Zenith Bank Plc Annual Report 2019

Plain-text annual report

Contents Strategic Report 1. 2. 3. 4. 5. 6. 7. 8. 9. Directors, Oﬃcers And Professional Advisers Results at a Glance/Key Performance Indices Group Financial Highlights Corporate Proﬁle & Strategy Notice of Annual General Meeting Chairman’s Statement Group Managing Director/Chief Executive Oﬃcer’s Review Board of Directors (in pictures) Directors’ Report Governance & Sustainability 10. 11. 12. 13. 14. Corporate Governance Report Statement of Directors’ Responsibilities Report to the Directors on the outcome of the Board Evaluation Sustainability Report Report of the Statutory Audit Committee Financials 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 Other National Disclosures 21. 22. 23. 24. 25. Value Added Statement Five Year Financial Summary Share Capital History Zenith Youth Parade, Style by Zenith, The Aba SME Fair and Zenith Tech Fair Forms 4 5 6 9 18 20 26 30 38 48 60 61 62 68 70 78 79 80 83 86 220 222 226 227 231 2 Strategic Report 01Zenith Bank Plc Annual Report December 31, 2019 Directors, Oﬃcers And Professional Advisers DIRECTORS Jim Ovia, CON. Prof. Chukuka Enwemeka Mr. Jeﬀrey Efeyini Prof. Oyewusi Ibidapo-Obe Mr. Gabriel Ukpeh Engr. Mustafa Bello Dr. Al-Mujtaba Abubakar*** Mr. Ebenezer Onyeagwu* Dr. Adaora Umeoji Mr. Ahmed Umar Shuaib Dr. Temitope Fasoranti Mr. Dennis Olisa Mr. Henry Oroh*** Mr. Peter Amangbo** Chairman Non-Executive Director Non-Executive Director Non-Executive Director/ Independent Non-Executive Director/ Independent Non-Executive Director/ Independent Non-Executive Director/ Independent Group Managing Director/CEO Deputy Managing Director Executive Director Executive Director Executive Director Executive Director Group Managing Director/CEO (retired) * Appointed Group Managing Director eﬀective 1 June 2019 ** Retired from the Board eﬀective 31 May 2019 *** Appointed to the Board eﬀective 1 August 2019 COMPANY SECRETARY Michael Osilama Otu REGISTERED OFFICE AUDITOR Zenith Bank Plc Zenith Heights Plot 87, Ajose Adeogun Street, Victoria Island, Lagos 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 4 Results at a Glance/ Key Performance Indices Financial Highlights In millions of Naira 31-Dec-19 31-Dec-18 % 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 415,563 267,031 475,119 (231,825) 243,294 208,843 6.65 440,052 295,594 457,185 (225,500) 231,685 193,424 6.15 2,462,359 2,016,520 4,262,289 3,690,295 6,346,879 5,955,710 941,886 815,751 23.8% 3.4% 8.2% 3.0% 1.1% 23.8% 3.4% 8.9% 3.1% 0.9% 48.8% 49.3% 57.3% 57.8% 22% 4.30% 72.0% 44.2% 25% 4.98% -6% -10% 4% 3% 5% 8% 8% 22% 15% 7% 15% 0% 0% -8% -3% 22% -1% -20% 31% -12% -14% t r o p e R c g e t a r t S i 5 Zenith Bank Plc Annual Report December 31, 2019 Group Financial Highlights (cid:24)(cid:9)(cid:16)(cid:13)(cid:21)(cid:12)(cid:1)(cid:7)(cid:6)(cid:16)(cid:14)(cid:1)(cid:18)(cid:15)(cid:8)(cid:1)(cid:25)(cid:1)(cid:1)(cid:4)(cid:2)(cid:3)(cid:5)(cid:1)(cid:11)(cid:19)(cid:17)(cid:22)(cid:18)(cid:1)(cid:10)(cid:13)(cid:16)(cid:6)(cid:16)(cid:8)(cid:13)(cid:6)(cid:15)(cid:1)(cid:12)(cid:13)(cid:11)(cid:12)(cid:15)(cid:13)(cid:11)(cid:12)(cid:21)(cid:20)(cid:1) (cid:10)(cid:23)(cid:9)(cid:1)(cid:4)(cid:2)(cid:3)(cid:5)(cid:1) Total deposits grew by 15% (N572bn) reflecting public confidence in the Zenith brand. The funding mix was also rebalanced towards cheaper retail deposits. Total assets grew by 7% (N391bn) to close at N6.3trn enhancing our balance sheet. 5% growth in PBT is attributable to the growth in non- interest income and effective management of operational and funding costs as well. Profit after tax increased by 8% (N15.4bn) driven by improved profit before tax as well as an efficient tax management strategy. (cid:1) (cid:1) (cid:1) (cid:1) (cid:3)(cid:16)(cid:15)(cid:10)(cid:12)(cid:8)(cid:9)(cid:15)(cid:17)(cid:12)(cid:6)(cid:14)(cid:1)(cid:17)(cid:16)(cid:1)(cid:5)(cid:9)(cid:15)(cid:12)(cid:17)(cid:11)(cid:1)(cid:2)(cid:6)(cid:15)(cid:13)(cid:1)(cid:4)(cid:14)(cid:7)(cid:2)(cid:1)(cid:1) (cid:3)(cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) 6 (cid:24)(cid:9)(cid:16)(cid:13)(cid:21)(cid:12)(cid:1)(cid:7)(cid:6)(cid:16)(cid:14)(cid:1)(cid:18)(cid:15)(cid:8)(cid:1)(cid:25)(cid:1)(cid:1)(cid:4)(cid:2)(cid:3)(cid:5)(cid:1)(cid:11)(cid:19)(cid:17)(cid:22)(cid:18)(cid:1)(cid:10)(cid:13)(cid:16)(cid:6)(cid:16)(cid:8)(cid:13)(cid:6)(cid:15)(cid:1)(cid:12)(cid:13)(cid:11)(cid:12)(cid:15)(cid:13)(cid:11)(cid:12)(cid:21)(cid:20)(cid:1) (cid:10)(cid:23)(cid:9)(cid:1)(cid:4)(cid:2)(cid:3)(cid:5)(cid:1) Shareholders’ funds grew year-on-year by 15.5% to close at N942bn providing adequate buffer for business expansion. Consistent and growing dividend payout in the last 7 years. The payout remained unchanged year-on-year. With this proposed dividend we are recording a dividend yield of 15% (2018: 12%). t r o p e R c g e t a r t S i Return on Average Equity (RoAE) remained flat year-on-year while Return on Average Asset (RoAA) grew marginally reflecting a strong commitment to delivering impressive retutrns to investors. (cid:1) (cid:1) Increase in interest expense by 2.8% is as a result of the significant growth in the Group’s deposit base (especially savings and dormicilliary deposits). 2019 Current account Borrowed funds and lease 2018 Time deposits Savings account Time deposits Current account Savings account Borrowed funds and lease (cid:3)(cid:16)(cid:15)(cid:10)(cid:12)(cid:8)(cid:9)(cid:15)(cid:17)(cid:12)(cid:6)(cid:14)(cid:1)(cid:17)(cid:16)(cid:1)(cid:5)(cid:9)(cid:15)(cid:12)(cid:17)(cid:11)(cid:1)(cid:2)(cid:6)(cid:15)(cid:13)(cid:1)(cid:4)(cid:14)(cid:7)(cid:2)(cid:1)(cid:1) (cid:4)(cid:1) 7 (cid:1) (cid:1) 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growth across the subsidiaries contributing 18% (2018: 17%) to the Group’s profit before tax Group Financial Highlights8Corporate Proﬁle & Strategy 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 technology (ICT). Within twenty-nine years, Zenith has demonstrated its resilience 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 608 business locations (see page 16 for more details) in Nigeria and the rest of the world. However, in line with advances in technology, the bank has also invested heavily on 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: I n n o v a t i o n G o o d fi n a n c i a l p e r f o r m a n c e • • S t a b l e a n d d e d i c a t e d m a n a g e m e n t t e a m H i g h l y s k i l l e d p e r s o n n e l L e a d e r s h i p i n t h e u s e o f I n f o r m a t i o n a n d C o m m u n i c a t i o n Te c h n o l o g y S t r a t e g i c d i s t r i b u t i o n c h a n n e l s • • • • G o o d a s s e t q u a l i t y • t r o p e R c g e t a r t S i 9 Zenith Bank Plc Annual Report December 31, 2019 Corporate Proﬁle & Strategy OUR VISION institution “To build the Zenith brand into a reputable international innovation, superior ﬁnancial customer service and performance while creating premium value for all stakeholders”. recognized for 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” OUR VALUE . . . . Integrity Professionalism Excellence Ethics . · · Commitment Transparency Service 10 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 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. It 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) d) e) f ) Transport and Aviation, Conglomerates Breweries & Beverages 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). t r o p e R c g e t a r t S i 11 Business Focus The 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 businesses, its pension/custodian services and nominees business only. a) Core Business Segments 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 Zenith Bank Plc Annual Report December 31, 2019 Corporate Proﬁle & Strategy loans and advances 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. 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 and electronic and digital channels. It oﬀers various banking services to primarily individuals. Personal banking which 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. Recently the Bank has also deployed agency banking services across the states of the federation which is meant to service mostly ﬁnancial inclusion customers who might not be able to visit a bank branch because of distance. These agents provide access to basic ﬁnancial services such as account opening, cash-in, cash-out, bills payments and electronic transfers. 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 12 (tertiary customers), Aspire Savings Accounts institution 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. 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 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 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 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 2019, total funds under its custody amounted to approximately N4.103 trillion. Zenith Pensions has 106 funds under its custody which are shared among nine 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 • • 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 sustain 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 • t r o p e R c g e t a r t S i 13 Zenith Bank Plc Annual Report December 31, 2019 Corporate Proﬁle & Strategy • • • • • • • • • • • 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. • • 14 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 international business and reputation to drive our 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 in Nigeria and other currently have trade partners 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. MARKET AND BUSINESS STRATEGY 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. Despite the increase in regulations over the last 6 months with profound impact on our earnings capacity, 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 retail banking business by consolidating on transformation exercise which has signiﬁcantly grown its retail banking revenue, deposit liabilities and risk assets and continue to obtain a signiﬁcant share of the retail its • • • 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; t r o p e R c g e t a r t S i Core Banking Transformation The 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. Datastore has recently gone live. This document management system enables the Bank to digitize its records using the system’s robust scanning, indexing & retrieval capabilities) and replaced the legacy system ADA. The next solution scheduled for go-live is Essence, the new core banking solution, to replace Phoenix and other in-house 3rd party applications. Enhancing 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 and agency banking means more customers are able to carry out banking transactions without visiting its branches, thereby reducing operating 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 15 Zenith Bank Plc Annual Report December 31, 2019 Corporate Proﬁle & Strategy 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 2019, the geographical spread of the Group’s business locations is as follows: Geographical Locations Branches Federal Republic of Nigeria Republic of Ghana United Kingdom Sierra Leone The Gambia 384 27 2 7 6 China Representative Oﬃce 1 Total Grand Total 427 178 Cash Centers Non-Banking Operations 155 11 3 - - - 12 - - - - - 3 608 As shown above, the Group also has 178 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 as well as agents for its ﬁnancial inclusion customers. ATM network The Group has a total of 2,009 ATM machines with 1,935 in Nigeria, 60 in Ghana, 12 in Sierra Leone and 2 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, Visa and Verve, 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, agency 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 and also online shopping. 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 16 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; *966*60# – this allows you to perform other self-service. These include retrieve card PIN, Block Cards, manage card less withdrawal, select preferred USSD account to debit, perform transaction above N100k via USSD subject to signing an indemnity, activate agent banking activities i.e cash in and cash out and perform USSD on POS. • • • 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 in the generation of involved 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. EaZymoney is a virtual account (also called an Eazymoney 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 diﬀerent channels. 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. t r o p e R c g e t a r t S i 17 Zenith Bank Plc Annual Report December 31, 2019 Notice of Annual General Meeting NOTICE IS HEREBY GIVEN that the Twenty Ninth Annual General Meeting of Zenith Bank Pie will hold at the Shehu Musa Yar’Adua Centre, 1, Memorial Drive (Opposite Sheraton Hotels & Towers), Abuja, FCT at 9.00 a.m. on Monday the 16th day of March, 2020 to transact the following business:- ORDINARY BUSINESS 1. To present and consider the Bank’s Audited Accounts for the ﬁnancial year ended 31st December, 2019, the Reports of the Directors, Auditors and Audit Committee thereon. 2. To declare a ﬁnal dividend. 3. 4. Dr. AI-MujtabaAbubakar - Independent Non-Executive Director To approve the appointments of the following: (i) (ii) Mr. Henry Oroh - Executive Director. The Appointment of both Directors has been approved by the Central Bank of Nigeria. The proﬁles of the aforementioned Directors are available in the Annual Report and also on the Bank’s website at www.zenithbank.com To re-elect the following Directors who retire by rotation and have oﬀered themselves for re-election: (i) (ii) (iii) Dr. Temitope Fasoranti Prof. Oyewusi lbidapo-Obe Umar Shuaib 5. To authorize the Directors to ﬁx the remuneration of the Auditors. 6. To elect members of the Audit Committee. SPECIAL BUSINESS To consider and if thought ﬁt, to pass the following as ordinary resolution: 7. 8. That the remuneration of the Directors of the Bank for the year ending December 31, 2020 be and is hereby ﬁxed at N20 million only. That Mr. Jeﬀrey Efeyini and Prof. Oyewusi lbidapo-Obe, who have both attained the age of 70 years be elected a Non Executive Director and an Independent Non Executive Director of the Bank respectively. Dated this 21 st day of February. 2020. 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 on 10th of March 2020, to enable the Registrar prepare for the payment of dividend. 18 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, 2019 to N2.80K) will be paid via e-mandate on the 16th of March, 2020, to shareholders whose names are registered in the Register of Members at the close of business on 9th day of March 2020. Shareholders are advised to forward 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. t r o p e R c g e t a r t S i 4. 5. 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 theAnnual 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 13th day of March, 2020. 