the historical period that did not currently exist. Estimates of changes in future cash ﬂows for groups of assets were reﬂected and directionally consistent with changes in related observable data from period to period (for example, changes in unemployment rates, property prices, payment i s l a c n a n F i 94 status, or other factors indicative of changes in the probability of losses in the group and their magnitude). The methodology and assumptions used for estimating future cash ﬂows were reviewed regularly by the Group to reduce any diﬀerences between loss estimates and actual loss experience. • • When a loan was uncollectible, it was written oﬀ against the related provision for loan impairment. Such loans were written oﬀ after all the necessary procedures including regulatory apprasial where necessary had been completed and the amount of the loss had been determined. Amount reported as other ﬁnancial assets were tested for impairment on an individual basis at the reporting date. In testing for impairment, the Group assessed whether there was objective evidence that a loss event had occurred. If it was established that a loss event had occurred and the loss event had an impact on the recoverable amount of the asset, an impairment charge was taken against the asset carrying amount. 2.8.4 Reversal of impairment If, in a subsequent period, the amount of the impairment loss decreased and the decrease could be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously recognised impairment loss was reversed by adjusting the allowance account. The amount of the reversal was recognised in proﬁt or loss under impairment charge for credit losses. 2.8.5 Policy applicable from 1 January 2018 The Group recognises loss allowances for ECL on the following ﬁnancial instruments that are not measured at FVTPL: • • • • Financial assets that are debt instruments; Lease receivables; Financial guarantee contracts issued; and Loan commitments issued. No impairment loss is recognised on equity investments. The Group measures loss allowances at an amount equal Significant accounting policies to lifetime ECL, except for the following, for which they are measured as 12-month ECL: Debt investment securities that are determined to have low credit risk at the reporting date; and Other ﬁnancial instruments on which credit risk has not increased signiﬁcantly since their initial recognition 12-month ECL are the portion of ECL that result from default events on a ﬁnancial instrument that are possible within the 12 months after the reporting date. 2.8.6 Measurement of ECL ECL are a probability-weighted estimate of credit losses. They are measured as follows: • Financial assets that are not credit-impaired at the reporting date: as the present value of all cash shortfalls (i.e. the diﬀerence between the cash ﬂows due to the entity in accordance with the contract and the cash ﬂows that the Group expects to receive); Financial assets that are credit-impaired at the reporting date: as the diﬀerence between the gross carrying amount and the present value of estimated future cash ﬂows; Undrawn loan commitments: as the present value of the diﬀerence between the contractual cash lows that are due to the Group if the commitment is drawn down and the cash ﬂows that the Group expects to receive; and Financial guarantee contracts: the expected payments to reimburse the holder less any amount that the Group expects to recover. • • • 2.8.7 Credit-impaired financial assets At each reporting date, the Group assesses whether ﬁnancial assets carried at amortised cost are credit-impaired. A ﬁnancial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash ﬂows of the ﬁnancial asset have occurred. i s l a c n a n F i 95 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 2.8.8 Presentation of allowance for ECL in the statement of financial position Loss allowances for ECL are presented in the statement of ﬁnancial position as follows: • Financial assets measured at amortised cost: as a deduction from the gross carrying amount of the assets; Loan commitments and ﬁnancial guarantee contracts: generally, as a provision; Where a ﬁnancial instrument includes both a drawn and an undrawn component, and the Group cannot identify the ECL on the loan commitment component separately from those on the drawn component: the Group presents a combined loss allowance for both components. The combined amount is presented as a deduction from the gross carrying amount of the drawn component. Any excess of the loss allowance over the gross amount of the drawn component is presented as a provision and; Debt instruments measured at FVOCI, no loss allowance is recognised in the statement of ﬁnancial position because the carrying amount of the asset is their fair value. However, the loss allowance is disclosed and recognised in the fair value reserve. • • • 2.9 Reclassification of financial instruments Financial assets are required to be reclassiﬁed in certain rare circumstances among the amortised cost, FVOCI and FVTPL categories. When the Group changes its business model for managing ﬁnancial assets, the Group reclassiﬁes all aﬀected in accordance with the new model. The ﬁnancial assets reclassiﬁcation is applied prospectively from the reclassiﬁcation date. Accordingly, any previously recognised gains, losses or interest are not reinstated. Changes in the business model for managing ﬁnancial assets are expected to be very infrequent. Evidence that a ﬁnancial asset is credit-impaired includes the following observable data: • • • Signiﬁcant ﬁnancial diﬃculty of the borrower or issuer; A breach of contract such as a default or past due event; The restructuring of a loan or advance by the Group on terms that the Group would not consider otherwise; It is becoming probable that the borrower will enter bankruptcy or other ﬁnancial reorganisation; or The disappearance of an active market for a security because of ﬁnancial diﬃculties. • • A loan that has been renegotiated due to a deterioration in the borrower’s condition is usually considered to be credit impaired unless there is evidence that the risk of not receiving contractual cash ﬂows has reduced signiﬁcantly and there are no other indicators of impairment. In addition, a retail loan that is overdue for 90 days or more is considered impaired. In making an assessment of whether an investment in sovereign debt is credit-impaired, the Group considers the following factors. • The market’s assessment of creditworthiness as reﬂected in the bond yields. The rating agencies’ assessments of creditworthiness. The country’s ability to access the capital markets for new debt issuance. The probability of debt being restructured, resulting in holders suﬀering losses through voluntary or mandatory debt forgiveness. The international support mechanisms in place to provide the necessary support as ‘lender of last resort’ to that country, as well as the intention, reﬂected in public statements, of governments and agencies to use those mechanisms. This includes an assessment of the depth of those mechanisms and, irrespective of the political intent, whether there is the capacity to fulﬁl the required criteria. • • • • i s l a c n a n F i 96 Significant accounting policies 2.10 Restructuring of financial instruments Financial instruments are restructured when the contractual terms are renegotiated or modiﬁed or when an existing ﬁnancial instrument is replaced with a new one due to ﬁnancial diﬀculties of the borrower. Restructured loans represent loans whose repayment periods have been extended due to changes in the business dynamics of the borrowers. For such loans, the borrowers are expected to pay the principal amounts in full within extended repayment period and all interest, including interest for the original and extended terms. If the terms of a ﬁnancial asset is restructured due to ﬁnancial diﬃculties of the borrower, then an assessment is made of whether the ﬁnancial asset should be derecognized: • • If the expected restructuring will not result in derecognition of the existing asset, then the expected cash ﬂows arising from the modiﬁed ﬁnancial asset is included in calculating the cash shortfalls from the existing asset. If the expected restructuring will result in derecognition of the existing asset, then the expected fair value of the new asset is treated as the ﬁnal cash ﬂow from the existing ﬁnancial asset at the time of derecognition. This amount is included in calculating the cash shortfalls from the existing ﬁnancial asset that is discounted from the expected date of derecognition to the reporting date using the original eﬀective interest rate of the existing ﬁnancial asset. 2.11 Collateral The Group obtains collateral where appropriate, from customers to manage their credit risk exposure to the customers. The collateral normally takes the form of a lien over the customer’s assets and gives the Group a claim on these assets for customers in the event that the customer defaults. The Group may also use other credit instruments, such as derivative contracts in order to reduce their credit risk. Collateral received in the form of securities is not recorded on the statement of ﬁnancial position. Collateral received in the form of cash is recorded on the statement of ﬁnancial position with a corresponding liability see note 3.2.7(a)(i). 2.12 Property and equipment Property and equipment are stated at historical cost less accumulated depreciation and accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Where signiﬁcant parts of an tem of property and equipment have diﬀerent useful lives, they are accounted for as separate items (major components) of property and equipment. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic beneﬁts associated with the item will ﬂow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to proﬁt or loss during the ﬁnancial year in which they are incurred. Property and equipment are depreciated on the straight line basis to their residual values over the estimated useful lives of the assets. Leasehold land and buildings are depreciated over the period of the lease or over such lesser period as is considered appropriate. Depreciation is calculated on a straight line basis to write down the cost of property and equipment to their residual values over their estimated useful lives as follows: Item Leasehold land Motor vehicles Oﬃce equipment Furniture and ﬁttings Computer hardware and equipment Buildings Leasehold improvement Aircraft Depreciation is included in proﬁt or loss. (Not depreciated) 4 years 5 years 5 years 3 years 50 years Over the remaining lease period 10 years i s l a c n a n F i 97 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 Work in progress consists of items of property and equipment that are not yet available for use. Work in progress is carried at cost less any required impairment. Depreciation starts when assets are available for use. An impairment loss is recognised if the asset’s recoverable amount is less than cost. The asset is reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. Once the items are available for use, they are transferred to relevant classes of property and equipment as appropriate. Property and equipment are derecognized on disposal, or when no future economic beneﬁts are expected from their use or disposal. Gains and losses on disposal are determined by comparing proceeds with carrying amount. These are included in proﬁt or loss. Depreciation methods, useful lives and residual values are reassessed at each reporting date and adjusted if appropriate. Borrowing Costs Borrowing costs that are directly attributable to the acquisition or construction of a qualifying asset is capitalized as part of the cost of the asset. Other costs relating to borrowings which the group undertakes in the normal course of business are expensed in the period which they are incurred. 2.13 Intangible assets Computer software Software that is not integral to the related hardware acquired by the Group is stated at cost less accumulated amortisation and accumulated impairment losses. Costs associated with maintaining computer software programmes are recognised expenses as they are incurred. Development costs that are directly attributable to the design and testing of identiﬁable and unique software products controlled by the Group, are recognised as intangible assets when the following criteria are met: (i) (ii) (iii) (iv) it is technically feasible to complete the software product so that it will be available for use; management intends to complete the software product and use or sell it; there is an ability to use or sell the software product; it can be demonstrated how the software product will generate probable future economic beneﬁts; (v) adequate technical, ﬁnancial and other resources to complete the development and to use/sell the software product are available; (vi) the expenditure attributable to the software product during its development can be reliably measured. Subsequent expenditure on computer software is capitalised only when it increases the future economic beneﬁts embodied in the speciﬁc asset to which it relates. Amortisation is recognised in proﬁt or loss on a straight-line basis over the estimated useful life of the software, from the date that the asset is available for use since this most closely reﬂects the expected pattern of consumption of the future economic beneﬁts embodied in the asset. The estimated useful life for computer software is 5 years. Amortisation methods, useful residual values are reviewed at each ﬁnancial period-end and adjusted if appropriate. lives and Intangible assets are derecognized on disposal or when no future economic beneﬁts are expected from their use or disposal. 2.14 Impairment of non-financial assets The carrying amounts of the Group’s non-ﬁnancial assets, other than deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For intangible assets that have indeﬁnite useful lives or that are not yet available for use, the recoverable amount is estimated each period at the same time. i s l a c n a n F i 98 An impairment loss is recognised if the carrying amount of an asset or its Cash Generating Unit (CGU) exceeds its estimated recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. In assessing value in use, the estimated future cash ﬂows are discounted to their present value using a pre-tax discount rate that reﬂects current market assessments of the time value of money and the risks speciﬁc to the asset or CGU. For the purposes of assessing impairment, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inﬂows from continuing use that are largely independent of the cash ﬂows of other assets or CGU. The Group’s corporate assets do not generate separate cash inﬂows and are utilised by more than one CGU. Corporate assets are allocated to CGUs on a reasonable and consistent basis and tested for impairment as part of the testing of the CGU to which the corporate asset is allocated. Impairment losses are recognised in proﬁt or loss. Impairment losses in respect of CGUs are allocated ﬁrst to reduce the carrying amount of any goodwill allocated to the CGU (group of CGUs) and then to reduce the carrying amount of the other assets in the CGU (group of CGUs) on a pro rata basis. Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. An impairment loss in respect of goodwill is not reversed. Significant accounting policies 2.15 Leases (a) A Group company is the lessee Leases, under which the Group assumes substantially all the risks and rewards of ownership, are classiﬁed as ﬁnance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased asset and the present value of the minimum lease payments. Lease payments are separated using the interest rate implicit in the lease to identify the ﬁnance cost, which is charged against income over the lease period, and the capital repayment, which reduces the liability to the lessor. Leases of assets are classiﬁed as operating leases if the lessor eﬀectively retains all the risks and rewards of ownership. Payments made under operating leases, net of any incentives received from the lessor, are charged to proﬁt or loss on a straight- line basis over the period of the lease. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place. (b) A Group company is the lessor Lease and instalment sale contracts are primarily ﬁnancing transactions in banking activities, with rentals and instalments receivable, less unearned ﬁnance charges, being included in Loans and advances to customers in the statement of ﬁnancial position. Finance charges earned are computed using the eﬀective interest method which reﬂects a constant periodic return on the investment in the ﬁnance lease. Initial direct costs paid are capitalised to the value of the lease amount receivable and accounted for over the lease term as an adjustment to the eﬀective rate of return. Leases of assets under which the Group eﬀectively retains all the risks and rewards of ownership are classiﬁed as operating leases. Receipts of operating leases are accounted for as income on the straight-line basis over the period of the lease. When i s l a c n a n F i 99 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 an operating lease is terminated before the lease period has expired, any payment required by the lessee by way of penalty is recognised as income in the period in which termination takes place. 2.16 Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events and it is probable that an outﬂow of resources embodying economic beneﬁts will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. Provisions are determined by discounting the expected future cash ﬂows using a pre-tax discount rate that reﬂects current market assessments of the time value of money and, where appropriate, the risks speciﬁc to the liability. A provision for restructuring is recognised when the Group has approved a detailed formal plan, and the restructuring either has commenced or has been announced publicly. Future operating costs or losses are not provided for. A provision for onerous contracts is recognised when the expected beneﬁts to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises any impairment loss on the assets associated with that contract. Contingent liabilities are possible obligations that arise from past events whose existence will be conﬁrmed only by the occurrence, or non-occurrence, of one or more uncertain future events not wholly within the Group’s control. Contingent liabilities are not recognised in the ﬁnancial statements but are disclosed in the notes to the ﬁnancial statements. The Group recognises liability for a levy not earlier than when the activity that triggers payment occurs. Also, the Group accrues liability on levy progressively only if the activity that triggers payment occurs over a period of time. However, for a levy that is triggered upon reaching a minimum threshold, no liability is recognised before the speciﬁed minimum threshold is reached. 2.17 Employee benefits (a) Post-employment beneﬁts The Group operates a deﬁned contribution plan. A deﬁned contribution plan is a pension plan under which the Group pays ﬁxed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold suﬃcient assets to pay all employees the beneﬁts relating to employee service in the current and prior periods. For deﬁned contribution plans, the Group makes contributions on behalf of qualifying employees to a mandatory scheme under the provisions of the Pension Reform Act. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee beneﬁt expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. For entities operating in Nigeria, the contribution by employees and the employing entities are 5% and 13% respectively of the employees’ basic salary, housing and transport allowances. Entities operating outside Nigeria contribute in line with the relevant pension laws in their jurisdictions. (b) Short-term beneﬁts Short-term beneﬁts consist of salaries, accumulated leave allowances, proﬁt share, bonuses and any non-monetary beneﬁts. Short-term employee beneﬁts are measured on an undiscounted basis and are expensed as the related services are provided. They are included in personal expenses in the proﬁt or loss. 2.17 Employee benefits A liability is recognised for the amount expected to be paid under short-term cash beneﬁts such as accumulated leave and leave allowances if the Group has a present legal or constructive obligation to pay this amount as a result of past services provided by the employee and the obligation can be measured reliably. i s l a c n a n F i 100 Significant accounting policies enterprises. Under the terms of the guideline (amended by CBN letter dated 11 July 2006), the contributions will be 10% of proﬁt after tax and shall continue after the ﬁrst 5 years but banks’ contributions shall thereafter reduce to 5% of proﬁt after tax. The small and medium scale industries equity investment scheme reserves are nondistributable. Transfer to this reserve is no longer mandatory. (f ) Statutory reserve for credit risk The Nigerian banking regulator requires the Bank to create a reserve for the diﬀerence between impairment charge determined in line with the principles of IFRS and impairment charge determined in line with the prudential guidelines issued by the Central Bank of Nigeria (CBN). This reserve is not available for distribution to shareholders. (g) Retained earnings Retained earnings comprise the undistributed proﬁts from previous periods which have not been reclassiﬁed to any speciﬁed reserves. (h) Fair value reserve Comprises fair value movements on equity instruments carried at FVOCI. (i) Foreign currency translation reserve Comprises exchange diﬀerences resulting from the translation to Naira of the results and ﬁnancial position of Group companies that have a functional currency other than Naira. 2.19 Recognition of interest income and expense Policy before 1 January 2018 Interest income and expense for all ﬁnancial assets and ﬁnancial liabilities carried at amortised cost are recognised in proﬁt or loss using the eﬀective interest method. (c) Termination beneﬁts The Group recognises termination beneﬁts as an expense when the Group is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination beneﬁts as a result of an oﬀer made to encourage voluntary redundancy. The Group settles termination beneﬁts within twelve months and are accounted for as short- term beneﬁts. 2.18 Share capital and reserves (a) Share issue costs Incremental costs directly attributable to the issue of new shares or options or to the acquisition of a business are shown in equity as a deduction, net of tax, from the proceeds. (b) Dividends on ordinary shares Dividends on ordinary shares are recognised in equity in the period in which they are approved by the Bank’s shareholders. Dividends for the period that are declared after the end of the reporting period are dealt with in the subsequent events note. (c) Share premium Premiums from the issue of shares are reported in share premium. (d) Statutory reserve Nigerian banking regulations require the Bank to make an annual appropriation to a statutory reserve. As stipulated by Section 16(1) of the Banks and Other Financial Institutions Act of 1991 (amended), an appropriation of 30% of proﬁt after tax is made if the statutory reserve is less than the paid-up share capital and 15% of proﬁt after tax if the statutory reserve is greater than the paid-up share capital. (e) SMIEIS reserve The SMIEIS reserve is maintained to comply with the Central Bank of Nigeria (CBN) requirement that all licensed banks set aside a portion of the proﬁt after tax in a fund to be used to ﬁnance equity investments in qualifying small and medium scale i s l a c n a n F i 101 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 The eﬀective interest method is a method of calculating the amortised cost of a ﬁnancial asset or a ﬁnancial liability and of allocating the interest income or interest expense over the relevant period. The eﬀective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the ﬁnancial instrument or, when appropriate, a shorter period to the net carrying amount of the ﬁnancial asset or ﬁnancial liability. Direct incremental transaction costs incurred and origination fees received, including loan commitment fees, as a result of bringing marginyielding assets or liabilities in the statement of ﬁnancial position, are capitalised to the carrying amount of ﬁnancial instruments, excluding ﬁnancial instruments at fair value through proﬁt or loss, and amortised as interest income or expense over the life of the asset as part of the eﬀective interest rate. When calculating the eﬀective interest rate, the Group estimates cash ﬂows considering all contractual terms of the ﬁnancial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the eﬀective interest rate, transaction costs and all other premiums or discounts. Where the estimated cash ﬂows on ﬁnancial assets are subsequently revised, other than impairment losses, the carrying amount of the ﬁnancial assets is adjusted to reﬂect actual and revised estimated cash ﬂows. Where a ﬁnancial asset or a group of similar ﬁnancial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash ﬂows for the purpose of measuring the impairment loss. Policy from 1January 2018 Eﬀective interest rate Interest income and expense are recognised in proﬁt or loss using the eﬀective interest method. The ‘eﬀective interest rate’ is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the ﬁnancial instrument to: – – the gross carrying amount of the ﬁnancial asset; or the amortised cost of the ﬁnancial liability. When calculating the eﬀective interest rate for ﬁnancial instruments other than purchased or originated credit-impaired assets, the Group estimates future cash ﬂows considering all contractual terms of the ﬁnancial instrument, but not ECL. For purchased or originated credit impaired ﬁnancial assets, a creditadjusted eﬀective interest rate is calculated using estimated future cash ﬂows including ECL. The calculation of the eﬀective interest rate includes transaction costs and fees and points paid or received that are an integral part of the eﬀective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a ﬁnancial asset or ﬁnancial liability. Amortised cost and gross carrying amount The ‘amortised cost’ of a ﬁnancial asset or ﬁnancial liability is the amount at which the ﬁnancial asset or ﬁnancial liability is measured on initial recognition minus the principal repayments, plus or minus the cumulative amortisation using the eﬀective interest method of any diﬀerence between that initial amount and the maturity amount and, for ﬁnancial assets, adjusted for any expected credit loss allowance (or impairment allowance before 1 January 2018). The ‘gross carrying amount of a ﬁnancial asset’ is the amortised cost of a ﬁnancial asset before adjusting for any expected credit loss allowance. Calculation of interest income and expense The eﬀective interest rate of a ﬁnancial asset or ﬁnancial liability is calculated on initial recognition of a ﬁnancial asset or a ﬁnancial liability. In calculating interest income and expense, the eﬀective interest rate is applied to the gross carrying amount of the asset (when the asset is not credit impaired) or to the amortised cost of the liability. The eﬀective interest rate is revised as a result of periodic re-estimation of cash ﬂows of ﬂoating rate instruments to reﬂect movements in market rates of interest. i s l a c n a n F i 102 Significant accounting policies However, for ﬁnancial assets that have become credit-impaired subsequent to initial recognition, interest income is calculated by applying the eﬀective interest rate to the amortised cost of the ﬁnancial asset. If the asset is no longer creditimpaired, then the calculation of interest income reverts to the gross basis. initial For ﬁnancial assets that were credit-impaired on recognition, interest income is calculated by applying the creditadjusted eﬀective interest rate to the amortised cost of the asset. The calculation of interest income does not revert to a gross basis, even if the credit risk of the asset improves. For information on when ﬁnancial assets are credit-impaired, see Note 2.8.7. Presentation Interest income calculated using the eﬀective interest method presented in the statement of proﬁt or loss and OCI includes only interest on ﬁnancial assets and ﬁnancial liabilities measured at amortised cost. Interest expense presented in the statement of proﬁt or loss and OCI includes only interest on ﬁnancial liabilities measured at amortised cost. Interest income and expense on all trading assets and liabilities are considered to be incidental to the Group’s trading operations and are presented together with all other changes in the fair value of trading assets and liabilities in net trading income (see Note 2.21). 2.20 Fees, commission and other income Fee and commission income and expense that are integral to the eﬀective interest rate on a ﬁnancial asset or ﬁnancial liability are included in the eﬀective interest rate (see Note 2.19). Other fee and commission income – including account servicing fees, fees on electronic products, sales commission, placement fees and syndication fees – is recognised as the related services are performed. If a loan commitment is not expected to result in the draw-down of a loan, then the related loan commitment fee is recognised on a straight-line basis over the commitment period. A contract with a customer that results in a recognised ﬁnancial instrument in the Group’s ﬁnancial statements may be partially in the scope of IFRS 9 and partially in the scope of IFRS 15. If this is the case, then the Group ﬁrst applies IFRS 9 to separate and measure the part of the contract that is in the scope of IFRS 9 and then applies IFRS 15 to the residual. Other fee and commission expenses relate mainly to transaction and service fees, which are expensed as the services are received. Dividend income is recognised when the right to receive income is established. Usually, this is the exdividend date for quoted equity securities. Dividends are presented in net trading gains, or other income based on the underlying classiﬁcation of the equity investment. Dividends on equity instruments designated as at FVOCI that clearly represent a recovery of part of the cost of the investment are presented in OCI. 2.21 Net Trading gains Net trading gain comprises gains less losses relating to trading assets and liabilities and includes all fair value changes, interest, dividends and foreign exchange diﬀerences. 2.22 Operating expense Expenses are decreases in economic beneﬁts during the accounting period in the form of outﬂows, depletion of assets or incurrence of liabilities that result in decrease in equity, other than those relating to distributions to equity participants. Expenses are recognized on an accrual basis regardless of the time of spending cash. Expenses are recognized in the income statement when a decrease in future economic beneﬁt related to a decrease in an assets or an increase of a liability has arisen that can be measured reliably. Expenses are measured at historical cost. Only the portion of cost of a previous period that is related to the income earned during the reporting period is recognized as i s l a c n a n F i 103 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 an expense. Expenses that are not related to the income earned during the reporting period, but expected to generate future economic beneﬁts, are recorded in the ﬁnancial statement as assets. The portion of assets which is intended for earning income in the future periods shall be recognized as an expense when the associated income is earned. Expenses are recognized in the same reporting period when they are incurred in cases when it is not probable to directly relate them to particular income earned during the current reporting period and when they are not expected to generate any income during the coming years. 2.23 Current and deferred income tax (a) Current tax Minimum tax. In accordance with the Companies Income Tax Act, Cap C21, LFN 2004, the Bank is assessed for tax under the minimum tax regulation when the total proﬁts of the Bank from all sources have produced tax or tax payable which is less than the minimum tax speciﬁed by the law. When assessed for minimum tax, the rates applicable for calculating the minimum tax is the highest of the following: (i) (ii) (iii) 0.25% of Paid-up Share Capital (iv) 0.25% of Turnover of up to N500,000 0.5% of Gross Proﬁt 0.5% of Net Assets If however the turnover is higher than N500,000, the minimum tax payable will be the highest of the above plus 0.125% of the excess of the turnover above N500,000. The current income tax charge is calculated on the basis of the tax rates enacted or substantively enacted at the reporting date in the countries where the Bank and its subsidiaries as well as associates operate and generate taxable income. Current tax also includes any tax arising from dividend. Current income tax is recognised as an expense for the period and adjustments to past periods except to the extent that current tax related to items that are charged or credited in OCI or directly to equity. Additional taxes that arise from the distribution of dividends by the Bank are recognised at the same time as the liability to pay the related dividend is recognized. These amounts are recognised in proﬁt or loss because they relate to incomearising from transactions that were originally recognised in proﬁt or loss. (b) Deferred tax Deferred income tax is provided in full, using the liability method, on all temporary diﬀerences arising between the tax bases of assets and liabilities and their carrying values for ﬁnancial reporting purposes. Deferred income tax is determined using tax rates enacted or substantively enacted at the reporting date and are expected to apply when the related deferred income tax liability is settled. Deferred tax is not recognised for the following temporary diﬀerences: (i) (ii) (iii) the initial recognition of goodwill; the initial recognition of assets and liabilities in a transaction that is not a business combination, which aﬀects neither accounting nor taxable proﬁts or losses; and investments in subsidiaries where the Group controls the timing of the reversal of temporary diﬀerences to the extent that it is probable that these diﬀerences will not reverse in the foreseeable future. Deferred income tax assets are recognised on unused tax losses, unused tax credits and deductible temporary diﬀerences only to the extent that it is probable that future taxable proﬁts will be available against which the temporary diﬀerences can be utilised. i s l a c n a n F i 104 Significant accounting policies Unrecognised deferred tax assets are reassessed at each reporting date and recognised to the extent that it has become probable that future taxable proﬁts will be available against which they can be used. resources to be allocated to segments and assessing segment performance. The Group’s identiﬁcation of segments and the measurement of segment results are based on the Group’s internal reporting to management. 2.26 Fiduciary activities The Group acts as trustees and in other ﬁduciary capacities through its subsidiaries, Zenith Pensions Custodian Limited and Zenith Nominees that results in the holding or placing of assets on behalf of individuals, trusts, retirement beneﬁt plans and other institutions. These assets and income arising thereon are excluded from these ﬁnancial statements, as they are not assets of the Group. The fees earned on these activities are recognised as assets based fees. 2.27 Deposit for Investment in AGSMEIS The Agri-Business/Small and Medium Enterprises Investment Scheme is an initiative of Banker’s committee of Nigeria. The contributed funds is meant for supporting the Federal Government’s eﬀort at promoting agricultural businesses as well as Small and Medium Enterprises. In line with this initiative, the Bank will contribute 5% of Proﬁt After Tax yearly to the fund. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of the asset or liability and is not discounted. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax beneﬁt will be realised. Deferred tax assets and liabilities are oﬀset if there is a legally enforceable right to oﬀset current tax liabilities and assets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on diﬀerent tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. Deferred tax related to the fair value re-measurement of equity instruments which are charged or credited directly to other comprehensive income, is also credited or charged directly to other comprehensive income and is not subsequently transferred from equity to proﬁt or loss. 2.24 Earnings per share The Group presents basic and diluted earnings per share (EPS) for its ordinary shares. Basic EPS is calculated by dividing the proﬁt or loss attributable to ordinary shareholders of the Bank by the weighted average number of ordinary shares outstanding during the period. Where there are shares that could potentially aﬀects the numbers of share issued, those shares are considered in calculating the diluted earnings per share. There are currently no share that could potentially dilute the total issued shares. 2.25 Segment reporting An operating segment is a component of the Group engaged in business activities from which it can earn revenues, whose operating results are regularly reviewed by the Group’s Executive in order to make decisions about [Management/Board] i s l a c n a n F i 105 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 3Risk management 3.1 Enterprise Risk Management The Zenith Bank Group adopts an integrated approach to risk management by bringing all risks together under a limited number of oversight functions. The Group addresses the challenge of risks comprehensively through the Enterprise Risk Management (ERM) Framework by ·applying practices that are supported by a governance structure consisting of Board¬level and executive management committees. As part of its risk management policy, the Group segregates duties between market-facing business units and risk management functions while management is governed by well-deﬁned policies, which are clearly communicated across the Group. Risk related issues are taken into consideration in all business decisions and the Group continually strives to maintain a conservative balance between risk and revenue consideration. Continuous education and awareness of risk management has strengthened the risk management culture across the Group. 3.1.1 Risk Management Philosophy/Strategy The Group considers sound risk management practice to be the foundation of a long lasting ﬁnancial institution. a. The Group adopt a holistic and integrated approach to risk management and therefore, brings all risks together under one or a limited number of oversight functions. Risk management is a shared responsibility. Therefore the Group aims to build a shared perspective on risks that is grounded in consensus. There is clear segregation of duties between market- facing business units and risk management functions. Risk Management is governed by well-deﬁned policies which are clearly communicated across the Group. Risk related issues are taken into consideration in all business decisions. b. c. d. e. 3.1.2 Risk Appetite The Group’s risk appetite is reviewed by the Board of Directors annually, at a level that minimizes erosion of earnings or capital due to avoidable losses or from frauds and operational ineﬃciencies. i s l a c n a n F i 106 The Group’s risk appetite describes the quantum of risk that the Group would assume in pursuit of its business objectives at any point in time. The Group uses this risk appetite deﬁnition in aligning its overall corporate strategy, its capital allocation and risks. The Group sets tolerance limits for identiﬁed key risk indicators (“KRIs”), which served as proxies for the risk appetite for each risk area and business/support unit. Tolerance levels for KRIs are jointly deﬁne, agreed upon by the business/support units and subject to annual reviews. 3.1.3 Risk Management Approach The Group addresses the challenge of risks comprehensively through an enterprise-wide risk management framework and a risk governance policy by applying leading practices that are supported by a robust governance structure consisting of Board-level and executive management committees. The Board drives the risk governance and compliance process through its committees. The audit committee provides oversight on the systems of internal control, ﬁnancial reporting and compliance. The Board credit committee reviews the credit policies and approves all loans above the deﬁned limits for Executive Management. The Board Risk Committee sets the risk philosophy, policies and strategies as well as provides guidance on the various risk elements and their management. The Board Risk Control Functions are supported by various management committees and sub committees (Global Credit committee and Management Risk committee) that help it develop and implement various risk strategies. The Global Credit committee manages the credit approval and documentation activities. It ensures that the credit policies and procedures are aligned with the Group’s business objectives and strategies. The Management Risk committee drives the management of the ﬁnancial risks (Market, Liquidity and Credit Risk), operational risks as well as strategic and reputational risks. In addition, Zenith Group manages its risks in a structured, systematic and transparent manner through a global risk policy which embeds comprehensive risk management processes into the organisational structure, risk measurement and monitoring activities. This structure ensures that the Group’s overall risk exposures are within the thresholds set by the Board. b. c. d. e. f. The key features of the Group’s risk management policy are: a. The Board of Directors provides overall risk management direction and oversight; The Group’s risk appetite is approved by the Board of Directors; Risk management is embedded in the Group as an intrinsic process and is a core competence of all its employees; The Group manages its credit, market, operational and liquidity risks in a coordinated manner within the organisation; The Group’s risk management function is independent of the business divisions; and The Group’s internal audit function reports to the Board Audit Committee and provides independent validation of the business units’ compliance with risk policies and procedures, and the adequacy and eﬀectiveness of the risk management framework on an enterprise-wide basis. The Group continuously modiﬁes and enhances its risk management policies and systems to reﬂect changes in markets, products and international best practices. Training, individual responsibility and accountability, together with a disciplined and cautious culture of control, are an integral part of the Group’s management of risk. The Board of Directors ensures strict compliance with relevant laws, rules and standards issued by the industry regulators and other law enforcement agencies, market conventions, codes of practices promoted by industry associations and internal policies. The compliance function, under the leadership of the Chief Compliance Oﬃcer of the Bank, has put in place a robust compliance framework, which includes: a. Comprehensive compliance manual detailing the roles and responsibilities of all stakeholders in the compliance process: Review and analysis of all relevant laws and regulations, b. Risk management c. d. which are adopted into policy statements to ensure business is conducted professionally; Review of the Bank’s Anti-Money Laundering Policy in accordance with changes in the Money Laundering Prohibition Act 2011 and Anti-Terrorism Act 2011 as amended; and Incorporation of new guidelines in the Bank’s “Know Your Customer” policies in line with the increasing global trend as outlined in the Central Bank of Nigeria’s Anti-Money Laundering/Combating Finance of Terrorism Compliance Manual. The Group’s culture emphasizes high standard of ethical behaviour at all levels of the Group. Therefore the Group’s Board of directors promotes sound organisation. 3.1.4 Methodology for Risk Rating The risk management strategy is to develop an integrated approach to risk assessments, measurement, monitoring and control that captures all risks in all aspects of the Group’s activities. All activities in the Group have been proﬁled and the key risk drivers and threats in them identiﬁed. Mitigation and control techniques are then determined to tackle each of these threats. These techniques are implemented as risk policies and procedures that drive the strategic direction and risk appetite as speciﬁed by the Board. Techniques employed in meeting these objectives culminate in the following roles for the risk control functions of the Group: a. Develop and implement procedures and practices that translate the Board’s goals, objectives, and risk tolerances into operating standards that are well understood by staﬀ; Establish lines of authority and responsibility for managing individual risk elements in line with the Board’s overall direction; Risk identiﬁcation, measurement, monitoring and control procedures; Establish eﬀective internal controls that cover each risk management process; Ensure that the Group’s risk management processes are properly documented; Create adequate awareness to make risk management a part of the corporate culture of the Group; b. c. d. e. f. i s l a c n a n F i 107 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 g. h. Ensure that risk remains within the boundaries established by the Board; and Ensure that business lines comply with risk parameters and prudent limits established by the Board; The CBN Risk Management Guidelines prescribes quantitative and qualitative criteria for the identiﬁcation of signiﬁcant activities and sets a threshold of contributions for determining signiﬁcant activities in the Bank and its subsidiaries. This practice is essentially to drive the risk control focus of ﬁnancial institutions. Zenith Bank applies a mix of qualitative and quantitative techniques in the determination of its signiﬁcant activities under prescribed broad headings. The criteria used in estimating the materiality of each activity is essentially based on the following: a. b. The strategic importance of the activity and sector; The contribution of the activity/sector to the total assets of the Bank; The net income of the sector; and The risk inherent in the activity and sector. c. d. currency liquidity has improved following the introduction of administrative measures by the Central Bank since early 2017. The measures include a trading window for portfolio investors at market determined rates and the introduction of the Nigerian Autonomous Foreign Exchange Rate Fixing, which allowed commercial banks to quote forex rates that are close to parallel market rates. The naira remained stable for most of 2018 and is expected to wane slightly as the economy moves towards 2019 elections. reforms to diversify Tailwinds A recovery in oil prices and production will help drive growth and provide ﬁscal space as the government pursues important the economy. Faithful structural implementation of the Economic Recovery and Growth Plan (2017–20) holds the promise of weaning the country oﬀ its dependence on oil. The plan focuses on six priority sectors: agriculture; manufacturing; solid minerals, including iron, gold, and coal; services, including information and communication technology, ﬁnancial services, tourism, and creative industries; construction and real estate; and oil and gas. The government has produced speciﬁc programs for each sector and deﬁned broader growth policy enablers to drive the plan. Risk management structures and processes are continuously reviewed to ensure their adequacy and appropriateness for the Group’s risk and opportunities proﬁle as well as with changes in strategy, business environment, evolving thoughts and trends in risk management. 3.1.5 Risk management strategies under the current economic conditions Fiscal policy remained expansionary in 2018. Although total spending as a percentage of GDP declined from 13% in 2014 to 10.3% in 2017, revenues declined more sharply, from 11.4% to 5.6%. At 14%, unemployment remained high in 2018, the same as in 2017, and is expected to decline only slightly in 2019, to 13.5%, as recovery eases production constraints in manufacturing and agriculture. Monetary policy continued to be contractionary in 2018 and is expected to remain so in 2019; the policy rate has been kept at 14% since July 2016 to support the naira and control inﬂation. Inﬂation has remained in the double digits. Foreign Headwinds including foreign Nigeria still faces signiﬁcant challenges, exchange shortages, disruptions in fuel supply, power shortages, and insecurity in some parts of the country. Revenue mobilization eﬀorts are insuﬃcient; at 5%, value added tax rates are. Among the lowest in the world, and revenue administration is ineﬃcient. Poverty is unacceptably high; nearly 80% of Nigeria’s 190 million people live on less than $2 a day. The Bank has carried out stress tests analysis and scenario review of worsening situations against our current ﬁnancial positions and the results aﬃrms our capacity to deal with them if they were to occur. The Bank strongly believe it is poised to deal with liquidity risk and funding challenges that may arise from these situations and our capital and earnings capacity (proﬁtability) can withstand any shock that may arise. Zenith Bank Plc will continue to support its customers as much as possible in terms of foreign exchange funding challenges; i s l a c n a n F i 108 credit performance obligations (restructuring repayments to match cash-ﬂows, where necessary); impact of global economy Some of the key risk management strategies in the period would include the following: (a) Continue to monitor in commodity pricing, Foreign Direct Investment (FDI) inﬂows and general behavior of local economy to the changes in the global market. (b) Source for cheaper and stable funds (c) Drive other income sources - Increase marginal value of current assets utilization and their derivable income as much as possible. Seek new sources and champions. (d) Pursue other government activities especially trapping utilization of government funds for projects and other activities (e) Further develop SME/Retail product sales and penetrations (f ) Develop market hub initiative to host market players and drive retail participation (g) Ensure that the Net Interest Margin (NIM) is maintained for all changes in interest rates. (i) (j) (h) Create additional foreign exchange funding sources from the receipt of foreign exchange deposits from customers especially export proceeds. Pursue and support export strategies to assure expanded foreign exchange inﬂow. Increased collections of payments (Deploy more friendly collection tools) Improve customer service delivery through trainings, systems, communication, and compensation medium. Stabilize the Bank’s technology/platforms - This is to increase and aid customers’ conﬁdence, loyalty and Bank’s reputation. (k) (l) (m) Cautiously grow risk assets while maintaining adequate level of capital. 3.2 Credit Risk Credit risk is the risk of a ﬁnancial loss if an obligor does not fully honour its contractual commitments to the Group. Obligors may be borrowers, issuers, counterparties or guarantors. Credit risk is the most signiﬁcant risk facing the Bank in the normal course of business. The Bank is exposed to credit risk not only through its direct lending activities and transactions but also Risk management through commitments to extend credit, letters of guarantee, letters of credit, securities purchased under reverse repurchase institutions, brokerage agreements, deposits with ﬁnancial activities, and transactions carrying a settlement risk for the Bank such as irrevocable fund transfers to third parties via electronic payment systems. The Group has robust credit standards, policies and procedures to control and monitor intrinsic and concentration risks through all credit levels of selection, underwriting, administration and control. Some of the policies are: a. Credit is only extended to suitable and well identiﬁed customers and never where there is any doubt as to the ethical standards and record of the intending borrower; Exposures to any industry or customer will be determined by the regulatory guidelines, clearly deﬁned internal policies, debt service capability and balance sheet management guidelines; Credit is not extended to customers where the source of repayment is unknown or speculative, and also where the destination of funds is unknown. There must be clear and veriﬁable purpose for the use of the funds; Credit is not given to a customer where the ability of the customer to meet obligations is based on the most optimistic forecast of events. Risk considerations will always have priority over business and proﬁt considerations The primary source of repayment for all credits must be from an identiﬁable cash ﬂow from the counterparty’s normal business operations or other ﬁnancial arrangements. The realization of security remains a fall back option; A pricing model that reﬂects variations in the risk proﬁle of various credits to ensure that higher risks are compensated by higher returns is adopted; All insiders’ related credits are limited to regulatory and strict internal limits and are disclosed as required; and The consequences for non-compliance with the credit policy and credit indiscipline are communicated to all staﬀ and are implemented. b. c. d. e. f. g. h. 3.2.1 Credit Metrics and Measurement Tools Zenith Bank and its subsidiaries have devoted resources and i s l a c n a n F i 109 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 harnessed their credit data to develop models that will improve the determination of economic and ﬁnancial threats resulting from credit risk. Before a sound and prudent credit decision can be taken, the credit risk engendered by the borrower or counterparty must be accurately assessed. This is the ﬁrst step in processing credit applications. As a result, some key factors are considered in credit risk assessment and measurement: These are: a. Adherence to the strict credit selection criteria, which includes deﬁned target market, credit history, the capacity and character of customers; Credit rating of obligor; The likelihood of failure to pay over the period stipulated in the contract; The size of the facility in case default occurs; and Estimated Rate of Recovery, which is a measure of the portion of the debt that can be regained through realisation of assets and collateral should default occur. b. c. d. e. 3.2.2 Credit Rating Tools The principal objective of the credit risk rating system is to produce a reliable assessment of the credit risk to which the Group is exposed. As such, all loans and indirect credits such as guarantees and bonds as well as treasury investments undergo a formal credit analysis process that would ensure the proper appraisal of the facility. (a) Loans and advances and amounts due from banks Each individual borrower is rated based on an internally developed rating model that evaluates risk based on ﬁnancial, qualitative and industry-speciﬁc inputs. The associated loss estimate norms for each grade have been developed based on the experience of the Bank and its various subsidiaries. In order to allow for a meaningful distribution of exposures across grades with no excessive concentrations on the Group’s borrower-rating and its facility-rating scale, the Group maintains the under listed rating grade, which is applicable to both new and existing customers. Zenith Group Rating Description of the grade Equivalent of external rating (Standard & Poor’s) AAA AA A BBB BB B CCC CC C D Investment Risk (Extremely Low Risk) Investment Risk (Very Low Risk) Investment Risk (Low Risk) Upper Standard Grade (Acceptable Risk) Lower Standard Grade (Moderately High Risk) Non Investment Grade (High Risk) Non Investment Grade (Very High Risk) Non Investment Grade (Extremely High Risk) Non Investment Grade (High Likelihood of Default) Non Investment Grade (Lost) AAA AA A BBB BB B CCC CC C D Unrated Individually insigniﬁcant (unrated) Unrated The credit rating system seeks to achieve the foundation level of the internal rating-based approach under Basel II, through continuous validation exercises over the years. i s l a c n a n F i 110 (b) Other debt instruments With respect to other debt instruments, the Group takes the following into consideration in the management of the associated credit risk: (i) External ratings of such instruments/institutions by rating agencies like Fitch, Standard & Poor’s, Agusto & Co; (ii) Internal and external research and market intelligence reports; and (iii) Regulatory agencies reports. In addition to the above, we have put in place limits structure which is monitored from time to time in order to limit our risk exposures on these securities. Control mechanisms for the credit risk rating system Zenith’s credit risk rating system is reviewed periodically to conﬁrm that the rating criteria and procedures are appropriate given the current portfolio and external conditions. Hence, in accordance with the Groups model risk policy, all models that materially impact the risk rating process are reviewed. Furthermore, the ratings accorded to customers are regularly reviewed, incorporating new ﬁnancial information available and the experience in the development of the banking relationship. The regularity of the reviews increases in the case of clients who reach certain levels in the automated warning systems. The rating system is currently undergoing external review with a view to enhancing its robustness. 3.2.3 Credit Processes Zenith operates a centralised credit approval process system. Credits are originated from the branches/business groups and subjected to reviews at various levels before they are presented along with all documents and information deﬁned for the proper assessment and decision of Credit to the Global Credit Committee for consideration. All Credits presented for approval are required to be in conformity with the documented and communicated Risk Acceptance Criteria(RAC). As part of credit appraisal process, the Group will have to review the following: a. Credit assessment of the borrower’s industry, and macro- economic factors; Risk management b. c. d. e. f. g. The purpose of credit and source of repayment; The track record / repayment history of borrower; Assess/evaluate the repayment capacity of the borrower; The proposed terms and conditions and covenants; Adequacy and enforceability of collaterals; and Approval from appropriate authority. 3.2.4 Group Credit Risk Management Zenith’s approach in managing credit risk is a key element in achieving its strategic objective of maintaining and further enhancing its asset quality and credit portfolio risk proﬁle. The credit standards, policies and procedures, risk methodologies and risk monitoring and control activities enable the Group to deal with the emerging risks and challenges with a high level of conﬁdence and determination. framework, solid structure and infrastructure, The framework for credit risk assessment at Zenith is well- deﬁned and institutionally predicated on: a. Clear tolerance limits and risk appetite set at the Board level, well communicated to the business units and periodically reviewed and monitored to adjust as appropriate; b. Well-deﬁned target market and risk asset acceptance c. d. e. f. g. h. i. j. criteria; Rigorous ﬁnancial, credit and overall risk analysis for each customer/transaction; Regular portfolio examination in line with key performance indicators and periodic stress testing; Continuous assessment of concentrations and mitigation strategies; Continuous validation and modiﬁcation of early warning system to ensure proper functioning for risk identiﬁcation; Systematic and objective credit risk rating methodologies that are based on quantitative, qualitative and expert judgment; Systematic credit limits management which enables the Bank to monitor its credit exposure on daily basis at country, borrower, industry, credit risk rating and credit facility type levels; Solid documentation and collateral management process with proper coverage and top-up triggers and follow-ups; and Annual and interim individual credit reviews to ensure detection of weakness signs or warning signals and considering proper remedies. i s l a c n a n F i 111 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 The credit processes are supplemented by sectoral portfolio reviews, which focus on countries, regions or speciﬁc industries as well as multiple stress testing scenarios. These are intended to identify any inherent risks in the portfolios resulting from changes in market conditions and are supplemented by independent reviews from our Group Internal Audit. Additionally, the Group continuously upgrades and ﬁne-tunes above in line with the developments in the ﬁnancial services industry environment and technology. 3.2.5 Group Credit Risk Limits The Group applies credit risk limits, among other techniques in managing credit risk. This is the practice of stipulating a maximum amount that the individual or counterparty can obtain as loan. Internal and regulatory limits are strictly adhered to. Through this, the Group not only protects itself, but also in a sense, protects the counterparties from borrowing more than they are capable of repaying. The Group focuses on its concentration and intrinsic risks and further manages them to a more comfortable level. This is very important due to the serious risk implications that intrinsic and concentration risk pose to the Group. A thorough analysis of economic factors, market forecasting and prediction based on historical evidence is used to mitigate these risks. The Group has in place various portfolio concentration limits (which are subject to periodic review). These limits are closely monitored and reported on from time to time. The Group’s internal credit approval limits for the various authorities levels are as indicated below. Zenith Group Rating Approval limit (% of Shareholders’ Fund) Board Credit Committee N1 billion and above (Not exceeding 20% of total shareholders’ fund) Management Global Credit Committee Below N1 billion These internal approval limits are set and approved by the Group Board and are reviewed regularly as the state of aﬀairs of the Group and the wider ﬁnancial environment demand. 3.2.6 Group Credit Risk Monitoring The Group’s exposures are continuously monitored through a system of triggers and early-warning signals aimed at detecting symptoms, which could result in deterioration of credit risk quality. The triggers and early-warning systems are supplemented by facility utilisation and collateral valuation monitoring together with a review of upcoming credit facility expiration and market intelligence to enable timely corrective action by management. The results of the monitoring process are reﬂected in the internal rating process through quarterly review activities. Credit risk is monitored on an ongoing basis with formal weekly, monthly and quarterly reporting to keep senior management aware of shifts in credit quality and portfolio performance along with changing external factors such as economic and business cycles. The capabilities of the credit review team is continuously enhanced in order to improve the facility monitoring activity and assure good quality Risk Assets Portfolio across the Group. A specialised and focused loan recovery and workout team handles the management and collection of problematic credit facilities. 3.2.7 (a) Credit Risk Mitigation, Collateral and other Credit Enhancements The Group’s approach to controlling various risks begins with optimizing the diversiﬁcation of its exposures. Zenith uses a variety of techniques to manage the credit risk arising from its lending activities. These techniques are set out in the Group’s internal policies and procedures. They are mainly reﬂected in the application of various exposure limits: credit concentration limits by counter-party and credit concentration limits by industry, country, region and type of ﬁnancial instrument. Enforceable legal documentation establishes Zenith’s direct, irrevocable and unconditional recourse to any collateral, security or other credit enhancements. i s l a c n a n F i 112 (i) Collateral Security A key mitigation step employed by the Group in its credit risk management process includes the use of collateral securities to secure its loans and advances as alternative sources of repayment during adverse conditions. All major credit facilities to our customers are to be secured and the security instruments and documentations must be perfected and all conditions precedent must be met before drawdown or disbursement is allowed. Collateral analysis includes a good description of the collateral, its value, how the value was arrived at, and when the valuation was made. It is usually necessary to review the potential adverse changes in the value of collateral security for the foreseeable future. Collateral securities that are pledged must be in negotiable form and usually fall under the following categories: a. Real estate, plant and equipment collateral (usually all asset or mortgage debenture or charge), which have to be registered and enforceable under Nigerian law; Collateral consisting of inventory, accounts receivable, machinery equipment, patents, farm products, general intangibles, etc. These require a security trademarks, b. Risk management agreement (usually a ﬂoating debenture) which has to be registered and, must be enforceable under Nigerian law; Stocks and shares of publicly quoted companies; c. d. Domiciliation of contracts proceeds; e. Documents of title to goods such as shipping documents consigned to the order of Zenith Bank or any of its subsidiaries; Letter of lien; and Cash collateral. f. g. Collateral securities are usually valued and inspected prior to disbursement and on a regular basis thereafter until full repayment of the exposure. We conduct a regular review of all collateral documentation in respect of all credits in the Bank and speciﬁc gaps in the collateral documentation are advised to the Lending Group/Zones/Branch for appropriate action and follow- up. Borrowers are required to conﬁrm adherence to covenants including periodic conﬁrmation of collateral values which are used by the Bank to provide early warning signals of collateral value deterioration. Periodic inspections of physical collateral are performed where appropriate and where reasonable means of doing so are available. The type and size of collateral held as security for ﬁnancial assets other than loans and advances are usually a function of the nature of the instrument. Our debt securities, treasury and other eligible bills are normally unsecured but our comfort is on the issuer’s credit rating, which is the Federal Government of Nigeria (FGN). Details of collateral pledged by customers against the carrying amount of loans and advances as at December 31, 2018 are as follows: In millions of Naira Group Bank Secured against real estate Secured by shares of quoted companies Cash Collateral, lien over ﬁxed and ﬂoating assets Unsecured Total Gross amount Impairment allowance Net carrying amount Total exposure Value of collateral Total exposure Value of collateral 62,080 7,762 1,031,525 915,153 2,016,520 (193,409) 1,823,111 34,925 5,411 942,486 74,554 1,057,376 - 1,057,376 61,010 7,762 1,021,103 831,189 1,921,064 (184,998) 1,736,066 33,697 5,411 932,157 - 971,265 - 971,265 i s l a c n a n F i 113 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 Group 31 December, 2018 Disclosure by Collateral Property/Real estate Equities Cash Grand total: Fair value of collateral Grand total: Gross loans Grand total: Impairment Grand total: Net amount Grand total: Amount of undercollaterization Term loan Overdrafts On lending Finance lease Total 17,574 343 611,013 628,930 16,022 5,067 53,661 74,750 1,419,276 208,021 156,366 1,262,910 633,980 31,999 176,022 101,272 101 - 267,407 267,508 385,922 4,903 381,019 113,511 - - 77 77 33,697 5,410 932,158 971,265 3,301 2,016,520 141 193,409 3,160 1,823,111 3,083 851,846 31 December, 2018 Term loan Overdrafts On lending Finance lease Total Against 12 months ECL loans and advances Property/Real estate Equities Cash and debentures Fair value of collateral Gross loans Impairment Net amount Amount of undercollaterization 11,490 - 332,884 344,374 916,359 11,123 905,236 560,862 5,748 904 45,544 52,196 158,264 2,623 155,641 103,445 - - 257,600 257,600 373,659 2,092 371,567 113,967 - - 55 55 17,238 904 636,083 654,225 3,168 1,451,450 127 15,965 3,041 1,435,485 2,986 781,260 31 December, 2018 Term loan Overdrafts On lending Finance lease Total Against lifetime ECL not credit-impaired loans and advances Property/Real estate Equities Cash Fair value of collateral Gross loans Impairment Net amount Amount of undercollaterization 2,294 343 212,397 215,034 350,833 32,384 318,449 103,415 3,750 13 3,284 7,047 21,214 1,857 19,357 12,310 - - 9,457 9,457 11,131 1,793 9,338 (119) - - 18 18 6,044 356 225,156 231,556 122 383,300 6 116 98 36,040 347,260 115,704 i s l a c n a n F i 114 31 December, 2018 Term loan Overdrafts On lending Finance lease Total Against lifetime ECL credit-impaired loans and advances Risk management Property/Real estate Equities Cash Fair value of collateral Gross loans Impairment Net amount 3,789 - 65,731 69,520 152,084 112,859 39,225 6,525 4,150 4,833 15,508 28,543 27,519 1,024 Amount of undercollaterization (30,295) (14,484) 101 - 350 451 1,132 1,018 114 (337) - - 4 4 10,415 4,150 70,918 85,483 11 181,770 8 3 141,404 40,366 (1) (45,117) Bank 31 December, 2018 Disclosure by Collateral Property/Real estate Equities Cash Grand total: Fair value of collateral Grand total: Gross loans Grand total: Impairment Grand total: Net amount Term loan Overdrafts On lending Finance lease Total 17,574 343 611,013 628,930 16,022 5,067 53,661 74,750 1,353,101 178,740 154,678 25,276 1,198,423 153,464 101 - 267,407 267,508 385,922 4,903 381,019 113,511 - - 77 77 3,301 141 3,160 3,083 33,697 5,410 932,158 971,265 1,921,064 184,998 1,736,066 764,801 Grand total: Amount of undercollaterization 569,493 78,714 31 December, 2018 Term loan Overdrafts On lending Finance lease Total Against 12 months ECL loans and advances Property/Real estate Equities Cash Fair value of collateral Gross loans Impairment Net amount Amount of undercollaterization 11,490 - 332,884 344,374 879,355 11,080 868,275 523,901 5,748 904 45,544 52,196 130,993 793 130,200 78,004 - - 257,600 257,600 373,658 2,092 371,566 113,966 - - 55 55 17,238 904 636,083 654,225 3,168 1,387,174 127 14,092 3,041 1,373,082 2,986 718,857 i s l a c n a n F i 115 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 31 December, 2018 Term loan Overdrafts On lending Finance lease Total Against lifetime ECL not credit-impaired loans and advances Property/Real estate 2,294 3,750 Equities Cash Fair value of collateral Gross loans Impairment Net amount Amount of undercollaterization 343 212,397 215,034 321,662 30,739 290,923 75,889 13 3,284 7,047 19,204 1,694 17,510 10,463 - - 9,457 9,457 11,131 1,793 9,338 (119) - - 18 18 6,044 356 225,156 231,556 122 352,119 6 116 98 34,232 317,887 86,331 31 December, 2018 Term loan Overdrafts On lending Finance lease Total Against lifetime ECL credit-impaired loans and advances Property/Real estate Equities Cash Fair value of collateral Gross loans Impairment Net amount Amount of undercollaterization 3,789 - 65,731 69,520 152,084 112,859 39,225 (30,295) 6,525 4,150 4,833 15,508 28,543 22,789 5,754 (9,754) 101 - 350 451 1,133 1,018 115 (336) - - 4 4 10,415 4,150 70,918 85,483 11 181,771 8 3 136,674 45,097 (1) (40,386) Details of collateral pledged by customers against carrying amount of loans and advances as at 31 December, 2017 are as follows: In millions of Naira 31 December, 2017 Secured against real estate Secured by shares of quoted companies Cash collateral, lien over ﬁxed and ﬂoating assets Unsecured Total Gross amount Speciﬁc allowance for impairment Collective allowance for impairment Group Bank Total exposure Value of collateral 89,553 25,276 1,234,199 903,144 53,966 12,194 1,057,198 88,648 Total exposure Value of collateral 52,424 12,194 889,929 1,222,121 25,217 - 781,083 - 2,252,172 1,123,358 2,117,069 954,547 (82,904) (68,906) - - (68,443) (68,162) - - Net carrying amount 2,100,362 1,123,358 1,980,464 954,547 i s l a c n a n F i 116 Risk management The Group’s policy is to pursue timely realisation of the collateral in an orderly manner. The Group does not generally use the non-cash collateral for its own operations. (ii) Balance Sheet Netting Arrangements Risk reduction by way of current account set-oﬀ is recognised for exposures to highly rated and creditworthy customers. Customers are required to enter into formal agreements giving Zenith Bank Plc the right to set-oﬀ gross credit and debit balances in their nominated accounts to determine the Groups net exposure. Cross-border set-oﬀs are not permitted. (iii) Guarantees and Standby Letters of Credit Guarantees and Standby Letters of Credit are perceived to have comparable level of credit risk as loans and advances. And in accordance with the Group’s credit policies, banks and creditworthy companies and individuals with high net worth are accepted as guarantors, subject to credit risk assessment. Furthermore, Zenith Bank Plc. only recognises unconditional irrevocable guarantees or standby letters of credit provided they are not related to the underlying obligor. 3.2.7 (b) Maximum Exposure to Credit Risk Before Collateral Held or Credit Enhancements The Group’s maximum exposure to credit risk at 31 December, 2018 and 31 December, 2017 respectively, are represented by the net carrying amounts of the ﬁnancial assets, with the exception of ﬁnancial and other guarantees issued by the Group for which the maximum exposure to credit risk are represented by the maximum amount the Group would have to pay if the guarantees are called on (refer to note 38 Contingent liabilities and commitments). 3.2.8 Concentration of Risks of Financial Assets with Credit Risk Exposure The Group monitors concentrations of credit risk by geographical location and by industry sector. An analysis of concentrations of credit risk at 31 December, 2018 and 31 December, 2017 respectively for loans and advances to customers and amounts due from banks, is set out below: (a) Geographical sectors The following table breaks down the Group’s main credit exposure at their carrying amounts, as categorised by geographical region at 31 December, 2018 and 31 December, 2017 respectively. For this table, the Group has allocated exposures to regions based on the regions the counterparties are domiciled. Financial assets included in the table below represents other assets excluding prepayment. Group Bank Nigeria Rest of Africa Outside Africa In millions of Naira 31 December, 2018 Cash and balances with central bank Treasury bills Assets pledged as collateral Due from other banks Investment securities Derivative instruments Other ﬁnancial assets Total Financial Guarantees Usance Letters of credit Performance bond and guarantees Total Nigeria 902,107 818,314 592,935 13,214 164,349 88,826 59,754 Rest of Africa 52,299 182,246 - - 67,754 - 1,343 Outside Africa 10 - - 661,060 333,209 - 273 902,073 817,043 592,935 - 156,673 88,826 58,406 2,639,499 303,642 994,552 2,615,956 147,189 356,939 327,123 831,251 - - - - - - - - 147,189 321,754 306,412 775,355 - - - - - - - - - - - - - - - 393,466 - - - 393,466 - - - - i s l a c n a n F i 117 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 Group Bank Nigeria Rest of Africa Outside Africa In millions of Naira 31 December, 2017 Cash and balances with central bank Treasury bills Assets pledged as collateral Due from other banks Investment securities Derivative instruments Other ﬁnancial assets Nigeria 907,265 799,992 468,010 18,287 117,814 57,219 Rest of Africa 41,966 136,825 - - Outside Africa 8,432 - - 477,516 12,451 200,686 - 42,752 11,521 31,369 907,265 799,992 468,010 8,733 117,814 57,219 42,752 Total 2,411,339 202,763 718,003 2,401,785 Financial Guarantees Usance Letters of credit Performance bond and guarantees 141,283 287,645 445,913 - 94,272 47,014 Total 874,841 141,286 - - - - 141,283 287,645 445,913 874,841 - - - - - - - - - - - - - - - 264,598 - - - 264,598 - - - - Gross loans and advances to customers and the Non-performing loan portion per geographical region as at 31 December, 2018 *Carrying amounts presented in the table below is determined as gross loans less impairment allowances. The non-performing loans (NPL) is presented in accordance with Central Bank of Nigeria (CBN) prudential guidelines. In millions of Naira Group Bank South South South West South East North Central North West North East Rest of Africa Outside Africa Loans and advances to customers Loans and advances to customers Gross loans NPL Impairment Allowance Carrying amount Gross loans NPL Impairment Allowance Carrying amount 113,319 1,071 3,330 109,989 113,319 1,071 3,330 109,989 1,553,639 87,650 177,322 1,376,317 1,553,037 87,650 177,294 1,375,743 60,715 54,483 39,122 100,388 66,224 28,630 1,263 2,158 359 129 7,873 - 1,466 2,161 495 252 6,929 1,454 59,249 52,322 38,627 60,715 54,483 39,122 100,136 100,388 59,295 27,176 - - 1,263 2,158 359 129 - - 1,466 2,161 495 252 - - 59,249 52,322 38,627 100,136 - - 2,016,520 100,503 193,409 1,823,111 1,921,064 92,630 184,998 1,736,066 i s l a c n a n F i 118 Risk management Gross loans and advances and non-performing portion per geographical region as at 31 December 2017 In millions of Naira Group Bank Loans and advances to customers Loans and advances to customers Gross loans NPL Collective impair. allow Speciﬁc impair. allow Carrying amount Gross loans NPL Collective impair. allow Speciﬁc impair. allow Carrying amount South South 111,626 2,171 2,890 - 108,736 111,626 2,171 2,890 - 108,736 South West 1,751,942 85,776 58,699 68,443 1,624,800 1,751,883 85,776 58,699 68,443 1,624,741 South East North Central North West North East Rest of Africa Outside Africa 71,886 73,635 24,940 83,100 77,547 57,496 460 3,062 36 233 4,471 9,656 2,518 3,192 331 532 744 - - - - - 3,201 11,260 69,368 70,443 24,609 82,568 73,602 46,236 71,886 460 73,635 3,062 24,939 83,100 - - 36 233 - - 2,518 3,193 331 531 - - - - - - - - 69,368 70,442 24,608 82,569 - - 2,252,172 105,865 68,906 82,904 2,100,362 2,117,069 91,738 68,162 68,443 1,980,464 (b) Industry sectors Gross loans and advances to customers and the non-performing loan portion per industry sector as at 31 December, 2018 *Carrying amounts presented in the table below are determined as gross loans less impairment allowances. The non-performing loans (NPL) is presented in accordance with Central Bank of Nigeria (CBN) prudential guidelines. In millions of Naira Group Bank Loans and advances to customers Loans and advances to customers Gross loans NPL Impairment allowance Carrying amount Gross loans NPL Impairment allowance Carrying amount 56,422 1,180 1,338 55,085 56,422 1,180 1,338 55,085 510,139 38,427 60,795 449,344 500,237 38,340 60,154 440,083 Agriculture Oil and gas Consumer Credit Manufacturing 30,761 893 579,856 31,207 Real estate and construction 113,281 13,119 Finance and insurance 7,118 2,739 Government Power Transportation Communication Education 310,265 88,852 27,579 170 60 185 56,234 2,381 5,021 171 1,204 49,006 16,104 2,916 1,956 14,845 1,897 29,892 208 29,557 530,850 97,177 4,201 308,309 74,007 25,682 26,342 4,813 30,125 893 548,097 23,770 113,281 13,118 6,307 2,641 309,721 81,610 19,402 158 8 185 52,427 2,338 5,021 171 1,177 43,732 16,104 2,875 1,945 14,201 1,361 29,846 208 28,948 504,366 97,177 3,432 307,776 67,409 18,042 22,581 4,813 General Commerce 230,992 9,971 13,246 217,746 198,412 9,826 12,057 186,355 2,016,520 100,503 193,409 1,823,111 1,921,064 92,630 184,998 1,736,066 i s l a c n a n F i 119 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 Gross loans and advances to customers and the non-performing loan portion per industry sector as at 31 December 2017 In millions of Naira Group Bank Loans and advances to customers Loans and advances to customers Gross loans NPL Collective impair. allow Speciﬁc