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, AjoseAdeogun 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 19 Chairman’s Statement Indeed, your unflinching support and loyalty to the Bank over the years have enabled it to rise to the pinnacle of the nation’s financial services industry. JIM OVIA, CON My Fellow Shareholders, Distinguished Guests, Ladies and Gen- tlemen, I am very much pleased to welcome you to the 29th Annual General Meeting of our Bank and to present to you the Annu- al Report and Financial Statements for the ﬁnancial year ended December 31, 2019. Indeed, your unﬂinching support and loyalty to the Bank over the years have enabled it to rise to the pinnacle of the nation’s ﬁnancial services industry. Your commitment to the Bank’s prog- ress is reﬂected in your continued engagement, including your presence here today. May I use this opportunity to congratulate everyone for the success we have achieved in the last thirty years since this in- stitution was birthed, as we look forward to many more years of astounding performance. The year 2019 was marked by signiﬁcant global and domestic economic developments which impacted our business in sev- eral ways. However, we were able to adapt our strategies to leverage available opportunities while creating value for all our stakeholders. It is against this background that I will review the economic and ﬁnancial environment within which our Bank operated in the outgone ﬁnancial year. MACROECONOMIC REVIEW The Nigerian economy recorded a positive but fragile perfor- mance in the year 2019, as the post-recession recovery of the economy continued. According to the National Bureau of Statis- tics (NBS), aggregate output, measured by Gross Domestic Prod- uct (GDP), grew by 2.27 per cent in 2019, compared to 1.91 per cent recorded in 2018. On a quarterly basis, GDP grew by 2.10 per cent, 2.12 per cent 2.28 per cent and 2.55 per cent in Q1, Q2, Q3 and Q4, 2019, respectively. The performance of the domestic economy was driven by relatively high crude oil prices in the in- ternational commodities market, as well as improved oil produc- tion averaging 2 million barrels per day (mbpd) all through 2019. Also, the recovery in services and industry sectors, particularly mining and quarrying, and manufacturing was a boon to GDP growth. The year 2019 was somewhat a balanced one for the oil market, as the early rise in crude oil prices in the ﬁrst half of the year evened out during the rest of the year, although prices rose relative to the preceding year. The rally in crude oil prices was supported by the commitment of the Organization of Petroleum Exporting Countries (OPEC) and participating non-OPEC coun- tries to restore global oil market stability. However, the U.S-China trade war fueled a global economic slowdown which triggered bearish sentiment in global oil demand. Nonetheless, crude oil prices closed out 2019 on a bullish note, buoyed by renewed economic optimism on the back of reduced trade tensions between the U.S. and China, as well as planned production cut by OPEC and its allies. Thus, the OPEC Reference 20 Basket (ORB) averaged $58.74/b in the ﬁrst month of 2019 and settled at $66.48/b as of December 2019, gaining more than 13 per cent. Brent, which averaged $60.24/b in January 2019, stood at $65.17/b on average as at December 2019, rising by more than 8 per cent. This had a substantial impact on government revenue and the nation’s external reserves. Speciﬁcally, external reserves, which opened the year at about $43billion, rose to about $45billion in June 2019, before closing the year at about $39billion. The considerable decrease in the second half was mainly due to lower crude oil prices, reduced foreign portfolio investment inﬂows, and increased external debt service payments. Monetary and ﬁscal authorities signiﬁcantly pursued strategies to maintain macroeconomic stability during the year under review. These strategies reﬂected in eﬀorts to create a balance between spurring growth through credit allocation to the real sector and reining in inﬂation. Headline inﬂation, measured by the Consumer Price Index (CPI), moderated in 2019, relative to the preceding year. According to the National Bureau of Statis- tics (NBS), the inﬂation rate stood at 11.37 per cent in January 2019 but dropped to a three- and half-year low of 11.02 per cent in August. However, hopes of the headline inﬂation receding to- wards the target range of 6.0-9.0 per cent set by the CBN evap- orated as the index signiﬁcantly ticked up to 11.98 per cent in December on the back of seasonal year-end upward movement in prices. In 2019, the Naira exchange rate against major currencies was relatively stable at the inter-bank foreign exchange market but recorded marginal appreciation at the Bureau De Change (BDC) and Investors’ & Exporters’ (I&E) segments of the market. The Nai- ra averaged NGN306.92/$1, NGN 359.53/$1 and NGN361.79/$1 at the interbank, BDC and I&E markets, respectively in the year under review. The exchange rate was supported by sustained in- tervention in the foreign exchange market by the CBN, as well as improved foreign exchange inﬂow into the I&E window, which continued to attract foreign portfolio investment inﬂow into the economy. Nigeria witnessed signiﬁcant accretion in the country’s stock of foreign exchange reserves in the ﬁrst half of 2019. However, gross external reserves dipped signiﬁcantly in the second half of the year, reversing the steady increase recorded in the ﬁrst half. The Federation Account Allocation Committee (FAAC) disbursed a total of N8.19trillion among the three tiers of government as al- locations between January and December 2019. This represents a decline of 3.87 per cent compared to the N8.52trillion distrib- uted in 2018, an indication that government revenues shrunk in the year under review. In 2019, the Nigerian Stock Exchange (NSE) witnessed a bearish trend. The All-Share Index (ASI) opened at 31,430.50 index points but closed the year at 26,842.07, representing a depreciation of 14.60 per cent. The decline in the ASI is largely attributed to bear- ish investor sentiments over the year, driven mostly by tepid eco- nomic growth. While market capitalisation was at N11.721 trillion at the start of the year, it recorded a 9.55 per cent appreciation as it increased to N12.985 trillion at the close of the year. The increase in market capitalisation was attributed to new listings in the year, especially MTN Nigeria and Airtel which contributed a combined market capitalisation of N3.196 trillion. FINANCIAL RESULTS As noted earlier, the year 2019 was a very challenging year for operators in the Nigerian banking industry because of several supervening factors in the global and domestic environment. Notwithstanding the challenges, we were able to leverage the inherent opportunities within the business environment and re- cord a performance which further attests to our resilience as a brand. The result is a manifestation of the remarkable ﬁnancial health of the Bank and the Group. As a pioneer in the deployment of digital technology in the Nigerian banking industry, Zenith Bank remains com- mitted to pushing the boundaries and setting the pace in financial technology. 21 Zenith Bank Plc Annual Report December 31, 2019 Chairman’s Statement For the Bank, gross earnings grew by 5 per cent from N538bil- lion in 2018 to N565billion in 2019. Proﬁt-Before-Tax (PBT) rose by 4.1 per cent, from N192billion in 2018 to N200billion in 2019, while Proﬁt-After-Tax (PAT) rose by 7.6 per cent, from N165billion in 2018 to N178billion in 2019. Total deposits were N3.49trillion as at the year ended December 31, 2019, representing a 23.6 per cent increase over the previous year’s ﬁgure of N2.82trillion. During the same period, total assets of the Bank grew by 9.7 per cent from N4.96trillion to N5.44trillion, while shareholders’ fund rose by 15.4 per cent, from N675billion to N779billion. As a Group, the performance indices were no less outstand- ing. The Group gross earnings also grew by 5 per cent in 2019. The Group PBT grew by 5 per cent, from N232billion in 2018 to N243billion in 2019. Also, PAT rose by 8 per cent during the peri- od, from N193billion in 2018 to N208.8billion in 2019. The Group total assets grew by 7 per cent, from N5.96trillion in 2018 to N6.35trillion in 2019, while customers’ deposits increased by 15 per cent during the same period, from N3.69trillion to N4.26tril- lion. The Group shareholders’ fund grew by 15 per cent, from N816billion in 2018 to N942billion in 2019, while gross earnings rose by 5 per cent, from N630billion in 2018 to N662billion in 2019. Our major focus in 2019 was to support the government’s effort at improving wellbeing and the life expectancy of Ni- gerians through support for quality healthcare delivery in host communities. DIVIDEND Zenith Bank is committed to consistently deliver superior returns to our highly esteemed shareholders by ensuring that a good chunk of our proﬁt is set aside for you. In a clear demonstration of this, we had declared and paid you an interim dividend of 30kobo per share in the course of the 2019 ﬁnancial year. We hereby propose a ﬁnal dividend of N2.50kobo per share. If ap- proved, this will bring the total dividend for the year ended De- cember 31, 2019, to N2.80kobo per share. THE BOARD OF DIRECTORS During the year under review, the following changes occurred on the Board of the Bank. Mr. Peter Amangbo’s tenure as Group Managing Director/Chief Executive Oﬃcer expired on May 31, 2019, and he accordingly retired from the Board as he has served the Group as a Director for over thirteen years. On behalf of the Board, Management and all shareholders, I wish him success in his future endeavours. Mr. Ebenezer Onyeagwu became the Group Managing Director/Chief Executive Oﬃcer eﬀective June 1, 2019, following the retirement of Mr. Peter Amangbo as the Group Managing Director/Chief Executive Oﬃcer and in line with the succession plan of the Bank. Dr. Al-Mujataba Abukakar was appointed to the Board as an Independent Non-Executive Director with eﬀect from August 1, 2019. Mr. Henry Oroh was appointed to the Board as an Executive Director with eﬀect from August 1, 2019. INVESTMENT IN TECHNOLOGY As a pioneer in the deployment of digital technology in the Nigerian banking industry, Zenith Bank remains committed to pushing the boundaries and setting the pace in ﬁnancial tech- nology. As a result, we invested immensely in new technologies and digital solutions in the year under review. This is in conso- nance with our pledge to create value for our highly esteemed customers through our wide range of innovative products and services. CORPORATE SOCIAL RESPONSIBILITY Zenith Bank is committed to building a more balanced, fairer and inclusive economy. As such, we have continued to inter- nalise sustainability principles in our business operations and investment decisions, in line with global best practices. During the ﬁnancial year under review, we made considerable prog- ress in this regard, bearing in mind our role in accelerating the achievement of the United Nations Sustainable Development Goals (SDGs). 22 Thus, in 2019, Zenith Bank endorsed the Principles for Respon- sible Banking alongside 129 other banks globally. By signing up to this framework led by the United Nations Environment Fi- nance Initiative (UNEP FI), we committed to strategically aligning our business with the goals of the Paris Agreement on Climate Change and the SDGs. This means that we will seek to create value for our shareholders, customers, clients, investors, commu- nities and the environment through our practices, operations and investments. Through our Corporate Social Responsibility (CSR) initiatives, we have embodied the overarching objective of the 17 SDGs, which provide a framework for addressing the major challenges confronting our society. Our social investments are targeted at health, education, women and youth empowerment, sports de- velopment and public infrastructure enhancement. Our major focus in 2019 was to support the government’s ef- fort at improving wellbeing and the life expectancy of Nigerians through support for quality healthcare delivery in host com- munities. Underscoring our achievements in this regard, Zenith Bank won the award for “Best Company in Promotion of Good Health and Wellbeing” in Africa at the 2019 Sustainability, Enter- prise and Responsibility Awards (SERAs). In addition to partnering with State Governments on security ini- tiatives to improve the safety of lives and property, Zenith Bank executed projects that signiﬁcantly delivered economic beneﬁts to our host communities in the areas of education and skills de- velopment, sustainable livelihood and poverty alleviation, infra- structure development, environmental sustainability, youth em- powerment and the welfare of the physically challenged. Details of our social investments for the ﬁnancial year is contained in the annual report. MACROECONOMIC OUTLOOK Nigeria’s economic growth outlook for 2020 is brighter but re- mains fragile. The economy is expected to sustain the modest growth recorded in 2019, even as recovery in the oil and non-oil sectors (manufacturing and services) continues to gather mo- mentum. Growth is expected to be supported by monetary and ﬁscal policy measures, including ﬁscal stimulus from the 2020 Federal Government budget. Through our Corporate So- cial Responsibility (CSR) ini- tiatives, we have embodied the overarching objective of the 17 SDGs, which provide a framework for addressing the major challenges confronting our society The budget has an aggregate expenditure estimate [inclusive of General Operating Expenses (GOEs) and project tied loans] of N10.59trillion, representing a 5.1 per cent increase compared to N10.07trillion (inclusive of GOEs and project tied loans) bud- geted for 2019 ﬁscal year. A breakdown of the budget estimate shows that N2.78 trillion (26.2 per cent) was budgeted for capital expenditure; N4.84trillion (45.6 per cent) for recurrent expendi- ture; N2.45trillion (23.1 per cent) for debt servicing; and N560. 47billion (5.1 per cent) for statutory transfers. Also, N272.9billion and N350billion were earmarked for sinking fund and special interventions, respectively. Aggregate budget revenue for 2020 is projected at N8.42trillion, 10.94 per cent higher than the N7.59trillion estimated for 2019. The budget is predicated on crude oil production of 2.18 million barrels per day; crude oil price of $57 per barrel and an average exchange rate of N305/dollar. On the monetary policy side, CBN policy initiatives such as inter- ventions in selected employment and growth-enhancing sec- tors, measures to boost credit ﬂow to the private sector through the Loan-to-Deposit Ratio (LDR), Global Standing Instruction (GSI) initiatives, etc. are expected to provide momentum for growth. However, the downside to this prospect remains fears of 23 Zenith Bank Plc Annual Report December 31, 2019 Chairman’s Statement declining oil prices in the global oil market, on the back of con- cerns about the economic impact of the coronavirus outbreak on crude oil demand, as the country remains heavily dependent on oil exports. Also, high level of unemployment, persistent inﬂationary pressures, and rising debt burden could weigh on the country’s growth prospect. Consequently, the International Monetary Fund (IMF) forecast the domestic economy to grow at 2 per cent in 2020, a downward review from the 2.5 per cent it had projected earlier in January. Just like the domestic economy, the global economic outlook for 2020 is fragile. Growth is expected to remain subdued as the out- break of the coronavirus in China raises concerns about global growth prospects. However, the expansionary monetary policy stance of central banks around the world, which helped oﬀset some of the pains of trade wars and falling investment in 2019, improving trade relations between the major economies of the world are good indications of optimism about global growth prospects in 2020. APPRECIATION Without doubt, 2019 was a challenging but successful year for us as a Bank. Indeed, the superior proﬁtability recorded in the year would not have been possible without the collective eﬀorts of all our stakeholders. I would, therefore, like to thank all our custom- ers for their unwavering loyalty; our staﬀ and Management for their commitment; and our Board for the sound guidance which has translated into sustained proﬁtability. Ladies and gentlemen, the 2020 ﬁnancial year holds good pros- pects, and I have the ﬁrm belief that our Bank will continue to record outstanding performance. Thank you. Jim Ovia, CON Chairman 24 GMD/CEO’s Review As an institution, we adapted our strategies given these develop- ments, based on the markets or sec- tors where we operate while ensur- ing that we were able to create value for our customers. EBENEZER ONYEAGWU It gives me great pleasure to welcome you, our highly esteemed shareholders, for the ﬁrst time as Group Managing Director/Chief Executive Oﬃcer, following my appointment in June 2019. In 2019, the global economy recorded its weakest growth since the global ﬁnancial crisis about a decade ago due to tepid growth in advanced economies, a decline in global trade, and shrinking capital spending. Growth was mainly subdued by the heightened US-China trade tension, BREXIT-related uncertainties and geopolitical tensions which dampened global economic activities, particularly business spending and manufacturing. On the domestic front, the economy continued to recover from the 2016 economic recession, expanding by 2.55 per cent (year-on- year) in the last quarter of 2019, the highest quarterly post-re- cession growth performance. Overall, the Nigerian economy recorded annual real growth rate of 2.27 per cent in 2019, com- pared to 1.91 per cent in 2018. The performance of the domestic economy was driven by im- proved oil production and relatively high oil prices in the interna- tional commodities market for most part of the year. Also, the re- covery in services and industry sectors contributed to the Gross Domestic Product (GDP) growth. As an institution, we adapted our strategies given these developments, based on the markets or sectors where we operate while ensuring that we were able to create value for our customers. Amidst the challenges in the operating environment, we can look back and take great pride in the outstanding value-addition we have all achieved together. In a bid to improve lending by Deposit Money Banks (DMBs) to the real sector of the Nigerian economy, the Central Bank of Ni- geria (CBN) introduced a measure requiring banks to maintain minimum Loan-to-Deposit Ratio (LDR) which currently stands at 65 per cent. The initiative required adjustment, but we were determined (and are still poised) to leverage it to provide op- portunities for the growth of sectors like Small and Medium Enterprises (SMEs) and mortgage in tandem with the vision of the apex bank. The LDR policy thus provided further impetus for strategic loan growth, especially in consumer lending and the retail segment of the market. In the course of the year, we launched a Tech Fair and an SME Fair to accelerate our inroad into the retail banking space. These initiatives complement “Style by Zenith”, our ﬂagship lifestyle, beauty, fashion, and entertainment fair that has continued to reinforce our retail and digital journey. Also, we have continued to boost our array of unique products, innovative solutions and digital channels to ensure convenience, speed and security of transactions. Infrastructure ﬁnancing remains a huge opportuni- ty with the requisite policy framework. Technology continues to be a deﬁning tool in our eﬀort to create value for all our stakeholders. We are, however, also cognizant of the disruptive impact of new and emerging technologies in the ﬁnancial service space, especially as the fourth industrial revolu- tion era continues to unfold. I wish to assure you that we have all that is necessary to adapt to changes, acquire new capabilities 26 ty to thank all our staff, Management and Board (both past and present), our shareholders and all other stakeholders for your contributions towards making Zenith Bank a model of institu- tional stability and leadership. Going into this decade, our commitment is to keep the bank on the path of growth as we have done over the last three decades. We will be unwavering in our adoption of sound policies, robust risk management practices, building stronger and dynamic dig- ital capabilities to support our business processes and product innovation, while delivering enduring value to all our stakehold- ers. Thank you. Ebenezer Onyeagwu Group Managing Director / CEO and upskill our talents to deliver new levels of service excellence and convenience to all our esteemed customers. Our journey towards becoming a financial institution aligned with global sustainable best practices received a massive boost in 2019. On September 22nd, we launched the Principles for Re- sponsible Banking together with 129 banks and the United Na- tions. By signing up to this framework led by the United Nations Environment Finance Initiative (UNEP FI), we committed to stra- tegically aligning our business with the goals of the Paris Agree- ment on Climate Change and the Sustainable Development Goals (SDGs). This means that we will seek to create value for our shareholders, customers, clients, investors, communities and the environment through our practices, operations and investments. We consider that the Principles for Responsible Banking aligns with the United Nations Global Compact (UNGC) Principles and Nigerian Sustainable Banking Principles (NSBP), two sustainable business frameworks which Zenith Bank has adopted. As a testament to our market leadership, robust and best-in-class service, and unflinching commitment to global best practices, we received several awards and recognitions in 2019 including “Best Commercial Bank in Nigeria” (World Finance), “Most Val- uable Banking Brand in Nigeria” (The Banker Magazine), “Best Digital Bank in Nigeria” (Agusto & Co.), “Bank of the Year” for the third consecutive year (BusinessDay Awards), and the “Most In- novative Bank of the Year” (Tribune Awards). In recognition of our support to the health sector, Zenith Bank was adjudged the “Best Company in Promotion of Good Health and Wellbeing” in Africa at the 2019 Sustainability, Enterprise and Responsibility Awards (SERAS). The outlook for the domestic economy in 2020 is expected to be brighter as government policies and programmes to spur growth gain traction. The economy is expected to sustain the modest growth, as the recovery in the oil and non-oil sectors (manufacturing and services) continues to gather momentum. Growth will further be supported by monetary and fiscal pol- icy measures, including fiscal stimulus from the 2020 Federal Government budget and CBN interventions in selected employ- ment and growth-enhancing sectors as well as efforts to boost credit to the private sector through the LDR policy. While global macroeconomic headwinds are beginning to recede, especially with the trade deal between the US and China, and diminishing BREXIT-related uncertainties, the outbreak of Coronavirus has somewhat posed a major threat in the global landscape. The challenges of the domestic and global economy notwithstand- ing, I am confident that financial year 2020 holds enormous po- tential. The year 2020 represents a major landmark for us as an institu- tion, as it marks our 30th anniversary. May I use this opportuni- 27 Board of Directors s r o t c e r i D f o d r a o B JIM OVIA, CON Jim Ovia is the founder and pioneer Group Managing Director / CEO of Zenith Bank Plc, Nigeria’s largest and Africa’s 9th largest bank by Shareholders’ Funds. He was at the helm of aﬀairs, from inception, for 20 years until his resignation in July, 2010. He was reappointed the Chairman of the bank in 2014. Jim Ovia was a member of the National Economic Management Team of Nigeria and he is a member of the Honorary Internation- al Investors’ Council. Jim Ovia is a philanthropist and the founder and proprietor of James Hope College, Agbor, Delta State. His foundation, which focuses on providing scholarship to the less-privileged, has a number of beneﬁciaries that are now qualiﬁed medical doctors, engineers, etc. He is also the Founder of several enterprises and philanthropic institutions including the Youth Empowerment & ICT Founda- tion, which focuses on improving the socio-economic welfare of Nigerian youths by empowering them to embrace Informa- tion and Communication Technology. The initiative holds annual Youth Empowerment seminars. In recognition of his achievements particularly in support of the Nigerian economy, Jim Ovia was conferred with the national award of Commander of the Order of the Niger (CON) in No- vember, 2011. Jim Ovia holds a Master’s degree in Business Administration (MBA) from the University of Louisiana, Louisiana, USA obtained in 1979 and a B.Sc degree in Business Administration from Southern University, Louisiana, USA (1977). He is an alumnus of Harvard Business School (OPM). Jim Ovia is a writer and motivational speaker. He has been inter- viewed by a number of global networks including CNN, CNBC, Bloomberg and Arise TV. 30 Chairman EBENEZER ONYEAGWU Mr. Ebenezer Onyeagwu is a vastly experienced Chartered Accountant, a knowledgeable and astute ﬁnancial expert, trained in reputable institutions of learning in Nigeria, the United Kingdom and the United States of America. Mr. Onyeagwu is a graduate in accounting from Auchi Polytechnic, widely recognized as an institution that has produced some of Nigeria’s most renowned Chartered Ac- countants. He obtained the Higher National Diploma in Accounting from that institution in 1987. He qualiﬁed as a Chartered Accountant (ACA) of the Institute of Chartered Accountants of Nigeria (ICAN) in 1989, almost immediately after graduation. He subsequently became a Fellow (FCA) of the Institute of Chartered Accountants of Nigeria (ICAN), in 2003. He has over 29 years of experience in the banking industry in Nigeria, out of which he spent 17 in Zenith Bank Plc. Before joining Zenith Bank Plc, he worked at Citizens International Bank Limited between 1991 and 2002. He was one of the most outstanding branch managers in the bank, winning multiple awards and recognitions for his brilliant, excellent and highly professional performance on the job. He joined Zenith Bank Plc in 2002 as a Senior Manager, in the Internal Control and Audit Group of the bank. His profession- alism, competence, integrity and commitment to the ob- jectives of the bank saw him rise swiftly between 2003 and 2005, ﬁrst, as Assistant General Manager, then Deputy Gener- al Manager, and eventually, General Manager of the bank. In these capacities, he handled strategies for new business and branch development, management of risk assets portfolios, treasury functions, strategic top level corporate, multination- als and public institutional relationships, among others. He was appointed Executive Director of the bank in 2013, and put in charge of Lagos and South-South Zones as well as strategic groups/business units of the bank, including Finan- cial Control & Strategic Planning, Treasury and Correspond- ent Groups, Human Resources Group, Oil and Gas Group, and Credit Risk Management Group, etc. Mr. Onyeagwu was named Deputy Managing Director of the bank in 2016. In that capacity, he deputized for the Group Man- aging Director and Chief Executive Oﬃcer of the bank. He also had direct oversight of the bank’s Financial Control and Stra- tegic Planning, Risk Management, Retail Banking, Institutional and Corporate banking business portfolios, IT Group, Credit Ad- ministration, Treasury and Foreign Exchange Trading. Mr. Onyeagwu is an alumnus of the prestigious University of Oxford, England, from where he obtained a Postgraduate Di- ploma in Financial Strategy, and a certiﬁcate in Macroeconom- ics. He also undertook extensive executive level education in Wharton Business School of the University of Pennsylvania, Columbia Business School of Columbia University, the Harvard Business School of Harvard University, in the United States. At Wharton Business School, Mr. Onyeagwu undertook the CEO academy and leadership training programmes. His strategic skills were further nurtured and honed at Columbia Business School strategy training programme. At the Harvard Business School, he acquired capabilities in negotiations and critical de- cision-making. In the last six years, Mr. Onyeagwu has been on the board of Zenith Bank Ghana, Zenith Pensions Custodian Limited, Ze- nith Nominees Limited and African Finance Corporation (AFC). In AFC, he serves on the Board Risk & Investment Committee (BRIC), and Board Audit & Compliance Committee (BAAC). At Zenith Bank Ghana, he chairs the Board Credit and Governance Committees. He is very well noted for his tenacity, entrepreneurial spirit, high sense of innovation and creativity and very inspirational leader- ship skills. Within the market, he is highly respected for his con- sistent and impeccable character, brilliance, deep knowledge and insight of the market, as well as for his strong professional and ethical principles, which have continued to endear him to all stakeholders. Mr. Onyeagwu is married and has children. B O A R D O F D I R E C T O R S 31 Group Managing Director/CEO s r o t c e r i D f o d r a o B DR. ADAORA UMEOJI With over 20 years cognate banking and broad executive man- agement experience, Dr. Adaora Umeoji rose through the ranks to her current position. advancement of the banking industry and national economic growth and development. She has delivered several motivation- al speeches at strategic sessions aimed at mentoring youths and managers, especially banking professionals. She holds a Bachelor’s degree from University of Jos, an MBA from University of Calabar and a Doctorate degree in Business Administration from Apollos University, Great Falls, Montana, USA. Her dissertation was on inspirational leadership and her ﬁndings have been recognized as a major contribution in lead- ership and people management. She was trained in strategic thinking and management at Whar- ton Business School, Pennsylvania, USA and also holds a Certiﬁ- cate in Management from Harvard Business School, Boston, USA. She is a member of notable professional bodies including the Chartered Institute of Bankers of Nigeria, Institute of Credit Ad- ministration, Nigerian Institute of Management, Institute of Cer- tiﬁed Public Accountants of Nigeria and Institute of Chartered Mediators and Conciliators. Beyond banking, Dr. Adaora Umeoji supports research and learn- ing on inspirational leadership, mentorship, talent development, collaboration, change and adaptability, strategic thinking, inno- vation and creativity, amongst others. Dr. Adaora Umeoji promotes the Pink Breath Cancer Care Foun- dation which supports several healthcare programs within the six geopolitical zones of Nigeria. Dr. Adaora Umeoji has won numerous awards for excellence and creativity in management. Her contribution towards improv- ing humanity has been recognized by the Nigerian Red Cross, Catholic Women organization of Nigeria and the Institute of Chartered Mediators and Conciliators among other non-govern- mental organizations both within and outside the country. Dr. Adaora Umeoji has presented lead papers at major academic conferences and symposia. Recently, she was a keynote speaker at the Zenith Global Economic Forum held in New York City, USA where she delivered a thought-provoking lecture on Financing Growth Drivers in the Nigerian Economy. As a result of her passion in promoting professionalism in the banking industry and improving the well-being of the less priv- ileged, Dr Adaora Umeoji founded the Catholic Bankers Associ- ation of Nigeria (CBAN), a platform she uses to promote ethical banking and service to humanity. Dr. Adaora Umeoji has at diﬀerent times participated in high-lev- el Bankers’ meetings with impactful contributions towards the 32 Deputy Managing Director PROF. CHUKUKA ENWEMEKA He is a Professor, Provost and Senior Vice President for Academic Aﬀairs at San Diego State University, California, United States of America. Prior to this appointment, he was the Professor and Dean, College of Health Sciences, University of Wisconsin, Milwaukee, United States of Ameri- ca. He was also Professor and Dean, School of Health Professions, New York Institute of Technology, Old Westbury, New York, United States of America and Professor/Chairman, University of Kansas (Medical Center), Kansas City, United States of America as well as Associate Pro- fessor of Orthopaedics and Rehabilitation, University of Miami, School of Medicine, Miami, Florida, United States of America. He graduated and obtained his ﬁrst degree in 1978 from the University of Ibadan, Ibadan, Oyo State, Nigeria. He obtained his Master’s degree in 1983 from the University of Southern California, Los Angeles, United States of America and thereafter proceeded