impair. allow Carrying amount Gross loans NPL Collective impair. allow Speciﬁc impair. allow Carrying amount 63,223 956 1,474 - 61,749 63,223 956 1,474 - 61,749 660,243 39,618 23,194 22,807 614,242 609,133 29,954 23,109 11,538 574,486 Agriculture Oil and gas Consumer Credit Manufacturing Real estate and construction 11,728 633,739 113,137 59 6,459 7,375 Finance and insurance 8,045 1,913 Government Power 311,904 83,470 321 12 Transportation 53,037 16,862 Communication Education 95,093 9,953 2,270 175 583 11,352 5,203 2,286 2,591 5,677 315 111 268 692 10,453 - 622,387 752 107,182 11,728 601,355 101,897 59 6,459 3,228 - - - 13,650 35,117 691 5,759 6,673 1,907 309,313 311,367 77,793 39,072 59,865 8,994 252 - 83,470 41,561 16,862 92,960 6,992 2,235 143 583 11,185 4,741 2,272 2,591 5,677 315 111 268 692 10,453 - 590,170 752 96,404 - - - 13,650 34,980 - 4,401 308,776 77,793 27,596 57,869 6,724 General Commerce 208,600 29,845 15,852 9,195 183,553 186,710 29,683 15,836 6,832 164,043 2,252,172 105,865 68,906 82,904 2,100,362 2,117,069 91,738 68,162 68,444 1,980,464 3.2.9 Credit quality All other ﬁnancial assets are neither past due nor impaired. Loans and advances to customers of NGN295 billion which are neither past due nor impaired have been renegotiated (31 December 2017: N270 billion). Group 31 December, 2018 Credit rating - 12 month ECL: All ﬁnancial assets excluding loans and advances In millions of naira AAA BBB to BB Cash and balances with central bank Treasury bills Assets pledged as collateral Due from other banks Investment securities Derivative instruments Other financial assets 954,416 1,000,632 593,061 676,243 - - - - 518,124 49,760 88,826 62,080 - - Gross amount 954,416 1,000,632 593,061 676,243 567,884 88,826 62,080 ECL - impairment Carrying amount - (72) (126) (1,969) (2,572) - (710) 954,416 1,000,560 592,935 674,274 565,312 88,826 61,370 i s l a c n a n F i 120 In millions of Naira Loans and Advances Risk management 12 months ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Gross loans and advances Less allowances for impairment 12 - months ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total allowances for impairment Net loans and advances Term loans Overdraft 916,359 350,833 152,084 158,264 21,214 28,543 Others 376,827 11,253 1,143 Total 1,451,450 383,300 181,770 1,419,276 208,021 389,223 2,016,520 11,123 32,383 112,859 156,365 2,623 1,857 27,519 31,999 2,220 1,800 1,025 5,045 15,966 36,040 141,403 193,409 1,262,911 176,022 384,178 1,823,111 Bank 31 December, 2018 Credit rating - 12 month ECL: All ﬁnancial assets excluding loans and advances In millions of naira Cash and balances with central bank Treasury bills Assets pledged as collateral Due from other banks Investment securities Derivative instruments Other financial assets AAA BBB to BB 902,073 817,115 593,061 394,397 - - - - 107,478 49,760 88,826 59,104 - - Gross amount 902,073 817,115 593,061 394,397 157,238 88,826 59,104 ECL - impairment Carrying amount - (72) (126) (931) (565) - (698) 902,073 817,043 592,935 393,466 156,673 88,826 58,406 In millions of Naira 12 months ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Gross loans and advances Less allowances for impairment 12 - months ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total allowances for impairment Net loans and advances Loans and Advances 879,355 321,662 152,084 130,993 19,204 28,543 1,353,101 178,740 11,080 30,739 112,859 154,678 793 1,694 22,789 25,276 376,826 11,254 1,143 389,223 2,220 1,800 1,024 5,044 1,387,174 352,120 181,770 1,921,064 14,093 34,233 136,672 184,998 1,198,423 153,464 384,179 1,736,066 i s l a c n a n F i 121 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 Credit portfolio neither past due nor impaired The credit quality of the portfolio of loans and advances, amounts due from banks and other ﬁnancial assets that were neither past due nor impaired can be assessed by reference to the internal rating system adopted by the Group. At 31 December, 2018 Group Bank Loans and advances to customers Loans and advances to customers AAA AA to A BBB to BB Below B Unrated B- At 31 December, 2017 In millions of Naira AAA AA to A BBB to BB Below B Unrated 787,799 340,500 620,051 172,714 63,728 31,728 787,799 340,500 620,051 172,714 - - 2,016,520 1,921,064 Group Bank Due from Banks Loans and advances to customers Other ﬁnancial assets Due from Banks Loans and advances to customers Other ﬁnancial assets 495,803 - - - - 241,701 1,451,324 217,831 42,228 108,817 495,803 2,061,901 - - - - 55,099 55,099 273,331 - - - - 241,701 1,442,382 216,739 42,186 94 273,331 1,943,102 - - - - 39,291 39,291 The credit quality of cash and balances with central banks, treasury bills, derivative assets and assets pledged as collateral that were neither past due nor impaired are also be assessed by reference to the internal rating system adopted by the Group. At 31 December, 2017 In millions of Naira AAA AA to A BBB to BB Below B Unrated Group Bank Cash and balances with central bank Treasury bills Derivative assets Assets pledged as collateral Cash and balances with central bank Treasury bills Derivative assets Assets pledged as collateral 957,663 936,817 - 468,010 907,265 799,992 - 468,010 - - - - - - - - 57,219 - - - - - - - - - - - - - - - 57,219 - - - - - - 957,663 936,817 57,219 468,010 907,265 799,992 57,219 468,010 i s l a c n a n F i 122 Risk management At 31 December, 2017 In millions of Naira AAA AA to A BBB to BB Below B Unrated Total Group Investment securities Bank Investment securities Federal Government Bonds State Government Bonds Corporate bonds Federal Government Bonds State Government Bonds Corporate bonds 250,315 32,266 - - - - 31,725 - - - 282,581 31,725 2,544 14,101 - - - 16,645 330,951 37,502 32,266 - - - - 31,401 - - - 69,768 31,401 2,544 14,101 - - - 16,645 117,814 3.2.10 Amounts Arising from ECL For inputs, assumptions and techniques used for estimating impairment see accounting policy in note 2.8 3.2.11 Amounts Arising from ECL Corporate exposures Retail exposures All exposures – Information obtained during periodic review of customer ﬁles – – Internally collected data on – Payment record – this includes e.g. audited ﬁnancial statements, management accounts, budgets customer behaviour – e.g. utilisation overdue status as well as a range of and projections. of credit card facilities Examples of areas of particular focus are: gross proﬁt margins, – Aﬀordability metrics ﬁnancial leverage ratios, debt service coverage, compliance with – External data from credit reference covenants, quality of management, senior management changes agencies, including industry- – Data from credit reference agencies, press articles, changes in standard credit scores external credit ratings – Quoted bond and credit default swap (CDS) prices for the borrower where available – Actual and expected signiﬁcant changes in the political, regulatory and technological environment of the borrower or in its business activities variables about payment ratios – Utilisation of the granted limit – Requests for and granting of forbearance – Existing and forecast changes in business, ﬁnancial and economic conditions The Group allocates each exposure to a credit risk grade based on a variety of data that is determined to be predictive of the risk of default and applying experienced credit judgement. Credit risk grades are deﬁned using qualitative and quantitative factors that are indicative of risk of default. These factors vary depending on the nature of the exposure and the type of borrower. Credit risk grades are deﬁned and calibrated such that the risk of default occurring increases exponentially as the credit risk deteriorates so, for example, the diﬀerence in risk of default between credit risk grades 1 and 2 is smaller than the diﬀerence between credit risk grades 2 and 3. Each exposure is allocated to a credit risk grade at initial recognition based on available information about the borrower. Exposures are subject to ongoing monitoring, which may result in an exposure being moved to a diﬀerent credit risk grade. 3.2.12 Internal portfolio segmentation Credit risk grades are a primary input into the determination of the term structure of PD for exposures. The Group collects performance and default information about its credit risk exposures analysed by jurisdiction or region and by type of product and borrower as well as by credit risk grading. For some portfolios, information purchased from external credit reference agencies is also used. i s l a c n a n F i 123 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 The Group employs statistical models to analyse the data collected and generate estimates of the remaining lifetime PD of exposures and how these are expected to change as a result of the passage of time. This analysis includes the identiﬁcation and calibration of relationships between changes in default rates and changes in key macro-economic factors as well as in-depth analysis of the impact of certain other factors (e.g. forbearance experience) on the risk of default. For most exposures, key macro-economic indicators include: GDP growth, benchmark interest rates and unemployment. For exposures to speciﬁc industries and/or regions, the analysis may extend to relevant commodity and/ or real estate prices. Based on advice from the Group Market Risk Committee and economic experts and consideration of a variety of external actual and forecast information, the Group formulates a ‘base case’ view of the future direction of relevant economic variables as well as a representative range of other possible forecast scenarios (see discussion below on incorporation of forward-looking information). The Group then uses these forecasts to adjust its estimates of PDs. In determining the ECL for other assets, the Group applies the simpliﬁed model to estimate ECLs, adopting a provision matrix to determine the lifetime ECLs. The provision matrix estimates ECLs on the basis of historical default rates, adjusted for current and future economic conditions (expected changes in default rates) without undue cost and eﬀort. 3.2.13 Significant increase in credit risk Significant increase in credit risk The criteria for determining whether credit risk has increased signiﬁcantly vary by portfolio and include quantitative changes in PDs and qualitative factors, including a backstop based on delinquency. Using its expert credit judgement and, where possible, relevant historical experience, the Group may determine that an exposure has undergone a signiﬁcant increase in credit risk based on particular qualitative indicators that it considers are indicative of such and whose eﬀect may not otherwise be fully reﬂected in its quantitative analysis on a timely basis. As a backstop, the Group considers that a signiﬁcant increase in credit risk occurs no later than when an asset is more than 30 days past due. Days past due are determined by counting the number of days since the earliest elapsed due date in respect of which full payment has not been received. Due dates are determined without considering any grace period that might be available to the borrower. If there is evidence that there is no longer a signiﬁcant increase in credit risk relative to initial recognition, then the loss allowance on an instrument returns to being measured as 12-month ECL. Some qualitative indicators of an increase in credit risk, such as delinquency or forbearance, may be indicative of an increased risk of default that persists after the indicator itself has ceased to exist. In these cases, the Group determines a probation period during which the ﬁnancial asset is required to demonstrate good behaviour to provide evidence that its credit risk has declined suﬃciently. When contractual terms of a loan have been modiﬁed, evidence that the criteria for recognising lifetime ECL are no longer met includes a history of up-to-date payment performance against the modiﬁed contractual terms. Generally, facilities with loss allowances being measured as Life-time ECL not credit impaired (Stage 2) are monitored for a probationary period of 90 days to conﬁrm if the credit risk has decreased suﬃciently before they can be migrated from Lifetime ECL not credit impaired (Stage 2) to 12-month ECL (Stage 1) while credit-impaired facilities (Stage 3) are monitored for a probationary period of 180 days before migration from Stage 3 to 12-month ECL (Stage 1). The decrease in risk of default is reﬂected in the obligor’s Risk Rating which is a critical input for Staging. The credit risk of a particular exposure is deemed to have increased signiﬁcantly since initial recognition if, based on the Group’s quantitative modelling, the remaining lifetime PD is determined to have increased by more than a predetermined percentage/range. The Group monitors the eﬀectiveness of the criteria used to identify signiﬁcant increases in credit risk by regular reviews to conﬁrm that: the criteria are capable of identifying signiﬁcant increases in credit risk before an exposure is in default; i s l a c n a n F i 124 the criteria do not align with the point in time when an asset becomes 30 days past due; and there is no unwarranted volatility in loss allowance from transfers between 12-month PD (stage 1) and lifetime PD (stage 2). 3.2.14 Modified financial assets The contractual terms of a loan may be modiﬁed for a number of reasons, including changing market conditions, customer retention and other factors not related to a current or potential credit deterioration of the customer. An existing loan whose terms have been modiﬁed may be derecognised and the renegotiated loan recognised as a new loan at fair value in accordance with the accounting policy set out in the accounting policy. When the terms of a ﬁnancial asset are modiﬁed and in derecognition, the the modiﬁcation does not result determination of whether the asset’s credit risk has increased signiﬁcantly reﬂects comparison of: its remaining lifetime PD at the reporting date based on the modiﬁed terms; with the remaining lifetime PD estimated based on data at initial recognition and the original contractual terms. The Group renegotiates loans to customers in ﬁnancial diﬃculties (referred to as ‘forbearance activities) to maximise collection opportunities and minimise the risk of default. Under the Group’s forbearance policy, loan forbearance is granted on a selective basis if the debtor is currently in default on its debt or if there is a high risk of default, there is evidence that the debtor made all reasonable eﬀorts to pay under the original contractual terms and the debtor is expected to be able to meet the revised terms. The revised terms usually include extending the maturity, changing the timing of interest payments and amending the terms of loan covenants. Both retail and corporate loans are subject to the forbearance policy. The Group Audit Committee regularly reviews reports on forbearance activities. For ﬁnancial assets modiﬁed as part of the Group’s forbearance policy, the estimate of PD reﬂects whether the modiﬁcation has improved or restored the Group’s ability to collect interest and principal and the Group’s previous experience of similar Risk management forbearance action. As part of this process,the Group evaluates the borrower’s payment performance against the modiﬁed contractual terms and considers various behavioural indicators. Generally, forbearance is a qualitative indicator of a signiﬁcant increase in credit risk and an expectation of forbearance may constitute evidence that an exposure is credit-impaired/in default. A customer needs to demonstrate consistently good payment behaviour over a period of time before the exposure is no longer considered to be credit-impaired/in default or the PD is considered to have decreased such that the loss allowance reverts to being measured at an amount equal to 12- month ECL. 3.2.15 Definition of default The Group considers a ﬁnancial asset to be in default when the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as realising security (if any is held); or the borrower is past due more than 90 days on any material credit obligation to the Group. Overdrafts are considered as being past due once the customer has breached an advised limit or been advised of a limit smaller than the current amount outstanding. In assessing whether a borrower is in default, the Group considers indicators that are: qualitative - e.g. breaches of covenant; quantitative - e.g. overdue status and non-payment on another obligation of the same issuer to the Group; and based on data developed internally and obtained from external sources. Inputs into the assessment of whether a ﬁnancial instrument is in default and their signiﬁcance may vary over time to reﬂect changes in circumstances. The deﬁnition of default largely aligns with that applied by the Group for regulatory purposes (see note 3.2.8), except where there is regulatory waiver on speciﬁcally identiﬁed loans and advances. 3.2.16 Incorporation of forward-looking information The Group incorporates forward-looking information into both its assessment of whether the credit risk of an instrument i s l a c n a n F i 125 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 has increased signiﬁcantly since its initial recognition and its measurement of ECL. Based on advice from the Group Market Risk Committee and economic experts and consideration of a variety of external actual and forecast information, the Group formulates a ‘base case’ view of the future direction of relevant economic variables as well as a representative range of other possible forecast scenarios. This process involves developing two or more additional economic scenarios and considering the relative probabilities of each outcome. External information includes economic data and forecasts published by governmental bodies and monetary authorities in the countries where the Group operates, supranational organisations such as the OECD and the International Monetary Fund, and selected private-sector and academic forecasters. The base case represents a most-likely outcome and is aligned with information used by the Group for other purposes such as strategic planning and budgeting. The other scenarios represent more optimistic and more pessimistic outcomes. Periodically, the Group carries out stress testing of more extreme shocks to calibrate its determination of these other representative scenarios. The Group has identiﬁed and documented key drivers of credit risk and credit losses for each portfolio of ﬁnancial instruments and, using an analysis of historical data, has estimated relationships between macro-economic variables and credit risk and credit losses. The key drivers for credit risk for non-retail portfolios are: GDP growth and foreign exchange rate. For exposures to speciﬁc industries and/or regions, the key drivers also include relevant commodity and/or real estate prices. The key drivers for credit risk for retail portfolios are: GDP and foreign exchange rate. The economic scenarios used as at 31 December 2018 included the following key indicators for Nigeria for the years ending 31 December 2019 to 2020. 2019 2020 Foreign exchange Base 365 rate Upside 360 Base 365 Upside 360 Downside 375 Downside 400 GDP growth Base 2.3% Upside 2.5% Base 3.0% Upside 3.5% Downside 2.0% Downside 2.2% Predicted relationships between the key indicators and default and loss rates on various portfolios of ﬁnancial assets have been developed based on analysing historical data over the past 5 years. 3.2.17 Measurement of ECL The key inputs into the measurement of ECL are the term structure of the following variables: probability of default (PD); loss given default (LGD) exposure at default (EAD) ECL for exposures in stage 1 (12-months ECL) is calculated by multiplying the 12-months PD by LGD and EAD. Lifetime ECL is calculated by multiplying the lifetime PD by LGD and EAD. internally These parameters are generally derived from developed statistical models and other historical data and they are adjusted to reﬂect forward-looking information as described above. PD is an estimate of the likelihood of default over a given time horizon, which are calculated based on statistical rating models, and assessed using rating tools tailored to the various categories of counterparties and exposures. These statistical models are based on internally compiled data comprising both quantitative and qualitative factors. Where it is available, market data may also be used to derive the PD for large corporate counterparties. If a counterparty or exposure migrates between rating classes, then this will lead to a change in the estimate of the associated PD. PDs are estimated considering the contractual maturities of exposures and estimated prepayment rates. The methodology of estimating PD is discussed in note 3.2.12. i s l a c n a n F i 126 Risk management management, but only when the Group becomes aware of an increase in credit risk at the facility level. This longer period is estimated taking into account the credit risk management actions that the Group expects to take and that serve to mitigate ECL. These include a reduction in limits, cancellation of the facility and/or turning the outstanding balance into a loan with ﬁxed repayment terms. Where modelling of a parameter is carried out on a collective basis, the ﬁnancial instruments are grouped on the basis of shared risk characteristics that include: instrument type credit risk gradings collateral type Past due information date of initial recognition remaining term to maturity industry geographic location of the borrower The groupings are subject to regular review to ensure that exposures within a particular group remain appropriately homogeneous. 3.2.18 Loss allowance The following tables show reconciliations from the opening to the closing balance of the loss allowance by class of ﬁnancial instrument. Comparative amounts represent allowance account for credit losses and reﬂect measurement basis under IAS 39. for 2017 LGD is the magnitude of the likely loss if there is a default. The Group estimates LGD parameters based on the history of recovery rates of claims against defaulted counterparties. The LGD models consider the structure, collateral, seniority of the claim, counterparty industry and recovery costs of any collateral that is integral to the ﬁnancial asset. LGD estimates are recalibrated for diﬀerent economic scenarios and, for lending, to reﬂect possible changes in the economies. They are calculated on a discounted cash ﬂow basis using the eﬀective interest rate as the discount. EAD represents the expected exposure in the event of a default. The Group derives the EAD from the current exposure to the counterparty and potential changes to the current amount allowed under the contract including amortisation. The EAD of a ﬁnancial asset is its gross carrying amount at the time of default. For lending commitments, the EAD includes the amount drawn,as well as potential future amounts that may be drawn under the contract, which are estimated based on historical observations and forward-looking forecasts. For ﬁnancial guarantees, the EAD represents the amount of the guaranteed exposure when the ﬁnancial guarantee becomes payable. For some ﬁnancial assets, EAD is determined by modelling the range of possible exposure outcomes at various points in time using scenario and statistical techniques. As described above, and subject to using a maximum of a 12-month PD for ﬁnancial assets for which credit risk has not signiﬁcantly increased, the Group measures ECL considering the risk of default over the maximum contractual period (including any borrower’s extension options) over which it is exposed to credit risk, even if, for risk management purposes, the Group considers a longer period. The maximum contractual period extends to the date at which the Group has the right to require repayment of an advance or terminate a loan commitment or guarantee. However, for overdrafts and revolving facilities that include both a loan and an undrawn commitment component, the Group measures ECL over a period longer than the maximum contractual period if the Group’s contractual ability to demand repayment and cancel the undrawn commitment does not limit the Group’s exposure to credit losses to the contractual notice period.These facilities do not have a ﬁxed term or repayment structure and are managed on a collective basis. The Group can cancel them with immediate eﬀect but this contractual right is not enforced in the normal day-to-day i s l a c n a n F i 127 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 Group In millions of Naira Treasury bills at amortised cost Balance at 1 January Net remeasurement of loss allowances (see note 8) Transfers from assets pledged as collateral Foreign exchange and other movements Closing balance Gross amount 31 December, 2018 31 December, 2017 12-month ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total Speciﬁc Collective Total 1,305 (1,243) - 10 72 - - - - - - - - - - 1,305 (1,243) - 10 72 - - - - - - - - - - - - - - - 490,319 490,319 In millions of Naira Off balance sheet exposure Balance at 1 January Net remeasurement of loss allowances (see note 8) Write-oﬀs Closing balance Gross amount 31 December, 2018 31 December, 2017 12-month ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total Speciﬁc Collective Total 2,526 5,337 148 8,011 831,251 - - 2,526 5,337 148 8,011 831,251 - - - i s l a c n a n F i 128 Risk management In millions of Naira 12-month ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total Speciﬁc Collective Total 31 December, 2018 31 December, 2017 Assets pledged as collateral at ammortised cost Balance at 1 January Net remeasurement of loss allowances (see note 8) Write-oﬀs Closing balance Gross amount 1,202 (1,076) - 126 593,061 - - - - - - - - - - 1,202 (1,076) - 126 593,061 - - - - - - - - - - - - - - - In millions of Naira 12-month ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total Speciﬁc Collective Total 31 December, 2018 31 December, 2017 Loans and advances to customers at amortised cost Balance at 1 January - Transfer to 12-month ECL - Transfer to lifetime ECL not credit- impaired 64,620 382 (22,215) 35,586 (248) 22,913 - Transfer to lifetime ECL credit-impaired (42,298) Net remeasurement of loss allowances 14,074 (46,836) 22,890 89,134 (27,128) (see note 8) 152,967 253,174 32,896 38,548 71,444 (134) (698) - - - - - - - - - - - - 9,836 59,513 38,691 98,204 New ﬁnancial assets originated or 1,550 1,540 377 3,467 - - - purchased Write-oﬀs and recoveries Foreign exchange and other movements Closing balance Gross amount - (148) - 195 (73,962) (73,962) (6,535) (7,196) (13,731) 847 894 (2,970) (1,137) (4,107) 15,965 36,040 141,403 193,409 82,904 68,906 151,810 1,451,450 383,300 181,770 2,016,520 84,793 2,167,379 2,252,172 i s l a c n a n F i 129 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 In millions of Naira 12-month ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total Speciﬁc Collective Total 31 December, 2018 31 December, 2017 Investment securities at amortised cost Balance at 1 January Net remeasurement of loss allowances (see note 8) Write-oﬀs and recoveries Closing balance Gross amount 1,773 (430) 1,229 2,572 513,154 - - - - - - - - - - 1,773 221 578 2,572 513,154 - - - - - - - - - - - - - - - 31 December, 2018 31 December, 2017 12-month ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total Speciﬁc Collective Total - - - - - - - - - - - - 4,831 395 (4,516) 5 715 62,468 - - - - - - - - - - - - - - - - - - In millions of Naira Other financial assets Balance at 1 January Net remeasurement of loss allowances (see note 8) 4,831 395 Financial assets that have been derecognised (4,516) Write-oﬀs Foreign exchange and other Foreign - exchange and other movements Closing balance Gross amount 710 62,468 i s l a c n a n F i 130 Risk management In millions of Naira Due from other banks Balance at 1 January Net remeasurement of loss allowances (see note 8) Financial assets that have been derecognised Write-oﬀs Foreign exchange and other movements Closing balance Gross amount 31 December, 2018 31 December, 2017 12-month ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total Speciﬁc Collective Total - 1,938 - 31 1,969 458,305 - - - - - - - - - - - - 1,938 - 31 1,969 458,305 - - - - - - - - - - - - - - - - - - In millions of Naira Impact of IFRS9 Opening Entries on Impairment Allowances Addition under IFRS 9 as at 1 January 2018 Under IAS 39 as at 31 December 2017 12-month ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total Speciﬁc allowance for impairment Collective allowance for impairment Total Loans and advances 25,903 14,242 61,218 101,363 82,904 68,906 151,810 Oﬀ-balance sheet exposures Assets pledged as collateral Investment Securities Treasury bills 2,526 1,202 1,773 1,305 - - - - - - - - 2,526 1,202 1,773 1,305 - - - - - - - - - - - - Balance as at 1 January 2018 32,709 14,242 61,218 108,169 82,904 68,906 151,810 i s l a c n a n F i 131 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 Bank In millions of Naira 31 December, 2018 31 December, 2017 12-month ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total Speciﬁc allowance for impairment Collective allowance for impairment Total Treasury bills at ammortised cost Balance at 1 January Net remeasurement of loss allowances (see note 8) Transfers from assets pledged as collateral Closing balance Gross amount 1,186 (1,114) 72 306,802 - - - - - - - - 1,186 (1,114) 72 306,802 - - - - - - - - - - - 252,336 In millions of Naira Off balance sheet exposure Balance at 1 January Net remeasurement of loss allowances (see note 8) Closing balance Gross amount 31 December, 2018 31 December, 2017 12-month ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total Speciﬁc allowance for impairment Collective allowance for impairment Total 1,571 6,441 8,011 775,355 - - - - - - - - 1,571 6,441 8,011 775,355 - - - - - - - - - - - 874,841 i s l a c n a n F i 132 Risk management In millions of Naira 12-month ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total Speciﬁc allowance for impairment Collective allowance for impairment Total 31 December, 2018 31 December, 2017 Assets pledged as collateral at ammortised cost Balance at 1 January Net remeasurement of loss allowances (see note 8) Closing balance Gross amount 1,202 (1,076) 126 593,061 - - - - - - - - 1,202 (1,076) 126 593,061 - - - - - - - - - - - 331,571 In millions of Naira 12-month ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total Speciﬁc allowance for impairment Collective allowance for impairment Total 31 December, 2018 31 December, 2017 Loans and advances to customers at amortised cost Balance at 1 January - Transfer to 12-month ECL - Transfer to lifetime ECL not credit-impaired 60,761 382 (22,215) 33,245 (248) 22,913 - Transfer to lifetime ECL (42,298) (46,836) 89,134 credit-impaired 141,832 235,838 17,607 37,485 55,092 (134) (698) - - - - - - - - - - - - Net remeasurement of loss 15,912 23,619 (33,602) 5,929 57,371 37,873 95,244 allowances (see note 8) New ﬁnancial assets originated 1,550 1,540 377 3,467 - - - or purchased Write-oﬀs Write-oﬀs Closing balance - - (60,236) (60,236) 14,092 34,233 136,673 184,998 (6,535) 68,443 (7,196) (13,731) 68,162 136,605 Gross amount 1,387,174 352,119 181,770 1,921,064 70,667 2,046,402 2,117,069 i s l a c n a n F i 133 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 In millions of Naira Other financial assets Balance at 1 January Net remeasurement of loss allowances (see note 8) Write-oﬀs Closing balance Gross amount In millions of Naira 31 December, 2018 31 December, 2017 12-month ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total Speciﬁc Collective Total 4,832 383 (4,517) 698 59,104 - - - - - - - - - - 4,832 383 (4,517) 698 59,104 - - - - - - - - - - - - - - - 31 December, 2018 31 December, 2017 12-month ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total Speciﬁc Collective Total Due from other Banks Balance at 1 January Net remeasurement of loss allowances (see note 8) Financial assets that have been derecognised Write-oﬀs Foreign exchange and other movements Closing balance Gross amount - 931 - - - 931 394,397 - - - - - - - - - - - - - - - 931 - - - 931 394,397 - - - - - - - - - - - - - - - - - - - - - In millions of Naira 12-month ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total Speciﬁc Collective Total 31 December, 2018 31 December, 2017 Investment securities at amortised cost Balance at 1 January Net remeasurement of loss allowances (see note 8) Financial assets that have been derecognised Closing balance Gross amount 358 207 - 565 102,508 - - - - - - - - - - 358 207 - 565 102,508 - - - - - - - - - - - - - - - i s l a c n a n F i 134 Risk management Summary of loss allowance by class of ﬁnancial instruments also showing ECL coverage ratio. Group Financial Statement Items In millions of Naira On-balance sheet items Gross Carrying Amount ECL Provision ECL Coverage Ratio Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total % % % % Assets pledged as 593,061 - - 593,061 126 - - 126 0.02 - - 0.02 collateral Treasury bills 490,319 490,319 72 72 Loans and advances to 1,451,450 383,300 181,770 2,016,520 15,965 36,040 141,403 193,408 0.01 1.10 9.40 77.79 0.01 9,59 2,572 0.50 - - 0.50 customers at amortised cost Debt investment 513,154 securities at amortised cost Debt investment securities at FVOCI 49,760 Other ﬁnancial assets 62,468 measured at amortised cost - - - - 513,154 2,572 49,760 62,468 710 - - - - 710 1.14 Due from other Banks 676,243 676,243 1,969 1,969 Subtotal 3,160,212 383,300 181,770 3,725,282 19,445 36,040 141,403 196,888 0.29 2.77 - 9.40 77.79 Off-balance sheet items Loans and other credit related commitments Letters of credit Usance Financial guarantee and similar contracts 356,939 147,189 356,939 147,189 5,312 1,940 5,312 1,940 1.49 1.32 1.14 0.29 5.29 1.49 1.32 Performance bonds and 327,123 327,123 759 759 0.23 . 0.23 guarantees Subtotal Total 831,251 831,251 8,011 8,011 3,991,463 383,300 181,770 4,556,533 27,456 36,040 141,403 204,899 3.04 5.81 9.40 77.79 3.04 4.50 i s l a c n a n F i 135 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 Summary of loss allowance by class of ﬁnancial instruments also showing ECL coverage ratio. Bank Financial Statement Items In millions of Naira On-balance sheet items Gross Carrying Amount ECL Provision ECL Coverage Ratio Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total % % % % Assets pledged as 593,061 - - 593,061 126 - - 126 0.02 - - 0.02 collateral Treasury bills 306,802 306,802 72 72 Loans and advances to 1,387,174 352,119 181,770 1,921,064 14,092 34,233 136,673 184,998 0.02 1.02 9.72 75.19 customers at amortised cost Debt investment 102,508 securities at amortised cost Debt investment securities at FVOCI 49,760 Other ﬁnancial assets 59,104 measured at amortised cost Other non- ﬁnancial 18,064 assets - - - - - - - - 102,508 565 49,760 - 59,104 698 18,064 560 - - - - - - - - 565 0.55 - - 698 1.18 560 3.10 - - - - - - - - Due from other Banks 394,397 394,397 931 931 Subtotal 2,498,409 352,119 181,770 3,032,299 15,553 34,233 136,673 186,459 Off-balance sheet items Loans and other credit related commitments Letters of credit Usance Performance bonds and guarantees Subtotal Total 321,754 147,189 306,412 775,355 - - - - - - - - 321,754 147,189 306,412 5,311 1,941 759 775,355 8,011 - - - - - - - - 5,311 1,941 759 8,011 3,273,764 352,119 181,770 3,807,654 23,564 34,233 136,673 194,470 0.24 2.79 1.65 1.32 0.24 3.21 6.00 9.72 75.19 - - - - - - - - 9.72 75.19 0.02 9.63 0.55 - 1.18 3.10 0.24 6.15 1.65 1.32 0.25 1.03 5.11 i s l a c n a n F i 136 3.2.19 Restructuring policy Loans with renegotiated terms are loans that have been restructured because the Group has made concessions by agreeing to terms and conditions that are more favorable for the customer than these provided by the Group initially. The Group implements restructuring policy in order to maximize collections opportunities and minimize the risk of default. The Group’s credit committee may, from time to time, grant approval for restructuring of certain facilities due to the following reasons: a. Where the execution of the loan purpose and the repayment are no longer realistic in light of new cash ﬂows; b. To avoid unintended default arising from adverse business conditions; c. To align loan repayment with new pattern of achievable cash ﬂows; d. Where there are proven cost over runs that may signiﬁcantly impair the project repayment capacity; e. Where there is temporary downturn in the customer’s business environment; f. Where the customer’s going concern status is NOT in doubt or threatened; and g. The revised terms of restructured facilities usually include extended maturity, changing timing of interest payments and amendments to the terms of the loan agreement. lost. This determination 3.2.20 Write-off policy The Group writes oﬀ a loan balance when the Group’s credit department determines that the loan is uncollectable and had been declared delinquent and subsequently classiﬁed as is made after considering information such as the continuous deterioration in the customer’s ﬁnancial position, such that the customer can no longer pay the obligation, or that proceeds from the collateral will not be suﬃcient to pay back the entire exposure. Board approval is required for such write-oﬀ. For insider-related loan (loans by the bank to its own oﬃcers and directors), CBN approval is required. The loan recovery department continues with its recovery eﬀorts and any loan subsequently recovered is treated as other income. Loans and debt securities are written oﬀ (either partially or in full) when there is no realistic prospect of recovery. This is generally the case when the Group determines that the borrower does not have assets or sources of income that Risk management could generate suﬃcient cash ﬂows to repay the amounts subject to the write-oﬀ. However, ﬁnancial assets that are written oﬀ could still be subject to enforcement activities in order to comply with the Group’s procedures for recovery of amounts due. 3.3 Market risk Market risk is the risk of potential losses in both on- and oﬀ- balance sheet positions arising from movements in market prices. Market risks can arise from adverse changes in interest rates, foreign exchange rates, equity prices, commodity prices and other relevant factors such as market volatilities. The Group undertakes activities which give rise to some level of market risks exposures. The objective of market risk management activities identify, manage and control market risk exposure within acceptable parameters, while optimizing the return on risks taken. is to continuously 3.3.1 Management of market risk The Group has an independent Market Risk Management unit which assesses, monitors, manages and reports on market risk taking activities across the Group. The Group enhances its Market Risk Management Framework on a continuous basis. The operations of the unit is guided by the mission of "inculcating enduring market risk management values and culture, with a view to reducing the risk of losses associated with market risk-taking activities, and optimizing risk-reward trade-oﬀ.” The Group's market risk objectives, policies and processes are aimed at instituting a model that objectively identiﬁes, measures and manages market risks in the Group and ensure that: a. The individuals who take or manage risk clearly understand it; b. The Group's risk exposure is within established limits; c. Risk taking decisions are in line with business strategy and objectives set by the Board of Directors; d. The expected payoﬀs compensate for the risks taken; and e. Suﬃcient capital, as a buﬀer, is available to take risk. The Group proactively manages its market risk exposures in both the trading and non-trading books within the acceptable levels. The Group's market categorised into: risks exposures are broadly i s l a c n a n F i 137 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 (i) Trading Market Risks - These are risks that arise primarily through trading activities and market making activities. These activities include position- taking income in foreign exchange and ﬁxed securities (Bonds and Treasury Bills). (ii) Non Trading Market Risks -These are risks that arise from assets and liabilities