to the New York Univer- sity, New York, United States of America where he bagged his Ph.D. in 1985. Professor Enwemeka is a distinguished scholar who has authored sev- eral books and has provided administrative oversight and academic leadership for various degree programs and in various prestigious Uni- versities. He is an experienced and well-rounded international banker, interna- tional trade expert and ﬁnancial services professional with a powerful entrepreneurial streak, combined with risk aversion and with an eye to the “bottom line”. He is an energetic lateral thinker with several years experience in Man- agement Consulting, Board and Corporate Governance. Mr. Efeyini is a fellow of the Chartered Institute of Bankers, United King- dom. He holds a Master’s degree from the London School of Econom- ics and Political Science as well as an MBA from the University of Lagos, Nigeria. JEFFREY EFEYINI He recently retired as the Managing Director of Melvale Group, United Kingdom (a diversiﬁed international trade ﬁnance and foreign direct investment consulting organization). From2003 to 2009, he was an Independent Director with Union Bank UK Plc, London. He was also a Director and later Chairman of Britain Nigeria Business Council, London. He started his professional banking career with Barclays Bank Interna- tional, United Kingdom, later Union Bank of Nigeria and rose to the position of the pioneer Chief Executive/General Manager, Union Bank of Nigeria Plc, London. B O A R D O F D I R E C T O R S 33 Non-Executive DirectorNon-Executive Director s r o t c e r i D f o d r a o B GABRIEL UKPEH PROF. OYEWUSI IBIDAPO-OBE Mr. Ukpeh is an internationally acclaimed consultant in business strategy, risk management, process re-engineering and ﬁnancial services, who was, until recently, a Senior Partner and Risk Quality Leader for Africa at Pricewa- terhouseCoopers (PwC). He is a fellow of the Institute of Chartered Accountants of Nigeria with over thirty ﬁve (35) years experience in Financial Audit and Reporting, as well as a member of the Institute of Taxation of Nigeria. A graduate of accounting, he holds Graduate Diploma in Business Admin- istration from the University of Warwick, Coventry, United Kingdom. He obtained a Master of Science (M.Sc) Degree in Contemporary Accounting from the Leeds Metropolitan University, UK in 2009. He worked with PwC, an International Business auditing and consulting ﬁrm for over thirty ﬁve (35) years, and as a Partner for over 20 years led, directed, planned and managed the audit, accounting, and consulting assignments for numerous ﬁnancial institutions, multinationals and local companies, including most major banks in Nigeria. Professor Oyewusi Ibidapo-Obe, a Distinguished Professor of Systems Engi- neering and former Vice Chancellor (2000-2007) of the University of Lagos and former Vice Chancellor of the new Federal University Ndufu Alike Ikwo Ebonyi State Nigeria (2011-2016); was the President of the Nigerian Acade- my of Science from 2009-2013. He attended the University of Lagos from 1968-1971. He was awarded a Bachelor of Science [B.Sc. (Hon)] degree in Mathematics in the 1st Class Division by the University of Lagos, Nigeria in 1971; a Master of Mathemat- ics (M. Maths) degree in Applied Mathematics with a minor in Computer Science in 1973 and a Doctor of Philosophy (PhD) in Civil Engineering with specialisation in Applied Mechanics/Systems in 1976 both from the Uni- versity of Waterloo, Ontario, Canada. He attended the Round Table at Ox- ford University in 2003 and also the 2007 MIT Research and Development Conference and Innovations for Economic Development Course as well as Harvard University of Kennedy School of Government in 2013. Professor Ibidapo-Obe was also a Commonwealth Scholar (Canada) (1972- 1976); an NSERC/CIDA (Natural Sciences and Engineering Research Coun- cil/Canadian International Development Agency (1977-1980) and a Senior Fulbright Research Scholar (1980-1981). He serves as an honorary International Scholar-in-Residence at the Penn- sylvania State University and a Visiting Research Professor at Texas Southern University (2007 – present) both in the United States. He has similar recog- nitions with Otto von Guericke University Magdeburg, Germany. Professor Ibidapo-Obe was invested in 2004 with the prestigious Fellow- ships of the Academy of Science and Academy of Engineering Nigerian Computer Society and Mathematical Association of Nigeria. He was elect- ed Fellow of the African Academy of Science (AAS) as well as The World Academy of Science (TWAS) in 2012. He was the Vice President of NASAC (Network of African Science Academies) (2011-2013). 34 Non-Executive DirectorNon-Executive Director ENGR. MUSTAFA BELLO Engr. Mustafa Bello graduated with B.Engr. (Civil Engineering), from the Ahmadu Bello University (ABU), Zaria in 1978 with Second Class Upper Division and won the Shell prize for best project and thesis for Faculty of Engineering in 1978. He served in the Directorate of Quartering and Engineering Service (Nigerian Army) between 1978 / 1979 and later joined the Niger State Housing Corporation between 1980 and 1983 as a Senior Civil Engi- neer. He served as a cabinet Minister of the Federal Republic of Nigeria as the Federal Minister of Commerce between 1999 and 2002. He was subsequently appointed Executive Secretary/Chief Executive Oﬃcer of the Nigerian Investments Promotion Commission (NIPC) between November 2003 and February 2014. He is currently the Chairman of Invest-in-Northern Nigeria Limited, a special purpose vehicle for the economic and social transformation of the Northern Nigerian Economy. He has been involved in several projects in Nigeria including CAC on- line project in 2002, developed WTO consistent Trade Policy for the Federal Republic of Nigeria etc. He has attended several conferences, missions and meetings and rep- resented the Federal Government of Nigeria. Dr. Al-Mujtaba Abubakar is currently the Managing Director of Apt Pensions Funds Managers Limited. He is a graduate of the Leeds Polytechnic, UK. He is a renowned Char- tered Accountant and a Fellow of the Institute of Chartered Account- ants of Nigeria. Dr. Abubakar has extensive and tremendous experience in the ﬁnan- cial services industry, audit and consulting. He worked with the ﬁrm of Akintola Williams Deloitte between January 2000 and November 2008, and rose to become the Partner and Board Member of West Af- rica sub-region. Prior to this, he had served on the Board of several ﬁnancial institutions in Nigeria. DR. AL-MUJTABA ABUBAKAR He has attended several management and leadership training pro- grammes and conferences both within and outside the country. He brings to the Board of the bank tremendous track record in Risk Management, Credit & Marketing, Auditing and very outstanding leadership skills. B O A R D O F D I R E C T O R S 35 Non-Executive DirectorNon-Executive Director s r o t c e r i D f o d r a o B UMAR SHUAIB AHMED DR. TOPE FASORANTI Until his appointment as an Executive Director, Umar Shuaib Ahmed was a General Manager and Zonal Head supervising 7 branches and 3 Strategic Business Units in Abuja and also coordinate 3 zones compris- ing over 20 branches in the North-West and North East. Umar graduated in 1990 with B.Sc (Hons) Accounting from Ahmadu Bello University, Zaria and later obtained an MSc. (Banking & Finance) from Bayero University Kano in 1998. He started his banking career 23 years ago in 1993 at Citibank (Nigeria International Bank). He joined Zenith in 2006 as an Assistant General Manager. Through his career, Umar has held several management positions before this appointment. He is a Fellow of Nigerian Institute of Loan and Risk Management, Honorary Senior Member, Chartered Institute of Bankers and Member, Nigerian Institute of Management. He has attended Strategic Business courses at London Business School and Harvard Business School, USA. He is married with children. Dr. Temitope Fasoranti, has spent over 26 years in the Nigerian Banking Industry. He obtained a Bachelor’s degree in Economics (1988), a Mas- ter’s degree in Economics (1991) and a PhD in Economics all from the Obafemi Awolowo University (OAU) Ile-Ife. He worked in FBN Merchant Bankers from 1991 – 1997 and joined Ze- nith Bank in 1997. Prior to his appointment as Executive Director he was a General Manager/Group Zonal Head overseeing several branch- es in Lagos which includes Ikeja Zone, Apapa Zone, Ilupeju Zone and was Group Head of Oil & Gas, Conglomerate Group, Agriculture Desk etc. He has attended several local and international courses and programs including Changing The Game: Negotiation and Competitive Decision Making (Harvard Business School), Creating and Leading High Perfor- mance Teams (The Wharton School, Pennsylvania, USA), and Develop- ing Strategy for Value Creation (London Business School). He is a member of the Nigerian Institute of Management (NIM), an honorary member of the Chartered Institute of Bankers of Nigeria (CIBN), The Institute of Credit Administration and a sitting board mem- ber of Financial Institutions Training Centre (FITC). His experience covers Treasury, Corporate Finance, Corporate Banking, Retail Banking, Risk Management, Branch Management and Zonal Management. He is married with children. 36 Executive DirectorExecutive Director DENNIS OLISA HENRY OROH Mr. Olisa is a Chartered Accountant and holds an MBA. He is a Fellow of the Institute of Chartered Accounts of Nigeria (FCA), Fellow of the Chartered Institute of Bankers of Nigeria (FCIB) and an Associate, Chartered Institute of Taxation (ACIT). He has attended several international courses including INSEAD Busi- ness School, Fontainebleau, France; Havard Business School, Boston, Massachusetts, USA; Booth School of Business, University of Chicago, USA; London School of Economics (LSE) UK, and Oxford Princeton Pro- gramme, Oxford, United Kingdom. Mr. Olisa has spent over twenty seven (27) years in the Nigerian Bank- ing Industry. He joined the services of the bank in 1998. His experi- ence covers Treasury, Banking Operations, Credit Risk Management, Telecommunication, Oil and Gas, Internal Control as well as Branch Management and Zonal Management. Prior to his appointment, he was a General Manager and Chief Inspec- tor of the bank, overseeing the Internal Audit and Inspection of the Group. Henry Oroh holds a Bachelor’s Degree in Accounting from the Univer- sity of Benin, Edo State and an MBA from the Lagos State University as well as an LLB Degree from the University of London. He is a Fellow of the Institute of Chartered Accountants of Nigeria (ICAN) and an honor- ary member of the Chartered Institute of Bankers (CIBN), Nigeria. He has over two decades of banking experience. He began his bank- ing career in 1992 at Citibank where he served for seven (7) years in Operations, Treasury and Marketing. He joined Zenith Bank in February 1999 and has worked in various Groups and Departments within the Zenith Group Oﬃce. His exper- tise spans Operations, Information Technology, Treasury, Marketing, including the Manufacturing, Food and Beverages, Pharmaceuticals, Oil and Gas, Public Sector, Consumer, as well as Corporate Banking and Business Development. In April 2012, he was seconded to Zenith Bank Ghana Limited as an Ex- ecutive Director and became the Managing Director/ Chief Executive in February 2016, where he successfully spearheaded the phenomenal growth of the Zenith Brand both within the Ghana market and the West African sub-region. Henry has attended several Leadership Programmes and Executive Management Courses at the Harvard Business School, Columbia Busi- ness School, New York, University of Chicago, University of Pennsylva- nia, HEC Paris, JP Morgan Chase, UK and the Lagos Business School. He comes to the Board of Zenith Bank Plc with strong competencies in Credit & Marketing, Operations, Information Technology, Treasury and impressive Leadership skills. B O A R D O F D I R E C T O R S 37 Executive DirectorExecutive Director Zenith Bank Plc Annual Report December 31, 2019 Directors’ Report for the Year Ended December 31, 2019 The directors present their report on the aﬀairs of ZENITH BANK PLC (“the Bank”), together with the ﬁnancial statements and independent auditor’s report for the year ended December 31, 2019. 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 thirteen new branches and no branch was closed. As at December 31, 2019 the Group had 430 branches, 178 cash centers; 2,093 ATM terminals; 50,427 POS terminals and 7,745,176 cards issued to its customers. (December 31, 2018: 417 branches, 256 cash centers, 1,891 ATM terminals, 34,006 POS terminals and 5,732,820 cards issued). 3. Operating results Gross earnings of the Group increased by 5.1% and proﬁt before tax increased by 5.0%. 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 31-Dec-19 31-Dec-18 N’ Million N’ Million 662,251 243,294 - (34,451) 208,843 (150) 630,344 231,685 (4,052) (34,209) 193,424 (277) Profit attributable to the equity holders of the parent 208,693 193,147 Appropriations Transfer to statutory reserve Transfer to retained earnings and other reserves Basic and Diluted earnings per share (kobo) Non-performing loan ratio % 38 29,875 178,818 32,456 160,691 208,693 193,147 6.65 4.30 6.15 4.98 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 (2018: Interim dividend of N0.30 per share and ﬁnal of N2.50 per share) from the retained earnings account as at December 31, 2019. This will be presented for ratiﬁcation by the shareholders at the next Annual General Meeting. Payment of dividends is subject to withholding tax at a rate of 10% in the hands 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, 2019 December 31, 2018 Director Designation Direct Indirect Direct Indirect Mr. Jim Ovia, CON Chairman/ Non-Executive Director 3,546,199,395 1,513,137,010 3,546,199,395 1,513,137,010 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 Dr. Al-Mujtaba Abubakar**** Non Executive Director/ Independent 127,137 541,690 421,426 32,660 - - Mr. Ebenezer Onyeagwu** Group Managing Director 45,500,000 - - - - - - - 127,137 541,690 421,426 32,660 - - 36,000,000 - - - - - - - Mr. Peter Amangbo * Group Managing Director (retired) 19,600,000 21,000,000 15,000,000 21,000,000 Dr. Adaora Umeoji Deputy Managing Director 68,873,169 1,710,123 53,873,169 1,710,123 Mr. Ahmed Umar Shuaib Executive Director Dr. Temitope Fasoranti Executive Director Mr. Dennis Olisa Mr. Henry Oroh *** Executive Director Executive Director 7,577,343 5,075,000 7,122,316 7,827,027 - - - - 7,077,343 5,075,000 7,122,316 5,018,579 - - - - * ** *** Retired from the Board effective 31 May 2019. Appointed as Group Managing Director effective 1 June 2019 Appointed as Executive Director effective 1 August 2019 **** Appointed as Independent Non-Executive Director effective 1 August 2019 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 39 Zenith Bank Plc Annual Report December 31, 2019 Directors’ Report for the Year Ended December 31, 2019 6. Directors’ Remuneration The Bank ensures that remuneration paid to its Directors complies with the provisions of the Code 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 - 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. Timing Paid monthly during 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. -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. - Paid annually on the day of the Annual General Meeting (‘AGM’) to Non- Executive Directors only. Paid annually on the day of the AGM. - Allowances paid to Non-Executive Directors only, for attending Board and Board Committee Meetings. Paid after each Meeting. Basic Salary Other allowances Productivity bonus Director fees Sitting allowances 7. Changes on the Board Mr Peter Amangbo (Group Managing Director) retired from the Board eﬀective 31, May 2019 and Mr Ebenezer Onyeagwu was appointed as the new Group Managing Director, eﬀective 1 June 2019. Also, Dr. Al-Mujtaba Bello and Mr. Henry Oroh were appointed as Non-Executive Director and Executive Director respectively eﬀective 1, August 2019. 8. Directors’ interests in contracts For the purpose of section 277(1) and (3) of Companies and Allied Matters Act of Nigeria, (CAMA), 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. 40 11. Shareholding analysis The shareholding pattern of the Bank as at 31 December, 2019 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 - 1,000,000,000 Above 1,000,000,000 No. of Shareholders Percentage of Shareholders Number of holdings Percentage Holdings (%) 538,495 79,624 21,321 1,012 165 159 54 5 640,835 84.0302 % 12.4250 % 3.3271 % 0.1579 % 0.0257 % 0.0248 % 0.0084 % 0.0009 % 100 % 1,600,809,615 1,637,944,446 3,466,126,816 2,182,848,956 1,160,270,614 3,456,450,729 9,080,638,007 8,811,404,604 31,396,493,787 5.10 % 5.22 % 11.04 % 6.95 % 3.70 % 11:01 % 28.92 % 28.06 % 100 % 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 6 639,403 84.1309 % 12.5631 % 3.1329 % 0.1237 % 0.0221 % 0.0181 % 0.0041 % 0.0036 % 0.0006 % 0.0009 % 100 % 1,596,747,902 1,638,639,586 3,108,802,557 1,682,858,529 966,504,587 2,567,943,284 1,791,562,895 4,138,595,598 2,279,638,965 11,625,199,884 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 % 12. Substantial interest in shares According to the register of members as at 31 December, 2019, the following shareholders held more than 5% of the issued share capital of the Bank. Jim Ovia, CON Number of Shares Held Number of Shares Held 3,546,199,395 11.29 % According to the register of members at December 31, 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 % We wish to declare that the Bank has diverse shareholding structures and that no other individual(s) holds above 5% of the Bank’s issued and fully paid shares except as disclosed above. t r o p e R c g e t a r t S i 41 Zenith Bank Plc Annual Report December 31, 2019 Directors’ Report for the Year Ended December 31, 2019 13. Donations and charitable gifts The Bank made contributions to charitable and non-political organisations amounting to N2,729 million during the year ended 31 December 2019 (31 December 2018: N3,065 million). 31-Dec-19 N’ Million 573 362 314 245 204 165 153 145 120 100 73 66 55 50 45 35 20 4 2,729 The beneﬁciaries are as follows: Various State Government Security Trust Funds Global Citizen Award Various Conference and Seminars . Medical assistance to the underpriviledged Musical Society Of Nigeria Various Sports Organisations i.e. NFF, NBBF etc Sponsorship/Catholic Archdiocese Abuja Educational Support to Nigerian Schools Financial Inclusion Project and Other Contribution (CBN) O'Five Charity Initiative Sponsorship/Delta State Principal Cup Road and drainage rehabilitation Africa Business: Health Forum Sponsorship/Greater Lagos 2020 ICT Centres for Educational Institutions Unilag Alumni Association at 50 CFA Society of Nigeria Other donations individually below N10 million 42 The Bank made contributions to charitable and non-political organisations amounting to N3,065 million during the year 31 December 2018. The beneﬁciaries are as follows: Various State Government Security Trust Funds Various Sports Organisations i.e, NFF, NBBF etc Seed contribution 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 Enpowerment St. Saviours School Ikoyi Nigeria Academy of Neurological Surgeons Musical Society of Nigeria Other donations individually below N10 million 31-Dec-18 N’ Million 1,571 363 305 200 158 131 85 61 43 30 30 25 20 10 14 19 3,065 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 year ended December 31, 2019 Description Number Amount claimed Amount refunded 31-Dec- 19 31-Dec- 18 31-Dec-19 N 31-Dec-18 N 31-Dec-19 N 31-Dec-18 N Pending complaints brought forward Received Complaints Resolved Complaints Unresolved Complaints escalated to 188 769 408 549 86 224 122 17,033,494,506 9,783,412,201 27,009,119 167,782,649,956 11,026,857,556 222,775,473 N/A N/A 4,051,113,818 3,776,775,251 421,465,468 800,131,355 188 180,765,030,644 17,033,494,506 12,982,196 - CBN for intervention/carried forward Other refunds made to customers during the year amounted to N897,526.70 (US$2,461) ( December 31, 2018: N9,372,176, US$26,121.62). t r o p e R c g e t a r t S i 43 Zenith Bank Plc Annual Report December 31, 2019 16. Human resources 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 occasional 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. 44 Gender analysis of staff (iv) The average number of employees of the Bank during the year by gender and level is as follows; a. Analysis of total employees Employees (b) Analysis of Board and top management staﬀ Board members (Executive and Non-executive directors) Top management staﬀ (AGM-GM) (c) Further analysis of board and top management staﬀ Assistant general managers Deputy general managers General managers Board members (Non-executive directors) Executive Directors (excluding MD and DMDs) Deputy Managing Director Managing Director/CEO Male 3,099 3,099 Gender Number Female 2,883 2,883 Gender Number Gender Percentage Total 5,982 5,982 Male 52 % 52 % Female 48 % 48 % Gender Percentage Male Female Total Male Female 12 39 51 1 20 21 13 59 72 92 % 66 % 71 % 8% 34 % 29 % Gender Number Gender Percentage Male Female Total Male Female 28 15 7 4 7 4 - 1 3 2 - - 1 - 43 10 6 7 4 1 1 51 21 72 65% 70% 67% 100% 100% -% 100% 71% 35 % 30% 33% -% -% 100% -% 29% 17. Auditors The tenure of the Bank’s auditor, Messrs KPMG Professional Services, will be 10 years by 31 December 2019. In accordance with section 5.2.12 of the Central Bank of Nigeria (CBN) Code of Corporate Governance for Banks and Discount houses in Nigeria, Messrs KPMG Professional Services will not be eligible for reappointment as the Bank’s auditor in the next annual general meeting. By order of the Board Michael Osilama Otu (Esq.) Company Secretary January 28, 2020 FRC/2013/MULTI/00000001084 t r o p e R c g e t a r t S i 45 Governance & Sustainability (cid:53)(cid:51)(cid:34)(cid:47)(cid:52)(cid:49)(cid:34)(cid:51)(cid:38)(cid:47)(cid:36)(cid:58)(cid:52)(cid:53)(cid:34)(cid:47)(cid:37)(cid:34)(cid:51)(cid:37)(cid:52)(cid:36)(cid:48)(cid:46)(cid:49)(cid:45)(cid:42)(cid:34)(cid:47)(cid:36)(cid:38)(cid:51)(cid:38)(cid:50)(cid:54)(cid:42)(cid:51)(cid:38)(cid:46)(cid:38)(cid:47)(cid:53)(cid:52)(cid:51)(cid:54)(cid:45)(cid:38)(cid:52)(cid:1)(cid:14)(cid:1)(cid:45)(cid:34)(cid:56)(cid:51)(cid:38)(cid:40)(cid:54)(cid:45)(cid:34)(cid:53)(cid:42)(cid:48)(cid:47)(cid:52)(cid:52)(cid:54)(cid:52)(cid:53)(cid:34)(cid:42)(cid:47)(cid:34)(cid:35)(cid:42)(cid:45)(cid:42)(cid:53)(cid:58)02Zenith Bank Plc Annual Report December 31, 2019 Corporate Governance Report for the Year Ended 31 December, 2019 1. Introduction The Bank and the Group subscribes to the highest level of Corporate Governance and best practice in the conduct of its business. The Group’s governance practices are constantly reviewed to ensure we keep pace with global standards. 2 The Directors and other key personnel During the year under review, the Directors and other key personnel of the Bank complied with the following Codes of Corporate Governance, which the Bank 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. The National Code of Corporate Governance for Public Companies which became eﬀective in January 2019. b. c. 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 12% of the bank’s total shares. b. c. 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, six (6) Non- Executive Directors and six (6) Executive Directors including the GMD/CEO. Four (4) 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 Director 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. 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; 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 at all times. 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 their 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 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 year of review. The Board has a Charter which regulates its operations. The 48 d. monitoring corporate performance against the strategic e. f. g. h. i. 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; 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; its in assessing responsibilities, including monitoring the eﬀectiveness of individual directors. its own eﬀectiveness fulﬁlling The membership of the Board during the year is as follows: POSITION Chairman Board of Directors NAME Jim Ovia, CON Prof. Chukuka S. Enwemeka Non-Executive Director Non-Executive Director Mr Jeﬀrey Efeyini Independent/Non-Executive Director Prof. Oyewusi Ibidapo-Obe Independent/Non-Executive Director Mr. Gabriel Ukpeh Independent/Non-Executive Director Engr. Mustafa Bello Independent/Non-Executive Director Dr. Al-Mujtaba Abubakar*** Group Managing Director/CEO Mr. Ebenezer Onyeagwu* Deputy Managing Director Dr. Adaora Umeoji Executive Director Mr. Umar Shuaib Ahmed Executive Director Dr. Temitope Fasoranti Executive Director Mr. Dennis Olisa Executive Director Mr. Henry Oroh*** Group Managing Director/CEO (retired) Mr. Peter Amangbo ** Appointed as GMD/CEO with eﬀect from June 1, 2019 Retired from the Board with eﬀect from May 31, 2019 * ** *** Appointed to the Board eﬀective August 1, 2019 The Board meets at least once every quarter but may hold extra-ordinary sessions to address urgent matters requiring the attention of the Board. 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 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 remuneration 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. 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. 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. Board Committees The Board carries out its oversight functions using its various Board Committees. This makes for eﬃciency and allows for a 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, 2019 Corporate Governance Report for the Year Ended 31 December, 2019 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. 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: 10.1 Board credit committee The Committee is currently made up of seven (7) members comprising four (4) non-Executive Directors and three (3) 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. - Chairman The membership of the Committee during the year is as follows: Mr. Gabriel Ukpeh Mr. Jeﬀrey Efeyini Prof. Chukuka Enwemeka Dr. Al-Mujtaba Abubakar ** Mr. Peter Amangbo* Mr. Ebenezer Onyeagwu Dr. Adaora Umeoji Dr. Temitope Fasoranti • • • • • • • • 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. 10.2 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. – Chairman The membership of the Committee during the year is as follows: Prof. Oyewusi Ibidapo-Obe Mr. Jeﬀrey Efeyini Mr Gabriel Ukpeh Mr. Henry Oroh* Dr. Adaora Umeoji Mr. Ebenezer Onyeagwu Retired from the Board with eﬀect from 31 May 2019 * ** Appointed to the Board eﬀective August 1, 2019 * Appointed to the Board eﬀective August 1, 2019 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; • 50 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 distributions 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 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 staﬀ, based on the recommendation of the Executives; Oversight of broad-based employee compensation policies and programs; 10.3 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 Engr. Mustapha Bello (an Independent Non-Executive Director), the Committee’s membership comprises the following: Engr. Mustapha Bello - Chairman Mr. Jeﬀrey Efeyini Prof. Chukuka S. Enwemeka Dr. Al-Mujtaba Abubakar** Mr. Peter Amangbo* Mr. Ahmed Umar Shuaib Mr. Dennis Olisa * ** Appointed to the Board eﬀective August 1, 2019 Retired from the Board with eﬀect from 31 May 2019 implement 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; Design and risk management practices, 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 manage material risks; and (c) 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. • • • • • • 10.4 Board audit and compliance committee: The Committee is chaired by a Non-Executive Director - Mr. Jeﬀrey Efeyini, who is well experienced and knowledgeable in ﬁnancial matters. The Chief Inspector and Chief Compliance Oﬃcer have access to this Committee and make quarterly presentations for the consideration of the Committee. Committee’s membership comprises the following: Mr. Jeﬀrey Efeyini - Chairman Mr. Gabriel Ukpeh Engr. Mustafa Bello Prof. Oyewusi Ibidapo-Obe Dr. Al-Mujtaba Abubakar* * Appointed to the Board eﬀective August 1, 2019 Terms of reference • The primary responsibility of the Committee is to ensure that sound policies, procedures and practices are in place Committee’s terms of reference The Board Audit and Compliance Committee have the following responsibilities as delegated by the Board of 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 51 Zenith Bank Plc Annual Report December 31, 2019 Corporate Governance Report for the Year Ended 31 December, 2019 • • • • 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 year 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 year 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. 10.5 Board governance, nominations and remuneration committee: The Committee is made up of four (4) Non-Executive Directors and one of the Non-Executive Directors chairs the Committee. The membership of the committee is as follows: Prof. Chukuka Enwemeka - (Chairman) Prof. Oyewusi Ibidapo Obe Engr. Mustafa Bello Mr. Gabriel Ukpeh 52 Committee’s terms of reference • fair reasonable and competitive To determine a 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; 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 and 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 all aspects of the Board’s structure, composition, 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. 10.6 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 Mr. Jeﬀrey Efeyini Mr. Gabriel Ukpeh Engr. Mustafa Bello* * Appointed to the Committee eﬀective 18 January 2019. Committee’s terms of reference • To meet with the independent auditors, chief ﬁnancial 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 • 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, 2019 Corporate Governance Report for the Year Ended 31 December, 2019 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. • • • • • 10.7 Executive committee (EXCO) The EXCO comprises the Group Managing Director, Deputy Managing Director 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. 10.8 Other committees In 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) (e) (f ) Risk Management Committee (RMC) Information Technology (IT) Steering Committee Sustainability Steering Committee 54 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. 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 established by the Board. The Committee also makes 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. Information Technology (e) Information technology (IT) steering committee is The responsible for amongst others, development of corporate information technology (IT) strategies and plans that ensure cost eﬀective application and management of resources throughout the organization. (IT) Steering Committee 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; Two (2) Executive Directors; Chief Financial Oﬃcer; Chief Inspector; Chief Risk Oﬃcer; Chief Compliance 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, recognizing 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 the CSR and Research Group. 11. 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. 12. 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 information about the Bank. The Bank also regularly briefs the regulatory authorities, and ﬁle statutory returns which are usually accessible to the shareholders. 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, 2019 Corporate Governance Report for the Year Ended 31 December, 2019 13. 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. During the year under review, all Directors attended the CFT/AML training programme to keep them abreast of recent trends in CFT and Money Laundering. 