that are usually on the books for a longer period of time, but where the intrinsic value is a function of the movement of ﬁnancial market parameter. The Naira exchange rate continues to be an important inﬂuence on consumer prices and output recovery. Stability in the naira exchange rate has been sustained for most part of the year through appropriate policies and reforms of the exchange rate market; There has also been some form of convergence in the various markets. The NIFEX rate has moved within touching distance of the I&E market as well as the Parallel market, with these markets trading closely within a +/- N5 band. The Nigerian Foreign Exchange Reserves recorded signiﬁcant growth during the year with favourable crude oil prices and uninterrupted crude production as well as increased autonomous inﬂows through the Investors’ and Exporters’ foreign exchange (I&E) window. The supply of FX to the parallel market has remained impressive. The table below sets out the allocation of assets and liabilities subject to market risk between trading and non-trading portfolios In millions of Naira Group Assets Cash and balances with central bank Treasury bills Assets pledged as collateral Due from other banks Derivative assets Loans and advances Investment securities Other ﬁnancial assets Liabilities Customer deposits Derivative liabilities Other ﬁnancial liabilities On-lending facilities Borrowings Debt securities issued At December 31, 2018 At December 31, 2017 Note Carrying Amount Trading Non- trading Carrying Amount Trading Non- trading 15 16 17 18 19 21 24 27 32 28 29 30 31 954,416 954,416 957,663 957,663 1,000,560 510,313 490,247 936,817 547,656 389,161 592,935 184,812 408,123 468,010 136,438 331,572 674,274 674,274 495,803 495,803 88,826 88,826 57,219 57,219 1,823,111 1,823,111 2,100,363 2,100,363 565,312 4,970 560,342 330,951 32,266 298,685 61,370 61,370 100,808 100,808 3,690,295 - 3,690,295 3,437,915 - 3,437,915 16,995 16,995 20,805 20,805 190,408 393,295 437,260 361,177 - - - - 190,408 212,304 393,295 383,034 437,260 356,496 361,177 332,931 - - - - 212,304 383,034 356,496 332,931 i s l a c n a n F i 138 Bank Assets Cash and balances with central bank Treasury bills Assets pledged as collateral Due from other banks Derivative assets Loans and advances Investment securities Other ﬁnancial assets Liabilities Customer deposits Derivative liabilities Other ﬁnancial liabilities On-lending facilities Borrowings Debt securities issued Risk management At December 31, 2018 At December 31, 2017 Note Carrying Amount Trading Non- trading Carrying Amount Trading Non- trading 15 16 17 18 19 21 24 27 32 28 29 30 31 902,073 902,073 907,265 907,265 817,043 510,313 306,730 799,992 547,656 252,336 592,935 184,812 408,123 468,010 136,438 331,572 393,466 393,466 273,331 273,331 88,826 88,826 57,219 57,219 1,736,066 1,736,066 1,980,465 1,980,465 156,673 4,970 151,703 117,814 32,266 58,406 58,406 42,752 85,548 45,752 2,821,066 - 2,821,066 2,744,525 - 2,744,525 16,995 16,995 20,805 20,805 212,006 393,295 458,463 361,177 - - - - 212,006 212,304 393,295 383,034 458,463 418,979 361,177 332,931 - - - - 212,304 383,034 418,979 332,931 3.3.2 Measurement of Market Risk The Group adopts Non-VAR (Value-at-risk) approach for quantitative measurement and control of market risks in both trading and non-trading books. The Non -VAR (Value at risk) measurements includes: Duration; Factor Sensitivities (Pv01), Stress Testing, Aggregate Open Position etc. The measured risks are therefore monitored against the pre-set limits on a daily basis. All exceptions are investigated and reported in line with internal policies and guidelines. Limits are sets to reﬂect the risk appetite that is approved by the Board of Directors. These limits are reviewed, at least, annually or at a more frequent interval. Some of the limits include; Net Open Position (NOP- for foreign exchange); Aggregate Control Limits (for Securities); Management Action Trigger (MAT); Duration; Factor Sensitivities (Pv01); Permitted Instrument and Tenor Limits; Holding Period and Oﬀ Market Rate Tolerance limit. Stress testing is an important risk management tool that is used by the Group as part of its enterprise-wide risk management. It is the evaluation of the Group’s ﬁnancial position under severe but plausible scenarios to assist in decision making. Stress testing provides the Group with the opportunity to spot emerging risks, uncover weak spots and take preventive action. It also alerts management to adverse unexpected outcomes related to a variety of risks and provides an indication of how much capital might be needed to absorb losses should large shocks occur. The Group adopts both single factor and multifactor stress testing approaches (sensitivity and scenario based) in conducting stress testing within the risk areas of liquidity, foreign exchange, interest rate, market and credit risks. Stress testing is conducted both on a regular and ad-hoc basis in response to changing ﬁnancial, regulatory and economic environment/circumstances. i s l a c n a n F i 139 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 3.3.3 Foreign exchange risk Fluctuations in the prevailing foreign currency exchange rates can aﬀect the Group's ﬁnancial position and cash ﬂows - 'on' and 'oﬀ' balance sheet. The Group manages part of the foreign exchange risks through basic derivative products and hedges (such as forwards and swaps). The risk is also managed by ensuring that all risks taken by the Group are within approved limits. In addition to adherence to regulatory limits, Zenith Group established various internal limits (such as non- VAR models, overall Overnight and Intra-day positions), dealer limits, as well as individual currency limits among others limits which are monitored by the Market Risk Department on a regular basis. These limits are set with the aim of minimizing the Group's risk exposures to exchange rates volatilities to an acceptable level. The Group's transactions are carried out majorly in four (4) foreign currencies with a signiﬁcant percentage of transactions involving US Dollars. The Group uses the average interbank exchange rate for each foreign currency to value assets and liabilities denominated in foreign currencies. Group The table below summarizes the Group’s exposure to foreign currency exchange rate risk at 31 December, 2018 and 31 December, 2017. Included in the table are the Group’s ﬁnancial instruments at carrying amounts, categorised by currency. In millions of Naira At December 31, 2018 Assets Naira Dollar GBP Euro Others Total Cash and balances with central bank 436,185 469,608 6,049 4,838 37,736 954,416 Treasury bills Assets pledged as collateral Due from other banks Derivative assets Loans and advances Investment securities Other ﬁnancial assets Liabilities Customer deposits Derivative liabilities Other ﬁnancial liabilities On-lending facilities Borrowings Debt securities issued 930,701 592,935 1,957 - - - - - 67,902 1,000,560 0 592,935 54,201 497,803 34,100 52,825 35,346 674,274 88,826 - - - - 88,826 926,163 830,868 1,006 16,217 48,857 1,823,111 176,771 320,897 - 1,283 66,360 565,312 7,006 10,892 25,618 - 17,854 61,370 3,212,788 2,132,025 66,773 75,163 274,055 5,760,804 2,100,306 1,203,619 63,148 43,868 279,354 3,690,295 16,995 59,284 121,994 393,295 0 0 437,260 361,177 - - - - - - - 16,995 3,390 5,740 190,407 - - - - - - 393,295 437,260 361,177 2,569,880 2,124,050 63,148 47,258 285,094 5,089,429 Net on-balance sheet position 642,908 7,975 3,625 27,905 (11,039) 671,374 i s l a c n a n F i 140 In millions of Naira At December 31, 2017 Assets Cash and balances with central bank Treasury bills Assets pledged as collateral Due from other banks Derivative assets Loans and advances to customers (gross) Investment securities Other ﬁnancial assets Liabilities Customer deposits Derivative liabilities Other ﬁnancial liabilities On-lending facilities Borrowings Debt securities issued Risk management Naira Dollar GBP Euro Others Total 517.794 385,147 799,992 74,511 468,010 - 5,802 23,279 - 3,365 - - 45.554 39,035 957.663 936,817 - 468,010 9,574 424,742 19,850 36,120 5,517 495,803 57,219 - 1,357,236 719,066 116,112 213,587 77,328 - - 873 - - - 2,027 1,252 - - 57,219 21,161 2,100,362 - - 330,951 77,328 3,403,265 1,817,053 49,804 42,764 111,267 5,424,153 2,045,413 1,193,820 37,972 33,100 127,610 3,437,915 20,805 225,019 383,034 - - - - - 356,496 332,931 - - - - - - - - - - - - - - - 20,805 225,019 383,034 356,496 332,931 2,674,271 1,883,247 37,972 33,100 127,610 4,756,200 Net on-balance sheet position 728,994 (66,194) 11,832 9,664 (16,343) 667,953 The Group’s exposure to foreign currency risk is largely concentrated in the US Dollar. Movement in exchange rate between the US Dollar, and the Nigerian Naira aﬀects reported earnings through revaluation gain or loss and statement of ﬁnancial position size through increase or decrease in the revalued amounts of assets and liabilities denominated in US Dollars. The table below shows the impact on the Group’s proﬁt or loss and statements of ﬁnancial position size if the exchange rate between the US Dollars, and Nigerian Naira had increased or decreased by 15% and 30%, with all other variables held constant. US Dollar eﬀect of 15% up or (down) movement on proﬁt before tax and statement of ﬁnancial position size (in millions of Naira) 31-Dec-18 31-Dec-17 5,891 5,394 US Dollar eﬀect of 30% up or (down) movement on proﬁt before tax and statement of ﬁnancial position size (in millions of Naira) 11,782 10,788 i s l a c n a n F i 141 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 Bank The table below summarizes the Bank’s exposure to foreign currency exchange rate risk at 31 December, 2018 and 31 December, 2017. Included in the table are the Bank’s ﬁnancial instruments at carrying amounts, categorised by currency. In millions of Naira At December 31, 2018 Assets Naira Dollar GBP Euro Others Total Cash and balances with central banks 435,137 459,300 5,389 2,247 Treasury bills Assets pledged as collaterals Due from other banks Derivative assets Loans and advances to customers Investment securities Other ﬁnancial assets Liabilities Customer deposits Derivative liabilities Other ﬁnancial liabilities On-lending facilities Borrowings Debt securities issued 815,086 592,935 1,957 - - - - - 0 - - 902,073 817,043 592,935 29,211 339,070 4,760 16,818 3,607 393,466 88,826 - 932,004 788,477 154,806 54,047 1,867 3,940 - 147 - 418 - 15,416 - - - 22 - - 88,826 1,736,066 156,673 58,406 3,102,052 1,594,611 10,714 34,481 3,629 4,745,488 2,084,773 703,545 10,634 20,518 1,596 2,821,066 16,995 - 105,202 91,400 393,295 - 849 (0) 457,614 361,177 - - - - - - 16,995 13,390 2,014 212,006 - - - - - - 393,295 458,463 361,177 2,601,114 1,613,736 10,634 33,908 3,610 4,263,002 Net on-balance sheet position 500,938 (19,125) 80 573 19 482,485 i s l a c n a n F i 142 In millions of Naira At December 31, 2017 Assets Risk management Naira Dollar GBP Euro Others Total Cash and balances with central bank 517,794 382,200 5,438 1,833 Treasury bills Assets pledged as collateral Due from other banks Derivative assets Loans and advances to customers Investment securities Other ﬁnancial assets Liabilities Customer deposits Derivative liabilities Other ﬁnancial liabilities On-lending facilities Borrowings Debt securities issued 799,992 468,010 - - - - - - 9,455 239,299 2,389 22,069 57,219 - 1,357,236 614,988 116,112 1,702 56,052 - - 70 - 0 - 8,160 - - - - - 118 - 10 - - 907,265 799,992 468,010 273,331 57,219 1,980,464 117,814 56,052 3,381,870 1,238,189 7,897 32,062 128 4,660,147 2,045,413 678,688 7,457 12,967 20,805 218,373 383,034 - - - - - 418,979 332,931 - - - - - - - - - - 2,667,625 1,430,598 7,457 12,967 - - - - - - - 2,744,525 20,805 218,373 383,034 418,979 332,931 4,118,647 Net on-balance sheet position 714,245 (192,409) 440 19,095 128 541,500 The Bank’s exposure to foreign currency risk is largely concentrated in US Dollar. Movement in exchange rate between the US Dollar, and the Nigerian Naira aﬀects reported earnings through revaluation gain or loss and statement of ﬁnancial position size through increase or decrease in the revalued amounts of assets and liabilities denominated in US Dollars. The Group's closing and average Dollar rate as at 31 December, 2018 was 358.79 and 348.16 respectively. The table below shows the impact on the Bank’s proﬁt and statement of ﬁnancial position size if the exchange rate between the US Dollars, and Nigerian Naira had increased or decreased by 15% and 30%, with all other variables held constant. US Dollar eﬀect of 15% up or (down) movement on proﬁt before tax and balance sheet size US Dollar eﬀect of 30% up or (down) movement on proﬁt before tax and statement of ﬁnancial position size (in millions of Naira) 31-Dec-18 31-Dec-17 9,881 19,762 27,320 54,639 i s l a c n a n F i 143 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 3.3.4 Interest Rate Risk The Group is exposed to a considerable level of interest rate risk especially on the banking book (i.e. the risk that the future cash ﬂows of a ﬁnancial instrument will ﬂuctuate because of changes in market interest rates). Interest rate was quite volatile within the period (especially in the Nigerian environment) in various geographical regions where the Bank operates. The Group has a signiﬁcant portion of its liabilities in non-rate sensitive liabilities. This helps it in minimizing the impact of the exposure to interest rate risks. The Group also enjoys some form of ﬂexibility in adjusting both lending and deposits rates to reﬂect market realities. Group The table below summarizes the Group's interest rate gap position: In millions of Naira At December 31, 2018 Assets Cash and balances with central banks Treasury and other eligible bills (Amortized cost) Assets pledged as collateral Due from other banks Derivative assets Loans and advances to customers (Gross) Investment securities (Amortized cost and Fair value through OCI) Other ﬁnancial assets Liabilities Customer deposits Derivative liabilities Other ﬁnancial liabilities On-lending facilities Borrowings Debt securities issued Note Carrying Amount Rate sensitive Non rate sensitive 15 16 17 18 19 21 24 27 32 28 29 30 31 954,416 1,000,560 592,935 674,274 88,826 2,016,520 565,312 61,370 7,500 1,000,560 592,935 674,274 88,826 2,016,520 515,552 - 946,916 - - - - - 49,760 61,370 5,954,213 4,896,167 1,058,046 3,690,295 3,221,790 16,995 190,408 392,935 437,620 361,177 16,995 392,935 437,620 361,177 468,505 - 190,408 - - - 5,089,430 4,430,517 658,913 Total interest repricing gap 864,783 465,650 i s l a c n a n F i 144 At December 31, 2018 In millions of Naira Assets Risk management Up to 1 month 1 - 3 months 3 - 6 months 6 - 12 months Over 1 year Total rate sensitive Cash and balances with central bank 7,500 - - - Treasury bills Assets pledged as collateral Due from other banks Derivative assets Loans and advances to customers (Gross) - - 7,500 1,000,560 211,269 243,457 194,041 351,793 3,000 123,929 27,475 187,419 251,112 592,935 660,078 4,944 137,132 241 27,920 80,020 - 9,641 4,314 674,274 14,097 41,865 - 88,826 87,026 314,277 1,398,064 2,016,520 Investment securities (Amortized cost and fair value through OCI) - 659 75,012 105,389 334,492 515,552 1,023,923 476,226 397,651 1,010,384 1,987,982 4,896,167 Liabilities Customer deposits Derivative liabilities On-lending facilities Borrowings Debt securities issued 1,062,367 116,163 6,907 44,655 - - 6,682 3,277 - - 7,130 3,268 47,712 - 180,588 886 2,035,244 3,221,790 139 9,516 6,343 1,251 - 16,996 287,776 392,935 431,277 437,620 179,338 361,177 1,113,929 126,122 238,698 18,135 2,933,634 4,430,517 Total interest repricing gap (90,006) 350,104 158,953 992,249 (945,652) 465,648 At December 31, 2018 Note Carrying Amount Rate sensitive Non rate sensitive Assets Cash and balances with central banks Treasury and other eligible bills (Amortized cost) Assets pledged as collateral Due from other banks Derivative assets Loans and advances to customers (Gross) Investment securities (Amortized cost and Fair value through OCI) Other ﬁnancial assets Liabilities Customer deposits Derivative liabilities On-lending facilities Borrowings Financial liabilities Debt securities issued Total interest repricing gap 15 16 17 18 19 - 21 24 27 32 29 30 28 31 957,663 936,817 468,010 495,803 57,219 2,252,172 330,951 82,576 7,500 517,106 - 495,803 57,219 2,252,172 316,665 - 950,163 419,711 468,010 - - - 14,286 82,576 5,581,211 3,646,465 1,934,746 3,437,915 2,900,212 20,805 216,104 383,034 356,496 332,931 20,805 - 383,034 368,877 332,931 4,747,285 4,005,859 833,926 (359,394) 537,703 - 216,104 - (12,381) - 741,426 i s l a c n a n F i 145 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 At December 31, 2017 In millions of Naira Assets Cash and balances with central banks Treasury bills Due from other banks Derivative assets Loans and advances to customers (Gross) Investment securities (Amortized cost and fair value through OCI) Liabilities Customer deposits Derivative liabilities On-lending facilities Borrowings Debt securities issued Up to 1 month 1 - 3 months 3 - 6 months 6 - 12 months Over 1 year Total rate sensitive 7,500 - - - 44,655 131,555 108,013 232,883 - - 7,500 517,106 493,571 160 688 171 1,213 495,803 5,685 6,887 13,192 16,045 15,410 57,219 671,538 500 1,223,449 39,753 - 178,355 42,023 - 163,916 69,461 1,429,397 2,252,172 4,712 311,453 316,665 323,272 1,757,473 3,646,465 1,013,580 169,835 16,271 1,231 1,699,295 2,900,212 3,906 3,851 63,413 68,302 - - - - 1,716 2,360 - - 11,332 20,805 159 248,800 383,034 2,794 366,083 368,877 - 332,931 332,931 1,080,899 241,988 20,347 15,516 2,647,109 4,005,859 Total interest repricing gap 142,550 (63,633) 143,569 307,756 (889,636) (359,394) The management of interest risk against interest rate gap limits is supplemented by monitoring the sensitivity of the Group’s ﬁnancial assets and liabilities to various scenarios. Interest rate movement aﬀects reported income by causing an increase or decrease in net interest income and fair value changes. The table below shows the impact on the Group’s proﬁt before tax if interest rates on ﬁnancial instruments held at amortized cost or at fair value had increased or decreased by 300 basis points, with all other variables held constant. In millions of Naira Eﬀect of 300 basis points movement on proﬁt before tax 31-Dec-18 31-Dec-17 44,891 16,572 i s l a c n a n F i 146 Bank The table below summarizes the Bank's interest rate gap position: Risk management At December 31, 2018 In millions of Naira Assets Cash and balances with central banks Treasury and other eligible bills Assets pledged as collateral Due from other banks Derivative assets Loans and advances to customers (Gross) Investment securities (Amortized cost and Fair value through OCI) Other ﬁnancial assets Liabilities Customer deposits Derivative liabilities Other ﬁnancial liabilities On-lending facilities Borrowings Debt securities issued Total interest repricing gap At December 31, 2018 In millions of Naira Assets Cash and balances with central bank Treasury bills Assets pledged as collateral Due from other banks Derivative assets Loans and advances to customers (Gross) Note Carrying Amount Rate sensitive Non rate sensitive 15 16 17 18 19 - 21 19 27 32 28 29 30 31 902,073 817,043 592,935 393,466 88,826 1,921,064 156,673 58,406 7,500 817,043 592,935 393,466 88,826 1,921,064 106,913 - 894,573 - - - - - 49,760 58,406 4,930,486 3,927,747 1,002,739 2,821,066 2,352,561 16,995 212,006 393,295 458,463 361,177 16,995 - 393,295 458,463 361,177 4,263,002 3,582,491 667,484 345,256 468,505 - 212,006 - - - 680,511 322,228 Up to 1 month 1 - 3 months 3 - 6 months 6 - 12 months Over 1 year Total rate sensitive 7,500 - - - 182,137 195,199 155,676 284,030 - - 3,000 123,929 27,475 187,419 251,112 387,596 4,944 127,791 241 27,920 79,607 - 915 4,713 14,097 41,865 - 83,120 296,620 1,333,926 1,921,064 Investment securities (Amortized cost and fair value through OCI) - 659 11,032 48,150 47,072 106,913 712,968 427,556 291,400 858,999 1,636,824 3,927,747 Liabilities Customer deposits Derivative liabilities On-lending facilities Borrowings Debt securities issued 831,197 74,685 6,907 44,655 6,682 3,277 2,354 3,268 216 1,444,109 2,352,561 140 - 47,712 10,368 287,283 - - - - - 180,588 5,490 1,251 452,973 179,338 7,500 817,043 592,935 393,466 88,826 16,997 393,295 458,463 361,177 Total interest repricing gap (169,791) 342,912 57,478 841,534 (726,879) 345,254 882,759 84,644 233,922 17,465 2,363,703 3,582,493 i s l a c n a n F i 147 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 At December 31, 2017 In millions of Naira Assets Cash and balances with central banks Treasury and other eligible bills (Amortized cost) Assets pledged as collateral Due from other banks Derivative assets Loans and advances to customers (Gross) Investment securities (Amortized cost and Fair value through OCI) Other ﬁnancial assets Liabilities Customer deposits Financial liabilities Derivative liabilities On-lending facilities Borrowings Debt securities issued Note Carrying Amount Rate sensitive Non rate sensitive 15 16 17 18 19 - 21 24 27 13 28 32 29 30 907,265 799,993 468,009 273,331 57,219 7,500 517,106 136,438 97,160 57,219 2,117,069 2,117,069 117,814 42,752 32,266 - 899,765 282,887 331,571 176,171 - - 85,548 42,752 4,783,452 2,964,758 1,818,694 2,744,525 2,229,625 20,805 212,304 383,034 418,979 332,931 20,805 - 383,034 418,979 332,931 514,900 - 212,304 - - - 4,112,578 3,385,374 727,204 Total interest repricing gap 670,874 (420,616) 1,091,490 At December 31, 2017 In millions of Naira Assets Cash and balances with central bank Treasury bills Assets pledged as collateral Due from other banks Derivative assets Up to 1 month 1 - 3 months 3 - 6 months 6 - 12 months Over 1 year Total rate sensitive 7,500 22,050 32,709 97,160 5,144 - - - 44,399 227,187 223,470 8,149 45,802 49,778 - 7,427 - 16,045 15,411 - - - - 7,500 517,106 136,438 97,160 57,219 - 13,192 40,710 - Loans and advances to customers (Gross) 640,232 38,575 Investment securities (Amortized cost and fair value through OCI) - - 64,542 1,333,010 2,117,069 - 32,266 32,266 Liabilities Customer deposits Derivative liabilities On-lending facilities Borrowings Debt securities issued 804,795 98,550 326,891 353,835 1,380,687 2,964,758 850,077 117,790 3,389 4,368 28 2,706 1,716 821 11,332 - 1,285 380,866 849 1,258,203 2,229,625 34 119 - 98,755 107,568 115,128 97,408 - - - 332,931 20,805 383,034 418,979 332,931 Total interest repricing gap (48,824) (122,391) 214,080 225,241 (688,721) (420,616) 853,619 220,941 112,811 128,594 2,069,408 3,385,374 i s l a c n a n F i 148 Risk management The management of interest risk against interest rate gap limits is supplemented by the monitoring of the sensitivity of the Group’s ﬁnancial assets and liabilities to various scenarios. Interest rate movement aﬀects reported income by causing an increase or decrease in net interest income and fair value changes. 3.4.1 Liquidity risk management process The Group has a comprehensive liquidity risk management framework that ensures that adequate liquidity, including a cushion of unencumbered and high quality liquid assets is maintained at all times, to enable the Group withstand a range of stress events, including those that might involve loss or impairment of funding sources. The table below shows the impact on the Bank’s proﬁt before tax if interest rates on ﬁnancial instruments held at amortized cost or at fair value had increased or decreased by 300 basis points, with all other variables held constant. The Group’s liquidity risk exposure is monitored and managed by the Asset and Liability Management Committee (ALCO) on a regular basis. This process includes: a. Projecting cash ﬂows and considering the level of liquid assets necessary in relation thereto; b. Monitoring balance sheet liquidity ratios against internal In millions of Naira 31-Dec-18 31-Dec-17 and regulatory requirements; Eﬀect of 300 basis points movement on proﬁt before tax 48,184 20,887 The eﬀect of 100 basis points movement on proﬁt is considered moderate and we do not expect all the rates to move at the same time and in the same direction. This risk can largely be handled by the ﬂexibility in the changing/adjusting rates on loans and deposits. 3.3.5 Equity and commodity price risk The Group is exposed to equity price risk as a result of holding non-quoted equity investments. Unquoted equity security held by the Group is mainly 9.13% equity holding in African Finance Corporation (AFC) valued at N49.76 billion (cost N40 billion) as at 31 December, 2018. The AFC is a private sector-led investment bank and development ﬁnance institution which has the Central Bank of Nigeria (CBN) as the single major shareholder (42.5%) with other African ﬁnancial institutions and investors holding the remaining shares. The AFC operates a US Dollar-denominated statement of ﬁnancial position and provides ﬁnancing in this currency. The Group does not deal in commodities and is therefore not exposed to any commodity price risk. The sensitivity analysis of unquoted equity is stated in section 3.5 (b). 3.4 Liquidity risk Liquidity risk is the potential loss arising from the Group’s inability to meet its obligations as they fall due or its inability to fund increases in assets without incurring unacceptable cost or losses. Liquidity risk is not viewed in isolation, because ﬁnancial risks are not mutually exclusive and liquidity risk is often triggered by consequences of other bank risks such as credit, market and operational risks. c. Maintaining a diverse range of funding sources with adequate back-up facilities; d. Managing the concentration and proﬁle of debt maturities; e. Monitoring deposit concentration in order to avoid undue reliance on large individual depositors and ensure a satisfactory overall funding mix; f. Maintaining up-to-date liquidity and funding contingency plans. These plans indicators of stress identify early conditions and describe actions to be taken in the event of diﬃculties arising from systemic or other crises while minimizing any adverse long-term implications for the business; g. Regular conduct of stress testing, coupled with testing of contingency funding plans from time to time. The Maximum Cumulative Outﬂow has remained positive all through the short tenor maturity buckets. Assessments are carried out on contractual basis. These reveal very sound and robust liquidity position of the Group. The Group maintains liquid assets and marketable securities adequate, within regulatory limits, to manage liquidity stress situation. 3.4.2 Stress testing and contingency funding Stress testing The Group considers diﬀerent liquidity risk mitigation tools, including a system of limits and liquidity buﬀers in order to be able to withstand a range of diﬀerent stress events and adequately diversify funding structure and access to funding sources. Those events are regularly reviewed and monitored by the Asset and Liability Committee (ALCO). Alternative scenarios on liquidity positions and on risk mitigants are considered. In line with standard risk management practice and global best practice, the Group: (a). Conducts on a regular basis appropriate stress tests so as to; (i) Identify sources of potential liquidity strain; and i s l a c n a n F i 149 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 (ii) Ensure that current liquidity exposures continue to conform to the liquidity risk tolerance established by the board. (b). Analyses the separate and combined impact of possible i. h. outlines how the Group will manage both internal communications and those with its external stakeholders; and establishes mechanisms to ensure that the Board and Senior Management receive management. future liquidity stresses on: (i) Cash ﬂows; (ii) Liquidity position; and (iii) Proﬁtability. The Board and the Asset and Liability Committee (ALCO) regularly review the stresses and scenarios tested to ensure that their nature and severity remain appropriate and relevant to the Bank. These reviews take into the account the following; a. Changes in market condition; b. Changes in the nature, scale or complexity of the Bank's business model and activities; and The Group's practical experience in periods of stress. c. The Group considers the potential impact of idiosyncratic Institution-Speciﬁc, market-wide and combined alternative scenarios while carrying out the test to ensure that all areas are appropriately covered. In addition, the Group also considers the impact of severe stress scenarios. Contingency Funding Plan The Group maintains a contingency funding plan which sets out strategies for addressing liquidity. The Plan: a. outlines strategies, policies and plans to manage a range of stresses; b. establishes a clear allocation of roles and clear lines of c. d. e. f. g. management responsibility; is formally documented; includes clear invocation and escalation procedures; is regularly tested and the result shared with the ALCO and Board; outlines managing a huge funding run; is suﬃciently robust to withstand simultaneous disruptions in a range of payment and settlement; that Group's operational arrangements for At year end Average for the period Maximum for the period Minimum for the period i s l a c n a n F i 150 As part of the contingency funding plan process, the Group maintains committed credit lines that can be drawn in case of liquidity crises. These lines are renewed as at when due. 3.4.3 Funding approach Our sources of liquidity are regularly reviewed by both the ALCO and the Treasury Group in order to avoid undue reliance on large individual depositors and to ensure that a satisfactory overall funding mix is maintained at all times. The funding strategy is geared toward ensuring eﬀective diversiﬁcation in the sources and tenor of funding. The Group however places greater emphasis on demand deposits as against purchased funds in order to minimize the cost of funding. As part of the management of liquidity risk arising from ﬁnancial liabilities, the Group holds liquid assets comprising cash and cash equivalents, and debt securities issued by sovereigns, which can be readily sold to meet liquidity requirements. In addition, the Group maintains agreed lines of credit with other banks. (a) Exposure to liquidity risk The key measure used by the Group for managing liquidity risk is the ratio of net liquid assets to deposits from customers. For this purpose, ‘net liquid assets’ includes cash and cash equivalents and investment-grade debt securities for which there is an active and liquid market less any balances with foreign banks and regulatory restricted cash. Customers' deposit excludes deposit denominated in foreign currencies. Details of the reported Group ratio of net liquid assets to deposits from customers at the reporting date and during the reporting period were as follows. GROUP BANK 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 80.91% 69.66% 82.59% 52.15% . 88.87% 82.42% 74.63% 38.94% 75.35% 74.33% 82.10% 67.04% 51.88% 52.06% 55.49% 46.96% (b) Liquidity reserve The table sets out the component of the Group's liquidity reserve. Risk management Group In millions of Naira Cash and balances with central banks Treasury bills Balances with other banks Investment securities Assets pledged as collaterals Total Bank In millions of Naira Cash and balances with central banks Treasury bills Balances with other banks Investment securities Assets pledged as collaterals Total 31-Dec-18 31-Dec-17 Carrying value Fair value Carrying value Fair value 954,416 954,416 1,000,560 1,000,729 675,309 565,312 592,935 675,312 555,379 377,444 310,549 419,711 201,982 316,850 468,010 310,549 314,046 201,982 174,227 326,055 3,788,532 3,563,280 1,717,102 1,326,859 31-Dec-18 31-Dec-17 Carrying value Fair value Carrying value Fair value 902,073 817,043 393,466 156,673 592,935 902,073 817,181 393,466 153,920 377,444 260,180 282,886 8,733 103,713 468,010 260,180 214,046 8,733 84,227 326,055 2,862,190 2,644,084 1,123,522 893,241 (c)Financial assets available to support funding The table below sets out the availability of the Group's ﬁnancial assets to support future funding Group 31-Dec-18 31-Dec-17 In millions of Naira Cash and balances with central banks Treasury bills Assets pledged as collateral Due from other banks Loans and advances Investment securities Financial assets Note Encum- bered Unenc- umbered Total Encum- bered Unenc- umbered Total 15 705,471 248,945 954,416 647,114 310,549 957,663 16 17 18 - 21 24 - 1,000,560 1,000,560 - 936,817 592,935 - 592,935 468,010 - - - - 67,274 67,274 2,016,520 2,016,520 565,312 565,312 - - - 495,803 2,100,362 330,951 13,822 44,584 58,406 79,677 5,964 936,817 468,010 495,803 2,100,362 330,951 85,641 i s l a c n a n F i 151 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 Bank 31-Dec-18 31-Dec-17 Note Encum- bered Unenc- umbered Total Encum- bered Unenc- umbered In millions of Naira Cash and balances with central banks Treasury bills Assets pledged as collateral Due from other banks Loans and advances Investment securities Financial assets 705,471 196,602 902,073 647,114 - 817,043 817,043 - 592,935 - 592,935 468,010 - - - 393,466 393,466 1,921,064 1,921,064 156,673 156,673 - - - 15 16 17 18 - 21 24 13,822 44,584 58,406 36,788 5,964 42,752 Total 907,295 799,992 468,010 273,331 260,181 799,992 - 273,331 1,980,464 1,980,464 117,814 117,814 (d) Financial assets pledged as collateral The total ﬁnancial assets recognized in the statement of ﬁnancial position that have been pledged as collateral for liabilities as at 31 December, 2018 and 31 December, 2017 are shown above. Financial assets are pledged as collateral as part of sales and repurchases, borrowing transaction and collection agency transactions under terms that are usual for such activities. The Group does not hold any ﬁnancial assets accepted as collateral that the Group is permitted to sell or repledge in the absence of default. 3.4.4 Liquidity gap analysis The table below presents the cash ﬂows of the Group's ﬁnancial assets and liabilities and other liabilities by their remaining contractual maturities at the statement of ﬁnancial position date. The amounts disclosed in the table are the contractual undiscounted cash ﬂows, whereas the Group manages the inherent liquidity risk based on expected undiscounted cash ﬂows. The Group's loan disbursement processes are centralized and controlled by Credit Risk Management Group (CRMG) of each banking subsidiary. All loan commitments advised to customers in oﬀer letters are contingent on the satisfaction of conditions precedent to draw down and availability of funds. Additionally, the Group retains control of drawings on approved loan facilities, through a referral method, where any such drawings must be sanctioned before it is processed. This ensures that the Group's commitments on any loan is to the extent of the drawn amount at any point in time. i s l a c n a n F i 152 Group At December 31, 2018 In millions of naira Assets Non-derivative assets Cash and balances with central banks Treasury bills Assets pledged as collateral Due from other banks Loans and advances to customers Investment securities Other ﬁnancial assets Derivative assets Trading: Inﬂow Outﬂow Risk management: Liabilities Non-derivative liabilities Customer deposits Financial liabilities On-lending facilities Borrowings Debt securities issued Derivative assets Trading: Inﬂow Outﬂow Risk management Note Up to 1 month 1 - 3 months 3 - 6 months 6 - 12 months Over 1 year Carrying amount Gross nominal inflow/ (outflow) 15 16 17 18 21 24 19 27 28 29 30 31 32 248,945 - - 705,471 211,269 243,457 194,041 351,793 - - 954,416 954,416 - 1,000,560 1,000,560 3,000 123,929 27,475 187,419 251,112 660,078 241 - 9,641 4,314 592,935 674,274 592,935 674,274 344,904 80,020 87,026 314,277 1,190,292 2,016,520 2,016,520 - - 659 75,012 100,420 389,221 565,312 565,312 27,920 - 5,631 27,818 61,370 61,370 1,468,196 476,226 383,554 1,674,653 1,862,757 5,865,386 5,865,386 - - - - 4,944 27,920 14,097 41,865 - - - - - 30,454 - - 4,944 27,920 44,551 41,865 3,566,115 116,163 886 7,130 3,268 43,648 44,655 46,391 6,682 3,277 23,559 113,251 47,712 9,516 287,416 77,907 37,394 216,662 72,376 - 191,616 6,615 212,471 - - - - - - - 88,826 88,826 - - - 30,454 60,908 119,280 149,734 - 3,690,295 3,690,295 190,408 392,575 450,730 410,702 190,408 393,295 458,463 361,177 3,700,809 204,028 287,120 257,238 685,514 5,134,710 5,093,637 - - - 6,907 6,682 3,268 - - - 6,907 6,682 3,268 - 139 - 139 - - - - - 16,996 35,156 16,995 16,996 - 52,152 33,991 i s l a c n a n F i 153 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 At December 31, 2017 In millions of Naira Note Up to 1 month 1 - 3 months 3 - 6 months 6 - 12 months Over 1 year Carrying amount Gross nominal inflow/ (outflow) Assets Non-derivative assets Cash and balances with central banks Treasury bills Assets pledged as collateral Due from other banks Loans and advances to customers Investment securities Derivative assets Trading: Inﬂow Outﬂow Liabilities Non-derivative liabilities Customer deposits Financial liabilities On-lending facilities Borrowings Debt securities issued Derivative assets Trading: Inﬂow Outﬂow 15 16 17 18 20 21 19 27 28 29 30 31 306,822 - - 647,112 44,655 131,555 108,013 642,255 - - 45,246 63,239 82,995 75,549 200,982 487,668 160 688 171 1,213 953,934 926,478 468,011 489,900 957,663 936,817 468,010 495,803 671,539 39,753 42,023 69,461 1,423,541 2,246,317 2,246,316 500 4,712 325,555 330,767 330,951 1,556,430 234,707 233,719 1,439,260 1,951,291 5,415,407 5,435,560 - - - - - - 57,219 5,685 6,887 13,192 16,045 15,409 11,669 13,926 - - - 57,219 25,595 - - 17,354 20,813 13,192 16,045 15,409 82,814 57,219 3,227,703 169,835 16,271 1,219 - - - 230,857 84 - 63,413 68,302 2,360 159 248,800 - - - - - - 2,794 2,618 366,083 330,313 3,415,112 3,415,112 230,857 383,034 368,877 332,931 230,857 383,034 368,877 332,931 3,291,116 238,137 18,631 237,647 945,280 4,730,811 4,730,811 - - - - 3,906 3,851 1,716 11,332 - - 35,156 - 3,906 3,851 36,872 11,332 - - - - - 20,805 20,805 35,156 - - 55,961 20,805 i s l a c n a n F i 154 Bank At December 31, 2018 In millions of Naira Assets Non-derivative assets Cash and balances with central banks Treasury bills Assets pledged as collateral Due from other banks Loans and advances to customers Investment securities Other ﬁnancial assets Derivative assets Trading: Inﬂow Outﬂow Liabilities Non-derivative liabilities Customer deposits Financial liabilities On-lending facilities Borrowings Debt securities issued Derivative assets Trading: Inﬂow Outﬂow Risk management Note Up to 1 month 1 - 3 months 3 - 6 months 6 - 12 months Over 1 year Carrying amount Gross nominal inflow/ (outflow) 15 16 17 18 20 21 24 19 27 28 29 30 31 196,602 - - 705,471 182,137 195,199 155,676 284,031 - - 902,073 902,073 817,043 817,043 3,000 123,929 27,475 187,419 251,112 592,935 592,935 387,596 241 - 916 4,713 393,466 393,466 312,789 79,607 83,120 296,620 1,148,928 1,921,064 1,921,064 - 659 11,032 48,150 96,832 156,673 156,673 6,283 - - 15,712 36,411 58,406 58,406 1,088,407 399,635 277,303 1,538,319 1,537,996 4,841,660 4,841,660 - - - - 4,944 27,920 14,097 41,865 - - - - 4,944 27,920 14,097 41,865 - - - - - 88,826 88,826 - - - 88,826 88,826 2,743,812 74,685 2,354 3,268 216 - 2,821,066 2,821,066 101,254 84,998 212,006 212,006 47,712 10,368 287,283 393,295 393,295 6,682 3,277 88,443 37,394 216,662 74,248 463,138 393,295 - 191,616 6,615 212,471 410,702 361,177 15,804 44,655 46,391 2,850,662 173,087 282,344 335,115 659,000 4,300,207 4,180,839 - - - 6,907 6,682 3,268 - - - 6,907 6,682 3,268 - 139 - 139 - - - 16,995 16,996 35,156 52,152 16,995 i s l a c n a n F i 155 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 Bank At December 31, 2017 Note In millions of Naira Up to 1 month 1 - 3 months 3 - 6 months 6 - 12 months Over 1 year Carrying amount Gross nominal inflow/ (outflow) Assets Non-derivative assets Cash and balances with central bank Treasury bills Assets pledged as collateral Due from other banks Loans and advances to customers Investment securities Other ﬁnancial assets Derivative assets Trading: Inﬂow Outﬂow Liabilities Non-derivative assets Customer deposits Derivative liabilities On-lending facilities Borrowings Debt securities issued Derivative liabilities Trading: Inﬂow Outﬂow Risk management: Outﬂow Inﬂow 15 16 17 18 20 21 24 19 27 28 29 30 31 32 260,180 29,046 57,915 273,331 - - 647,085 93,640 317,228 427,562 - - 907,265 907,265 867,476 799,992 64,662 89,462 96,869 621,959 930,867 468,010 - - - - 273,331 273,331 640,232 38,575 40,710 64,543 1,333,010 2,117,069 2,117,069 2,396 5,398 4,038 9,874 212,755 234,461 117,814 36,139 - - - 6,613 42,752 34,003 1,299,239 202,275 451,438 1,245,933 2,174,337 5,373,221 4,717,484 - - - - - - 57,219 5,685 6,887 13,192 16,045 15,409 11,669 13,926 - - - 57,219 25,595 - - 17,354 20,813 13,192 16,045 15,409 82,814 57,219 2,623,192 117,790 2,706 837 - - - 11,930 - - 2,744,525 2,744,525 11,930 11,930 63,413 68,302 2,360 159 248,800 383,034 383,034 2,769 111,047 113,937 129,155 81,869 438,777 418,979 - - - 2,618 330,313 332,931 332,931 2,689,374 297,139 119,003 144,699 660,982 3,911,197 3,891,399 - - 3,906 3,851 - - - - - - - - - 1,716 35,156 - - - - 11,332 - - - - 3,906 3,851 36,872 11,332 - - - - - - - - 20,805 20,805 35,156 - - - - - - - - 55,961 20,805 i s l a c n a n F i 156 Risk management Type of financial instrument Basis on which amounts compiled Non-derivative ﬁnancial liabilities and ﬁnancial assets Issued ﬁnancial guarantee contracts Undiscounted cash ﬂows, which include estimated interest payments. Earliest possible contractual maturity. For issued ﬁnancial guarantee contracts, the maximum amount of the guarantee is allocated to the earliest period in which the guarantee could be called. Derivative ﬁnancial liabilities and ﬁnancial assets held for risk management purposes Contractual undiscounted cash ﬂows. The amounts shown are the gross nominal inﬂows and outﬂows for derivatives that have simultaneous gross settlement (e.g. forward exchange contracts and currency swaps) and the net amounts for derivatives that are net settled. Trading derivative liabilities and assets forming part of trading the Group’s proprietary operations that are expected to be closed out before contractual maturity Trading derivative liabilities and assets that are entered into by the Group with its customers Fair values at the date of the statement of ﬁnancial position. This is because contractual maturities do not reﬂect the liquidity risk exposure arising from these positions. These fair values are disclosed in the ‘less than one month’ column. Contractual undiscounted cash ﬂows. This is because these instruments are not usually closed out before contractual maturity and so the Group believes that contractual maturities are essential for understanding the timing of cash ﬂows associated with these derivative positions. The Group’s expected cash ﬂows on some ﬁnancial assets and ﬁnancial liabilities vary signiﬁcantly from the contractual cash ﬂows. The principal diﬀerence is on demand deposits from customers which are expected to remain stable or increase. As part of the management of liquidity risk arising from ﬁnancial liabilities, the Group holds liquid assets comprising cash and cash equivalents, and debt securities issued by sovereigns, which can be readily sold to meet liquidity requirements. In addition, the Group maintains agreed lines of credit with other banks and holds unencumbered assets that are eligible for use as collateral with central banks (these amounts are referred to as the ‘Group’s liquidity reserves’). Residual contractual maturities of off-balance sheet exposures. Group At December 31, 2018 In millions of Naira Financial guarantees Usance Letters of Credit Performance bonds and Guarantees Total Bank At December 31, 2018 In millions of Naira Financial guarantees Usance Letters of Credit Performance bonds and Guarantees Total Carrying amount Less than 3 months 3 -6 months 6 - 12 months 1 to 5 Years More than 5 years 147,189 356,939 327,123 100,638 44,422 203,327 142,873 71,251 45,981 2,129 10,714 48,998 831,251 375,216 233,276 61,841 - 25 100,028 100,053 - - 60,865 60,865 Carrying amount Less than 3 months 3 -6 months 6 - 12 months 1 to 5 Years More than 5 years 147,189 321,754 306,412 775,355 100,638 44,422 180,202 133,813 2,129 7,731 68,040 40,855 42,763 348,880 219,090 52,623 - 8 100,028 100,036 - - 54,726 54,726 i s l a c n a n F i 157 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 3.5 Fair value of financial assets and liabilities IFRS 7 speciﬁes a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reﬂect market data obtained from independent sources; unobservable inputs reﬂect the Group's market assumptions. These two types of inputs have created the following fair value hierarchy. Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. a. b. Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs). c. This hierarchy requires the use of observable market data when available. The Group considers relevant and observable market prices in its valuations where possible. Classification of financial assets and liabilities and fair value hierarchy Group In millions of Naira Assets Carried at FVTPL: Treasury bills Investment securities (FGN bonds) Derivative assets Asset pledged as collateral Carried at FVOCI : At 31 December, 2018 At 31 December, 2017 Note Carrying Value Fair value Fair value hierarchy Carrying Value Fair value Fair value hierarchy Value 510,313 510,313 1&2 547,656 547,656 16 21 19 4,970 4,970 88,826 88,826 208,382 208,382 Investment securities (unquoted) 21 49,760 49,760 Carried at amortized cost: Cash and balances with central banks Treasury bills Assets pledged as collateral Due from other banks Loans and advances to customers Investment securities Other ﬁnancial assets Liabilities Carried at FVTPL Derivative liabilities Carried at FVTPL Customer deposits Other ﬁnancial liabilities On-lending facilities Borrowings Debt securities issued 15 16 17 18 20 21 24 954,416 490,247 954,416 490,424 592,935 585,826 674,274 675,312 1,823,111 1,728,567 510,582 496,543 61,370 61,370 32 16,995 16,995 27 28 29 30 31 3,690,295 3,690,295 177,810 190,408 393,295 393,295 437,260 437,260 361,177 361,177 i s l a c n a n F i 158 1 2 - 3 - 1 1 2 3 1 - 2 - - 3 3 2 32,266 32,266 57,219 57,219 - - 14,101 14,101 957,663 679,915 389,161 314,046 468,010 326,055 495,803 495,803 2,252,172 1,546,337 284,584 174,227 77,328 28,388 20,805 20,805 3,437,915 2,935,105 225,646 158,160 383,034 339,995 356,496 335,504 332,931 251,961 1 1 2 - 3 - 1 1 2 3 1 - 2 - - 3 3 2 Risk management Bank The table below sets out the Bank's classiﬁcation of each class of its ﬁnancial assets and liabilities. In millions of Naira Note At 31 December, 2018 At 31 December, 2017 Carrying Value Fair value Fair value hierarchy Carrying Value Fair value Fair value hierarchy Assets Carried at FVTPL: Treasury bills Investment securities (FGN bonds) Derivative assets Asset pledged as collateral Carried at FVOCI : Investment securities (unquoted) Carried at amortized cost: Cash and balances with central banks Treasury bills Assets pledged as collateral Due from other banks Loans and advances to customers Investment securities Other ﬁnancial assets Liabilities Carried at FVTPL Derivative liabilities Carried at FVTPL Customer deposits Other ﬁnancial liabilities On-lending facilities Borrowings Debt securities issued 16 21 19 21 15 16 17 18 20 21 24 32 27 28 29 30 31 510,313 510,313 1&2 547,656 547,656 4,970 4,970 88,826 88,826 208,382 208,382 49,760 49,760 902,073 902,073 306,730 306,868 592,935 585,826 393,466 393,466 1,736,066 1,638,254 102,508 99,190 58,406 58,406 16,995 16,995 2,821,066 2,821,066 212,006 212,006 393,295 393,295 458,463 458,463 361,177 361,177 1 2 - 3 - 1 1 - 3 1 - 2 - - 3 3 2 32,266 32,266 57,219 57,219 - - 14,101 14,101 907,265 907,265 282,886 246,210 468,010 407,334 273,331 273,331 2,117,069 1,449,107 71,447 72,748 42,752 40,546 20,805 20,805 2,744,525 2,481,971 221,846 168,830 383,034 339,995 418,979 335,504 332,931 251,961 1 1 2 - 3 - 1 1 - 3 1 - 2 - - 3 3 2 Where available, the fair value of loans and advances is based on observable market transactions. Where observable market transactions are not available, fair value is estimated using valuation models, such as discounted cash ﬂow techniques. Input into the valuation techniques includes expected lifetime credit losses, interest rates, prepayment rates and primary origination or secondary market spreads. For collateral – dependent impaired loans, the fair value is measured based on the value of the underlying collateral. The fair value of deposits from banks and customers is estimated using discounted cash ﬂow techniques, applying the rates that are oﬀered for deposits of similar maturities and terms. The fair value of deposits payable on demand is the amount payable at the reporting date. i s l a c n a n F i 159 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 Financial instruments measured at fair value At 31 December, 2018 In millions of Naira Financial assets Treasury bills (FVTPL) (unpledged) Treasury bills pledged under repurchase agreement (FVTPL) FGN bonds FVTPL (unpledged) Bonds pledged under repurchase agreement (FVTPL) Derivative assets Derivative liabilities Investment securities (Unquoted) Reconciliation of Level 3 items At 1 January Addition Gain recognised through other comprehensive income At 31 December, 2018 At 31 December, 2017 In millions of Naira Financial assets Treasury bills (FVTPL) Investment securities (FVTPL)-FGN bonds Derivative assets Derivative liabilities Investment securities -Unquoted Reconciliation of Level 3 items At 1 January Gains/(losses) recognised through other comprehensive income At 31 December, 2017 At 31 December, 2018 Note Level1 Level2 Level3 16 16 21 21 19 32 21 362,639 179,259 4,970 23,570 - - - 147,674 553 - - 88,826 16,995 - - - - - - - 49,760 570,438 254,048 49,760 14,101 34,200 1,459 49,760 At 31 December, 2018 Note Level1 Level2 Level3 16 21 19 32 21 547,656 32,266 - - - - - 57,219 20,805 - - - - - 14,101 579,922 78,024 14,101 16,652 (2,551) 14,101 i s l a c n a n F i 160 Risk management 3. Risk management (continued) Level 3 fair value measurements (a) Unobservable inputs used in measuring fair value The table below sets out information about signiﬁcant unobservable inputs used at 31 December, 2018 and 31 December, 2017 in measuring ﬁnancial instruments categorized as level 3 in the fair value hierarchy Fair values at 31 December, 2018 N49.76 billion Type of financial instrument Unquoted equity investment Valuation technique Significant unobservable input Range of estimates (average) for unobservable inputs Equity DCF model. -Discount rate. -Estimate cash ﬂow. Risk premium of 11.50 -12.50% above risk-free interest rate (3.01%) (31 Dec. 2017:14.08- 15.08% (14.58%) above risk free rate (2.38%)) 5-year Compound Annual Growth Rate (CAGR) of cash ﬂow of 8-9% (15.20%) (December 2017: 16- 17% (16.96%)) Fair value measurement sensitivity to unobservable inputs A signiﬁcant increase in the risk premium above the risk rate would result in a lower fair value. A signiﬁcant increase in the CAGR of cash ﬂow would result in a higher fair value Risk premium is determined by adding country risk premium to the product of market premium and equity beta. (b) The effect of unobservable inputs on fair value measurements Although the Group believes that its estimates of fair value are appropriate, the use of diﬀerent methodologies or assumptions could lead to diﬀerent measurements of fair value. For fair value measurement in Level 3, changing one or more of the assumptions would have the following eﬀects. Eﬀect on OCI In millions of Naira At 31 December, 2018 At 31 December, 2017 Favourable changes Unfavourable changes Favourable changes Unfavourable changes Unquoted investment securities 2,140.00 (870.00) 0.92 (0.40) The favourable and unfavourable eﬀects of using reasonably possible alternative assumptions for valuation of unquoted equity securities have been calculated by recalibrating the model values using unobservable inputs based on upper and lower quartile respectively of the Group’s range of possible estimates. Key inputs and assumptions used in the model at 31 December, 2018 included a risk premium 13.44% above the risk-free interest rate of 3.01% (with reasonably possible alternative assumptions of 12.44% and 13.44%) (31 December, 2017: 12.00% - 12.30% (12.09%) respectively above risk free rate of 2.38%). The fair value of the unquoted equity holding in African Finance Corporation (AFC) is determined using equity discounted cash ﬂow model. Inputs into the model include estimated future cash ﬂows to equity, valuation horizon and Capital Asset Pricing Model (CAPM) discount rate (Risk free rate plus risk premium). i s l a c n a n F i 161 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 (c) Fair valuation methods and assumptions (i) Cash and balances with central banks Cash and balances with Central banks represent cash held (including mandatory cash reserve requirements of 31 December, 2018: N705 billion, 31 December, 2017: N647 billion) with Central banks of the various jurisdictions in which the Group operates. The fair value of these balances is their carrying amounts. (ii) Due from other banks Due from other banks represents balances with local and correspondence banks, inter-bank placements and items in the course of collection. The fair value of the current account balances, ﬂoating placements and overnight deposits are their carrying amounts. (iii) Treasury bills and investment securities Treasury bills represent short term instruments issued by the Central banks of the jurisdiction where the Group has operations. The fair value of treasury bills and bonds at fair value through proﬁt or loss are determined with reference to quoted prices (unadjusted) in active markets for identical assets. The estimated fair value of treasury bills and bonds at amortized cost represents the discounted amount of estimated future cash ﬂows expected to be received. Expected cash ﬂows are discounted at current market rates to determine fair value. The fair values of quoted equity securities are determined by reference to quoted prices (unadjusted) in active markets for identical instruments. The fair value of the unquoted equity holding in AFC is determined on the basis of the discounted cashﬂow methodology which takes into account the discounted stream of estimated future income and free cashﬂows of the investment. Subsequently, the percentage holding of the Bank is then applied on the derived company value. (iv) Loans and advances to customers Loans and advances are carried at amortized cost net of provision for impairment. The estimated fair value of loans and advances represents the discounted amount of estimated future cash ﬂows expected to be received. Expected cash ﬂows are discounted at current market rates to determine fair value. (v) Other financial assets/financial liabilities Other ﬁnancial assets/ﬁnancial liabilities represent monetary assets, which usually have a short recycle period and as such, whose fair values approximate their carrying amount. (vi) Customer deposits and borrowings The estimated fair value of deposits with no stated maturity, which includes non-interest-bearing deposits, is the amount repayable on demand. The estimated fair values of ﬁxed interest-bearing deposits and borrowings are determined using a discounted cash ﬂow model based on a current yield curve appropriate for the remaining term to maturity. (vii) Derivatives The Group uses widely recognised valuation models for determining the fair value of common and simple ﬁnancial instruments, such as interest rate and currency swaps that use only observable market data and require little management judgement and estimation. Observable prices or model inputs are usually available in the market for listed debt and equity securities, exchange-traded derivatives and simple OTC derivatives such as interest rate swaps. Availability of observable market prices and model inputs reduces the need for management judgement and estimation and also reduces the uncertainty associated with determining fair values. Availability of observable markets prices and inputs varies depending on the products and markets and is prone to changes based on speciﬁc events and general conditions in the ﬁnancial markets. 3.6 Capital management The strategy for assessing and managing the impact of our business plans on present and future regulatory capital forms an integral part of the Group’s strategic plan. Speciﬁcally, the Group considers how the present and future capital requirements will be managed and met against projected capital requirements. This is based on the Group's assessment and against the supervisory/regulatory capital requirements taking account of the Group business strategy and value creation to all its stakeholders. The Group prides itself in maintaining very healthy capital adequacy ratio in all its areas of operations. Capital levels are determined either based on internal assessments or regulatory requirements. The Group maintained capital levels above the i s l a c n a n F i 162 regulatory minimum prescribed in all its operating jurisdictions. The adoption of IFR9 with eﬀect from January 2018 impacted the capital adequacy ratio (CAR) due the resultant additional impairment charge. However, the impact did not reduce the CAR below both our Internal Guidance and Regulatory Limit. This impact is however moderated with the introduction of a relieve-based Transitional Arrangements for treatment of expected Credit Loss by the Central Bank. This is meant to spread the IFR9 Impact over a four (4) year period ending 31 December 2020. The Group's Capital Adequacy is reviewed regularly to meet regulatory requirements and standard of international best practices. The Group adopts and implements the decisions necessary to maintain the capital at a level that ensures the realisation of the business plan with a certain safety margin. The Group undertakes a regular monitoring of capital adequacy and the application of regulatory capital by deploying internal systems based on the guidelines provided by the Central Bank of Nigeria (CBN) and the regulatory authorities of the subsidiaries for supervisory purposes. b. c. The Group has consistently met and surpassed the minimum capital adequacy requirements applicable in all areas of operations. Most of the Group's capital is Tier 1 (Core Capital) which consists of essentially share capital and reserves created by appropriations of retained earnings. Banking subsidiaries in the Group, which are not incorporated in Nigeria, are directly regulated and supervised by their local banking regulators and are required to meet the capital requirement directive of the local regulatory jurisdiction. Parental support and guidance are given at the Group level at which the risk level in relation to capital level and adequacy is closely monitored. The Group meet all capital requests from these regulatory jurisdictions and determines the adequacy based on internal capital assessments. The Group’s capital plan is linked to its business expansion strategy, which anticipates the need for growth and expansion in its branch network and IT infrastructure. The capital plan suﬃciently meets regulatory requirements as well as providing its expansion strategies and Risk management adequate cover for the Group’s risk proﬁle. The Group's capital adequacy remains strong and the capacity to generate and retain reserves continues to grow. The Group will only seek additional capital where it ﬁnds compelling business need for it and with the expectation that the returns would adequately match the eﬀorts and risks undertaken. The following sources of funds are available to the Group to meet its capital growth requirements: a. Proﬁt from Operations: The Group has consistently reported good proﬁt, which can easily be retained to support the capital base. Issue of Shares: The Group has successfully assessed the capital market to raise equity, and more recently the Group raised US $500 million Eurobond. With such experiences, the Group is conﬁdent that it can access the capital market when the need arises. Bank Loans (long term/short term): In 2014 ﬁnancial year, Zenith Bank commenced capital computations in accordance with Basel II standard under the guidelines issued by the Central Bank of Nigeria. The guidelines require capital adequacy computations based on the Standardized Measurement Approach for Credit Risk and Market Risk while Basic Indicator Measurement Approach was advised for Operational Risk. The capital requirement for the Bank has been set at 15% and an addition of 1% as a Systemically Important Bank (SIB) in accordance with the guidelines. The table below shows the computation of the Group's capital adequacy ratio for the year ended 31 December 2018 as well as the 31 December, 2017 comparatives. During those two periods, the individual entities within the Group complied with all of the externally imposed capital requirements to which they are subject. The Group and Bank's capital adequacy ratio are above the minimum statutory requirement. i s l a c n a n F i 163 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 Adjusted impact of IFRS 9 transition on 31-Dec-18 Group Adjusted Day-one impact of IFRS 9 transition on 01-Jan-18 31-Dec- 17 31-Dec- 18 31-Dec- 17 Bank Adjusted impact of IFRS 9 transition on 31-Dec-18 Adjusted Day-one impact of IFRS 9 transition on 01-Jan-18 Basel II 15,698 Basel II 15,698 Basel II 15,698 Basel II 15,698 Basel II 15,698 Basel II 15,698 Base II 15,698 255,047 255,047 255,047 255,047 255,047 255,047 255,047 143,320 135,686 135,686 127,865 127,865 127,8655 127,865 3,729 3,729 3,729 3,729 346,215 257,642 365,757 263,781 828,910 (9,513) 754,295 775,917 666,120 (9,561) (9,561) (9,197) 3,729 263,781 62,129 728,249 (9,197) 3,729 3,729 193,237 296,787 82,840 - 678,416 699,126 (9,197) (9,197) (16,678) (12,989) (12,989) (15,399) (15,399) (12,088) (12,088) 802,719 731,745 753,367 641,524 703,653 657,131 677,841 In millions of Naira 31-Dec- 18 Tier 1 capital Share capital Share premium Statutory reserves SMEIES reserve Retained earnings Basel II 15,698 255,047 143,320 3,729 346,215 764,009 (9,513) (16,678) 737,818 Total qualifying Tier 1 capital Deferred tax assets Intangible assets Adjusted Total qualifying Tier 1 capital Tier 2 capital Other comprehensive income (OCI) IFRS 9 Transitional Adjustment - 64,901 886,493 - - 48,354 48,354 42,082 42,082 (9,858) (9,858) (8,399)) (8,399) Total qualifying Tier 2 capital 48,354 48,354 42,082 42,082 (9,858) (9,858) (8,399) (8,399) Net Tier 2 Capital 48,354 48,354 42,082 42,082 - - - - Total regulatory capital 786,172 851,073 77773,827 795,449 641,524 703,653 657,131 677,841 Risk-weighted assets Credit risk Market risk Operational risk 2,050,298 2,050,298 2,306,892 2,306,892 1,755,076 1,755,076 2,066,961 2,066,961 88,914 945,361 88,914 84,690 84,690 53,562 53,562 62,956 62,956 945,361 595,934 595,934 881,691 881,691 540,331 540,331 Total risk-weighted assets 3,084,573 3,084,573 2,987,516 2,987,516 2,690,329 2,690,329 2,670,248 2,670,248 Risk-weighted Capital Adequacy Ratio (CAR) 25% 28 % 26 % 27% 24% 26% 25% 25% The adjusted day-1 capital adequacy computed reﬂect reliefs given by the CBN for Banks to account for the IFRS 9 adjustment to capital as follows: Percentage of IFRS 9 adjustment Year 1 60% Year 2 40% Year 3 20% Year 4 -% i s l a c n a n F i 164 Risk management 3.7 Operational risk Operational Risk is the risk of loss resulting from inadequate and /or failed internal processes, people and systems or from external events, including legal risk and any other risks that is deemed ﬁt on an ongoing basis but exclude reputation and strategic risks. Operational risk exists in all products and business activities. The Group has a broad Operational Risk management framework which deﬁnes the set of activities designed to proactively identify, assess and manage all operational risk components by aligning the people, technology and processes with best risk management practices towards enhancing stake holders' value and sustaining industry leadership. Operational risk objectives include the following: a. To provide clear and consistent direction in all operations of the group; b. To provide a standardised framework and appropriate guidelines for creating and managing all operational risk exposures; and c. To enable the group identify and analyse events (both internal and external) that impact on its business. The Operational Risk unit constantly conducts reviews to identify and assess the operational risk inherent in all material products, activities, processes and systems. It also ensures that all business units within the Bank monitor their operational risks using set standards and indicators. Signiﬁcant issues and exceptions are reported to Risk Management and are also identiﬁed by the independent risk function for discussion at the risk management committee. Disaster recovery procedures, business continuity planning, self- compliance assurance and internal audit also form an integral part of our operational risk management process. The Bank uses the following tools and methodologies in the implementation of its Operational Risk Management. Risk and Control Self-Assessment (RCSA) This is the process whereby risks that are inherent in Business Units strategies, objectives and activities are identiﬁed and the eﬀectiveness of the controls over those risks evaluated and monitored bank wide. The Risk and Control Self-Assessment It process address incorporates the process for evaluating and managing all aspects of risk that is inherent in how and where the business is done. risks and controls comprehensively. Key Risk Indicators (KRI) - Key Risk Indicator is measures which indicate the risk proﬁle of the bank and any change thereof. KRIs act as early warning indicators and are used to monitor and predict potential operational loss events. KRIs are used in conjunction with system of thresholds. When the threshold or tolerance level for any KRI is breached, it triggers review, escalation or management action. Risk indicators help keep the operational risk management dynamic and risk proﬁle current. Loss Incident Reporting – Loss incidents are reported by all business units using the Loss incident reporting template. The discipline of collecting loss data is not only needed to understand the dimensions of risk the Bank faces but also used to motivate staﬀ to consider and more actively control key elements of risk. The Bank-wide data collection promotes a dialogue within the Bank about determining the major operational risk exposures and reinforces more qualitative eﬀorts to manage operational risk within each of the business lines. Operational Risk Capital Computation – The Bank, based on Central Bank of Nigeria guideline, adopted basic indicator approach (BIA) in the calculation of its Operational Risk Capital adequacy. The estimated operational Risk Capital Charge is reported to the Board and management for capital planning and decision making. Business Continuity Management (BCM) In line with ISO 22301 Standards, the Bank has a robust documented Business Continuity Plan. The primary objective of this plan is to protect the bank in the event of an undesired i s l a c n a n F i 165 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 event in the form of ﬁre outbreak, ﬂood, theft or robbery, thunderstorm, unexpected breakdown of systems, networks, equipment, etc or any other form of disaster. This plan ensures that the bank recover from disasters resulting in the partial or total loss of IT infrastructure and applications to normal business operations, in a timely, eﬀective and eﬃcient manner. The business continuity test is conducted at least once in a year The process is driven at a committee level but ably championed by the Risk Management Group. Operational Risk Reporting Periodic Operational Risk report highlighting key Operational risk identiﬁed are rendered to the Board, Management and other relevant stakeholders for awareness and prompt implementation of mitigation plans. timely Operational Risk For Identiﬁcation, Assessment, treatment and Monitoring, the Bank has acquired SAP-GRC solution and implementation has reached an advance stage, this will ensure prompt data collation/analysis, escalation and reporting of key Operational Risk events There was no signiﬁcant ﬁnancial loss resulting from operational risk incidence during the period across the group. However major security concerns in the country still border around the Boko haram and herdsmen insurgencies. Steps are being taken to ensure stability in those conﬂict inﬂicted areas. 3.8 Strategic risk Strategic risk is a possible source of loss that might arise from the pursuit of an unsuccessful business plan. Strategic risk examines the impact of design and implementation of business models and decisions on earnings and capital as well as the organisation's responsiveness to industry changes. Processes and procedures have been established to ensure that the right models are employed and appropriately communicated to all decision makers in the Group on issues relating to strategic risk management. This has essentially driven the Group’s sound banking culture and performance record to date. 3.9 Legal risk Legal risk is deﬁned as the risk of loss due to defective contractual arrangements, legal liability (both criminal and civil) incurred during operations by the inability of the organisation to enforce its rights, or by failure to address identiﬁed concerns to the appropriate authorities where changes in the law are proposed. The Group manages this risk by monitoring new legislation, creating awareness of legislation among employees, identifying signiﬁcant legal risks as well as assessing the potential impact of these. Legal risks management in the Group is also being enhanced by appropriate product risk review and management of contractual obligations via well documented Service Level Agreements and other contractual documents. 3.10 Reputational risk Reputational risk is deﬁned as the risk of indirect losses arising from a decline in the bank’s reputation among one or multiple bank stakeholders. The risk can expose the Group to litigation, ﬁnancial loss or damage to its reputation. The Group's reputation risk management philosophy involves anticipating, acknowledging and responding to changing values and behaviours on the part of a range of stakeholders. Accordingly, the following are the roles and responsibilities: a. b. c. Board and senior management oversee the proper set- up and eﬀective functioning of the reputational risk management framework; Enterprise Risk Management Policy/Strategy (ERSP) is responsible for supporting the Board and senior management in overseeing the implementation of reputational risk management framework; and Corporate Communications is responsible for managing both the internal and external communications that may impact the reputation of the Bank. i s l a c n a n F i 166 The process of reputation risk management within the Bank encompasses the following steps: a. Identiﬁcation: Recognizing potential reputational risk as a primary and consequential risk; Assessment: Conducting qualitative assessment of reputational risk based on the potential events that have been identiﬁed as reputational risk; Monitoring: Undertaking frequent monitoring of the reputational risk drivers; Mitigation and Control: Establishing preventive measures and controls for management of reputational risk and tracking mitigation actions; Independent reputational review: Subjecting risk measures and mitigation techniques to regular independent review by internal auditors and/or external auditors; and Reporting: Generating regular, action-oriented reports for management review. the b. c. d. e. f. 4Critical accounting estimate and judgements The Group makes estimates and assumptions that aﬀect the reported amounts of assets and liabilities within the next judgements are continually ﬁnancial year. Estimates and evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. 4.1 Impairment losses on loans and advances 4.1 Policy before 1 January 2018 (a) Determination of default prior to the measurement of expected credit loss The Group considers an objective evidence of default for the purpose of determining its stage classiﬁcation of impairment. It considers all default event terms no matter if it is obligatory or facultative to constitute objective evidence of impairment in accordance to IFRS 9. Taxation risk 3.11 Taxation risk refers to the risk that new taxation laws will adversely aﬀect the Group and/or the loss as a result of noncompliance with tax laws. All ﬁnancial assets with objective evidence of impairment will be further referred to as defaulted (or in default status). Exposure is considered defaulted, if the obligatory payments on the exposure have been passed due for at least 90 days. The taxation risk is managed by monitoring applicable tax laws, maintaining operational policies that enable the Group to comply with taxation laws and, where required, seeking the advice of tax specialists. 3.12 Regulatory risk The Group manages the regulatory risk to which it is potentially exposed by monitoring new regulatory rules and applicable laws, and identifying signiﬁcant regulatory risks. The Group strives to maintain appropriate procedures, processes and policies that enable it to comply with applicable regulation. The Group maintains zero tolerance posture for any regulatory breach in all its area of operations. An exposure is considered to be individually signiﬁcant if the total amount exceeds a signiﬁcance threshold expressed in percentage as of reporting date. Signiﬁcance thresholds are established and reviewed at regular intervals. Signiﬁcant threshold can be determined separately for each risk portfolio or for groups of porfolios. However exposures considered by the Group as having speciﬁc risk, are deemed as individually signiﬁcant exposures and have to be assessed individually. An exposure is comprised of the following components as at the reporting date: i) ii) iii) iv) Overdue principal receivable Undue principal receivable Overdue contract interest receivable Undue accrued interest i s l a c n a n F i 167 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 v) vi) vii) Other outstanding exposure Unconditional and conditional oﬀ-balance sheet exposure, in particular available limit Unamortized discount or premium. 