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 • 14. 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. 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. link on its 56 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. 15. Foreign Subsidiaries Governance Structure The Bank as at December 31, 2019 has four (4) foreign subsidiaries, two (2) local subsidiaries and one (1) representative oﬃce. 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. Local Board and Board Committees To ensure that the activities of the subsidiaries reﬂects 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 a 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 exercise 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 covers the subsidiaries’ ﬁnancial performance, risk assessment, regulatory and compliance matters amongst others. The to Executive Management and the Group Board of Directors for decision making and fulﬁlment of its oversight function. reports are analyzed and presented 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 budget 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. 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, 2019 Corporate Governance Report for the Year Ended 31 December, 2019 Group Compliance Function Zenith Bank Plc is committed to complying with regulatory requirements in all locations where it operate. 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 include 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 undertake 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. 16. 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. 17. 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. Directors 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 Jim Ovia, CON Mr. Jeﬀrey Efeyini Prof. Chukuka S. Enwemeka Prof. Oyewusi Ibidaop-Obe Mr. Gabriel Ukpeh Engr. Mustafa Bello Dr. AI-Mujtaba Abubakar*** Dr. Adaora Umeoji Mr. Ebenezer Onyeagwu* Mr. Ahmed Umar Shuaib Dr. Temitope Fasoranti Mr. Dennis Olisa Mr. Henry Oroh**** Mr. Peter Amangbo** 7 7 7 7 7 7 7 2 7 7 7 7 7 2 3 4 N/A 4 4 N/A 4 N/A N/A  4 N/A 4 N/A N/A 2 4 N/A N/A 2 (**) 4 N/A 2 (*) N/A  2 (*) 2 (**) N/A N/A N/A 2 (**) 4 N/A 4 4 4 2 (**) 2 (*) N/A N/A N/A N/A N/A N/A N/A N/A 4 N/A 4 4 N/A 4 N/A N/A N/A 4 2 (*) N/A 4 N/A 2 4 N/A 4 N/A 2 (*) 4 4 N/A N/A N/A N/A N/A N/A N/A N/A Note: * Appointed as Group Managing Director (GMD)/Chief Executive Oﬃcer (CEO) eﬀective 1 June 2019. ** Retired from the Board as GMD/CEO with eﬀect from 31 May 2019. *** Appointed as an Independent Non-Executive Director with eﬀect from August 1, 2019. **** Appointed as Executive Director with eﬀect from August 1, 2019. (*) Joined the Committee on April 16, 2019 based on Reconstitution of Board Committees. 58 (**) Left the Committee on April 16, 2019 based on Reconstitution of Board Committees. N/A - Not Applicable (Not a Committee member) Dates for Board and Board Committee meetings held in the year ended December 31, 2019 Board meetings 18-Jan-19 18-Mar-19 16-Apr-19 23-Jul-19 01-Aug-19 22-Oct-19 23-Dec-19 Board credit committee meeting Finance and general purpose committee Board risk and audit committee meeting Board audit and compliances committee meeting Board governance, nominations and remuneration committee Audit committee meeting of the bank 17-Jan-19 17-Jan-19 17-Jan-19 17-Jan-19 17-Jan-19 17-Jan-19 15-Apr-19 15-Apr-19 15-Apr-19 15-Apr-19 22-Jul-19 22-Jul-19 22-Jul-19 22-Jul-19 15-Apr-19 22-Jul-19 15-Apr-19 22-Jul-19 21-Oct-19 21-Oct-19 21-Oct-19 21-Oct-19 21-Oct-19 21-Oct-19 18. Audit Committee The table below shows the frequency of meetings of the audit committee and members’ attendance at these meetings during the year under review. Number of meetings held during the year: Members Mrs. Adebimpe Balogun (SR) Prof. (Prince) L. F. O Obika (SR) Mr. Michael Olusoji Ajayi (SR) Engr. Mustafa Bello (NED) Mr. Jeﬀrey Efeyini (NED) Mr. Gabriel Ukpeh (NED) SR - Shareholders representative NED- Non-Executive Director 19. Analysis of Fraud and Forgeries Returns Number of Meetings attended 4 4 4 4 4 4 Nature of Fraud ATM/Electronic fraud Staﬀ Perpetrated (see (i)) Impersonation Stolen/Forqed Instrument Internet Bankinq Others Total December 31, 2019 December 31, 2018 No. %Loss Actual Loss to the Bank (N) Jan-Dec 2019 No. %Loss Actual Loss to the Bank (N) Jan - Dec 2018 78 32 16 92 119 12 349 0.06 82.44 0.23 11.58 3.46 2.24 100 672,450 999,767,153 2,827,000 140,448,145 41,947,690 27,114,000 44 32 32 146 20 43 - 67 22 11 - - - 316,910,400 4,250,103 107,534,526 413,841 - 1,212,776,438 317 100 429,098,870 (i) (ii) Out of the staﬀ perpetrated fraud during the year, losses of N975million has been recorded in prior years Other losses incurred by the Bank from fraud and forgeries during the year amounted to N40.88 million (US$112,101.06) 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, 2019 Statement of Directors’ Responsibilities in Relation to the Financial Statements for the Year Ended December 31, 2019 The Directors accept responsibility for the preparation of the 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 28, 2020 60 _________________________ Mr. Ebenezer Onyeagwu Group Managing Director / CEO FRC/2013/ICAN/00000003788 January 28, 2020 06 February 2020 The Chairman, Zenith Bank Plc. Plot 84, Ajose Adeogun Street, Victoria Island, Lagos Nigeria. Dear Sir, (cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:61)(cid:72)(cid:81)(cid:76)(cid:87)(cid:75)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:3)(cid:51)(cid:79)(cid:70)(cid:17)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:50)(cid:88)(cid:87)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:82)(cid:68)(cid:85)(cid:71)(cid:3)(cid:40)(cid:89)(cid:68)(cid:79)(cid:88)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3) (cid:87)(cid:75)(cid:72)(cid:3)(cid:60)(cid:72)(cid:68)(cid:85)(cid:3)(cid:40)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:22)(cid:20)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)(cid:3) PricewaterhouseCoopers (“PwC”) was engaged to carry out an evaluation of the Board of Directors of Zenith Bank Plc. (“Zenith Bank”) or (“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” or “the Code”). The evaluation covered the Board’s structure, composition, responsibilities, processes, relationships and performance of the Board Committees for the period ended 31 December 2019. 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 dated 27 November 2019. 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 achieved significant compliance with the provisions of the CBN Code. Areas of strength include: the diversity of skill and wealth of experience on the Board, effective oversight over the Bank’s risk management practices, corporate social responsibility, financial performance, as well as succession planning and implementation. Areas of improvement and other findings were highlighted in the course of our review. Details of these are contained in the full report to the Board. 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 & peer assessment. Each individual director’s assessment report was prepared and made available to them respectively, while a consolidated report of the performance of all directors was submitted to the Board Chairman. Yours faithfully, for: PricewaterhouseCoopers Chartered Accountants Femi Osinubi Director FRC/2017/ICAN/00000016659 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 Adekoya, O Adeola, T Adeleke, W Adetokunbo-Ajayi, UN Akpata, O Alakhume, C Azobu, E Erhie, K Erikume, U Muogilim, P Obianwa, T Ogundipe, C Ojechi, O Oladipo, P Omontuemhen, O Osinubi, T Oyedele, AB Rahji, O Ubah 61 O ver the years, Zenith Bank has con- sistently created superior value for its esteemed stakeholders. As a reputable and responsible brand, the bank has entrenched sustain- able principles and standards into its business operations and invest- ment decisions, in line with global best practices. We have fully integrated environmental and so- cial (E&S) risks considerations into our credit process; all credit proposals are screened for E&S risks before presentation at the Global Credit Committee (GCC). Zenith Bank remains committed to promoting sustainable banking practices and green ﬁnance, as well as improving the quality of lives in communities where we operate, through social investments. Sustainable Wealth Creation As a leading ﬁnancial institution, we are conscious of our role in spurring economic growth and development, create wealth and employment generation for the more than 20 million Nigerian youths that are actively seeking employment. This conscious- ness inﬂuences our business investments and lending activities, and continually propel us to explore innovative ways to sustain our wealth creation eﬀorts. identiﬁes and channels funds to sectors and industries with considerable potential to spur economic growth and the overall well-being of the people. The bank also prioritises green investments, supporting and funding projects that promote the well being of the larger soci- ety and the physical environment. We are conscious of our envi- ronmental footprint and remain focused on investing responsi- bly in the best interest and per capita wealth of our stakeholders. Social Investments and Community Development Despite the relatively slow economic growth and challenging business environment, Zenith Bank remained committed to en- hancing the socio-economic welfare and prosperity of the com- munities of which we are a part through our social investments. In the year under review, Zenith Bank’s total Corporate Social Re- sponsibility (CSR) investment was NGN2.73 billion, representing 1.31 per cent of Proﬁt After Tax (PAT). The focus areas of the bank’s CSR endeavours during the year mirror the Sustainable Development Goals (SDGs) of the Unit- ed Nations and include security, healthcare, education and skills development, sports development, youth & women empower- ment, and public infrastructure development. Our strategy is to support the government’s initiatives at diver- sifying the economy through ongoing funding and investments in the real sector of the economy such as agriculture, power, manufacturing, solid minerals, construction, etc. The bank also Security: Promoting the safety of lives and properties was our most signiﬁcant social investment in 2019. Similar to the pre- vious year, the bank’s need-gap analysis revealed that security remains a fundamental need of our communities. Thus, in 2019, 62 “Best Company in Promotion of Good Health and Well-Being” at the 2019 Sustainability Enterprise Responsibility Awards (SERAs). Education: In line with our ﬁrm commitment to the develop- ment of the Nigerian education sector, we expended about NGN210 million towards educational initiatives in the outgone ﬁnancial year. Some of our educational initiatives in the year un- der review include construction of a multi-purpose hall at Mar- yland Comprehensive Secondary School; upgrade of facilities at St. Francis Catholic Secondary School, Idimu; donation of laptops to Gateway Polytechnic, Ogun state; construction of a new hos- tel at St Finbarr’s College, Akoka; sponsorship of CFA Institute Research Challenge, and the Zenith Academic Excellence Award for Best Graduating Students in some Federal Universities. Environmental Sustainability and Carbon Footprint Management Zenith Bank considers environmental and social (E&S) risk man- agement critical to the bank’s sustainability strategy. Our Envi- ronmental and Social Management System (ESMS) provides a clear framework for the management of E&S risks of the bank concerning its borrowers and investees. We take measures to avoid, mitigate and minimise the risks identiﬁed in our E&S risk due diligence. Zenith Bank’s ESMS benchmark the Equator Prin- ciples, the International Finance Corporation (IFC) Performance Standards, among other global sustainability principles. 63 we invested NGN573 million in our various partnerships with the local communities, the federal, state and local governments, and other relevant agencies to preserve the public peace, and ensure a crime-free environment. The sum also includes contributions to several State Security Funds across the federation. Sports: In 2019, the bank’s investments in sports development included title sponsorship of the Delta State Principal’s Cup; the Nigerian Football Federation (NFF); and our ﬂagship Zenith National Women’s Basketball League in partnership with the Nigerian Basketball Federation (NBBF), a female empowerment initiative that has produced national and international basket- ball stars. Similarly, our sponsorship of the Nigerian Football Federation (NFF) underscores our passion for the development of grassroots sports and the empowerment of future Nigerian football stars. Our total investments in sports in the year under review was about NGN238 million. Health: Our health initiatives in the outgone year focused main- ly on providing maternal healthcare and medical assistance to the underprivileged. In 2019, we invested about NGN345 million investment in medical interventions for low-income individuals faced with various life-threatening medical conditions, as well as support for various health initiatives complementing gov- ernment’s eﬀorts at improving life expectancy in the country. Some of the initiatives include the Private Sector Health Alliance of Nigeria, the O’Five Charity Initiative, provision of medical sup- plies to Iga-Idunganran Primary Healthcare Centre, etc. Our in- vestment in this focus area earned Zenith Bank an award as the The automation of our E&S Risk Exposure As- sessment process was a major milestone in our resolve to ensure sustainable ﬁnancing of every project we invest in and the adop- tion of responsible practices in line with the Sustainable Development Goals and prin- ciples of responsible banking of the United Nations Environment Programme Finance Initiative (UNEP-FI). Our target remains to broaden our E&S risk coverage to all major projects, irrespective of the sector, by 2020; and to all projects, major and minor, by 2025. In the outgone ﬁnancial year, about 90 per cent of all our transactions valued at over NGN3.7 trillion were screened and assessed for E&S risk. We hope to cover up to 100 per cent of our credit transactions by 2020 and to improve signiﬁcantly in our E&S monitor- ing of existing credit customers, and pro- jects. In line with Zenith Bank’s carbon footprint emission reduction strategy, we are working towards powering all our operations from al- ternative (renewable) sources, such as solar energy. As at the end of the year 2019, about 1,012 Automated Teller Machines (ATMs) are currently powered by solar energy. We have also put in place, automation of some bank- ing processes to reduce consumption of paper in our daily operations. We also con- tracted V4 Advisors to measure our carbon footprint/emissions within the period under review, to manage and reduce our impact, in line with regulatory and global expecta- tions. Workplace As a strong component of making Zenith Bank a great place to work, building a safe and healthy work environment is a core pri- ority. We have constituted a Health, Safety and Environment (HSE) Management Com- mittee to ensure a safe and secure work- place for our employees, vendors, contrac- tors and other stakeholders. We have also developed an HSE Management Plan, in line with the provisions of ISO45001. In 2019, 1,019 employees were trained in Basic Emer- gency Response & First Aid up from 441 in 2018. Similarly, 99 participants were trained 64 Our re- target mains to broad- en our E&S risk coverage to all major projects, of irrespective the sector, by 2020; and to all projects, major and minor, by 2025. in Occupational Health & Safety in 2019, up from 63 in 2018. Also, 139 employees were trained on ﬁre and safety in the out- gone year. To help our employee maintain a healthy work/life balance, we have continued to enforce a mandatory 5.00 pm closing time for all staﬀ bank-wide. This initiative saves a signiﬁcant amount for the bank in