4.1 Policy from 1 January 2018 loss Measurement of the expected credit (b) allowance for financial assets. The measurement of the expected credit loss allowance for ﬁnancial assets measured at amortised cost and FVOCI is an area that requires the use of complex models and signiﬁcant assumptions about future economic conditions and credit behaviour (e.g. the likelihood of customers defaulting and the resulting losses). Explanation of the inputs, assumptions and estimation techniques used in measuring ECL is further detailed in note 3.2.9 to 3.2.18. A number of signiﬁcant judgements are also required in applying the accounting requirements for measuring ECL, such as: • • • • • • Determining criteria for signiﬁcant increase in credit risk; Determining the credit risk grades; Generating the term structure of the probability of default; Determining whether credit risk has increased signiﬁcantly; Incorporation of forward-looking information; Establishing groups of similar ﬁnancial assets for the purposes of measuring ECL. Detailed information about the judgements and estimates made by the Group in the above areas is set out in note 3.2.10 to 3.2.18. Determining fair values 4.2 The determination of fair value for ﬁnancial assets and liabilities for which there is no observable market prices requires the use of valuation techniques as described in note 3.3.5(a). For ﬁnancial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgment depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks aﬀecting the speciﬁc instrument. The Group measures fair values using the following fair value hierarchy that reﬂects the signiﬁcance of the inputs used in making the measurements. i) Level 1 : Quoted market price (unadjusted) in an active market for an identical instrument. ii) Level 2 : Valuation techniques based on observable inputs, either directly - i.e, as prices - or indirectly - i.e derived from prices. This category includes instruments such as forward contracts, swaps etc. valued using; quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques where all signiﬁcant inputs are directly or indirectly observable from market data. iii) Level 3 : Valuation techniques using signiﬁcant unobservable inputs. This category instruments where the includes all valuation technique includes inputs not based on observable data and the unobservable inputs have a signiﬁcant eﬀect on the instrument's valuation. This category includes instrument that are valued based on quoted prices for similar instruments where signiﬁcant unobservable adjustments or assumptions are requried to reﬂect diﬀerences between the instruments. Income taxes 4.3 The Group is subject to income taxes in numerous jurisdictions. Signiﬁcant estimates are required in determining the groupwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the ﬁnal tax outcome of these matters is diﬀerent from the amounts that were initially recorded, such diﬀerences will impact the income tax and deferred tax provisions in the period in which such determination is made. i s l a c n a n F i 168 Critical accounting estimate and judgements 4.4 Prudential Adjustments Provisions under prudential guidelines are determined using the time-based provisioning speciﬁed by the revised Prudential Guidelines issued by the Central Bank of Nigeria. This is at variance with the expected credit loss (ECL) model required under IFRS 9. As a result of the diﬀerences in the methodology/ provision, there will be variances in the impairments allowances required under the two methodologies. (i) (ii) is greater than Where Prudential Provisions IFRS provisions, the resulting diﬀerence should be transferred from the general reserve account to a non-distributable regulatory credit risk reserve. Where Prudential Provisions is less than IFRS provisions, the is charged to the statement of comprehensive income. The cumulative balance in the regulatory risk reserve is thereafter transferred to the general reserve account. IFRS determined provision Paragraph 12.4 of the revised Prudential Guidelines for Deposit Money Banks in Nigeria stipulates that Banks would be required to make provisions for loans as prescribed in the relevant IFRS when IFRS is adopted. However, Banks would be required to comply with the following: (a) Expenses for loan losses recognised in the proﬁt and loss account should be determined based on the relevant IFRS. However, the allowance for loan losses determined under the IFRS should be compared with the loan loss provisions determined under the Prudential Guidelines. The diﬀerences between both provisions should be treated as follows: (b) The non-distributable reserve is classiﬁed under Tier 1 as part of the core capital for the purpose of determining capital adequacy. In the guidelines to IFRS implementation, the Central Bank of Nigeria (CBN) directed banks to maintain a regulatory credit risk reserve in the event that the impairment on loans determine using the CBN prudential guideline is higher than the impairment determined using IFRS principles. As a result of this directive, the Bank holds no credit risk reserves as at 31 December 2018. i s l a c n a n F i 169 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 Provision for loan losses per prudential guidelines In millions of Naira Loans and advances Other ﬁnancial assets (a) Impairment assessment under IFRS Loans and advances Speciﬁc allowance for impairment Collective allowance for impairment 12-months ECL credit Life-time ECL Not impaired Life- time ECL credit impaired (b) Investment securities 12-Months ECL (c) Off balance sheet exposures 12-Month ECL (d) Other financial assets Speciﬁc allowance for impairment on associated companies Speciﬁc allowance for impairment on other assets 22 24 12 months ECLLifetime ECL Other non-ﬁnancial assets (e) (f )=(b )+( c)+(d)+( e) (G)=(a)-(f ) (Reversal from)/transfer to retained earnings at year end i s l a c n a n F i 170 Note 31-Dec-18 31-Dec-17 Bank 122,0877 833 122,920 1109,405 6,560 115,965 - - 14,092 34,233 136,673 184,998 - 763 763 - 8,011 8,011 - - 1,628 560 2,188 195,960 (73,040) - 68,443 68,162 - - - 136,605 - - - - - - 1,312 5,248 - - 143,165 279,770 (163,805) (8,129) 5Segment analysisThe Group's strategic divisions oﬀer diﬀerent products and services, and are managed seperately based on the Group's management and internal reporting structure. The Group's Executive Management (Chief Operating Decision Maker) reviews internal management reports from each of the strategic divisions on a monthly basis.The Group's operations are primarily organised on the basis of its products and service oﬀerings in Nigeria, while the banking operations outside Nigeria are reported seperately for Africa and Europe. The following summary describes each of the Group's reportable segments:(a) Corporate, Public, Retail Banking, Pension Custodial services and Nominee - NigeriaThis segment provides a broad range of banking and pension custodial services to a diverse group of corporations, ﬁnancial institutions, investment funds, governments and individuals. (b) Outside Nigeria Banking - Africa and EuropeThese segments provide a broad range of banking services to a diverse group of corporations, ﬁnancial institutions, investment funds, governments and individuals outside Nigeria. The reportable segments covers banking operations in other parts of Africa (Ghana, Sierra Leone and The Gambia) and in Europe (the United Kingdom) respectively.Segment proﬁt before tax, as included in internal management reports reviewed by the Group's Executive Management, is used to measure performance because management believes that this information is the most relevant in evaluating the results of the respective segments relative to other entities that operate within the same industries. Inter-segment pricing is determined on arm's length basis.No single external cutomer accounts for 10% or more of the Group's revenue. The measurement policies the Group uses for segment reporting are the same as those used in its ﬁnancial statements. There have been no changes from prior periods in the measurement methods used to determine reported segment proﬁt or loss.SEGMENT ANALYSIS171FinancialsZenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 Information regarding each reportable segment is included in the tables below. The tables also show the reconciliation of the amounts in the statement of proﬁt or loss and statement of ﬁnancial position for the reportable segments to the amounts in the Groups statement of proﬁt or loss and statement of ﬁnancial position. In millions of Naira 31 December, 2018 Revenue: Nigeria Outside Nigeria Corporate retail and pensions custodian services Africa Europe Total reportable segments Eliminations Consolidated Derived from external customers 542,490 68,492 19,362 Derived from other business segments 5,834 55 134 630,344 6,023 Total revenue* 548,324 68,547 19,496 636,367 Interest expense (124,156) (20,849) (1,876) (146,881) Impairment loss on ﬁnancial assets (15,313) (4,241) 1,182 (18,372) Admin and operating expenses (207,770) (21,389) (6,270) (235,429) - (6,023) (6,023) 2,423 - (400) (4,000) - 630,344 - 630,344 (144,458) (18,372) (235,829) 231,685 (38,261) Proﬁt before tax Tax expense Profit after tax 201,085 22,068 12,532 (28,585) (7,313) (2,363) 235,685 (38,261) 172,500 14,755 10,169 197,424 (4,000) 193,424 In millions of Naira Nigeria Outside Nigeria 31 December, 2018 Corporate retail and pensions custodian services Africa Europe Total reportable segments Eliminations Consolidated Capital expenditure** Identiﬁable assets Identiﬁable liabilities 33,761 126 389 34,276 4,979,886 454,391 681,443 4,282,935 381,524 601,502 6,115,720 5,265,961 - (160,010) (126,002) 34,276 5,955,710 5,139,959 * Revenues are allocated based on the location of the operations. ** Capital expenditure consists of expenditure on intangible assets and property and equipment during the period. i s l a c n a n F i 172 Segment analysis In millions of Naira Nigeria Outside Nigeria 31 December, 2017 Revenue: Corporate retail and pensions custodian services*** Africa Europe Total reportable segments Eliminations Consolidated Derived from external customers 680,911 53,822 14,056 Derived from other business segments 3,058 - 148 Total revenue* 683,969 53,822 14,204 748,789 3,206 751,995 Interest expense (200,672) (17,776) (1,394) (219,842) Impairment loss on ﬁnancial assets (95,267) (557) (2,403) (98,227) Admin and operating expenses (see note 43b) (209,594) (14,906) (5,706) (230,206) (3,600) (3,206) (6,806) 3,205 - (800) (4,401) - 745,189 - 745,189 (216,637) (98,227) (231,006) 199,319 (25,528) Proﬁt before tax Tax expense Profit after tax 178,436 20,583 4,701 (18,891) (5,602) (1,035) 203,720 (25,528) 159,545 14,981 3,666 178,192 (4,401) 173,791 In millions of Naira Nigeria Outside Nigeria 31 December, 2017 Corporate retail and pensions custodian services Africa Europe Total reportable segments Eliminations Consolidated Capital expenditure** Identiﬁable assets Identiﬁable liabilities 44,025 4,429 182 48,636 4,854,394 375,106 554,087 4,138,711 313,380 486,382 5,783,587 4,938,473 - (188,334) (155,336) 48,636 5,595,253 4,783,137 * Revenues are allocated based on the location of the operations. ** Capital expenditure consists of expenditure on intangible assets and property and equipment during the period. *** see note 43b i s l a c n a n F i 173 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 In millions of Naira Group Bank 31 December, 2018 31 December, 2017 31 December, 2018 31 December, 2017 6. Interest and similar income Loans and advances to customers Placement with banks and discount houses Treasury bills Government and other bonds 273,179 13,886 100,537 52,450 314,683 6,733 109,740 43,472 258,440 6,608 64,002 38,766 295,932 552 84,973 38,753 440,052 474,628 367,816 420,210 Total interest income, calculated using the eﬀective interest rate method reported above that relates to ﬁnancial assets not carried at fair value through proﬁt or loss are N440,052 million (31 December, 2017: N474,628 million) and N367,816 million (31 December, 2017: N420,210 million) for Group and Bank respectively. Included in this amount is interest income on lease N671 million (31 December, 2017: N1,025 million) 7. Interest and similar expense Current Savings accounts Time deposits Borrowed funds and lease 10,952 18,698 42,299 72,509 144,458 10,029 17,099 108,735 80,774 216,637 10,258 18,532 30,172 65,194 9,403 16,927 95,329 79,013 124,156 200,672 Total interest expense are calculated using the eﬀective interest rate method reported above and does not include interest expense on ﬁnancial liabilities carried at fair value through proﬁt or loss. 8. Impairment loss/(write back) on financial and non-financial instruments Impairment charge on financial instruments Total impairment charge on loans and advances( see note 3.2.18) Investment securities (see note 3.2.18) Treasury Bills Impairment Charge (see note 3.2.18) Other ﬁnancial assets (see note 3.2.18) Due from other Banks (see note 3.2.18) Assets pledged as collateral (see note 3.2.18) Total impairment charge on ﬁnancial instruments Impairment charge on non-financial instruments Oﬀ balance sheet impairment (see note 3.2.18) Other non ﬁnancial assets (see note 3.2.18) 13,303 (430) (1,237) 395 1,938 (1,078) 12,891 5,337 144 98,204 - - 23 - - 98,227 - - 9,396 207 (1,111) 383 931 (1,078) 8,728 6,441 144 95,244 - - - - - 95,244 - - 18,372 98,227 15,313 95,244 i s l a c n a n F i 174 In millions of Naira Group Bank 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 9. Net income on Fee and commission Credit related fees Commission on turnover Account maintenance fee Income from ﬁnancial guarantee contracts issued Fees on electronic products Foreign currency transaction fees and commission Asset based management fees Auction fees income Corporate ﬁnance fees Foreign withdrawal charges Commissions on agency and collection services Total fee and Commission income Fees and commission expense (see note 44) 19,309 2,160 18,008 8,058 20,422 3,232 7,708 3,239 892 4,518 4,597 92,143 (10,329) 81,814 20,834 1,740 27,710 4,617 14,145 2,708 7,943 1,894 2,048 3,509 2,995 90,143 (7,595) 82,548 15,231 - 18,008 7,596 19,307 1,161 - 3,239 449 4,518 2,998 72,507 (8,383) 17,718 - 27,710 4,275 13,250 1,277 - 1,894 1,674 3,509 1,539 72,846 (7,285) 64,124 65,561 The fees and commission income reported above excludes amount included in determining eﬀective interest rates on ﬁnancial assets that are not carried at fair value through proﬁt or loss. 10. Other operating income Dividend income from equity investments (see note a below) Gain on disposal of property and equipment (see note 45(vii)) Provision for claims Income on cash handling Foreign currency revaluation gain (See note b below) 1,795 259 - 601 15,292 17,947 900 57 8,404 557 12,526 22,444 5,395 241 - 428 11,415 4,500 22 8,404 423 9,257 17,479 22,606 (a) Dividend income from equity investments represent dividend received from Subsidiaries and other equity instruments held for strategic purposes and for which the Group has elected to present the fair value and loss in Other Comprehensive Income. (b) Foreign currency revaluation gain represent gains realised from the revaluation of foreign currency-denominated assets and liabilities held in the non-trading books. 11. Trading gains Derivatives (loss) / income Treasury bills trading income Bonds trading income (16,783) 94,478 2,507 68,711 88,895 368 (16,783) 94,478 2,507 68,711 88,895 368 80,202 157,974 80,202 157,974 i s l a c n a n F i 175 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 In millions of Naira 12. Operating expenses Directors' emoluments (see note 36 (b)) Auditors' remuneration Deposit insurance premium Professional fees Training and development Information technology Operating lease Advertisement Outsourcing services Bank charges Fuel and maintenance Insurance Licenses, registrations and subscriptions Travel and hotel expenses Printing and stationery Security and cash handling Fraud and forgery write-oﬀ Fines & Penalties (see note 41) Donations AMCON levy (see note 43) Telephone and postages Corporate promotions Others * see notes 43, 44 13. Taxation Group 31-Dec-18 31-Dec-17 Restated* Bank 31-Dec-18 31-Dec-17 Restated* 1,418 822 11,500 4,149 3,246 10,137 3,411 9,612 8,672 4,022 20,908 4,393 3,015 4,197 2,200 3,327 429 10 3,101 28,542 1,400 7,599 1,787 1,479 693 11,683 3,442 4,070 12,686 3,771 8,819 9,583 2,984 19,367 6,310 2,871 7,289 2,457 4,975 368 - 2,624 25,561 2,414 8,056 3,391 735 535 11,500 3,557 3,040 9,418 2,133 9,204 8,672 3,527 17,168 4,260 2,521 3,495 1,617 2,888 429 10 3,065 28,542 1,059 7,143 58 551 510 11,683 2,997 3,811 12,109 2,331 8,577 9,583 2,765 16,371 6,180 2,567 6,670 1,903 4,615 368 - 2,611 25,561 2,106 7,920 1,063 137,897 144,893 124,576 132,852 (a) Major components of the tax expense Minimum tax expense (see note i below) 4,052 4,350 4,052 4,350 Income tax expense Corporate tax Information technology tax Dividend tax (see note (ii) below) Prior year (over)/under provision Tertiary Education tax Current income tax Deferred tax expense: Origination/(reversal) of temporary diﬀerences Income tax expense Total tax expense 11,031 2,056 20,673 275 77 34,112 - 97 34,209 38,261 8,878 1,804 13,505 - 112 24,299 - (3,121) 21,178 25,528 - 1,902 20,673 - - 22,575 - - 22,575 26,627 - 1,719 13,505 - - 15,224 - (3,156) 12,068 16,418 (i) Income tax liability as at 31 December, 2018 ﬁnancial year of the Bank was assessed based on the minimum tax rule because of a signiﬁcant non-taxable income that resulted in a taxable loss for the Bank. i s l a c n a n F i 176 In millions of Naira Group Bank 31-Dec-18 31-Dec-17 Restated* 31-Dec-18 31-Dec-17 Restated* (ii) Included is N18.04 billion which represent dividend tax for 2018 ﬁnancial year, the Bank was liable to dividend tax of N25.43 billion, representing 30% of N84.77 billion dividend paid as the Nigerian tax laws requires companies to pay tax calculated at 30% of the higher of taxable proﬁt and dividend paid. However, total companies’ Income tax payable based on minimum tax was N4.35 billion and the Bank had tax paid in prior year and tax credits amounting to N3.04 billion. Therefore, the diﬀerence between income tax payable assessed on dividend and income tax payable assessed on minimum tax amounted to N18.04 billion which was charged as tax expense during the period. (b) Reconciliation of effective tax rate Proﬁt before income tax 231,685 199,319 192,107 169,421 Tax calculated at the weighted average Group rate of 30% (2017: 30%) 69,506 59,796 57,632 50,826 Tax effect of adjustments on taxable income Eﬀect of tax rates in foreign jurisdictions Non-deductable expenses Tax exempt income Minimum tax Information technology levy Dividend tax paid Tertiary education tax (1,377) 9,158 3 14,192 - - 8,212 12,963 (84,852) (85,699) (83,488) (84,408) 4,052 2,056 4,350 1,804 4,052 1,902 4,350 1,718 20,673 13,505 20,673 13,505 1,126 113 - - Unrecognised deductible temporary diﬀerences 17,644 17,464 17,644 17,464 Changes in estimate relating to prior year 275 - - - Tax expense 38,261 25,528 26,627 16,418 In millions of Naira 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 (c) The movement in the current income tax payable balance is as follows: At start of the year Tax paid Tax eﬀect of translation Minimum tax Current income tax charge (see note 13a) At end of the year 8,915 8,953 6,069 (37,925) (28,522) (26,742) - 4,052 34,112 9,154 (165) 4,350 24,299 8,915 - 4,052 22,575 5,954 6,927 (20,431) - 4,350 15,223 6,069 i s l a c n a n F i 177 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 In millions of Naira Group Bank 31-Dec-18 31-Dec-17 Restated* 31-Dec-18 31-Dec-17 Restated* 14. Earnings per share Basic earnings per share Basic earnings per share (EPS) is calculated by dividing the net proﬁt attributable to shareholders by the weighted average number of ordinary shares in issue during the year. Where a stock split or bonus share issue has occurred, the number of shares in issue in the prior year is adjusted to achieve comparability. Proﬁt attributable to shareholders of the Bank (N'million) 193,147 173,472 165,480 153,003 Number of shares in issue at end of the year (millions) Weighted average number of ordinary shares in issue (millions) Basic and diluted earnings per share (Koba) 31,396 31,396 6.15 31,396 31,396 5.53 31,396 31,396 5.27 31,396 31,396 4.87 Basic and diluted earnings per share are the same, as the Bank has no potentially dilutive ordinary shares. Cash and balances with central banks 15. Cash and balances with central banks consist of: Cash Operating accounts and deposits with Central Banks Mandatory reserve deposits with central bank (cash reserve) (see note (a)) Special Cash Reserve Requirement (see note (b)) Current Non current Tax expense 148,266 100,679 624,782 80,689 150,883 159,666 566,425 80,689 133,466 63,136 624,782 80,689 136,711 123,469 566,396 80,689 954,416 957,663 902,073 907,265 954,416 957,663 902,073 907,265 - - - - 954,416 957,663 902,073 907,265 a. Mandatory reserve deposits with central banks represents a percentage of customers' deposits (stipulated from time to time by the central bank) which are not available for daily use. For the purposes of the statement of cashﬂow, these balances are excluded from cash and cash equivalents. b. Special Cash Reserve Requirement represents a 5% special intervention reserve held with the Central Bank of Nigeria as a regulatory requirement 16 Treasury bills Treasury bills (FVTPL) Treasury bills (Amortized cost) Treasury bill imparment allowance (see note 3.2.16) Classified as: Current 510,313 490,319 (72) 547,656 389,161 - 510,313 306,802 (72) 547,656 252,336 - 1,000,560 936,817 817,043 799,992 1,000,560 936,817 1,000,560 936,817 817,043 817,043 799,992 799,992 i s l a c n a n F i 178 In millions of Naira Group Bank 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 The following treasury bills have maturities less than three months and are classiﬁed as cash and cash equivalents for purposes of the statements of cash ﬂows (Note 40). 23,819 109,990 20,847 17. Assets pledged as collateral Treasury bills pledged as collateral Bonds pledged as collateral Treasury bills under repurchase agreement Bonds under repurchase agreement Assets Pledged Impairment Allowance 5,100 94,046 373,336 120,579 (126) - 75,923 267,028 125,059 - 5,100 94,046 373,336 120,579 (126) - - 75,923 267,028 125,059 - 592,935 468,010 592,935 468,010 The assets pledged as collateral were given to the counter parties without transferring the ownership to them. These are held by the counterparty for the term of the transaction being collateralized. These assets were pledged as collateral to Nigeria Interbank Settlement System (NIBBS) N28.18 billion (31 December, 2017: N4.55billion), Federal Inland Revenue Services N8.04 billion (31 December, 2017: N8.03billion), V-Pay N44.70 million (31 December, 2017: N44.59million), Interswitch Limited N2.15 billion (31 December, 2017: N2.14billion), the Bank of Industry (Nigeria) N44.03 billion (31 December, 2017: N50.41billion), E- Tranzact N44 million (31 December, 2017: N44.59million), CBN Real Sector Support Fund (RSSF) N13.95 billion (31 December, 2017: N10.70billion) and System Specs/RMITA N2.69 billion (31 December, 2017: Nil). Assets exchanged under repurchase agreement as at 31 December, 2018 are with the following counterparties (note 30): Counterparties JP Morgan (see note 30) ASSA (see note 30) Standard Bank (see note 30) First Abu Dhabi (see note 30) Societe Generale Bank (see note 30) Standard Bank London (see note 30) Carrying value of asset Carrying value of liability Carrying value of asset Carrying value of liability 154,577 70,781 91,164 118,834 45,580 12,979 108,416 63,175 49,023 81,217 27,209 36,926 154,577 70,781 91,164 118,834 45,580 12,979 108,416 63,175 49,023 81,217 27,209 36,926 493,915 365,966 493,915 365,966 i s l a c n a n F i 179 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 In millions of Naira Group Bank 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 Assets exchanged under repurchase agreement as at 31 December, 2017 are with the following counterparties (note 30): Counterparties JP Morgan ABSA Standard Bank First Abu Dhabi Classified as: Current Non-current 18. Due from other banks current balances with banks within Nigeria Current balances with banks outside Nigeria Placements with banks and discount houses Placement impairment allowance Classified as: Current Carrying value of asset Carrying value of liability Carrying value of asset Carrying value of liability 48,079 82,311 228,931 32,765 392,086 436,491 156,444 592,935 33,198 50,310 125,716 16,824 226,048 267,028 200,982 468,010 18,287 273,721 203,795 - 48,079 82,311 228,931 32,765 392,086 436,491 156,444 592,935 - 196,384 198,013 (931) 33,198 50,310 125,716 16,824 226,048 267,028 200,982 468,010 - 264,598 8,733 495,803 393,466 273,331 674,274 495,803 393,466 273,331 13,214 204,724 458,305 (1,969) 674,274 Included in balances with banks outside Nigeria is the amount of N41.18 billion and N41.05 billion for the Group and Bank respectively (31 December, 2017: N69.31 billion and N67.23 billion for the Group and Bank respectively) which represents the Naira value of foreign currency balances held on behalf of customers in respect of letters of credit. The corresponding liabilities are included in other liabilities (See Note 28). i s l a c n a n F i 180 In millions of Naira Group Bank 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 19. Derivative assets Instrument types: Forward contracts Fair value of assets Futures contracts Fair value of assets Total 87,467 42,285 87,467 42,285 1,359 14,934 1,359 14,934 88,826 57,219 88,826 57,219 Non-hedging derivative assets and liabilities The Group enters into currency forward contracts with counterparties. On initial recognition, the Group estimates the fair value of derivatives transacted with the counterparties using the discounted mark-to-market technique. In many cases, all signiﬁcant inputs into the valuation techniques are wholly observable (e.g with reference to similar transactions in the wholesale dealer market.) During the year, various derivative contracts entered into by the Group generated net loss of N(16.8) billion (31 December 2017 net gains of N68.7 billion), which were recognized in the statement of proﬁt or loss and other comprehensive income. All derivative assets are current. 20. Loans and advances Overdrafts Term loans On-lending facilities Advances under ﬁnance lease 208,021 514,009 178,740 480,392 1,419,276 1,355,300 1,353,101 1,253,817 385,922 379,195 385,922 379,195 3,301 3,668 3,301 3,665 Gross loans and advances to customers 2,016,520 2,252,172 1,921,064 2,117,069 Less: Allowance for impairment (see note 3.2.18) (193,409) (151,810) (184,998) (136,605) 1,823,111 2,100,362 1,736,066 1,980,464 Gross Loans classified as: Current Non-current 608,556 822,775 566,279 784,059 1,407,964 1,429,397 1,354,785 1,333,010 2,016,520 2,252,172 1,921,064 2,117,069 i s l a c n a n F i 181 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 Reconciliation of impairment allowance on loans and advances to customers: Overdrafts Term loans On-lending facilities Aclvances under finance lease Group Balance at January 1, 2017 Speciﬁc impairment Collective impairment Additional impairment for the year (see note 8) Speciﬁc impairment Collective impairment Foreign currency translation and other adjustments Write-oﬀs (speciﬁc) Write-oﬀs (collective) Balance as at December 31, 2017 Speciﬁc impairment Collective impairment 30,568 14,738 15,830 31,305 19,848 11,457 (4,935) (3,694) (5,292) 39,472 18,158 21,314 65,905 39,665 26,240 828 (2,841) (1,597) 47,952 101,767 27,094 20,858 55,810 45,957 1,337 - 1,3371 925 - 925 - - (307) 1,955 - 1,955 * Impaired loans that are not individually signiﬁcant are included in the collective impairment. Therefore, when such loans are written oﬀ, the cumulative impairment on them are taken from the collective impairment account. Movement in impairment allowance as at 31 December, 2018 is presented in Note 3.2.18. Reconciliation of impairment allowance on loans and advances to customers: Bank Balance as at January 1, 2017 Speciﬁc impairment Collective impairment Additional impairment for the year Speciﬁc impairment Collective impairment Write-oﬀs (Speciﬁc) Write-oﬀs (Collective) Balance as at December 31, 2017 Speciﬁc impairment Collective impairment Overdrafts Term loans On-lending facilities Aclvances under finance lease 22,245 7,478 14,767 30,748 20,109 10,639 (3,694) (5,292) 31,443 10,129 21,314 63,502 37,262 26,240 (2,841) (1,597) 44,007 90,507 23,893 20,114 44,550 45,957 1,337 - 1,3371 925 - 925 - (307) 1,955 - 1,955 * Impaired loans that are not individually signiﬁcant are included in the collective impairment. Therefore, when such loans are written oﬀ, the cumulative impairment on them are taken from the collective impairment account. Movement in impairment allowance as at 31 December, 2018 is presented in Note 3.2.18. i s l a c n a n F i 182 136 151,810 - 136 82,904 68,906 Total 71,444 32,896 38,548 98,204 59,513 38,691 (4,107) (6,535) (7,196) Total 55,092 17,607 37,485 95,244 57,371 37,873 (6,535) (7,196) 67 - 67 69 - 69 - - - 67 - 67 69 - 69 - - 136 136,605 - 136 68,443 68,162 In millions of Naira Group Bank 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 21. Investment securities (a) Analysis of investments Debt securities Debt securities (measured at amortised cost)(see note iii) Impairment allowance (see note 3.2.18) Net debt securities measured at amortised cost 513,154 284,584 (2,572) - 510,582 284,584 Debt securities (measured at fair value through proﬁt or loss) (see note ii) 4,970 32,266 102,508 (565) 101,943 4,970 71,447 - 71,447 32,266 Net debt securities Equity securities 515,552 316,850 106,913 103,713 At fair value through other comprehensive income (see note i below) 49,760 14,101 49,760 14,101 565,312 330,951 156,673 117,814 Classified as: Current Non-current 132,124 185,218 433,188 145,733 28,342 128,331 20,839 96,975 565,312 330,951 156,673 117,814 (i) (ii) (iii) The Group holds equity investments in unquoted entities which the Group has elected to carry at fair value through other comprehensive income. These investments are held for strategic purposes rather than for trading purposes. The Group's debt securities measured at FVTPL comprise FGN bonds (2018: N2.99 billion; 2017: N32.27 billion) and Eurobonds (2018; N1.98 billion, 2017; Nil) The Group's debt securities measured at amortised cost can be analysed as follows: Classified as: FGN bonds State bonds Corporate bonds 484,899 250,639 24,663 31,401 3,592 2,544 74,253 24,663 3,592 37,502 31,401 2,544 513,154 284,584 102,508 71,447 i s l a c n a n F i 183 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 (b) Movement in investment securities The movement in gross investment securities for the Group may be summarised as follows: Group In millions of Naira At January 1, 2018 Additions Disposals Gains from changes in fair value recognised in proﬁt or loss (see note 11) Gains from changes in fair value recognised in other comprehensive income Interest accrued Impairment At 31 December, 2018 At January 1, 2017 Exchange diﬀerences Additions Disposals Gains from changes in fair value recognised in proﬁt or loss (see note 11) Gains from changes in fair value recognised in other comprehensive income Interest accrued Coupon interest received At 31 December, 2017 Debt securities at fair value through profit orloss Debt securities at amortised cost Equity securities at fair value through other comprehensive income Total 32,266 1,978 (27,408) (1,990) - 124 - 284,584 230,573 (10,086) - - 8,083 (2,572) 14,101 330,951 34,200 266,751 - - (37,494) (1,990) 1,459 - - 1,459 8,207 (2,572) 4,970 510,582 49,760 565,312 9,702 173,124 16,652 199,478 - 22,196 - 368 - - - 952 171,908 (75,541) - - 26,684 (12,543) - - - - 952 194,104 (75,541) 368 (2,551) (2,551) - - 26,684 (12,543) 32,266 284,584 14,101 330,951 i s l a c n a n F i 184 The movement in investment securities for the Bank may be summarised as follows: Bank In millions of Naira At January 1, 2018 Additions Disposals Gains from changes in fair value recognised in proﬁt or loss (see note 11) Gains from changes in fair value recognised in other comprehensive income Interest accrued Impairment At 31 December, 2018 At January 1, 2017 Additions Disposals (sale and redemption) Gains from changes in fair value recognised in proﬁt or loss (see note 11) Gains from changes in fair value recognised in other comprehensive income Interest accrued Coupon interest received At 31 December, 2017 Debt securities at fair value through profit orloss Debt securities at amortised cost Equity securities at fair value through other comprehensive income Total 32,266 1,978 (27,408) (1,990) - 124 - 71,447 27,475 (1,252) - - 4,838 (565) 14,101 117,814 34,200 63,653 - - (28,660) (1,990) 1,459 - - 1,459 4,962 (565) 4,970 101,943 49,760 156,673 9,702 22,196 - 368 - - - 32,266 92,268 72,942 (95,432) - - 11,211 (9,542) 71,447 16,652 118,622 - - - 95,138 (95,432) 368 (2,551) (2,551) - - 11,211 (9,542) 14,101 117,814 The movement in investment securities for the Bank may be summarised as follows: 22. Investment in subsidiaries The following table lists the entities which are controlled by the Group, either directly or indirectly through subsidiaries. Bank Name of company Zenith Bank (Ghana) Limited Zenith Bank (UK) Limited Zenith Bank (Sierra Leone) Limited Zenith Bank (Gambia) Limited Zenith Pensions Custodian Limited Zenith Nominee Limited All investments in subsidiaries are non-current. 31-Dec-18 31-Dec-18 31-Dec-17 Ownership interest% Carrying amount 98.0700 100.0000 99.9900 99.9600 99.0000 99.0000 6,444 21,482 2,059 1,038 1,980 1,000 6,444 21,482 2,059 1,038 1,980 1,000 34,003 34,003 i s l a c n a n F i 185 d t L n a i d o t s u C d t L d t L h t i n e Z i e e n m o N h t i n e Z n o i s n e P k n a B h t i n e Z d t L a i b m a G k n a B h t i n e Z e n o e L a r r e S i k n a B h t i n e Z d t L K U h t i n e Z k n a B a n a h G d t L h t i n e Z k n a B c l P n o i t a n m i i l E s e i r t n e h t i n e Z p u o r G - 7 3 3 ) 0 8 ( 7 5 2 ) 7 7 ( 0 8 1 6 1 1 7 2 1 , - - - 3 - - - 1 3 0 2 7 5 2 7 1 0 1 , ) 2 6 2 1 ( , - 0 1 9 8 , ) 1 8 8 1 ( , 9 2 0 7 , - - 8 1 8 0 5 1 , ) 4 3 9 ( ) 9 1 ( 5 5 5 ) 9 4 1 ( 6 0 4 - 5 8 4 2 , 8 8 3 8 , 0 4 3 3 1 , 7 0 8 2 , - - - 8 0 1 6 7 6 7 , 8 4 2 0 7 2 2 8 3 1 , - 5 4 7 4 3 1 1 , - - 2 2 1 5 4 3 8 8 2 3 6 3 , ) 4 7 7 2 ( , - - 8 5 8 8 5 8 5 1 3 4 , 7 4 0 2 1 , - - 6 0 6 6 7 8 2 , - - 8 5 0 5 6 1 6 6 6 3 2 6 3 9 1 , ) 6 4 1 8 ( , 2 8 1 1 , 8 9 3 2 1 , ) 3 6 3 2 ( , 5 3 0 0 1 , - - 0 1 2 5 3 3 6 , ) 0 3 5 8 3 ( , ) 2 2 2 4 ( , 0 0 6 0 2 , ) 4 6 1 7 ( , 6 3 4 3 1 , - 9 9 4 5 4 , 1 1 8 1 6 1 , 5 3 8 6 7 2 , 4 4 7 0 7 , - 5 2 6 0 3 , 9 0 2 3 3 3 , - - 7 3 4 4 7 6 3 5 6 9 3 , - - 9 6 5 4 5 , 9 0 0 7 6 , 8 5 2 5 9 3 3 , 4 5 1 2 7 5 3 1 , 8 9 3 1 , 2 4 0 3 2 , 4 1 1 6 1 , 9 4 2 1 2 , 3 4 4 1 8 6 , 1 1 0 7 1 4 , 4 0 0 8 3 5 , ) 4 8 5 0 3 3 ( , ) 3 1 3 5 1 ( , 7 0 1 2 9 1 , ) 7 2 6 6 2 ( , - 3 2 0 2 , ) 3 2 0 6 ( , - ) 0 0 0 4 ( , 0 8 4 5 6 1 , ) 0 0 0 4 ( , 4 4 3 0 3 6 , ) 7 8 2 0 8 3 ( , ) 2 7 3 8 1 ( , 5 8 6 1 3 2 , ) 1 6 2 8 3 ( . 4 2 4 3 9 1 , s s o l r o t fi o r p f o t n e m e t a t s d e s n e d n o C s e s n e p x e g n i t a r e p O e m o c n i g n i t a r e p O a r i a N f o s n o i l l i m n I k n a B 8 1 0 2 , r e b m e c e D 1 3 s t e s s a l i a c n a n ﬁ r o f e g r a h c t n e m r i a p n l · x a t e r o f e b t ﬁ o r P n o i t a x a T r a e y e h t r o f t fi o r P 3 7 0 2 0 9 , 3 4 0 7 1 8 , 5 3 9 2 9 5 , 6 6 4 3 9 3 , 6 2 8 8 8 , , 6 6 0 6 3 7 1 , 3 7 6 6 5 1 , 3 0 0 4 3 , 7 9 1 9 , 0 1 9 5 7 , 4 5 8 3 3 1 , 9 9 3 5 1 , , 5 4 4 5 5 9 4 , - - - - - - ) 4 9 7 5 8 ( , 6 1 4 4 5 9 , s k n a b l a r t n e c h t i l w s e c n a a b d n a h s a C n o i t i s o p l a i c n a n fi f o t n e m e t a t s d e s n e d n o C s t e s s A , 0 6 5 0 0 0 1 , 5 3 9 2 9 5 , 4 7 2 4 7 6 , 6 2 8 8 8 , 2 1 3 5 6 5 , , 1 1 1 3 2 8 1 , t n e m e g a n a m k s i r r o f l d e h t e s s a e v i t a v i r e D s e c n a v d a d n a s n a o L s e i t i r u c e s t n e m t s e v n I l a r e t a l l o c s a d e g d e p s t e s s A l s k n a b r e h t o m o r f e u D s l l i b y r u s a e r T ) 3 0 0 4 3 ( , - i s e i r a d i s b u s n i t n e m t s e v n I - - - ) 5 9 1 0 4 ( , ) 2 9 9 9 5 1 ( , 3 1 5 9 , 8 4 9 0 8 , 7 3 1 9 4 1 , 8 7 6 6 1 , , 0 1 7 5 5 9 5 , i t n e m p u q e d n a y t r e p o r P t e s s a x a t d e r r e f e D s t e s s a r e h t O l s t e s s a e b g n a t n i I l i i a c n a n F e t a r a p e S d n a d e t a d i l o s n o C e h t o t s e t o N 8 1 0 2 , 1 3 r e b m e c e D d e d n E r a e Y e h t r o f s t n e m e t a t S s e i t i t n e d e t a d i l o s n o c f o s t l u s e r d e s n e d n o C ) b ( ) d e u n i t n o c ( s e i r a i d i s b u s n i t n e m t s e v n I . 2 2 i s l a c n a n F i 186 h t i n e Z i e e n m o N h t i n e Z n o i s n e P d t L n a i d o t s u C d t L d t L a i b m a G i a r r e S k n a B d t L K U k n a B h t i n e Z h t i n e Z k n a B h t i n e Z d t L e n o e L h t i n e Z k n a B a n a h G d t L h t i n e Z k n a B c l P n o i t a n m i i l E s e i r t n e h t i n e Z p u o r G - - 7 7 - 1 4 1 - - - - - 9 0 8 1 , 0 5 0 5 4 - - - 6 9 5 0 1 , 5 8 5 5 1 , 6 3 1 1 2 5 , 2 1 1 2 2 3 , 6 0 1 7 1 0 1 4 1 , - - - - - ) 7 1 ( - - - - 5 2 2 1 , - - - - - - - - - 4 2 7 1 , 5 6 3 0 8 , 9 4 7 8 2 , 0 8 1 1 , 8 9 3 1 , 3 3 7 0 2 , 2 4 0 3 2 , 5 8 9 3 , 4 1 1 6 1 , 7 5 9 3 , 9 4 2 1 2 , 2 4 9 9 7 , , 3 4 4 1 8 6 5 2 9 4 6 , , 1 1 0 7 1 4 , 6 6 0 1 2 8 2 , - 5 9 9 6 1 , 4 5 9 5 , 3 6 4 3 2 2 , 5 9 2 3 9 3 , 3 6 4 8 5 4 , 7 7 1 1 6 3 , 2 3 0 5 7 6 , , 5 4 4 5 5 9 4 , - - - ) 0 0 2 ( ) 6 8 5 4 0 1 ( , - - ) 3 0 2 1 2 ( , ) 3 0 0 4 3 ( , , ) 2 9 9 9 5 1 ( , 5 9 2 0 9 6 3 , 7 6 5 9 9 6 1 , 4 5 1 9 , 6 1 7 1 3 2 , 5 9 2 3 9 3 , 0 6 2 7 3 4 , 7 7 1 1 6 3 , 1 5 7 5 1 8 , , 0 1 7 5 5 9 5 , - - - - - - - - 4 - ) 3 1 ( ) 9 ( 4 6 6 1 4 6 9 6 ) 9 ( 1 - 1 2 7 6 1 2 4 8 2 , 1 1 0 3 , 2 - - 2 2 4 0 7 1 4 7 4 7 2 2 8 1 1 7 2 , ) 1 1 1 ( - ) 1 3 0 9 8 2 ( , ) 9 4 8 7 1 ( , 4 0 6 2 3 , 8 1 9 2 , 3 7 6 7 1 , ) 9 4 8 7 1 ( , - ) 1 ( ) 2 1 1 ( 2 9 3 9 3 , 8 1 3 1 , 8 9 5 0 4 , ) 2 1 1 ( 4 1 3 4 8 1 , ) 5 5 3 9 3 ( , ) 5 5 5 7 6 ( , 4 0 4 7 7 , ) 8 3 0 1 6 3 ( , 0 8 2 1 4 , 7 4 2 6 8 2 , ) 1 1 5 3 3 ( , 1 1 5 3 3 5 , 5 2 6 6 0 3 , - 5 1 9 0 1 6 , 4 0 4 7 7 , 4 8 2 8 9 3 3 7 2 , ) 1 1 5 3 3 ( , 2 5 3 4 9 , 5 2 9 1 , ) 0 5 3 0 7 ( , 7 2 9 5 2 , 9 6 7 4 , 2 4 3 6 1 9 , 8 3 0 7 4 9 , 7 2 9 5 2 , ) d e u n i t n o c ( s e i r a i d i s b u s n i t n e m t s e v n I . 2 2 8 1 0 2 , r e b m e c e D 1 3 y t i u q E & s e i t i l i b a i L s t i s o p e d r e m o t s u C s e i t i l i b a i l e v i t a v i r e D x a t e m o c n i t n e r r u C s e i t i l i b a i l x a t e m o c n i d e r r e f e D s e i t i l i c a f i g n d n e l - n O s e i t i l i b a i l r e h t O i s g n w o r r o B d e u s s i s e i t i r u c e s t b e D s e v r e s e r d n a y t i u q E s e i t i v i t c a g n i t a r e p o m o r f / ) n i d e s u ( h s a c t e N w o fl h s a c f o t n e m e t a t s d e s n e d n o C i s e i t i v i t c a g n c n a n ﬁ m o r f / ) n i d e s u ( h s a c t e N s t n e l a v i u q e h s a c d n a h s a c n i ) e s a e r c e d ( / e s a e r c n I s e i t i v i t c a g n i t s e v n i m o r f / ) n i d e s u ( h s a c t e N s t n e l a v i u q e h s a c d n a h s a C r a e y f o t r a t s t A i l s t n e a v u q e h s a c d n a h s a c n o s t n e m e v o m e t a r e g n a h c x E s t n e l a v i u q e h s a c d n a h s a c n i ) e s a e r c e d ( / e s a e r c n I r a e y f o d n e t A i s l a c n a n F i 187 l i i a c n a n F e t a r a p e S d n a d e t a d i l o s n o C e h t o t s e t o N 8 1 0 2 , 1 3 r e b m e c e D d e d n E r a e Y e h t r o f s t n e m e t a t S h t i n e Z i e e n m o N h t i n e Z n o i s n e P d t L n a i d o t s u C d t L d t L a i b m a G i a r r e S k n a B d t L K U k n a B h t i n e Z h t i n e Z k n a B h t i n e Z d t L e n o e L h t i n e Z k n a B a n a h G d t L h t i n e Z k n a B c l P n o i t a n m i i l E s e i r t n e h t i n e Z p u o r G 0 0 0 1 , 6 3 7 0 2 , 3 8 7 2 1 , 7 8 8 7 1 , 7 8 0 4 5 5 , 8 3 4 4 4 3 , , 8 5 6 3 3 8 4 , - - - - - - 0 0 0 1 , - - - - - - - - - - 3 3 3 0 1 , ) 1 0 3 1 ( , ) 3 2 ( 9 0 0 9 , ) 3 7 4 2 ( , 6 3 5 6 , - - 4 3 6 0 9 1 , ) 1 0 0 1 ( , ) 2 ( 3 0 9 ) 8 6 2 ( 5 3 6 - 9 5 9 1 , 1 1 3 7 , - 9 5 5 2 3 - - 7 4 3 3 6 2 5 6 1 1 , - 8 4 9 1 3 7 - - 4 4 1 5 9 3 7 9 3 4 5 8 1 , 8 9 1 1 , 8 0 9 2 , ) 2 7 7 1 ( , 6 3 1 1 , 6 3 1 1 , 6 6 8 1 , 4 2 6 0 1 , - 4 5 0 4 , - 5 3 3 - - 2 5 2 2 5 2 3 6 4 1 4 4 0 2 4 1 , ) 0 0 1 7 ( , ) 3 0 4 2 ( , 1 0 7 4 , ) 5 3 0 1 ( , 6 6 6 3 , - - 4 1 7 0 6 2 5 2 , 3 6 2 1 9 , - 7 3 2 6 4 , 0 6 3 0 1 2 , - 1 6 3 9 3 9 2 3 6 8 0 4 4 , - 9 1 3 2 7 , 1 2 7 1 , - 1 5 5 3 9 1 7 1 3 6 5 3 1 , - 5 2 5 5 4 , 0 9 8 8 1 1 , 5 6 2 7 0 9 , 2 9 9 9 9 7 , 0 1 0 8 6 4 , 1 3 3 3 7 2 , 9 1 2 7 5 , , 4 6 4 0 8 9 1 , 4 1 8 7 1 1 , 3 0 0 4 3 , 7 9 1 9 , 2 5 0 6 5 , 3 2 2 8 1 1 , 8 8 0 2 1 , - - - - - - ) 3 9 1 5 4 1 ( , ) 3 0 0 4 3 ( , - - - - ) 0 4 1 0 1 ( , , ) 6 3 3 9 8 1 ( 1 6 5 9 , 4 9 4 2 9 , 4 8 3 3 3 1 , 9 8 9 2 1 , , 3 5 2 5 9 5 5 , 1 5 9 0 3 3 , , 2 6 3 0 0 1 2 , 8 0 0 9 4 , ) 0 1 9 9 2 ( , ) 5 5 5 ( 3 4 5 8 1 , ) 4 3 3 5 ( , 6 3 6 3 7 6 , ) 1 7 9 8 0 4 ( , ) 4 4 2 5 9 ( , 1 2 4 9 6 1 , ) 8 1 4 6 1 ( , ) 6 0 8 6 ( , 2 1 4 2 , ) 4 9 3 4 ( , 9 8 1 5 4 7 , ) 2 4 6 7 4 4 ( , ) 7 2 2 8 9 ( , 0 2 3 9 9 1 , ) 8 2 5 5 2 ( , 9 0 2 3 1 , 3 0 0 3 5 1 , ) 4 9 3 4 ( , , 2 9 7 3 7 1 ) d e u n i t n o c ( s e i r a i d i s b u s n i t n e m t s e v n I . 2 2 7 1 0 2 , r e b m e c e D 1 3 s s o l r o t fi o r p f o t n e m e t a t s d e s n e d n o C s e s n e p x e g n i t a r e p O e m o c n i g n i t a r e p O s t e s s a l i a c n a n ﬁ r o f e g r a h c t n e m r i a p m I x a t e r o f e b t ﬁ o r P n o i t a x a T r a e y e h t r o f t fi o r P 3 6 6 7 5 9 , 7 1 8 6 3 9 , 0 1 0 8 6 4 , 3 0 8 5 9 4 , 9 1 2 7 5 , n o i t i s o p l a i c n a n fi f o t n e m e t a t s d e s n e d n o C s t e s s A s k n a b l a r t n e c h t i l w s e c n a a b d n a h s a C l a r e t a l l o c s a d e g d e p s t e s s A l s k n a b r e h t o m o r f e u D s l l i b y r u s a e r T t n e m e g a n a m k s i r r o f l d e h t e s s a e v i t a v i r e D i s e i r a d i s b u s n i t n e m t s e v n I s e c n a v d a d n a s n a o L s e i t i r u c e s t n e m t s e v n I i t n e m p u q e d n a y t r e p o r P t e s s a x a t d e r r e f e D s t e s s a r e h t O l s t e s s a e b g n a t n i I l i i a c n a n F e t a r a p e S d n a d e t a d i l o s n o C e h t o t s e t o N 8 1 0 2 , 1 3 r e b m e c e D d e d n E r a e Y e h t r o f s t n e m e t a t S i s l a c n a n F i 188 h t i n e Z i e e n m o N h t i n e Z n o i s n e P d t L n a i d o t s u C d t L d t L a i b m a G i a r r e S k n a B d t L K U k n a B h t i n e Z h t i n e Z k n a B h t i n e Z d t L e n o e L h t i n e Z k n a B a n a h G d t L h t i n e Z k n a B c l P n o i t a n m i i l E s e i r t n e h t i n e Z p u o r G - - - - - - - - - - 3 1 9 8 4 4 3 5 2 , - - - - 5 9 9 1 8 8 7 7 , 3 3 2 1 , - - - - - - - - - 7 2 - - - - - 3 1 1 3 7 5 4 9 , 4 8 9 9 , - - - - - - 0 0 6 4 1 , 9 0 8 1 9 3 , 1 3 4 9 7 2 , 0 0 0 1 , 0 0 0 1 , 2 0 7 7 1 , 8 3 7 0 2 , 7 5 5 3 , 2 8 7 2 1 , 0 6 2 3 , 7 8 8 7 1 , 5 0 7 7 6 , 7 8 0 4 5 5 , 0 1 9 4 5 , , 8 3 4 4 4 3 , 5 2 5 4 4 7 2 , - 5 0 8 0 2 , 9 6 0 6 , 2 3 3 9 2 2 , 4 3 0 3 8 3 , 9 7 9 8 1 4 , 1 3 9 2 3 3 , 3 8 9 7 9 6 , , 8 5 6 3 3 8 4 , - - - ) 8 3 2 ( - - ) 5 1 6 2 9 ( , ) 3 8 4 2 6 ( , ) 1 0 0 4 3 ( , ) 7 3 3 9 8 1 ( , - - - - - - - - 4 9 4 2 , ) 0 0 0 4 ( , 8 3 8 1 , 2 3 3 - 2 3 3 4 6 6 2 3 3 ) 0 8 1 ( ) 6 4 ( ) 5 9 1 1 ( , ) 1 2 4 1 ( , - ) 1 2 4 1 ( , ) 2 4 8 2 ( , ) 1 2 4 1 ( , - ) 3 6 2 ( ) 9 8 ( ) 2 5 3 ( - ) 2 5 3 ( ) 4 0 7 ( ) 2 5 3 ( - ) 7 1 8 2 2 ( , ) 5 7 5 2 ( , ) 2 9 3 5 2 ( , ) 9 2 7 6 ( , ) 8 2 0 9 ( , 8 5 3 9 1 , 1 0 6 3 , ) 0 5 7 5 5 2 ( , 5 6 1 8 6 2 , ) 2 6 2 5 4 ( , 7 1 8 3 8 2 , ) 9 7 5 9 1 ( , ) 0 6 5 2 2 ( , ) 7 4 8 2 3 ( , 8 7 6 1 4 2 , 6 9 9 7 5 , 1 9 7 5 3 , 8 5 3 6 6 5 , - 4 0 6 2 3 , ) 2 9 3 5 2 ( , - 2 9 3 9 3 , 1 0 6 3 , - 1 1 5 3 3 5 , 7 1 7 3 1 3 , ) 7 4 8 2 3 ( , 8 7 6 1 4 2 , 5 9 6 8 6 , 4 4 3 3 , , 5 1 9 7 3 4 3 , 8 1 5 0 8 0 2 , 5 1 9 8 , 3 2 0 3 4 2 , 4 3 0 3 8 3 , 6 9 4 6 5 3 , 1 3 9 2 3 3 , 6 1 1 2 1 8 , , 3 5 2 5 9 5 5 , ) 3 4 4 ( 8 7 3 5 3 2 , ) 6 3 3 9 4 ( , 9 9 5 5 8 1 , 4 4 3 3 , 9 9 3 7 2 7 , 2 4 3 6 1 9 , 9 9 5 5 8 1 , s e i t i l i b a i l x a t e m o c n i d e r r e f e D y t i u q E & s e i t i l i b a i L s t i s o p e d r e m o t s u C s e i t i l i b a i l e v i t a v i r e D x a t e m o c n i t n e r r u C s e i t i l i c a f i g n d n e l - n O s e i t i l i b a i l r e h t O i s g n w o r r o B d e u s s i s e i t i r u c e s t b e D s e v r e s e r d n a y t i u q E 7 1 0 2 , r e b m e c e D 1 3 s e i t i v i t c a g n i t a r e p o m o r f h s a c t e N w o fl h s a c d e s n e d n o C s t n e l a v i u q e h s a c d n a h s a c n i e s a e r c n l / ) e s a e r c e D s e i t i v i t c a g n i t s e v n i ) n i d e s u ( / m o r f h s a c t e N s t n e l a v i u q e h s a c d n a h s a C r a e y f o t r a t s t A i l s t n e a v u q e h s a c d n a h s a c n o s t n e m e v o m e t a r e g n a h c x E s t n e l a v i u q e h s a c d n a h s a c n i e s a e r c n l / ) e s a e r c e D d n e r a e y t A s e i t i v i t c a g n c n a n ﬁ ) i n i d e s u ( / m o r f h s a c t e N i s l a c n a n F i 189 l i i a c n a n F e t a r a p e S d n a d e t a d i l o s n o C e h t o t s e t o N 8 1 0 2 , 1 3 r e b m e c e D d e d n E r a e Y e h t r o f s t n e m e t a t S ) d e u n i t n o c ( s e i r a i d i s b u s n i t n e m t s e v n I . 2 2 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 22. Investment in subsidiaries (continued) Apart from Zenith Bank Pensions Custodian Limited and Zenith Nominees Limited, which are incorporated in Nigeria, the remaining subsidiaries are incorporated in their respective countries. and granted an operating licence by the Central Bank of Gambia on December 30, 2009. It commenced banking operations on January 18, 2010. Zenith Bank (Ghana) Limited provides Corporate and Retail Banking services. It was incorporated on April 15, 2005 and commenced operations on September 16, 2005. Zenith Pensions Custodian Limited provides pension funds custodial services to Licensed Pension Fund Administrators (PFAs) and Closed Pension Funds Administrators under the Pension (Reform) Act, 2004. It was incorporated on March 1, 2005. The name was changed from "Zenith Pensions Limited" to "Zenith Pensions Custodian Limited" on September 20, 2005. It was licensed by the National Pension Commission as a custodian of pension funds and assets on December 7, 2005 and commenced operations in December 2005. Zenith Bank (UK) Limited provides wholesale and investment banking services in the United Kingdom. It was incorporated on February 17, 2006 and commenced operations on March 30, 2007. Zenith Bank (Sierra Leone) Limited provides corporate and retail banking services. It was incorporated in Sierra Leone on September 17, 2007 and granted an operating license by the Bank of Sierra Leone on September 10, 2008. It commenced banking operations on September 15, 2008. Zenith Bank (Gambia) Limited provides corporate and retail banking services. It was incorporated in The Gambia on October 24, 2008 Zenith Nominees Limited provides nominees, trustees, administrators and executorship services for non-pension assets. There are no signiﬁcant restrictions on the ability of subsidiaries to transfer funds to the Group in the form of cash dividends or repayment of loans and advances. Investment in associates: The Group's investments under the Small and Medium Enterprises Equity Investment Scheme ("SMEEIS") is in compliance with the Policy Guidelines for 2001 Fiscal Year (Monetary Policy Circular No. 35). The Group generally holds 20 percent or more of the voting power of the investee and is therefore presumed to have signiﬁcant inﬂuence over the investee. In instances where the Group holds less than 20 percent of the voting power of the investee, the Group concluded that it has signiﬁcant inﬂuence due to the Group's representation on the Board of the relevant investee, with such Board generally limited to a small number of Board members. There were no published price quotations for any associates of the Group. Furthermore, there are no signiﬁcant restrictions on the ability of associates to transfer funds to the Group in the form of cash dividends or repayment of loans and advances. Gross investment Share of proﬁt b/f Diminution in investment Balance at end of the year Group Bank 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 103 440 (543) - 1,312 440 (1,752) - 103 - (103) - 1,312 - (1,312) - i s l a c n a n F i 190 23. Deferred tax asset Group 31 December, 2018 Movements in temporary differences during the year In millions of Naira Asset Property and equipment Other assets Unutilized capital allowances Impairment allowance on not-credit impaired ﬁnancial instruments Tax loss carry forward Foreign exchange diﬀerences Movements in temporary differences during the period In millions of Naira Liabilities Property and equipment Impairment allowance on not-credit impaired ﬁnancial instruments 31 December, 2017 Movements in temporary differences during the year In millions of Naira Asset Property and equipment Other assets Impairment allowance on not-credit impaired ﬁnancial instruments Unutilized capital allowances Tax loss carry forward Foreign exchange diﬀerences Movements in temporary differences during the year In millions of Naira Liabilities Property and equipment Impairment allowance on not-credit impaired ﬁnancial instruments 01-Jan-18 Recognised in profit or loss 31-Dec-18 (11,987) (2) 14,682 4,832 1,926 110 9,561 (46) - - - - (2) (48) (12,033) (2) 14,682 4,832 1,926 108 9,513 01-Jan-18 Recognised in profit or loss 31-Dec-18 2 16 18 49 - 49 51 16 67 01-Jan-17 Recognised in profit or loss 31-Dec 17 (7,036) - 11,246 2,168 - 62 6,440 (4,951) (2) (6,414) 12,514 1,926 48 3,121 (11,987) (2) 4,832 14,682 1,926 110 9,561 01-Jan-17 Recognised in profit or loss 31-Dec-17 37 8 45 (35) 8 (27) 2 16 18 i s l a c n a n F i 191 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 In millions of Naira Group Bank 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 23. Deferred tax asset (continued) Bank 31 December, 2018 Movements in temporary differences during the year In millions of Naira Asset Property and equipment Impairment allowance on not-credit impaired ﬁnancial instruments Unutilized capital allowances Tax loss carried forward 31 December, 2017 Movements in temporary differences during the year In millions of Naira Asset Property and equipment Impairment allowance on not-credit impaired ﬁnancial instruments Unutilized capital allowances Tax loss carried forward 01-Jan-18 Recognised in profit or loss 31-Dec-18 (12,324) 4,912 14,683 1,926 9,197 - - - - - (12,324) 4,912 14,683 1,926 9,197 01-Jan-18 Recognised in profit or loss 31-Dec-18 (7,373) 11,246 2,168 6,041 (4,951) (6,334) 12,515 1,926 3,156 (12,324) 4,912 14,683 1,926 9,197 The Bank's deferred tax asset which principally arise from allowable loss, un-utilized capital allowance and impairment allowance on not credit-impaired ﬁnancial instruments is N44.2 Billion as at 31 December, 2018. (31 December, 2017: N18.7 billion) Based on projected future taxable proﬁts, expected growth of unutilised capital allowance and impairment allowance on not-credit impaired ﬁnancial instruments, the Bank has restricted the deferred tax asset recognised as at 31 December, 2018 to N9.2 billion. Thus the Bank has not recognised deferred tax asset of N35.1 billion in these ﬁnancial statements. The unrecognised deferred tax asset are attributable to: Property and equipment Capital allowance Unrelieved losses Impairment allowance on ﬁnancial instruments not-credit impaired Balance at end of the year Group 31-Dec-18 Bank 31-Dec-18 (2,066) 6,801 17,645 12,665 35,045 (2,066) 6,801 17,645 12,665 35,045 The Bank will continue to assess the recoverability of its deferred tax assets, and to ensure that only amount considered recoverable are recognised in the books and presented in the statement of ﬁnancial position. All deferred tax are non current. s e t o N i s l a c n a n F i 192 In millions of Naira Group Bank 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 24. Other assets Non financial assets Prepayments Other non-ﬁnancial assets Gross other non-ﬁnancial assets less impairment Net other non-ﬁnancial assets Other financial assets Electronic card related receivables lntercompany receivables Deposit for investment in AGSMEIS Receivables Deposits for shares Gross other ﬁnancial assets Less: Impairment (see note 3.2.18) Net other ﬁnancial assets Total Classified as: Current Non-current 19,398 740 20,138 (560) 19,578 15,166 5,237 20,403 (416) 19,987 47,256 36,931 - 13,822 1,002 - 62,080 (710) 61,370 80,948 - 5,964 34,444 - 77,339 (4,832) 72,507 92,494 17,322 742 18,064 (560) 17,504 43,395 637 13,822 530 720 59,104 (698) 58,406 75,910 13,300 5,237 18,537 (416) 18,121 34,813 1,075 5,964 261 650 42,763 (4,832) 37,931 56,052 80,948 92,494 75,910 56,052 - - - - 80,948 92,494 75,910 56,052 See note 3.2.18 for movement in impairment allowance for other ﬁnancial asset as at 31 December, 2018. Movement in impairment allowance for non financial assets At start of the year Charge for the year (see note 8) At end of the year 416 144 560 416 - 416 416 144 560 416 - 416 i s l a c n a n F i 193 l a t o T n i k r o W s s e r g o r p r o t o M s e l c i h e V t f a r c r i A r e t u p m o C t n e m p u q e i d n a e r u t i n r u F l d o h e s a e L d n a s g n i t t fi t n e m p u q e i s t n e m e v o r p m i s g n d i l i u B l d o h e s a e L d n a l i t n e m p u q e d n a y t r e p o r P . 5 2 8 1 0 2 , r e b m e c e D 1 3 p u o r G - ) 1 8 ( 9 5 1 7 3 2 , 2 1 7 5 3 , ) 7 5 1 4 ( , 3 3 6 8 6 2 , - 6 7 1 5 1 , ) 1 4 ( 9 8 1 8 , ) 5 3 7 1 ( , 9 8 5 1 2 , - - 9 1 7 8 1 , 4 2 2 3 , ) 8 1 0 1 ( , - - - - 0 0 6 2 1 , 6 3 8 8 2 , 9 2 0 1 , - ) 5 1 ( ) 0 9 ( 5 2 9 0 2 , 0 0 6 2 1 , 0 6 7 9 2 , 5 6 4 8 6 , 0 4 2 2 1 , 2 2 ) 8 3 ( ) 0 0 3 1 ( , 9 8 3 9 7 , 9 0 0 8 1 , 3 8 2 3 , - 6 5 ) 4 1 ( 8 7 8 6 4 , 8 6 1 7 , - 9 1 ) 4 8 ( - - - 9 7 5 6 7 4 8 2 , 4 3 3 1 2 , 1 8 9 3 5 , 5 5 0 9 2 , I P W m o r f r e f s n a r t / n o i t a c ﬁ i s s a c e R l r a e y e h t f o d n e e h t t A ﬀ o e t i r w / s l a s o p s i D s n o i t a c ﬁ i s s a c e R l r a e y e h t f o t r a t s e h t t A s n o i t i d d A t s o C l i i a c n a n F e t a r a p e S d n a d e t a d i l o s n o C e h t o t s e t o N 8 1 0 2 , 1 3 r e b m e c e D d e d n E r a e Y e h t r o f s t n e m e t a t S l a t o T n i k r o W s s e r g o r p r o t o M s e l c i h e V t f a r c r i A r e t u p m o C t n e m p u q e i d n a e r u t i n r u F l d o h e s a e L d n a s g n i t t fi t n e m p u q e i s t n e m e v o r p m i s g n d i l i u B l d o h e s a e L d n a l 8 1 0 2 , r e b m e c e D 1 3 5 7 7 3 0 1 , 8 4 6 6 1 , ) 1 ( ) 6 2 9 ( 6 9 4 9 1 1 , - - - - - 7 3 1 9 4 1 , 4 8 3 3 3 1 , 9 8 5 1 2 , 6 7 1 5 1 , - 2 9 8 3 1 , 1 9 0 2 , ) 9 7 6 ( 4 0 3 5 1 , 1 2 6 5 , 7 2 8 4 , - - 0 1 2 0 6 2 1 , 9 1 5 5 2 , 9 8 9 1 , 2 ) 0 9 ( 0 7 4 1 , 0 2 4 7 2 , 0 3 1 1 1 , 0 9 3 2 1 , 0 4 3 2 , 7 1 3 3 , - 9 4 1 4 4 , 0 0 9 7 , ) 5 4 1 ( 4 0 9 1 5 , 5 8 4 7 2 , 6 1 3 4 2 , 5 9 4 4 1 , 2 9 3 2 , ) 4 ( ) 2 1 ( 1 7 8 6 1 , 3 6 4 4 , 4 1 5 3 , 1 - 0 1 5 5 , 6 1 0 1 , 7 2 5 6 , - - - - - 4 5 4 7 4 , 8 6 3 1 4 , 5 5 0 9 2 , 6 7 4 8 2 , n o i t a i c e r p e D d e t a l u m u c c A r a e y e h t f o t r a t s e h t t A r a e y e h t f o d n e e h t t A t n u o m a k o o b t e N 8 1 0 2 , r e b m e c e D 1 3 t A 7 1 0 2 , 1 3 r e b m e c e D t A r a e y e h t r o f e g r a h C s n o i t a c ﬁ i s s a c e R l s l a s o p s i D ) l i N : 7 1 0 2 , r e b m e c e D 1 3 ( d o i r e p e h t g n i r u d t n e m p u q e d n a y t r e p o r p i f l o s s a c y n a n o s e s s o l t n e m r i a p m i o n e r e w e r e h T . t s o c t e s s a f o t r a p s a d e z i l i a t i p a c n e e b s a h t s o c g n w o r r o b o n y l t n e u q e s n o c , i s g n w o r o b m o r f d e c n a n ﬁ e r e w s t e s s a s k n a B e h t ' f o e n o N . t n e r r u c - n o n e r a t n e m p u q e d n a y t r e p o r p i l l A . l s t e s s a e b g n a t n i i o t e r a w t f o s f o n o i t a c ﬁ i s s a c e r l s t n e s e r p e r ) n o i l l i b 8 2 3 3 N , : 7 1 0 2 ( n o i l l i m 1 8 N f o n o i t a c ﬁ i s s a c e r e h T l . ) l i N : 7 1 0 2 , r e b m e c e D 1 3 ( d o i r e p e h t g n i r u d t n e m p u q e d n a y t r e p o r p i f o n o i t i s i u q c a e h t o t d e t a e r l i s t s o c g n w o r r o b d e s i l a t i p a c o n e r e w e r e h T i s l a c n a n F i 194 4 4 2 6 1 2 , 1 0 5 0 3 , ) 1 8 ( - 2 0 4 4 4 2 , ) 2 6 2 2 ( , I ) P W ( 5 1 0 2 1 , 9 8 1 8 , ) 1 4 ( - - 3 6 1 0 2 , 1 2 0 8 9 , 5 2 6 4 1 , ) 1 ( 8 4 5 0 1 1 , ) 7 9 0 2 ( , 4 5 8 3 3 1 , 3 2 2 8 1 1 , I ) P W ( - - - - - l a t o T s s e r g o r p n i k r o W e l c i h e V r o t o M t f a r c r i A e r u t i n r u F - m i l d o h e s a e L s g n d i l i u B l d o h e s a e L r e t u p m o C t n e m p u q E i d n a s g n i t t fi t n e m p u q e i s t n e m e v o r p 6 1 9 6 1 , 0 5 9 2 , - - ) 8 1 0 1 ( , 8 4 8 8 1 , 0 0 6 2 1 , 8 7 0 6 2 , - - - - 1 1 9 - ) 5 1 ( ) 1 9 ( 0 0 6 2 1 , 3 8 8 6 2 , 4 6 5 5 6 , 8 2 0 1 1 , 1 2 ) 8 3 ( ) 1 4 1 1 ( , 4 3 4 5 7 , 0 8 7 5 1 , 3 9 0 2 , 1 6 5 ) 2 1 ( 5 1 8 8 3 , 1 5 7 4 , 9 1 ) 4 8 ( - 8 1 9 7 1 , 1 0 5 3 4 , 5 5 0 9 2 , l a t o T s s e r g o r p n i k r o W e l c i h e V r o t o M t f a r c r i A e r u t i n r u F - m i l d o h e s a e L s g n d i l i u B l d o h e s a e L r e t u p m o C t n e m p u q E i d n a s g n i t t fi t n e m p u q e i s t n e m e v o r p 1 3 8 2 1 , 5 5 0 2 , - 9 2 9 3 1 , ) 7 5 9 ( 0 6 2 1 , 0 1 2 - - 9 9 9 3 2 , 9 1 4 1 , ) 1 9 ( 2 0 7 4 1 , 9 2 3 5 2 , 1 1 1 3 1 , 9 5 2 1 , ) 4 ( ) 1 1 ( 5 5 3 4 1 , 0 9 3 5 , 6 1 8 1 - 7 0 2 6 , 0 8 4 2 4 , 6 1 8 7 , - ) 8 3 0 1 ( , 8 5 2 9 4 , 6 7 1 6 2 , 4 8 0 3 2 , 3 6 1 0 2 , 5 1 0 2 1 , 9 1 9 4 , 5 8 0 4 , 0 3 1 1 1 , 0 9 3 2 1 , 4 5 5 1 , 9 7 0 2 , 3 6 5 3 , 9 6 6 2 , 4 9 2 7 3 , 5 2 4 3 3 , 5 5 0 9 2 , 6 7 4 8 2 , d n a l 6 7 4 8 2 , 9 7 5 - - - d n a l - - - - - ) d e u n i t n o c ( i t n e m p u q e d n a y t r e p o r P . 5 2 I P W m o r f r e f s n a r t / n o i t a c ﬁ i s s a c e R l r a e y e h t f o t r a t s e h t t A s n o i t i d d A r a e y e h t f o d n e e h t t A s n o i t a c ﬁ i s s a c e R l s l a s o p s i D k n a B t s o C n o i t a i c e r p e D d e t a l u m u c c A r a e y e h t f o t r a t s e h t t A r a e y e h t r o f e g r a h C s n o i t a c ﬁ i s s a c e R l s l a s o p s i D r a e y e h t f o d n e e h t t A 8 1 0 2 , r e b m e c e D 1 3 t A 7 1 0 2 , 1 3 r e b m e c e D t A t n u o m a k o o b t e N t n e m r i a p m i o n e r e w e r e h T n o i t a c ﬁ i s s a c e r e h T l . t s o c t e s s a f o t r a p s a d e z i l i a t i p a c n e e b s a h t s o c g n w o r r o b o n y l t n e u q e s n o c , i s g n w o r o b m o r f d e c n a n ﬁ e r e w s t e s s a s k n a B e h t ' f o e n o N . t n e r r u c - n o n e r a t n e m p u q e d n a y t r e p o r p i l l A . ) l i : N 7 1 0 2 , r e b m e c e D 1 3 ( d o i r e p e h t g n i r u d t n e m p u q e d n a y t r e p o r p i f o n o i t i s i u q c a e h t o t d e t a e r l i s t s o c g n w o r r o b d e s i l a t i p a c o n e r e w e r e h T . l s t e s s a e b g n a t n i i o t e r a w t f o s f o n o i t a c ﬁ i s s a c e r l s t n e s e r p e r ) n o i l l i b 8 2 3 3 N , : 7 1 0 2 ( n o i l l i m 1 8 N f o i s l a c n a n F i 195 ) l i N : 7 1 0 2 , r e b m e c e D 1 3 ( r a e y e h t g n i r u d t n e m p u q e d n a y t r e p o r p i f l o s s a c y n a n o s e s s o l l i i a c n a n F e t a r a p e S d n a d e t a d i l o s n o C e h t o t s e t o N 8 1 0 2 , 1 3 r e b m e c e D d e d n E r a e Y e h t r o f s t n e m e t a t S Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 In millions of Naira 26. Intangible assets Computer software Cost At start of the year Exchange diﬀerence Reclassiﬁcation from PPE WIP (Additions) Additions At end of the year Accumulated amortization At start of the year Exchange diﬀerence Reclassiﬁcation from PPE Disposal Charge for the year At the end of the year Carrying amount at end of the year Group Bank 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 22,099 11,998 19,377 720 81 2,158 3,928 79 3,328 6,228 466 28,905 22,099 - 81 2,158 3,260 24,876 9,761 - 3,328 6,228 60 19,377 9,110 717 1 - 2,399 12,227 16,678 7,353 126 - - 1,631 9,110 12,989 7,289 5,858 - 1 - 2,187 9,477 15,399 - - - 1,431 7,289 12,088 All intangible assets are non current. All intangible assets of the Group have ﬁnite useful life and are amortised over 5 years. The Group does not have internally generated intangible assets. The reclassiﬁcation balance of N81 million (2017: N3,328 billion) represents reclassiﬁcation from property and equipment. 27. Customers' deposits Demand Savings Term Domiciliary Classified as: Current 1,934,766 1,812,843 1,286,187 1,337,839 492,206 462,433 800,890 383,045 572,461 669,566 435,291 368,816 730,772 339,488 460,484 606,714 3,690,295 3,437,915 2,821,066 2,744,525 3,690,295 3,437,915 2,821,066 2,744,525 3,690,295 3,437,915 2,821,066 2,744,525 i s l a c n a n F i 196 In millions of Naira 28. Other liabilities Other financial liabilities Customer deposits for letters of credit Settlement payables Managers' cheques Due to banks for clean letters of credit Deferred income on ﬁnancial guarantee contracts (see note (b) below) Sales and other collections Unclaimed dividend Finance lease obligation (see note (c) below) AMCON payable (see note 43) Electronic card related payables Customer's foreign transactions payables Oﬀ Balance Sheet ECL allowance (see note (a) below) Group 31-Dec- 18 31-Dec-17 Restated* Bank 31-Dec-18 31-Dec-17 Restated* 41,179 31,511 13,195 22,164 509 36,345 5,832 11,568 9,542 4,266 6,286 8,011 69,308 25,296 17,670 47,719 654 29,174 3,521 12,049 9,542 1,687 9,026 - 41,046 31,346 12,317 50,563 508 36,345 5,832 11,568 9,542 3,903 1,025 8,011 69,163 25,198 16,904 47,719 654 29,174 3,521 12,049 9,542 1,505 6,417 Total other financial liabilities 190,408 225,646 212,006 221,846 Non financial liabilities Tax collections Other payables Total other non ﬁnancial liabilities 1,824 39,484 41,308 3,604 13,773 17,377 1,578 9,879 11,457 3,416 4,070 7,486 Total other liabilities 231,716 243,023 223,463 229,332 Classified as: Current Non-current (a) ECL allowance for off balance sheet exposure In millions of Naira Bonds and guarantee contracts Undrawn portion of loan commitments Letters of credit 213,429 18,287 231,716 221,922 21,101 243,023 205,176 18,287 223,463 208,232 21,101 229,333 2018 759 1,941 5,311 8,011 2017 - - - - (b) The amounts above for ﬁnancial guarantee contracts represents the deferred income initially recognised less cumulative amortisation i s l a c n a n F i 197 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 In millions of Naira 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 Group Bank 28. Other liabilities (continued) (c) Finance lease obligation The lease obligation relates to an Aircraft held under a ﬁnance lease arrangement by the Group. The net carrying amount of the air- craft, included within property and equipment is N11.13 billion as at 31 December, 2018. (31 December, 2017: the aircraft, included N12.39 billion) The future minimum lease payments extend over a number of years. This is analysed as follows: Not more than one year Over one year but less than ﬁve years More than ﬁve years Less future ﬁnance charge At end of the year The present value of ﬁnance lease liabilities is as follows: Not more than one year Between one and ﬁve years More than ﬁve years At the end of the year 29. On-lending facilities (a) This comprises: Central Bank of Nigeria (CBN) Commercial Agriculture Credit Scheme Loan (i) Bank of Industry (BOI) Intervention Loan (ii) Central Bank of Nigeria (CBN) / Bank of Indus- try(BOI) - Power & Aviation intervention Funds (iii) CBN MSMEDF Deposit (iv) FGN SBS Intervention Fund (v) Excess Crude Loan Facilty Deposit (vi) Real Sector Support Facility (vii) Non-Oil Export Stimulation Facility (viii) Classified as: Current Non-current 2,760 11,043 10,123 (12,358) 11,568 915 3,656 6,997 2,760 11,043 12,884 (14,638) 12,049 490 3,375 8,184 2,760 11,043 10,123 (12,358) 11,568 915 3,656 6,997 2,760 11,043 12,884 (14,638) 12,049 490 3,375 8,184 11,568 12,049 11,568 12,049 51,735 44,678 16,416 4,223 139,835 88,226 34,276 13,906 57,515 49,375 7,661 4,011 142,999 92,812 28,661 - 51,735 44,678 16,416 4,223 139,835 88,226 34,276 13,906 57,515 49,375 7,661 4,011 142,999 92,812 28,661 - 393,295 383,034 393,295 383,034 - 393,295 393,295 - 383,034 383,034 - 393,295 393,295 - 383,034 383,034 i s l a c n a n F i 198 In millions of Naira 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 Group Bank (b) Movement in on-lending facilities At beginning of the year Addition during the year Repayment during the year At end of the year 383.034 57,194 (46,933) 350.657 34,839 (2,462) 383,034 57,194 (46,933) 350,657 34,839 (2,462) 393,295 383,034 393,295 383,034 (i) The fund received under the Central Bank of Nigeria (CBN) Commercial Agriculture Credit Scheme represents a credit line granted to the Bank for the purpose of providing concessionary funding to the agricultural sector. The facility has a tenor of 16 years with eﬀect from 2009 and will expire in September 2025. The facility attracts an interest rate of 2% per annum and the Bank is under obligation to on-lend to customers at an all-in interest rate of not more than 9% per annum. Based on the structure of the facility, the Bank assumes the default risk of all amounts lent to the Bank's customers. This facility is not secured. (ii) The Central Bank of Nigeria (CBN) / Bank of Industry (B0I) - SME / Manufacturing Intervention Fund represents an intervention credit granted to the Bank for the purpose of reﬁnancing I restructuring existing loans to Small and Medium Scale Enterprises (SMEs) and Manufacturing Companies. The total facility is secured .by Nigerian Government Securities. The value of Government securities pledged as collateral is N50.63 billion (31 December 2018). The maximum tenor for term loans under the programme is 15 years while the tenor for working capital is one year, renewable Annually subject to a maximum tenor of ﬁve years. A management fee of 1% per annum is deductible at source in the ﬁrst year, and quarterly in arrears thereafter, is paid by the Bank under the Intervention programme and the Bank is under obligation to on-lend to customers at an all-In interest rate of 7% per annum. The Bank is the primary obligor to CBN / BOI and assumes the risk of default. (iii) The purpose of granting new loans and reﬁnancing / restructuring existing loans to companies in the power and aviation industries is to support Federal Government's focus on the sectors. The facility is secured by Irrevocable Standing Payment Order (ISPO). The maximum tenor for term loans under the programme is 15 years while the tenor for working capital is one year, with option to renew the facility annually subject to a maximum tenor of ﬁve years. The facility attracts an interest rate of 1% per annum payable quarterly in arrears and the Bank is under obligation to on-lend to customers at an all-in interest rate of 7% per annum. This facility is not secured. (iv) The Micro Small & Medium Scale Enterprises Development Fund (MSMEDF) is an intervention fund established to support the channelling of low interest funds to the MSME sub-sector of the Nigerian economy. The facility attracts an interest rate of 2% per annum and the Bank is obligated to on-lend to SMEs at 9% per annum. The maximum tenor is 5 years while the tenor for working capital is 1 year. This facility is not secured. (v) The Salary Bailout Scheme was approved by the Federal Government to assist State Governments in the settlement of outstanding salaries owed their workers. Funds are disbursed to Banks nominated by beneﬁciary States at 2% for onlending to the beneﬁciary states at 9%. The loans have a tenor of 20 years. Repayments are deducted at source, by the Accountant General of the Federation, as a ﬁrst line charge against each beneﬁciary state’s monthly statutory allocation. This facility is not secured. (vi) Excess Crude Account (ECA) facilities are loans of N10 billion to each State with a tenor of 10-years priced at 9% per annum interest rate to the beneﬁciaries. Repayments are deducted at source, by the Accountant General of the Federation, as a ﬁrst line charge against each beneﬁciary state’s monthly statutory allocation. This facility is not secured. (vii) The Real Sector Support Facility (RSSF): The Central Bank of Nigeria, as part of the eﬀorts to unlock the potential of the real sector to engender output growth, productivity and job creation has established a N300 billion Real Sector Support Facility (RSSF). The facility is disbursed to large enterprises and startups with ﬁnancing needs of N500 million up to a maximum of N10.0 billion. The activities targeted by the Facility are manufacturing, agricultural value chain and selected service sub-sectors. The funds are received from the CBN at 3%, and disbursed at 9% to the beneﬁciary. (Viii) Non-oil Export Stimulation Facility (NESF): This Facility was established by the Central Bank of Nigeria to diversify the economy away from the oil sector, after the fall in crude prices. The Central Bank invested N500billion debenture, issued by Nigerian Export- Import Bank (NEXIM). The facility disbursed per customer shall not exceed 70% of total cost of project, or subject to a maximum of N5billion. Funds disbursed to the Bank from CBN are at a cost of 2% which are then disbursed to qualifying customers at the rate of 9% per annum. i s l a c n a n F i 199 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 Figures in Millions of Naira 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 Group Bank 30. Borrowings Long term borrowing comprise: Due to ADB (i) Due to KEXIM (ii) Due to EIB (iii) Due to PROPARCO (iv) Societe Generale Bank (v) Due to AFC Due to ABSA Bank (vi) Due to J P Morgan Chase Bank (vii) Due to Standard Bank London (viii) Due to Standard Bank South Africa (ix) Due to IFC (x) Due to First Abu Dhabi Bank (xi) Due to British Arab Bank Due to Zenith Bank (UK) (xii) Due to Zenith Bank Ghana (xiii) 29,005 4,726 2,528 10,758 27,209 - 63,175 108,417 36,926 49,023 24,276 81,217 - - - 37,115 5,861 4,628 14,253 - 17,307 50,310 33,198 58,993 66,723 28,116 33,313 6,679 - - 29,005 4,726 2,528 10,758 27,209 - 63,175 108,416 36,926 49,023 24,276 81,217 - 10,437 10,767 37,115 5,861 4,628 14,253 - 17,307 50,310 33,198 58,993 66,723 28,116 33,313 6,679 8,313 54,170 The Group has not defaulted in the payment of principal or interest neither has the Group been in breach of any covenant relating to the liabilities during the year (31 December, 2017: nil). The assets exchanged under repurchase agreements with counterparties are disclosed in note 17. 437,260 356,496 458,463 418,979 Classified as: Current Non-current Movement in borrowings At beginning of the year Addition during the year Repayment during the year At end of the year 345,921 91,339 437,260 356,496 370,606 (289,842) 437,260 - 356,496 356,496 263,106 102,373 (8,983) 356,496 356,357 102,106 458,463 418,979 391,810 (352,326) 458,463 - 418,979 418,979 292,802 193,088 (66,911) 418,979 (i) Due to ADB The amount due to African Development Bank (ADB) of N29.01 billion (US $80.84 million) represents the outstanding balance from a dollar term loan facility to the tune of US $125 million granted by ADB on September 2014. The facility is repayable over 7 years. Interest is payable half-yearly at the rate of 6 months LIBOR + 3.6% per annum. The outstanding balance of N29.01 billion (US $80.51 million) will mature in February 2021. i s l a c n a n F i 200 (ii) Due to KEXIM The amount of N4.73 billion (US $13.17 million) represents the outstanding balance from seven short term loan facilities of US $5.1million, US $4.98million, US $2.28million, US $6.72 million, US $5.58million, US $2.51 million and US $2.52 million granted by The Export-Import Bank of Korea (KEXIM) in February 2018, March 2018, April 2018, May 2018, June 2018, August 2018 and September 2018 respectively. Interest is payable monthly at 3 month LIBOR+1.74% for all running obligations. The outstanding balances are N305.16 million (US $0.85 million), N446.97 million (US $1.25 million), N272.85 million (US $0.76 million), N1.01 billion (US $2.80 million), N1.00 billion (US $2.79 million), N601.49 million (US $1.67 million) and N679.10 million (US $1.89 million) respectively. Final repayments on these facilities are due in November 2018, February 2019, March 2019, April 2019, May 2019, June 2019, August 2019 and September 2019 respectively. (iii) Due to European Investment Bank The amount due to European Investment Bank (EIB) of N2.53 billion ($7.04 million) represents the outstanding balance from the 6-year dollar facility of US $27.32 million, with two (2) years moratorium, granted by the European Investment Bank (EIB) in 2013. Interest is payable at the rate of 6 months LIBOR + 2.74% per annum. The outstanding balance of N2.53 billion ($7.04 million) from the facility will mature in July 2019. (iv) Due to Proparco The amount due to Propaco of N10.76 billion (US $29.98 million) represents the outstanding balance of two tranches of the credit facilities to the tune of US $25m and US $50m granted by Promotion et Participation pour la Coopération économique (PROPARCO) in February and December 2013 respectively. The facilities are priced at 6 months Libor+3.76% and 6 months Libor+3.71% per annum and will mature in April 2020 and April 2021 respectively. Interest on each of the facilities are payable semi-annually. The outstanding balances for each facilities are N2.27 billion (US $6.32 million) and N8.49 (US $23.66 million) respectively. US$75 million granted by Societe Generale Bank in September 2018. Interest is payable on maturity at a Fixed rate of 5.00% and will mature in September 2019. (vi) Due to ABSA The amount of N63.18 billion (US $176.08 million) represents the amount payable by the Bank on dollar repurchase facilities of US$100 million and US$75 million granted by ABSA in September 2018 and November 2018 respectively. Interest is payable on maturity at a ﬁxed rate of 4.95% and 5.20% per annum respectively. The facilities will mature in September 2019 and November 2019. (vii) Due to JP Morgan The amount of N108.42 billion (US $302.17 million) represents the outstanding balance on three short-term dollar facilities, each of US $100 million granted to the Bank in June, July and August 2018 by JP Morgan. Interest is payable upon maturity at the rate of 4.97%, 4.95% and 5.1% per annum and the facility will mature in March 2019, January 2019 and August 2019 respectively. (viii) Due to Standard Bank London The amount of N36.93 billion (US $102.92 million) represents the amount payable by the Bank from seven short term facilities of US $24.88 million, US $15 million, US $3.74 million, US $5.73 million, US $19.19 million, US $21.5 million and US $10.85 million granted by Standard Bank London in May 2018 (US $24.88 million, US $3.74 million, US $5.73 million and US $19.19 million), August 2018 (US $21.5 million) and September 2018 (US $10.85 million) and November 2018 (US $15 million). Interest is payable at maturity at 4.81% (US $24.88 million), 5.35% (US $15 million), 4.80% (US $3.74 million), 4.78% (US $5.73 million), 4.78% (US $19.19 million), 4.92% (US $21.5 million) and 4.91% (US $10.85 million). The facilities will mature in May 2019 (US $24.88 million), October 2019 (US $15 million), April 2019 (US $3.74 million), January 2019 (US $5.73 million and US $19.19 million), August 2019 (US $21.5 million and US $10.85 million). (v) Societe Generale Bank The amount of N27.21 billion (US $75.83 million) represents the amount payable by the Bank on a dollar repurchase facility of (ix) Due to Standard Bank South Africa The amount of N49.02 billion ($136.63 million) represents the outstanding balance on two dollar short-term facilities of US $60 i s l a c n a n F i 201 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 million and US $75 million granted by Standard Bank of South Africa in April 2018 and July 2018 respectively. The ﬁrst facility is priced at 3 months LIBOR plus 5% and the second facility at 3 months LIBOR plus 2.78%. The ﬁrst facility is due to mature in April 2019, while the second facility has a maturity date in October 2020. (x) Due to IFC The amount of N24.28 billion (US $67.66 million) represents the amount payable by the Bank from a term loan facility of US $100million, with a 1.5 year moratorium, granted by International Finance Corporation (IFC) in June 2015. Interest is payable semi annually at 6 months LIBOR plus 4.5% per annum and the facility will mature in September 2022. (xi) Due to First Abu Dhabi Bank The amount of N81.22 billion ($226.36 million) represents the outstanding balance on three dollar short-term facilities of US $75 million, US $100 and US $50 million granted by First Abu Dhabi Bank in March 2018, August 2018 and September 2018 respectively. The ﬁrst facility is priced at 3-month LIBOR plus 2.5% spread payable quarterly and would mature in February 2018, the second facility is priced at 4.95% payable at maturity and would mature in August 2019 while the third facility is priced at 4.95% payable quarterly and would mature in September 2019. (xii) Due to Zenith Bank UK The amount of N10.44 billion (US $29.08 million) represents a short dollar Term Loan facility of US $29 million from Zenith Bank UK granted in September 2018. It is priced at 5.0% with interest payable quarterly and principal payable at maturity date of March 2019. This amount has been eliminated on consolidation. (xiii) Due to Zenith Bank Ghana The amount N10.77 billion ($30.01 million) represents the outstanding balance on a short-term dollar facility of US $30 million availed to the Bank by Zenith Bank Ghana in December 2018. The facility priced at 7.5% per annum and is due to mature in December 2021. This amount has been eliminated on consolidation. 31. Debt securities issued in Millions of Naira Due to Euro bond holders Group Bank 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 361,177 361,177 332,931 332,931 361,177 361,177 332,931 332,931 The amount of N361 billion ($1 billion) represents the outstanding balance due on the two tranches of US $500 million Eurobond notes issued by Zenith Bank Plc in April 2014 and May 2017 with a maturity date of April 2019 and May 2022 respectively. Interest is priced at 6.25% for the ﬁrst tranche and 7.375% for the second tranche; both payable semi-annually with a bullet repayment of the principal sum at maturity. The total amount is non-current. The Group has not had any defaults of principal, interest or other breaches with respect to the debt securities during the year (December 31, 2017: Nil). Movement in debt securities issued At start of the period/year Revaluation loss for the year Additional issue Contractual repayment Accrued interest during the year At end of the year 332,931 27,778 (24,443) 24,911 361,177 153,464 6,064 152,239 21,164 332,931 332,931 27,778 (24,443) 24,911 361,177 153,464 6,064 152,239 21,164 332,931 i s l a c n a n F i 202 in Millions of Naira 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 Group Bank Classified as: Current Non-current 32. Derivative liabilities Instrument types: Forward contracts Fair value of liabilities Futures contracts Fair value of liabilities Classified as: Current Non-current 180,720 180,457 361,177 332,931 332,931 180,720 180,457 361,177 332,931 332,931 16,236 6,124 16,236 6,124 759 16,995 16,995 - 16,995 14,681 20,805 20,805 - 20,805 759 16,995 16,995 - 16,995 14,681 20,805 20,805 - 20,805 The Group enters into currency forward contracts with counterparties. On initial recognition, the Group estimates the fair value of derivatives transacted with the counterparties using valuation techniques. In many cases, all signiﬁcant inputs into the valuation techniques are wholly observable reference being made to similar transactions in the wholesale dealer market. During the year, various forward contracts entered into by the Bank generated net loss of N16.78 billion (31 December 2017 net gain of N68.70 billion) which were recognized in the statement of proﬁt or loss and other comprehensive income. These net loss/gains related to the fair values of the forward contracts, producing derivative assets and liabilities of N88.8 and N17.0 billion respectively (31 December, 2017 N57.2 and N20.8 billion respectively). 33. Share capital Authorised 40,000,000,000 ordinary shares of 50k each (31 Dec 2017: 40,000,000,000 ) 20,000 20,000 20,000 20,000 Issued and fully paid 31,396,493,786 ordinary shares of 50k each (31 Dec 2017: 31,396,493,786) 15,698 15,698 15,698 15,698 Issued Ordinary Share premium 15,698 15,698 15,698 15,698 255,047 255,047 255,047 255,047 270,745 270,745 270,745 270,745 There was no movement in the share capital account during the year. The holders of ordinary shares are entitled to receive dividends, which are declared from time to time, also each shareholder is entitled to a vote at the meetings of the Bank. All ordinary shares rank equally with regards to the Group's residual assets. i s l a c n a n F i 203 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 34. Share premium, retained earnings and other reserves (a) There was no movement in the Share premium account during the current and prior year. in Millions of Naira Share premium Group Bank 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 255,047 255,047 255,047 255,047 The nature and purpose of the reserves in equity are as follows: (b) Share premium: Premiums from the issue of shares are reported in share premium. represent (c) Retained earnings: Retained earnings undistributed proﬁts, net of statutory appropriations attributable to the ordinary shareholders. (i) Classification and Measurement of Financial Assets and Liabilities IFRS 9 requires that we classify debt instruments based on our business model for managing the assets and the contractual cash ﬂow characteristics of those assets. The business model test determines the classiﬁcation based on the business purpose for holding the asset. Debt instruments will be measured at fair value through proﬁt and loss unless certain conditions are met that permit measurement at fair value through other comprehensive income (FVOCI) or amortized cost. Debt instruments that have contractual cash ﬂows representing only payments of principal and interest will be eligible for classiﬁcation as FVOCI or amortized cost. Gains and losses recorded in other comprehensive income for debt instruments will be recognized in proﬁt or loss only on disposal. Equity instruments would be measured at fair value through proﬁt or loss unless we elect to measure them at FVOCI. Future unrealized gains and losses on fair value through proﬁt or loss equity instruments will be recorded in income. For equity instruments we elect to record at FVOCI, gains and losses would never be recognized in income. The classiﬁcation and measurement requirements of ﬁnancial assets and liabilities of IFRS 9 issued in 2014 are the same as IFRS 9 issued in 2009. The Group early adopted IFRS 9 issued in 2009 which already incorporated these classiﬁcation and measurement requirements in the ﬁnancial year beginning on 1 January 2009. Therefore, the adoption of IFRS 9 issued in 2014 did not cause any change to the classiﬁcation and measurement of the Group's ﬁnancial instrument. (ii) Impact of IFRS 9 (issued in 2014) on Retained Earnings The following table analyses the impact, net of tax, of transition to IFRS 9 on retained earnings. The impact relates to retained earnings. There is no impact on other components of equity. Group in Millions of Naira Retained earnings Closing balance under lAS 39 (31 Decem- ber 2017)* Recognition of expected credit losses under IFRS 9: Impact of adopting IFRS 9 2018 356,837 - Loans and advances (and other assets) (101,363) Investment Securities Asset pledged as collateral Treasury bills Oﬀ balance sheet exposure Less portion from NCI Opening balance under IFRS 9 (1 Janu- ary 2018) (1,773) (1,202) (1,305) (2,526) 53 248,721 i s l a c n a n F i 204 Bank in Millions of Naira Retained earnings Closing balance under lAS 39 (31 December 2017)' Recognition of expected credit losses under IFRS 9: Loans and advances Investment Securities Asset pledged as collateral Treasury bills Oﬀ balance sheet exposure Opening balance under IFRS 9 (1 January 2018) * See note 43 Impact of adopting IFRS 9 2018 287,867 - (99,233) (358) (1,202) (1,186) (1,571) 184,317 (d) Statutory reserve: This reserve represents the cumulative appropriation from general reserves/earnings in line with Nigerian banking regulations that require the Bank to make an annual appropriation in reference to speciﬁc rules. Section 16(1) of the Bank and Other Financial Institutions Act of 1991 (amended), stipulates that an appropriation of 30% of proﬁt after tax be made if the statutory reserve is less than the paid- up share capital and 15% of proﬁt after tax if the statutory reserve is greater than the paid-up share capital. In the current year, a total of N24.82 billion (31 December, 2017: N22.95 billion) representing 15% of Zenith Bank's proﬁt after tax was appropriated. (e) SMIEIS/AGSMIES reserves: This reserve represents the aggregate amount of appropriations from proﬁt after tax to ﬁnance equity investments in compliance with the directives issued by the Central Bank of Nigeria (CBN) through its circulars dated July 11, 2006 (amended) and April 7, 2017 respectively. The SMIEIS reserve was maintained in compliance with the Central Bank of Nigeria's requirement that all licensed banks set aside a portion of the proﬁt after tax in a fund to be used to ﬁnance equity investments in qualifying small and medium scale enterprises. Under the terms of the guideline issued in July 2006, the contributions were 10% of proﬁt after tax and were expected to continue after the ﬁrst 5 years after which banks’ contributions were to reduce to 5% of proﬁt after tax. In April 2017, the Central Bank of Nigeria issued guidelines to govern the operations of the Agriculture/Small and Medium Enterprises Scheme (AGSMIES), which was established to support the Federal Government's eﬀorts at promoting agricultural businesses and Small and Medium Enterprises (SMEs) as vehicles for achieving sustainable economic development and employment generation. The small and medium scale industries equity investment scheme reserves are non-distributable. (f) Fair value reserve: Comprises fair value movements on equity instruments that are carried at fair value through other comprehensive income. (g) Foreign currency translation reserve: Comprises exchange diﬀerences resulting from the translation to Naira of the results and ﬁnancial position of Group companies that have a functional currency other than Naira. (h) Regulatory reserve for credit risk: This reserve represents the cummulative diﬀerence between the loan loss provision determined per the Prudential Guidelines and the allowance/reserve for loan losses as determined in line with the principles of IFRS 9. As at 31 December, 2018, there was a reversal of N8.1 billion from the credit risk reserve to general reserve (31 December, 2017: transfer of N8.1 billion). This reserve is not available for distribution to shareholders. 