terms of energy costs, while also reducing our overall carbon footprint. Human Rights Zenith Bank is committed to respecting human rights, principally as they apply to our employees, suppliers/contractors and other stakeholders. The bank has a robust Human Rights Policy, which lay down guidelines on how our employees are expected to relate among themselves and with all other stakeholders within our business operations. We prohibit dis- crimination, bullying and harassment on any grounds. We strive to build an inclu- sive work environment where people are valued and respected and given equal opportunities to fulﬁl their potential, in line with Sustainable Development Goal (SDG) 5 of gender equality. As a sign of our support for equal opportunities, the bank has devel- oped a human right assessment training programme, “Introduction to Human Rights Framework and the Rights of the child” to acquaint staﬀ across all levels on the basics of human rights. This course has been deployed on our Learning Management Portal and made mandatory for staﬀ, from entry-level to executive management level. Women Empowerment Women empowerment is an area where Zenith Bank is making visi- ble progress, although we recognise the need to improve. We operate a gender-inclusive workplace culture and also provide products and services designed speciﬁcally for women. In 2019, the female gender makeup of our total workforce was 48 per cent. Our male/female ra- tio for management-level staﬀ for 2019 was 75:25. In the year under review, we spent over NGN307 million in capacity building for our fe- male employees, and 2,832 employees were trained on the e-Learning course – “Choosing to Lead as a Woman”. Our Z-Woman Business Package is designed to address the unique needs of women-owned businesses. The package comes with loans of up to NGN10 million at a single-digit interest rate, free digital skills training, and free exhibition stands at Zenith Bank events and many other beneﬁts which will help them grow their businesses and in- crease sales. Through our sponsorship of the Zenith National Women Basketball League, the bank continues to support female participation in sports. Many alumni of the league currently have successful careers in national and international basketball teams around the world. Sustainable Supply Chain Management As part of eﬀorts to comply with the principles of responsible con- sumption and production as enshrined in Sustainable Development Goal (SDG) 12, we have integrated environmental and social condi- Accordingly, we maintain an equal remuneration for equal work policy where employees receive the same remuneration across the same level, irrespective of gender in all our business locations. Besides, our em- ployees, contractors, agents, consultants and other business partners are encouraged to treat each other, their employees and others with dignity and respect, in conformity to the United Nations Universal Declaration of Human Rights (UDHR). 65 tions into our Code of Conduct for Sup- pliers, Vendors and Contractors, among others. The aim is to promote socio-envi- ronmental friendly business practices, and also to ensure high-quality products and services, value for money and responsible sourcing of raw materials in our supply chain. Consequently, in 2019, we admin- istered “Code of Conduct” on all major vendors, suppliers and contractors of the bank and periodically screen all third party business partners (investees, contractors, suppliers etc.) to ensure their compliance and avert potential reputational risks. Because Information Communication Technology (ICT) facilities and equipment constituted a substantial part of our pro- curement, we strive to empower local communities and businesses by ensuring that our procurement policy deliberate- ly promotes the patronage of local ICT vendors. Our relations with IT vendors are guided by laid down service level agree- ments and compliance with our Code of Conduct, while our Tender Committee oversees the process of selection of ven- dors. Zenith Bank’s procurement practices have positively impacted the economy, creating jobs, income and economic em- powerment for households. Financial Inclusion Zenith Bank has continued to support ﬁ- nancial inclusion and literacy in the coun- try. In 2019, the bank committed NGN120 million to support the Financial Inclusion initiative of the Central Bank of Nigeria (CBN). The bank has developed engaging initiatives for nurturing ﬁnancial inclusion in the country. Our ﬁnancial literacy initia- tives are geared towards empowering the ﬁnancially excluded groups by providing them with essential information and ade- quate knowledge of the various types of ﬁnancial products and services that are ac- cessible to them. In the year under review, 737,628 previ- ously unbanked individuals received ﬁnan- cial services or products for the ﬁrst time 66 from Zenith Bank, a 36.87 per cent growth from 538,910 in 2018. We were able to achieve this through our several retail products, such as the Zenith Children’s Ac- count (ZECA), Zenith Integrated Student Account (ZISA), Aspire Account, EazySave 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. Also, Zenith Bank collaborated with the Central Bank of Nigeria (CBN) organised programmes to mark the Financial Literacy and World Savings Day in March 2019 and October 2019, respectively, covering six (6) schools in each of the six (6) geopolitical zones of the country. Training and Capacity Building Capacity building and awareness creation remained one of the key people-oriented strategies of the bank. In 2019, we contin- ued to carry out E&S risk management training for all our em- ployees using classrooms and online platforms. As part of our sustainability acculturation strategy, we made signiﬁcant pro- gress with the integration of Environmental and Social Risk Man- agement sessions into our quarterly Anti-Money Laundering and Operational Risks training bank-wide, as well as the quarterly Business Summit of the management-level staﬀ of the Bank and Zenith orientation programmes during onboarding of new employees. We also publish “Sustainability Titbits”, Sus- tainability Lifestyle Tips” and “Sustainability Headlines” daily using oﬃcial staﬀ emails, while our intranet portal is contin- uously used to create E&S awareness. Reporting In 2019, the bank attended the launch and oﬃcial signing event of the UNEP-FI Principles for Responsible Banking, held on September 22 and 23, 2019, at the UN Headquar- ters on the sidelines of the UN General Assembly meeting. This follows Zenith Bank’s endorsement of the landmark draft principles of responsible banking of UNEP-FI in De- cember 2018. The bank also signed on for the Board Ses- sion 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 Na- tions Global Compact; the United Nations Environment Programme’s Finance Initiative, (UNEP-FI); and is a signatory to the Central Bank of Nigeria’s Nigerian Sustainable Bank- ing Principles (NSBP). Consequently, we remain fully com- mitted to sustainability reporting. In August 2019, Zenith Bank published its fourth stan- dalone 2018 Sustainability Report titled ‘Building a Sustain- able Future’, to demonstrate our economic, environmental and social progress in the ﬁnancial year 2018. The report followed the adoption of the new Global Reporting Initia- tive (GRI) standard. Additionally, Zenith Bank sends biannu- al progress reports to the CBN as well as annual reports to the IFC, UNGC, PROPARCO, and AfDB, among others. Conclusion Zenith Bank has in place a robust governance structure that supports its sustainable lending, wealth creation and community empowerment strategies. We understand that our brand thrives on the sustainable value we create for our stakeholders. As such, we are positioning our self to be a leader in the adoption of UNEP-FI Principles for Responsi- ble Banking and align our business strategy accordingly. We shall continue to be strategic and proactive in pursuing our sustainability targets in line with globally acceptable standards. 67 Zenith Bank Plc Annual Report December 31, 2019 Report of the Audit Committee for the Year Ended December 31, 2019 In compliance with Section 359(6) Companies and Allied Matters Act of Nigeria (1990), Cap C20 LFN 2004, we have reviewed the consolidated and separate ﬁnancial statements of Zenith Bank Plc for the year ended December 31, 2019 and hereby state as follows: 1. The scope and planning of the audit were adequate in our opinion; 2. The accounting and reporting policies of the Group and Bank conformed with the statutory requirements and agreed ethical practices; 3. The Internal Control and Internal Audit functions were operating eﬀectively; and 4. 5. The External Auditor’s ﬁndings as stated in the management letter are being dealt with satisfactorily by the management. Related party balances and transactions have been disclosed in Note 37 to the ﬁnancial statements in accordance with requirements of the International Financial Reporting Standards (IFRS) and directives issued by the Central Bank of Nigeria (CBN) as contained in the Prudential Guidelines for Deposit Money Banks in Nigeria and Circular on Disclosure of insider related credits in ﬁnancial statements BSD/1/2004. Dated January 27, 2020 Mrs. Adebimpe Balogun Chairman, Audit Committee FRC/2017/CITN/00000017467 MEMBERS OF THE COMMITTEE Shareholders Representative 1. 2. 3. Mrs Adebimpe Balogun - Chairman Mr. Michael Olusoji Ajayi Prof. (Prince) L.F.O Obika Directiors’ Representative Non-Executive Director 1. 2. 3. Mr. Jeﬀrey Efeyini Mr. Gabriel Ukpeh Engr. Mustafa Bello* * Appointed on the committee eﬀective 18 January 2019 68 Financials 03Zenith Bank Plc Annual Report December 31, 2019 KPMG Professional Services KPMG Tower Bishop Aboyade Cole Street Victoria Island PMB 40014, Falomo Lagos Telephon e 234 (1) 271 8955 234 (1) 271 8599 Internet home .kpmg/ng INDEPENDENT AUDITOR'S REPORT To the Shareholders of Zenith Bank P(cid:79)(cid:70) Report on the Audit of the Consolidated and Separate Financial Statements Opinion We have audited the consolidated and separate financial statements of Zenith Bank (cid:3)P(cid:79)(cid:70) ("the Bank") and its subsidiaries (together,(cid:3)"the Group"),(cid:3)which (cid:3) comprise the consolidated and separate statements of financial position as at 31 December, 2019, and the consolidated and separate statements of profit or loss and other comprehensive income, consolidated and separate statements of changes in equity and consolidated and separate statements of cash flows for the year then ended, and notes, comprising significant accounting policies and other explanatory information, as set out on pages (cid:26)(cid:27) to (cid:21)1(cid:25). In our opinion, the accompanying consolidated and separate financial statements give a true and fair view of the consolidated and separate financial position of the Group and Bank as at 31 December, 2019, and of their consolidated and separate financial performance and their consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs) and in the manner required by the Companies and Allied Matters Act, Cap C.20, Laws of the Federation of Nigeria, 2004 and the Financial Reporting Council of Nigeria Act, 2011, the Banks and other Financial Institutions Act, Cap B3, Laws of the Federation of Nigeria, 2004 and relevant Central Bank of Nigeria (CBN) Guide!ines and Circulars . Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the consolidated and separate Financial Statements section of our report. We are independent of the Group and Bank in accordance with the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the consolidated and separate financial statements in Nigeria and we have fulfilled our other ethical KPM G Profession al Ser vices, a Partnership establ ished under Nigeria laws, is a mem ber of KPMG Inter nati onal Cooperative ("KPMG International"). a swiss entity. All rights reserved. Registered in Nigeria No BN 986925 (cid:9)(cid:12)(cid:16)(cid:18)(cid:15)(cid:13)(cid:1)(cid:16)(cid:17)(cid:3)(cid:1) Adebisi 0 . l amikanra Adegoke A. Oyelami Adekunle A. Etebute Adetola (cid:9)(cid:2)(cid:1)Adeyemi Adewale K. Ajayi Ayodele H. Othihiwa Chibuzor N. Anyanechi Ajibo la 0. Olomola Ayobami L. Salami Chineme B. Nwigbo Ayodele A. Soyinka Ehile A. Aibangb ee Elijah 0. Oladunmoye Goodluck C. Obi Joseph 0 . Tegbe Nneka C. Eluma lbitomi M. Adepoju Kabir 0 . Okunlola Law rence C. Amadi Oguntayo (cid:6)(cid:2)(cid:1)Ogungbenro Olabimpe S. Afo1abi ljeoma T Em ezie-Ezigbo Moham med M. Adama Oladimeji (cid:6)(cid:2)(cid:1)Salaudeen Olanike (cid:7)(cid:2)(cid:1)James Oluwafemi 0 . Awotoye Ofuwatoyin A. Gbagi Olumide 0. Olayinka Olusegun A. Sowande Olutoyi n (cid:7)(cid:2)(cid:1)Ogunlowo Temitope A. Onitiri Tolutope A. Odukale Victo r U. Onyenkpa 70 responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated and separate financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Impairment of Loans and Advances The impairment of loans and advances disbursed to customers is considered to be of most significance in the audit due to the level of subjectivity inherent in estimating the key assumptions that impact the recoverability of loan and advances, including the application of industry knowledge and the prevailing economic conditions in determining the level of impairment allowance required. The determination of impairment allowance using the Expected Credit Loss (ECL) model requires the application of certain financial indices which are estimated from historical financial data obtained within and outside the Group, as inputs, into the complex financial model. Impairment allowance on loans that have shown a significant increase in credit risk, is based on the Group's estimate of losses expected to result from default events over the life of the loans. Impairment allowance on loans that have not shown a significant increase in credit risk is recognized based on an estimate of the losses expected to result from default events within the next 12 months. This estimate is also an output of models, with the key assumptions being the possibility of a loan becoming past due and subsequently defaulting, and the rate of recovery on the loans that are past due and in default. The Group also incorporates forward looking information into the measurement of ECL. The judgment involved in classifying loans into expected credit loss stages, the level of subjectivity inherent in estimating the key assumptions on the recoverability of loan balances, the inputs estimated, the complexity of the estimation process and the significant judgment involved in applying these estimates to determine the level of impairment allowance required, make the impairment allowance of loans and advances a matter of significance to the audit. 