35. Pension contribution In accordance with the provisions of the Pensions Reform Act 2014, the Bank and its subsidiaries commenced a contributory pension scheme in January 2005. For entities operating in Nigeria, the contribution by employees and the employing entities are 5% and 13% respectively of the employees' basic salary, housing and transport allowances. Entities operating outside Nigeria contribute in line with the relevant pension laws in their jurisdictions. The contribution by the Group and the Bank during the year were N4.05 billion and N3.15 billion respectively (31 December, 2017: N1.52 billion and N1.19 billion). i s l a c n a n F i 205 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 In millions of Naira 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 Group Bank 36. Personnel expenses Compensation for the staﬀ are as follows: Other staﬀ costs Pension contribution 6,547 4,052 68,556 7,107 3,955 64,459 5,536 3,150 56,657 6,340 3,151 55,672 (a) The average number of persons employed during the year by category: Executive directors Management Non-management Number Number Number Number 14 443 7,137 7,594 11 428 6,635 7,074 6 387 5,860 6,253 5 380 5,496 5,881 The table below shows the number of employees, whose earnings during the year, fell within the ranges shown below: N300,001 - N2,000,000 N2,000,001 - N2,800,000 N2,800,001 - N4,000,000 N4,000,001 - N6,000,000 N6,000,001 - - N8,000,000 N8,000,001 - N9,000,000 N9,000,001 - and above Number Number Number Number 1,566 107 706 1,015 1,421 841 1,938 7,594 869 27 779 1,716 1,223 796 1,664 7,074 1,114 - 626 849 1,225 833 1,606 6,253 472 - 759 1,556 1,009 670 1,415 5,881 i s l a c n a n F i 206 Group Bank 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 In millions of Naira (b) Directors' emoluments The remuneration paid to directors are as follows: Executive compensation Fees and sitting allowances Fees and other emoluments disclosed above include amounts paid to: The Chairman The highest paid director 1,048 370 1,418 773 706 1,419 550 185 735 28 125 305 246 551 34 88 The number of directors who received fees and other emoluments (excluding pension contributions and reimbursable expenses) in the following ranges was: N5,500,001 and above 39 33 13 10 Number Number Number Number 37. Group subsidiaries and related party transactions Parent: Zenith Bank Plc (incorporated in Nigeria) is the ultimate parent company of the Group Subsidiaries: Transactions between Zenith Bank Plc and its subsidiaries which are eliminated on consolidation are not separately disclosed in the consolidated ﬁnancial statements. The Group's eﬀective interests and investments in subsidiaries as at 31 December, 2018 are shown below. Entity Foreign/banking subsidiaries: Zenith Bank (Ghana) Limited Zenith Bank (UK) Limited Zenith Bank (Sierra Leone) Limited Zenith Bank (Gambia ) Limited Zenith Pensions Custodian Limited Zenith Nominee Limited Effective holding % Nominal share capital held 98.07% 100.00% 99.99% 99.99% 99.00% 99.99 % 6,444 21,482 2,059 1,038 1,980 1,000 i s l a c n a n F i 207 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 31 December, 2018 Transactions and balances with subsidiaries In millions of Naira Receivable from Payable to Income received from Expense to Zenith Bank (UK) Limited Zenith Bank (Ghana) Limited Zenith Bank (Sierra leone) Limited Zenith Bank (Gambia) Limited Zenith Pensions Custodian Limited 31 December, 2017 38,836 14,169 2,876 97 200 74,828 491 88 59 2 - 2 52 1 134 - - - 3,600 2,288 Transactions and balances with subsidiaries In millions of Naira Receivable from Payable to Income received from Expense paid to Zenith Bank (UK) Limited Zenith Bank (Ghana) Limited Zenith Bank (Sierra leone) Limited Zenith Bank (Gambia) Limited Zenith Pensions Custodian Limited Significant restrictions - 880 103 92 - 8,313 54,170 - - 239 - - - - - 29 - - - 3,058 The Group does not have signiﬁcant restrictions on its ability to access or use its assets and settle its liabilities other than those resulting from the supervisory frameworks within which banking subsidiaries operate. The supervisory frameworks require banking subsidiaries to keep certain levels of regulatory capital and liquid assets, limit their exposure to other parts of the Group and comply with other ratios. See notes 3.4, 3.6 and 4.4b for disclosures on liquidity, capital adequacy, and credit risk reserve requirements respectively. The carrying amounts of banking subsidiaries' assets and liabilities are N1,138 billion and N986 billion respectively (31 December, 2017: N748.54 billion and N713.66 billion respectively). Non controlling interest in subsidiaries The Group does not have any subsidiary that has material non controlling interest. Key management personnel Key management personnel is deﬁned as the Group's executive management, including their close members of family and any entity over which they exercise control. Close members of family are those family members who may be expected to inﬂuence, or be inﬂuenced by that individual in their dealings with the Group. In millions of Naira 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 Group Bank Key management compensation Key management compensation Retirement beneﬁt cost Fees and sitting allowances 1,222 20 262 1,504 773 30 676 1,479 724 7 77 808 305 3 243 551 i s l a c n a n F i 208 Loans and advances At start of the year Granted during the year Repayment during the year At end of of the year Interest earned 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 199 1,016 (35) 1,180 41 292 - (93) 199 15 225 824 (27) 1,022 41 264 - (39) 225 15 Loans to key management personnel include mortgage loans and other personal loans which are given under terms that are no more favourable than those given to other staﬀ. No speciﬁc impairment has been recognised in respect of loans granted to key management (December 31, 2017: Nil) as they are performing. Mortgage loans amounting to N1,180 million (December 31, 2017: N699 million) are secured by the underlying assets. All other loans are unsecured. 31 December, 2018 Name of company Relationship/Name Loans Deposits Interest received Interest paid Cyberspace Network Common signiﬁcant shareholder/Jim Ovia Quantum Fund Management Common signiﬁcant shareholder/Jim Ovia Zenith General Insurance Company Ltd Common directorship/Jim Ovia Directors deposits Sirius Lumina Ltd - Director / Prof. Sam Enwemeka - - - - 3 3 226 32 968 1,660 - 2,886 - - 8 6 - 14 - - - - - 31 December, 2017 Name of company Relationship/ Name Loans Deposits Interest received Interest paid Cyberspace Network Common directorship/Jim Ovia Quantum Fund Management Common directorship/Jim Ovia Zenith General Insurance Company Ltd Common directorship/Jim Ovia Zenith Trustees Limited Director and relations Common directorship/Jim Ovia - - - - - - 692 64 1,051 1 301 2,109 3 - - - - 4 7 - 9 1 1 11 Interest charged on loans to related parties and interest and other fees paid to related parties are similar to what would be charged in an arms' length transaction. Loans granted to related parties are secured over real estate and other assets of the respective borrowers. No impairment has been recognised in respect of loans granted to related parties (31 December, 2017: Nil). During the year, Zenith Bank Plc paid N1.86 billion as insurance premium to Zenith General Insurance Limited (31 December, 2017: N2.12 billion). These expenses were reported as operating expenses. The amount of N3,425 billion (31 December, 2017: N2,962 billion) represents the full amount of the Group's guarantee for the assets held by its subsidiary, Zenith Pensions Custodian Limited under the latter's custodial business as required by the National Pensions Commission of Nigeria. Aside from the Guarantee on the asset held by our subsidiary Zenith Pension Custodian Limited, the Group does not have any contingent liabilities in respect of related parties. i s l a c n a n F i 209 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 The Bank entered into a ﬁnance lease contract in October 2017 with Oviation Limited. Oviation Limited has two common Directors with Zenith Bank. The ﬁnance lease agreement has Zenith Bank as lessee for a Gulfstream jet over a tenor of 10 years with annual lease payments of 2.76 billion Naira. The lease transaction was conducted at arm’s length and the lease obligation as at year end 31 December, 2018 (Note 28c) was11.57 billion ( 31 December, 2017 – 12.05 billion) The Bank paid N12,192 million (31 December, 2017 N13,213 million) to Cyberspace Network for various Information technology services rendered during the year. 38. Contingent liabilities and commitments (a) Legal proceedings The Group is presently involved in 195 litigation suits in the ordinary course of business. The total amount claimed in the cases against the Group is estimated at N28 billion (31 December, 2017: N48.63 billion). The actions are being contested and the Directors are of the opinion that none of the aforementioned cases is likely to have a material adverse eﬀect on the Group and are not aware of any other pending or threatened claims and litigations. (b) Capital commitments At the reporting date, the Group had capital commitments amounting to N6.24 billion (31 December, 2017: N5.72 billion) in respect of authorized and contracted capital projects. (c) Confirmed credits and other obligations on behalf of customers In the normal course of business the Group is a party to ﬁnancial instruments with oﬀ-balance sheet risk. These instruments are issued to meet the credit and other ﬁnancial requirements of customers. The contractual amounts of the oﬀ-balance sheet ﬁnancial instruments are: Group Bank 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 Performance bonds and guarantees (see note i below) Usance (see note ii below) Letters of credit (see note ii below) 327,123 147,189 356,939 492,927 141,283 381,917 831,251 1,016,127 Pension Funds (See Note iii below) 3,425,398 2,961,650 306,412 147,189 321,754 775,355 3,425,398 445,913 141,283 287,645 874,841 2,961,650 (i) The transaction related performance bonds and guarantees are, generally, short-term commitments to third parties which are not directly dependent on the customer's creditworthiness. As at 31 December, 2018, performance bonds and guarantees worth N59.4 billion (31 December, 2017: N86.3 billion) are secured by cash while others are otherwise secured. (ii) Usance and letters of credit are agreements to lend to a customer in the future, subject to certain conditions. Such commitments are either made for a ﬁxed period, or have no speciﬁc maturity dates, but are cancellable by the Group (as lender) subject to notice requirements. These Letters of credit are provided at market-related interest rates and cannot be settled net in cash. Usance and letters of credit are secured by diﬀerent types of collaterals similar to those accepted for actual credit facilities. i s l a c n a n F i 210 (iii) The amount of N3,425 billion (31 December, 2017: N2,962 billion) represents the full amount of the Group's guarantee for the assets held by its subsidiary, Zenith Pensions Custodian Limited under the latter's custodial business as required by the National Pensions Commission of Nigeria. 39. Dividend per share Group Bank 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 Dividend proposed Number of shares in issue and ranking for dividend Proposed dividend per share (Naira) Interim dividend paid (Naira) Final dividend per share proposed Dividend paid during the year Interim dividend paid during the year Total dividend paid during the year 87,910 31,396 2.80 0.30 2.50 76,921 9,419 86,340 84,771 31,396 2.70 0.25 2.45 55,572 7,850 63,422 87,910 31,396 2.80 0.30 2.50 76,921 9,419 86,340 84,771 31,396 2.7 0.25 2.45 55,572 7,850 63,422 The Board of Directors, pursuant to the powers vested in it by the provisions of Section 379 of the Companies and Allied Matters Act of Nigeria, Cap C20 LFN 2004, proposed an interim dividend of N0.30 and a ﬁnal dividend of N2.50 per share (31 December, 2017: interim; N0.25, ﬁnal; N2.45) from the retained earnings account as at 31 December, 2018. This is subject to approval by shareholders at the next Annual General Meeting. The number of shares in issue and ranking for dividend represents the outstanding number of shares as at 31 December, 2018 and 31 December, 2017 respectively. Dividends are paid to shareholders net of withholding tax at the rate of 10% in compliance with extant tax laws. 40. Cash and cash equivalents For the purposes of the statement of cash ﬂow, cash and cash equivalents include cash and non-restricted balances with central banks, treasury bills maturing within three months, operating account balances with other banks, amounts due from other banks. In millions of Naira 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 Group Bank Cash and cash balances with central bank (less mandatory reserve deposits) Treasury bills (maturing within 3 months) (see note 16) Due from other banks 248,945 310,549 196,602 260,180 23,819 109,990 20,847 - 674,274 947,038 495,803 916,342 393,466 610,915 273,331 533,511 i s l a c n a n F i 211 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 41. Compliance with banking regulations During the year, the Bank incurred the following penalties due to contraventions of the regulations of the Banks and Other Financial Institutions Act, 1991. S/N Descripton Amount Paid in Naira 1 2 3 Penalty imposed for the application of excess charges on status enquiry. Penalty for opening of branch in Dubai by Zenith Bank Plc without CBN approval and for failing to discharge penalty. Penalty for dismissed/terminated staﬀ and additional penalty for failure to discharge within the stipulated timeframe. 2,000,000 4,000,000 4,000,000 10,000,000 42. Events after the reporting period No signiﬁcant event that requires disclosure occured between the reporting date and the date when the ﬁnancial statements were issued. 43. Prior period restatement The Central Bank of Nigeria (CBN), pursuant to Section 9(c) of the AMCON(Amended) Act 2015, informed the Bank of its shortfall in contributions to the Banking Sector Resolution Cost Sinking Fund for the years 2016 and 2017. The shortfalls arose as a result of the erroneous application of the resolution Trust Deed’s deﬁnition of ”Total Assets”. The deﬁnition of "Total Assets" was amended in 2015 to include oﬀ balance sheet items. However, the contribution made by the Bank did not include the oﬀ balance sheet items. The actual payments for the shortfalls will be spread over a ﬁve year period commencing in 2019 as speciﬁed by the CBN. The full shortfall of N9.5 billion (N5.4billion- 2016 and N4.1billion- 2017), which is material to the Group has been adjusted for in these ﬁnancial statements. Consolidated statement of profit or loss and OCI 31 December, 2017 In millions of Naira Operating expenses Other expenses Proﬁt after tax Total comprehensive income *See note 44 As previously reported (148,346) 326,279 177,933 180,615 Group Bank Adjustments As restated Adjustments As restated As previously reported (4,142) (152,488)* (135,995) (4,142) (140,137)* - 326,279 293,140 - 293,140 (4,142) 173,791 157,145 (4,142) 153,003 (4,142) 176,473 154,594 (4,142) 150,452 i s l a c n a n F i 212 Consolidated statement of profit or loss and OCI 1 January, 2017 In millions of Naira Total asset Other liabilities Others Total liabilities Retained earnings Others As previously reported 4,739,825 208,680 3,826,680 Group Bank Adjustments As restated Adjustments As restated As previously reported - 4,739,825 4,283,736 - 4,283,736 5,400 214,080 243,736 5,400 249,136 - 3,826,680 3,423,647 - 3,423,647 4,035,360 5,400 4,040,760 3,667,383 5,400 3,672,783 267,008 437,457 (5,400) 261,608 218,507 (5,400) 213,107 - 437,457 397,846 - 397,846 Total shareholders' equity 704,465 (5,400) 699,065 616,353 (5,400) 610,953 31 December, 2017 In millions of Naira Total asset Other liabilities Others Total liabilities Retained earnings Others Group Bank As previously reported 5,595,253 Adjustments As restated Adjustments As restated As previously reported - 5,595,253 4,283,736 - 4,283,736 233,481 9,542 243,023 219,790 9,542 229,332 4,540,114 4,773,595 365,757 455,901 - 4,540,114 3,906,343 - 3,906,343 9,542 (9,542) 4,783,137 4,126,133 9,542 4,135,675 356,215 296,787 (9,542) 287,245 - 455,901 410,738 - 410,738 Total shareholders' equity 821,658 (9,542) 812,116 707,525 (9,542) 697,983 44. Comparatives During the year expenses on electronic products was reclassiﬁed to fee and commission expense in order to present al revenue and expenses relating to fees and commission. Prior year comparatives for the year ended 31 December 2017 have also been adjusted to reﬂect this principle as presented in the notes below. Restated operating expenses In millions of Naira Group 31-Dec-17 Bank 31-Dec-17 Amount previously reported (see note 9) Expenses on electronic products Amount as restated Restated Net income on fees and commission In millions of Naira Amount previously reported Less: Fee and commission expense Amount as restated 152,488 (7,595) 144,893 90,143 (7,595) 82,548 140,137 (7,285) 132,852 72,846 (7,285) 65,561 i s l a c n a n F i 213 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 Group 2018 2017 Bank 2018 2017 In millions of Naira 45. Statement of cash flow workings (i) Debt securities (see note 21) 31 December, 2018 Debt securities at fair value through profit or loss 32,266 (1,990) 1,978 (27,408) 124 - 4,970 (25,306) Debt securities at amortised cost 284,584 - 230,573 (10,086) 8,083 - 513,154 228,570 Debt securities at fair value through profit or loss 32,266 (1,990) 1,978 (27,408) 124 - 4,970 (25,306) Debt securities at amortised cost 71,447 27,475 (1,252) 4,838 - 102,508 31,061 - (203,264) - (5,755) Debt securities at fair value through profit or loss 9,702 368 - 22,196 - - - 32,266 22,196 Debt securities at amortised cost 173,124 - 952 171,908 (75,541) 26,684 (12,543) 284,584 110,508 Debt securities at fair value through profit or loss 9,702 368 - 22,196 - - - 32,266 22,196 Debt securities atamortised cost 92,268 - - 72,942 (95,432) 11,211 (9,542) 71,447 (20,821) - (132,704) - (1,375) At 1 January 2018 Gains from changes in fair value recognised in proﬁt or loss (see note 21) Additions Disposals (sale, transfers and redemption) Interest accrued Coupon received Movement for cash ﬂow statement Recognised in cash flow statement 31 December, 2017 At 1 January 2017 Gains/(losses) from changes in fair value recognised in other comprehensive income (see note 11) Exchange diﬀerences Additions Disposals (sale and redemption) Gains from changes in fair value recognised in proﬁt or loss (see note 10) Movement for cash ﬂow statement Recognised in cashflow statement i s l a c n a n F i 214 In millions of Naira 2018 2017 2018 2017 Group Bank (ii) Treasury bills (Amortised cost) (see note 16) 31 December, 2018 Treasury bills (Amortised cost) Treasury bills (with 3 months maturity) Changes Recognised in Cashflow statement 31 December, 2017 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 490,319 (23,819) 466,500 (187,329) 389,161 (109,990) 279,171 306,802 (20,847) 285,955 (33,619) 252,336 - 252,336 31-Dec-17 31-Dec-16 31-Dec-17 31-Dec-16 Treasury bills (Amortised cost) Treasury bills (with 3 months maturity) Changes Recognised in Cashflow statement 389,161 (109,990) 279,171 76,739 482,978 (127,068) 355,910 252,336 - 252,336 24,495 389,406 (112,575) 276,831 (iii) Treasury bills (FVTPL) (see note 16) 31 December, 2018 Treasury bills (FVTPL) Recognised in Cashflow 31 December, 2017 Treasury bills (FVTPL) Recognised in Cashflow (iv) Loans and advances (see note 20) 31 December, 2018 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 510,313 37,343 547,656 510,313 37,343 547,656 31-Dec-17 31-Dec-16 31-Dec-17 31-Dec-16 547,656 (473,275) 74,381 547,656 74,381 (473,275) Gross loans and advances 2,016,520 2,252,172 1,921,064 2,117,069 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 Changes Write oﬀ 235,652 (73,962) 161,690 - - - 196,005 (60,235) 135,770 - - - i s l a c n a n F i 215 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 In millions of Naira 2018 2017 2018 2017 Group Bank In millions of Naira 31 December, 2017 Gross loans and advances 2,252,172 2,360,809 2,117,069 2,193,224 31-Dec-17 31-Dec-16 31-Dec-17 31-Dec-16 Changes Write-back (speciﬁc) Write-back (collective) (v) Customer deposits 31 December, 2018 As per ﬁnancial statement Changes Interest payables 31 December, 2017 108,637 (6,535) (7,196) 94,906 - - - - 76,155 (6,535) (7,196) 62,424 - - - - 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 3,690,295 252,380 - 3,437,915 2,821,066 2,744,525 454,294 1,112 76,541 - 191,562 1,112 252,380 454,294 76,541 191,562 As per ﬁnancial statement 3,437,915 2,983,621 2,744,525 2,552,963 Changes 454,294 454,294 - - 191,562 191,562 - - 31-Dec-17 31-Dec-16 31-Dec-17 31-Dec-16 vi) Other liabilities (see note 29) 31 December, 2018 As per statement of ﬁnancial position Changes Finance lease repayments oﬀ balance sheet ECL allowance VAT paid 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 231,716 11,307 (2,760) 8,011 (260) 243,023 (24,801) - - (2,235) 223,463 5,869 (2,760) 8,011 (260) 229,332 23,946 - - (1,814) 22,132 Net cash movement (16,298) (27,036) (10,860) i s l a c n a n F i 216 In millions of Naira In millions of Naira 31 December, 2017 As per statement of ﬁnancial position Changes VAT paid Net cash movement Group Bank 2018 2017 2018 2017 31-Dec-17 31-Dec-16 31-Dec-17 31-Dec-16 243,023 (28,944) 2,235 26,709 214,080 229,332 249,136 - - - 19,804 (1,814) (17,990) - - - (vii) Profit on disposal of property and equipment 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 Cost (see note 25) Accummulated depreciation (see note 25) Net book value Sales proceed Profit on Disposal (see note 10) 4,157 (926) 3,231 3,490 259 1,630 (1,446) 184 241 57 2,262 (2,097) 165 406 241 1,630 (1,446) 184 206 22 (viii) Interest received Interest income as per ﬁnancial statement Interest receivables Recognised in cash flow statement (ix) Interest paid Interest income as per ﬁnancial statement Interest payables Recognised in cash flow statement (x) Other assets Other assets (see note 24) Changes Write oﬀ of asset Recognised in cash flow statement 31-Dec-18 440,052 (5,206) 434,846 31-Dec-17 474,628 - 474,628 31-Dec-18 367,816 31-Dec-17 420,210 (2,691) 365,125 - 420,210 31-Dec-18 144,458 (10,257) 134,201 31-Dec-17 216,637 (21,164) 195,473 31-Dec-18 124,156 31-Dec-17 200,672 (7,922) 116,234 (21,164) 179,508 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 79,678 7,568 (4,518) 3,050 87,246 74,652 50,804 - - - (23,848) (4,518) (28,366) - - - i s l a c n a n F i 217 Zenith Bank Plc Annual Report December 31, 2018 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2018 In millions of Naira 2018 2017 2018 2017 Group Bank Other assets Changes Recognised in cash flow statement (xi) Asset pledged as collateral Asset pledged as collateral Recognised in cashflow (xii) Derivative Asset Forward contract Future contract Recognised in cashflow 31-Dec-17 31-Dec-16 31-Dec-17 31-Dec-16 92,494 (54,981) (54,981) 37,513 - - 56,052 (20,642) (20,642) 35,410 - - 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 592,935 - (124,925) 468,010 468,010 592,935 592,935 - (124,925) 468,010 468,010 - 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 87,467 1,359 88,826 (31,607) 42,285 14,934 57,219 25,641 87,467 1,359 88,826 42,285 14,934 57,219 (31,607) 25,641 (xiii) Restricted balances (Cash Reserve) Mandatory reserve deposit with central bank Special Cash Reserve Recognised in cashflow 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 624,78 80,689 705,471 (58,357) 566,425 80,689 647,114 624,782 80,689 705,471 566,396 80,689 647,085 (118,930) (58,386) (119,078) (xiv) Derivative liabilities Group Group Bank Bank Forward Contract Futures Contract Recognised in cashflow 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 16,236 759 16,995 (3,810) 6,124 14,681 20,805 (46,029) 16,236 759 16,995 (3,810) 6,124 14,681 20,805 (46,029) i s l a c n a n F i 218 Other National Disclosures04Zenith Bank Plc Annual Report December 31, 2018 Value Added Statement In millions of Naira Group Gross income Interest expense - Local - Foreign Impairment loss on ﬁnancial and non-ﬁnancial instruments Bought-in materials and services - Local - Foreign Value added Distribution Employees Salaries and beneﬁts Government Income tax Retained in the Group 31-Dec- 18 31-Dec- 18 % 31-Dec- 17 Restated* 31-Dec- 17 % 630,344 745,189 (49,224) (95,234) 485,886 (18,903) 466,983 (65,388) (72,509) (194,873) (21,764) 528,552 (98,227) 430,325 (149,894) (2,594) 329,086 100 277,837 100 68,556 21 64,459 23 38,261 12 25,528 9 Replacement of property and equipment/ intangible assets To pay proposed dividend Proﬁt for the year (including statutory, small scale industry, and non-controling interest) Total Value Added 19,047 84,771 118,451 6 26 35 14,059 84,771 89,020 5 31 32 329,086 100 277,837 100 Value added represents the additional wealth which the Group has been able to create by its own and employees eﬀorts. * See note 43 s e r u s o c s i D l l a n o i t s a l a N c r n e a h n t O i F i 220 In millions of Naira Bank Gross income Interest expense - Local - Foreign Impairment loss on ﬁnancial and non-ﬁnancial instruments Bought-in materials and services - Local - Foreign Value added Distribution Employees Salaries and beneﬁts Government Income tax Retained in the Bank 31-Dec- 18 31-Dec- 18 % 31-Dec- 17 Restated* 31-Dec- 17 % 538,004 673,636 (51,647) (72,509) 413,848 (15,313) 398,535 (121,999) (2,577) (198,078) {2,594) 472,964 (95,244) 377,720 (137,560) (2,577) 273,959 100 237,583 100 56,657 21 55,672 23 26,627 10 16,418 7 Replacement of property and equipment/ intangible assets To pay proposed dividend Proﬁt for the year (including statutory, small scale industry, and non-controling interest) Total Value Added 16,812 84,771 80,709 6 33 30 12,490 84,771 72,374 5 35 30 265,576 100 241,725 100 Value added represents the additional wealth which the Bank has been able to create by its own and employees eﬀorts. * See note 43 s e r u s o c s i D l l a n o i t s a l a N c r n e a h n t O i F i 221 Zenith Bank Plc Annual Report December 31, 2018 Five Year Financial Summary In millions of Naira 31-Dec-18 31-Dec-17 31-Dec-16 31-Dec-15 31-Dec-14 Restated* Restated* Group Statement of Financial Position Assets Cash and balances with central banks Treasury bills Assets pledged as collateral Due from other banks Derivative assets Loans and advances Investment securities Investments in associates Deferred tax Other assets Property and equipment Intangible assets Total assets Liabilities Customers deposits Derivative liabilities Current tax payable Deferred income tax liabilities Other liabilities On-lending facilities Borrowings Debt securities issued Total liabilities Net assets Equity Share capital Share premium Retained earnings Other Reserves Attributable to equity holders of the parent Non-controlling interest Total shareholders' equity * See note 43 s e r u s o c s i D l l a n o i t s a l a N c r n e a h n t O i F i 222 954,416 1,000,560 957,663 936,817 669,058 557,359 761,561 377,928 752,580 295,397 592,935 468,010 328,343 265,051 151,746 674,274 88,826 495,803 57,219 459,457 272,194 82,860 8,481 506,568 17,408 1,823,111 2,100,362 2,289,365 1,989,313 1,729,507 565,312 330,951 199,478 213,141 200,079 - 9,513 80,948 149,137 16,678 - 9,561 92,494 133,384 12,989 - 6,440 37,536 105,284 4,645 530 5,607 22,774 87,022 3,240 302 6,449 21,455 71,571 2,202 5,955,710 5,595,253 4,739,825 4,006,842 3,755,264 3,690,295 3,437,915 2,983,621 2,557,884 2,537,311 16,995 9,154 67 231,716 393,295 437,260 361,177 20,805 8,915 18 243,023 383,034 356,496 332,931 66,834 8,953 45 214,080 350,657 263,106 153,464 384 3,579 19 205,062 286,881 258,862 99,818 6,073 10,042 289,858 68,344 198,066 92,932 5,139,959 815,751 4,783,137 812,116 4,040,760 699,065 3,412,489 594,353 3,202,626 552,638 15,698 255,047 322,237 221,231 814,213 1,538 15,698 255,047 356,837 183,217 810,799 1,317 15,698 255,047 261,608 165,729 698,082 983 15,698 255,047 200,115 122,900 593,760 593 15,698 255,047 183,396 97,945 552,086 552 815,751 812,116 699,065 594,353 552,638 In millions of Naira 31-Dec-18 31-Dec-17 31-Dec-16 31-Dec-15 31-Dec-14 Statement Of Profit Or Loss And Other Comprehensive Income Gross earnings Share of proﬁt / (loss) of associates Interest expense Operating and direct expenses Impairment charge for ﬁnancial assets Profit before taxation Income tax Profit after tax Foreign currency translation diﬀerences Fair value movements on equity instruments Related tax Eﬀective portion of changes in fair value of cash ﬂow hedges Borrowings Restated* Restated* 630,344 745,189 507,997 432,535 403,343 - - - 228 138 (144,458) (216,637) (144,378) (123,597) (106,919) (235,829) (231,006) (179,921) (167,877) (163,702) (18,372) (98,227) (32,350) (15,673) (13,064) 231,685 199,319 151,348 125,616 119,796 (38,261) (25,528) (27,096) (19,953) 193,424 173,791 124,252 105,663 4,828 1,459 5,233 (2,551) 30,338 6,636 637 (1,752) - - - - - - - - - - - - 6,287 2,682 36,974 (1,115) (20,341) 99,455 3,282 2,549 (2,771) 760 3,820 Total comprehensive income 199,711 176,473 161,226 104,548 103,275 Earning per share: Basic and diluted * See note 43 615 K 553 K 395 K 336 K 316 K s e r u s o c s i D l l a n o i t s a l a N c r n e a h n t O i F i 223 Zenith Bank Plc Annual Report December 31, 2018 Five Year Financial Summary In millions of Naira 31-Dec-18 31-Dec-17 31-Dec-16 31-Dec-15 31-Dec-14 Restated* Restated* Bank Statement of Financial Position Assets Cash and balances with central banks Treasury bills Assets pledged as collateral Due from other banks Derivative assets Loans and advances Investment securities Investments in subsidiaries Investments in associates Deferred tax Other assets Assets classiﬁed as held for sale Property and equipment Intangible assets Total assets Liabilities Customers deposits Derivative liabilities Current tax payable Deferred income tax liabilities Other liabilities On-lending facilities Borrowings Debt securities issued Total liabilities Net assets Equity Share capital Share premium Retained earnings Other reserves Attributable to equity holders of the parent Total shareholders' equity * See note 43 s e r u s o c s i D l l a n o i t s a l a N c r n e a h n t O i F i 224 902,073 817,043 907,265 799,992 627.385 463,787 735.946 330,900 728.291 253,414 592,935 468,010 325,575 264,320 151,746 393,466 88,826 273.331 57,219 354,405 266,894 82,860 8,481 470,139 16,896 1,736,066 1,980,464 2,138,132 1,849,225 1,580,250 156,673 34,003 - 9,197 75,910 - 133,854 15,399 117,814 34,003 - 9,197 56,052 - 118,223 12,088 118,622 150,724 33,003 33,003 - 6,041 35,410 - 94,613 3,903 90 5,131 21,673 - 81,187 2,753 92,832 33,003 90 6,333 19,393 - 69,531 1,901 4,955,445 4,833,658 4,283,736 3,750,327 3,423,819 2,821.066 2,744.525 2,552,963 2.333,017 2,265,262 16,995 5,954 - 223,463 393,295 458,463 361,177 20,805 6,069 - 229,332 383,034 418,979 332,931 66,834 6,927 - 249,136 350,657 292,802 153,464 384 2,534 - 212,636 286,881 268,111 99,818 6,073 7,709 - 272,726 68,344 198,066 92,932 4,280,413 675,032 4,135,675 697,983 3,672,783 610,953 3,203,381 546,946 2,911,112 512,707 15,698 255,047 238,635 165,652 675,032 15,698 255,047 287,867 139,371 697,983 15,698 255,047 213,107 127,101 610,953 15,698 255,047 160,408 115,793 546,946 15,698 255,047 150,342 91,620 512,707 675,032 697,983 610,953 546,946 512,707 In millions of Naira 31-Dec-18 31-Dec-17 31-Dec-16 31-Dec-15 31-Dec-14 Statement Of Profit Or Loss And Other Comprehensive Income Gross earnings Interest expense Operating and direct expenses Impairment charge for ﬁnancial assets Profit before tax Income tax Profit after tax Other comprehensive income Fair value movements on equity instruments Tax eﬀect of equity instruments at fair value Total comprehensive income Earning per share: Basic and diluted * See note 43 Restated* Restated* 538,004 673,636 454,808 396,653 372,015 (124,156) (200,672) (131,910) (114,936) (98,439) (206,428) (208,299) (162,076) (155,406) (152,335) (15,313) (95,244) (26,295) (11,091) (12,392) 192,107 169,421 134,527 115,220 108,849 (26,627) (16,418) (20,642) (16,436) 165,480 153,003 113,885 98,784 - - - - 1,459 (2,551) 6,636 (1,752) - 1,459 166,939 - (2,551) 150,452 - 6,636 120,521 - (1,752) 97,032 (15,370) 93,479 - 2,549 - 2,549 96,028 527 K 487 K 362 K 315 K 295 K s e r u s o c s i D l l a n o i t s a l a N c r n e a h n t O i F i 225 Zenith Bank Plc Annual Report December 31, 2018 Share Capital History Financial year Nominal value of Number of shares Nominal value per shares (=N=) (units) shares (=N=) 3 0 - J u n - 9 1 3 0 - J u n - 9 2 3 0 - J u n - 9 3 3 0 - J u n - 9 4 2 4 , 8 3 9 , 0 0 0 . 0 0 24,839,000.00 5 4 , 4 0 7 , 0 0 0 . 0 0 54,407,000.00 5 7 , 8 9 7 , 3 5 2 . 0 0 57,897,352.00 9 0 , 0 6 2 , 0 0 0 . 0 0 90,062,000.00 3 0 - J u n - 9 5 1 7 8 , 7 4 4 , 0 0 0 . 0 0 178,744,000.00 3 0 - J u n - 9 6 2 4 2 , 8 3 0 , 0 0 0 . 0 0 242,830,000.00 3 0 - J u n - 9 7 2 4 4 , 0 5 4 , 0 0 0 . 0 0 244,054,000.00 3 0 - J u n - 9 8 5 1 2 , 5 1 3 , 0 0 0 . 0 0 512,513,000.00 3 0 - J u n - 9 9 5 1 2 , 5 1 3 , 0 0 0 . 0 0 512,513,000.00 3 0 - J u n - 0 0 5 1 3 , 3 2 9 , 0 0 0 . 0 0 513,329,000.00 3 0 - J u n - 0 1 1 , 0 2 6 , 6 5 8 , 0 0 0 . 0 0 1,026,658,000.00 3 0 - J u n - 0 2 1 , 0 2 6 , 6 5 8 , 0 0 0 . 0 0 1,026,658,000.00 3 0 - J u n - 0 3 1 , 5 4 8 , 5 5 5 , 0 0 0 . 0 0 1,548,555,000.00 3 0 - J u n - 0 4 1 , 5 4 8 , 5 5 5 , 0 0 0 . 0 0 3,097,110,000.00 3 0 - J u n - 0 5 3 , 0 0 0 , 0 0 0 , 0 0 0 . 0 0 6,000,000,000.00 3 0 - J u n - 0 6 4 , 5 8 6 , 7 4 4 , 4 5 0 . 0 0 9,173,488,900.00 3 0 - J u n - 0 7 4 , 6 3 2 , 7 6 2 , 1 5 0 . 0 0 9,265,524,300.00 3 0 - S e p - 0 8 8 , 3 7 2 , 3 9 8 , 3 4 3 . 0 0 16,744,796,686.00 3 1 - D e c - 0 9 1 2 , 5 5 8 , 5 9 7 , 5 1 4 . 5 0 25,117,195,029.00 3 1 - D e c - 1 0 1 5 , 6 9 8 , 2 4 6 , 8 9 3 . 0 0 31,396,493,786.00 3 1 - D e c - 1 1 1 5 , 6 9 8 , 2 4 6 , 8 9 3 . 0 0 31,396,493,786.00 3 1 - D e c - 1 2 1 5 , 6 9 8 , 2 4 6 , 8 9 3 . 0 0 31,396,493,786.00 3 1 - D e c - 1 3 1 5 , 6 9 8 , 2 4 6 , 8 9 3 . 0 0 31,396,493,786.00 3 1 - D e c - 1 4 1 5 , 6 9 8 , 2 4 6 , 8 9 3 . 0 0 31,396,493,786.00 3 1 - D e c - 1 5 1 5 , 6 9 8 , 2 4 6 , 8 9 3 . 0 0 31,396,493,786.00 3 1 - D e c - 1 6 1 5 , 6 9 8 , 2 4 6 , 8 9 3 . 0 0 31,396,493,786.00 3 1 - D e c - 1 7 1 5 , 6 9 8 , 2 4 6 , 8 9 3 . 0 0 31,396,493,786.00 3 1 - D e c - 1 8 1 5 , 6 9 8 , 2 4 6 , 8 9 3 . 0 0 31,396,493,786.00 1 1 1 1 1 1 1 1 1 1 1 1 1 0 . 5 0 . 5 0 . 5 0 . 5 0 . 5 0 . 5 0 . 5 0 . 5 0 . 5 0 . 5 0 . 5 0 . 5 0 . 5 0 . 5 0 . 5 s e r u s o c s i D l l a n o i t s a l a N c r n e a h n t O i F i 226 Style by Zenith Style by Zenith A BLEND OF LIFESTYLE AND ENTERTAINMENT MASTERPIECE T he “Style by Zenith” Fair was truly an exciting and captivating event. Dubbed ‘Nigeria’s Biggest Lifestyle Fair’, for a ﬁrst edition, it truly surpassed expectations. celebrities, inﬂuencers, The two-day fair, which held on Saturday, December 29 and Sunday, December 30 at the Open Ground after Four Points by Sheraton, Oniru and attracted a rich mix of attendees fashion including enthusiasts, shopaholics and families, was a potpourri of lifestyle activities featuring runway modelling by leading Nigerian and international top designers, models modelling masterclasses, exhibition of lifestyle, beauty, health & ﬁtness products, games arcade for children as well as a 2-day musical concert. Attendance to the fair was free and products, which were sold out, came at massive discounts, to enable consumers and customers network with the exhibitors for future business transactions. accessorized by from learn The modelling masterclasses provided fashion entrepreneurs and enthusiasts the opportunity international and Nigerian to fashion icons like Oraine Berrett, Mercy Ajisafe, Bonang Matheba, Jane Michael Ekanem, Tarmar Awobutu, Akin Ogunranti and Wunmi Ogunbiyi, amongst others. The evening concerts, which were hosted by Ilrymz alongside Eku Edewor and Mercy Ajisafe, featured A-list Nigerian artistes and a special guest performance by American RnB singer, Bobby Valentino. i s l a c n a n F i 227 Zenith Bank Plc Annual Report December 31, 2018 i s l a c n a n F i 228 i s l a c n a n F i 229 (cid:53)(cid:73)(cid:70)(cid:90)(cid:1)(cid:73)(cid:66)(cid:87)(cid:70)(cid:1)(cid:66)(cid:1)(cid:71)(cid:86)(cid:85)(cid:86)(cid:83)(cid:70)(cid:13)(cid:1)(cid:73)(cid:80)(cid:88)(cid:1)(cid:1)(cid:74)(cid:84)(cid:1)(cid:74)(cid:85)(cid:32)(cid:84)(cid:70)(cid:68)(cid:86)(cid:83)(cid:70)(cid:48)(cid:81)(cid:70)(cid:79)(cid:1)(cid:66)(cid:1)(cid:59)(cid:38)(cid:36)(cid:34)(cid:1)(cid:66)(cid:68)(cid:68)(cid:80)(cid:86)(cid:79)(cid:85)(cid:1)(cid:71)(cid:80)(cid:83)(cid:1)(cid:90)(cid:80)(cid:86)(cid:83)(cid:1)(cid:68)(cid:73)(cid:74)(cid:77)(cid:69)V RERITAS EGISTRARSRC 510155 Veritas Registrars Limited (formerly Zenith Registrars Limited) Plot 89A, Ajose Adeogun Street, P. O. Box 75315, Victoria Island, Lagos Telephone: (01) 27089304, 2784167-8; Fax:(01)2704085 enquiry@veritasregistrars.com www.veritasregistrars.com e-BONUS (DIRECT CREDIT TO CSCS ACCOUNT) Account No: I/We have units of Zenith Bank Plc shares. I/We hereby request and authorise you to credit my/our CSCS account (statement attached) with BONUS accruing on my/our holdings. I/We indemnify the Directors of Zenith Bank Plc against all claims and demands (and any case expense thereof which may be made in consequence of your complying with this instruction: SURNAME OTHER NAMES Shareholder’s Name: Shareholder’s Address: Mobile Tel: Date: I hereby afﬁrm that the information given above are true of me Shareholder’s Signature 1. Please attach copies of CSCS statement 2. CSCS transaction listing 3. Name of Stockbrokers FOR REGISTRAR’S USE ONLY DATE Action taken: Credited Ofﬁcer’s Name & Sign: Not Credited Pending Aﬃx Passport Photograph (to be stamped by the Bank) Please tick as applicable CONSOL. BREWERIES DANGOTE SUGAR FORTE OIL GUINNESS NIGERIA MAY & BAKER ZENITH BANK V RERITAS EGISTRARSRC 510155 (formerly Zenith Registrars) Plot 89A, Ajose Adeogun Street, P. O. Box 75315, Victoria Island, Lagos Telephone: (01) 27089304, 2784167-8; Fax:(01)2704085 enquiry@veritasregistrars.com www.veritasregistrars.com e-DIVIDEND MANDATE FORM I/We hereby request that from now, all dividends due to me/us from my/our shareholding in all companies indicated be credited to my/our bank account named below. Surname/Company’s Name Date: DD/MM/YYYY Other Names (for Individual Shareholder) Present Postal Address City E-mail Address State Mobile (GSM) Phone Number Clearing House Number Bank Name Bank Address Bank Account Number Bank Sort Code Shareholder’s Signature or Thumbprint Shareholder’s Signature or Thumbprint Company Seal/Incorporation No. (Corporate Shareholder) Authorized Signature and Stamp of Bankers Authorized Signature and Stamp of Bankers For Bank’s use only Date account was established (cid:61)(cid:40)(cid:49)(cid:44)(cid:55)(cid:43)(cid:3)(cid:37)(cid:36)(cid:49)(cid:46)(cid:3)(cid:51)(cid:47)(cid:38) (cid:51)(cid:53)(cid:50)(cid:59)(cid:60)(cid:3)(cid:38)(cid:36)(cid:53)(cid:39) 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