71 Zenith Bank Plc Annual Report December 31, 2019 Procedures Our procedures include the following: • We evaluated the design and implementation of the key controls over the impairment determination process such as the board credit committee review of loans and advances, management review of relevant data used in the calculation of expected credit losses including forward looking macroeconomic data to be included in the impairment model and evaluation of ECL impairment computation . • We tested the appropriateness of the Group's determination of significant increase in credit risk and the resultant classification of loans into the various stages by examining the loans on a sample basis. We evaluated the level of past due obligations and qualitative factors such as publicly available information about the obligors to determine whether the Group should estimate the expected credit loss over a period of 12 months or over the life of the loans and advances. • Assisted by our financial risk management specialists, we checked the key data and assumptions for the data input into the ECL model used by the Group. Our procedures in this regard included the following: (i) We challenged the reasonableness of the Bank's ECL methodology by considering whether it reflects unbiased and probability-weighted amounts that are determined by evaluating a range of possible outcomes, the time value of money, reasonable and supportable information at the reporting date about past events, current conditions and forecasts of future economic conditions; (ii) For forward looking assumptions comprising foreign exchange rate and inflation rate used by the Group's management in its ECL calculations, we corroborated the Group's assumptions using publicly available information from external sources; (iii) We evaluated the appropriateness of the basis of determining Exposure at Default, including the contractual cash flows, outstanding loan balance, loan repayment type, loan tenor and effective interest rate; (iv) For Probability of Default (PD) used in the ECL calculations, we checked the historical movement in the balances of facilities between default and non-default categories for each sector; (v) We checked the calculation of the Loss Given Default (LGD) used by the Group in the ECL calculations, including the appropriateness of the use of collat eral, by recomputing the LGD; 72 (vi) We re-performed the calculations of impairment allowance for loans and advances using the Group's impairment model and validated key inputs. For loans and advances which have shown a significant increase in credit risk, the recalculation was based on the amount which may not be recovered throughout the life of the loans while for loans and advances that have not shown significant increase in credit risk, the recalculation was based on the losses expected to result from default events within a year. The Group's accounting policy on impairment and related disclosures on credit risk are shown in notes 2.7, 3.2 and 20 respectively. Valuation of derivatives The Bank's derivative instruments comprise foreign currency swaps and foreign exchange forward contracts, which are used to manage foreign exchange risk. These derivative instruments usually involve the use of future pricing param eters. The estimation of pricing details as at the reporting date, in order to determine the fair value of these derivative instruments, require the use of valuation approaches or models to derive forward exchange rates and determine the appropriate discount rates to be applied on future cash flows. Due to the significance of these derivatives and the related estimation uncertainty, the valuation of the Bank's derivatives is considered a matter of significance to the audit. Procedures Our procedures included the following, amongst others : • We evaluated the design and implementation of key controls over the inputs used in determining the Bank's valuation of derivative contracts by checking that there was review over the accuracy of inputs such as the foreign exchange rates and the forward price by the Bank. • We used our KPMG valuation specialists to: (i) (ii) inspect on a sample basis, the derivative contracts to obtain an understanding of the respective transactions; challenge the Bank's assumptions with respect to the fair value of the derivative assets and liabilities by comparing observable inputs into the Bank's valuation model such as quoted Nigerian Autonomous Foreign Exchange Fixing (NAFEX) rates to externally available market data. 73 Zenith Bank Plc Annual Report December 31, 2019 (iii) (iv) assess whether the valuation model used by the Bank is appropriate and complies with the requirements of the relevant accounting standards. recompute the fair value of the entire population of the instruments using validated inputs. The Bank's accounting policy on derivative instruments and relevant financial risk disclosures are shown in note 2.6, 3.0, 19 and 32 respectively. Other Information The Directors are responsible for the other information. The other information which comprises the Corporate Information, Result at a Glance/Key Performance Indices, Financial Highlights, Corporate Profile and Strategy, Notice of the Annual General Meeting, Chairman's Statement, Chief Executive Officer's R eview, Board of Directors (in pictures), Directors' report, 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, Other National Disclosures, Share Capital History, Style by Zenith and Forms, but does not include the consolidated and separate financial statements and our auditor's report thereon. Our opinion on the consolidated and separate financial statements does not cover the other information and we do not express any form of assurance conclusion thereon . In connection with our audit of the consolidated and separate financial statements, our responsibility is to read the other information and in doing so, consider whether the other information is materially inconsistent with the consolidated and separate financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other inform ati on, we are required to report that fact. We have nothing to report in this regard . Responsibilities of the Directors for the Consolidated and separate Financial Statements The Directors are responsible for the preparation of consolidated and separate financial statements that give a true and fair view in accordance with IFRSs and in the manner required by the Companies and Allied Matters Act, Cap C.20, Laws of the Federation of Nigeria, 2004 and the Financial Reporting Council of Nigeria Act, 2011, the Banks and other Financial Institutions Act, Cap 83, Laws of the Federation of Nigeria, 2004 and relevant Central Bank of Nigeria (CBN) Guidelines 74 and Circulars, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated and separate financial statements, the directors are responsible for assessing the Group and Bank's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group and Bank or to cease operations, or have no realistic alternative but to do so. Auditor's Responsibilities for the Audit of the Consolidated and separate Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated and separate financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated and separate financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group and Bank's internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. 75 Zenith Bank Plc Annual Report December 31, 2019 • Conclude on the appropriateness of directors' use of the going concern basis(cid:3) of accounting and, based on the audit evidence obtained, whether a material(cid:3) uncertainty exists related to events or conditions that may cast significant(cid:3) doubt on the Group and Bank's ability to continue as a going concern. If we(cid:3) conclude that a material uncertainty exists, we are required to draw attention(cid:3) in our auditor's report to the related disclosures in the consolidated and(cid:3) separate financial statements or, if such disclosures are inadequate, to modify(cid:3) our opinion. Our conclusions are based on the audit evidence obtained up to(cid:3) the date of our auditor's report. However, future events or conditions may(cid:3) cause the Group and Bank to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated(cid:3) and separate financial statements, including the disclosures, and whether the(cid:3) consolidated and separate financial statements represent the underlying(cid:3) transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information(cid:3)of the entities or business activities within the Group to express an opinion on(cid:3)the consolidated financial statements. We are responsible for the direction,(cid:3)supervision and performance of the group audit. We remain solely responsible(cid:3)for our audit opinion. We communicate with Audit Committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with Audit Committee, we determine those matters that were of most significance in the audit of the consolidated and separate financial statements of the current period and are therefore the key audit matt ers. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. 76 Report on Other Legal and Regulatory Requirements Compliance with the requirements of Schedule 6 of the Companies and Allied Matters Act, Cap C.20, Laws of the Federation of Nigeria, 2004 In our opinion, proper books of account have been kept by the Bank, so far as appears from our examination of those books and the Bank's statement of financial position and statement of profit or loss and other comprehensive income are in agreement with the books of account. Compliance with Section 27 (2) of the Banks and the other Financial Institutions Act Cap 83, Laws of the Federation of Nigeria, 2004 and Central Bank of Nigeria circular 850/1/2004 (cid:76)(cid:17) The Bank and Group paid penalties in respect of contravention of the Banks and(cid:3) Other Financial Institutions Act, Cap B3, Laws of the Federation of Nigeria,(cid:3) 2004 during the year ended 31 December 2019. Details of penalties paid are .(cid:3) disclosed in note 41 to the financial statements. (cid:76)(cid:76)(cid:17) Related party transactions and balances are disclosed in note 37 to the financial(cid:3) statements in compliance with the Central Bank of Nigeria circular BSD/1/2004. Oluwafemi (cid:50). Awotoye, FCA FRC/2013/ICAN/00000001182 For : KPMG Professional Services Chartered Accountants 10 February 2020 Lagos, Nigeria (cid:14) 77 Zenith Bank Plc Annual Report December 31, 2019 Consolidated and Separate Statements of Proﬁt or Loss and other Comprehensive Income for the Year Ended December 31, 2019 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-19 31-Dec-18 31-Dec-19 31-Dec-18 6 7 8 9 11 10 25 26 36 12 13a 13a 662,251 630,344 415,563 440,052 564,687 339,310 538,004 367,816 (148,532) (144,458) (126,237) (124,156) 267,031 295,594 213,073 243,660 (24,032) (18,372) (23,393) (15,313) 242,999 277,222 189,680 228,347 100,106 117,798 14,216 81,814 80,202 17,947 83,641 117,772 10,838 64,124 80,202 17,479 (21,436) (16,648) (18,887) (14,625) (3,078) (2,399) (2,795) (2,187) (77,858) (68,556) (62,038) (56,657) (129,453) (137,897) (118,191) (124,576) 243,294 231,685 200,020 192,107 - (4,052) - (4,052) (34,451) (34,209) (22,017) (22,575) 208,843 193,424 178,003 165,480 Fair value movements on equity instruments at FVOCI 21(b) 13,870 1,459 13,870 1,459 Items that are or may be reclassified to profit or loss: Foreign currency translation diﬀerences for foreign operations Fair value movements on debt securities at FVOCI 21(b) Other comprehensive income/(loss) for the year (8,498) 452 5,824 4,828 - - - - - 6,287 13,870 1,459 Total comprehensive income for the year 214,667 199,711 191,873 166,939 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) 208,693 193,147 178,003 165,480 150 277 - - 214,577 199,437 191,873 166,939 90 274 - - 14 6.65 6.15 5.67 5.27 The accompanying notes are an integral part of these consolidated and separate ﬁnancial statements. 78 Consolidated and Separate Statements of Financial Position as at December 31, 2019 In millions of Naira Note(s) 31-Dec-19 31-Dec-18 31-Dec-19 31-Dec-18 Group Bank 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 34 936,278 991,393 431,728 707,103 92,722 954,416 1,000,560 592,935 674,274 88,826 2,305,565 1,823,111 591,097 565,312 - 11,885 77,395 185,216 16,497 - 9,513 80,948 149,137 16,678 879,449 822,449 431,728 482,070 92,722 2,239,472 189,358 34,625 11,223 71,412 165,456 15,109 902,073 817,043 592,935 393,466 88,826 1,736,066 156,673 34,003 9,197 75,910 133,854 15,399 6,346,879 5,955,710 5,435,073 4,955,445 4,262,289 3,690,295 3,486,887 2,821,066 14,762 9,711 25 363,764 392,871 322,479 39,092 16,995 9,154 67 231,716 393,295 437,260 361,177 14,762 6,627 - 386,061 392,871 329,778 39,092 16,995 5,954 - 223,463 393,295 458,463 361,177 5,404,993 5,139,959 4,656,078 4,280,413 15,698 255,047 412,948 257,439 941,132 15,698 255,047 322,237 221,231 814,213 15,698 255,047 302,028 206,222 778,995 15,698 255,047 238,635 165,652 675,032 754 1,538 - - 941,886 815,751 778,995 675,032 6,346,879 5,955,710 5,435,073 4,955,445 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 28 January, 2020 and signed on its behalf by: Jim Ovia, CON (Chairman) FRC/2013/CIBN/00000002406 Ebenezer Onyeagwu (Group Managing Director & Chief Executive Officer) FRC/2013/ICAN/00000003788 Mukhtar Adam, PhD (Chief Financial Officer) FRC/2013/MUL Tl/00000003196 s l a i c n a n F i 79 Zenith Bank Plc Annual Report December 31, 2019 Consolidated and Separate Statements of Changes in Equity as at December 31, 2019 Group Attributable to equity holders of the Parent In millions of Naira Share capital Share premium Foreign currency translation reserve Fair value reserve Statutory reserve SMIEIS reserve Credit risk reservee Retained earnings Total Non- Total equity controlling interest Restated 1 January, 2018 15,698 255,047 33,683 Impact of adopting IFRS 9 at 1 January 2018 - - - - Restated 1 January, 2018 15,698 255,047 33,683 Proﬁt for the year Foreign currency translation diﬀerences Fair value movements on equity instruments Total comprehensive income for the Year Transfer between reserves Transactions with owners of the Parent Dividends Cost of transfer from income to stated capital At December 31, 2018 At 1 January, 2019 Proﬁt for the year Foreign currency translation diﬀerences Fair value movements on equity instruments Fair value movements on debt securities Total comprehensive income for the year Transfer between reserves Transactions with owners of the Parent Dividends Acquisition of NCI without change in control* - - - - - - - - - - - - - 15,698 255,047 15,698 255,047 - - - - - - - - - - - - - - 4,831 - 4,831 - - - 38,514 38,514 - (8,438) - - (8,438) - - - 8,399 - 8,399 - - 1,459 1,459 - - - 9,858 9,858 - - 13,870 452 14,322 - - - At December 31, 2019 15,698 255,047 30,076 24,180 197,395 3,729 2,059 412,948 941,132 * See note 22(i) 80 135,064 3,729 2,342 135,064 3,729 2,342 32,456 (732) 199,437 274 199,711 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 356,837 (108,116) 248,721 193,147 193,147 (31,724) (86,340) (1,567) 322,237 208,693 - - - - - 208,693 (30,324) 810,799 (108,116) 702,683 193,147 4,831 1,459 (86,340) (1,567) 814,213 208,693 (8,438) 13,870 452 - - (87,910) (87,910) 252 252 - - - - - - - - - - - - - - 1,317 (53) 1,264 277 (3) 1,538 1,538 150 (60) - - - - - - - - (874) 754 812,116 (108,169) 703,947 193,424 4,828 1,459 (86,340) (1,567) 815,751 815,751 208,843 (8,498)) 13,870 452 - - (87,910) (622) 941,886 29,875 449 214,577 90 214,667 167,520 3,729 167,520 3,729 1,610 1,610 322,237 814,213 Group Attributable to equity holders of the Parent In millions of Naira Proﬁt for the year Foreign currency translation diﬀerences Fair value movements on equity instruments Total comprehensive income for the Year Transfer between reserves Transactions with owners of the Parent Dividends Cost of transfer from income to stated capital At December 31, 2018 At 1 January, 2019 Proﬁt for the year Foreign currency translation diﬀerences Fair value movements on equity instruments Fair value movements on debt securities Total comprehensive income for the year Transfer between reserves Transactions with owners of the Parent Dividends Acquisition of NCI without change in control* * See note 22(i) - - - - - - - - - - - - - - - - - - - - - - - - - - - - 4,831 4,831 38,514 38,514 (8,438) (8,438) - - - - - - - - - - - - 1,459 1,459 9,858 9,858 13,870 452 14,322 - - - - - - - - - - - 15,698 255,047 15,698 255,047 Share capital premium Share Foreign currency Fair value reserve translation reserve Statutory reserve SMIEIS reserve Credit risk reservee Retained earnings Total Non- controlling interest Total equity Restated 1 January, 2018 15,698 255,047 33,683 8,399 135,064 3,729 2,342 Impact of adopting IFRS 9 at 1 January 2018 - - - Restated 1 January, 2018 15,698 255,047 33,683 8,399 135,064 3,729 2,342 - - - - 32,456 - - - - - - - - - 167,520 3,729 167,520 3,729 - - - - - 29,875 - - - - - - - - - - - - - (732) - - 1,610 1,610 - - - - - 449 - - 356,837 (108,116) 248,721 193,147 - - 193,147 (31,724) (86,340) (1,567) 810,799 (108,116) 702,683 193,147 4,831 1,459 199,437 - (86,340) (1,567) 322,237 814,213 322,237 208,693 - - - 208,693 (30,324) 814,213 208,693 (8,438) 13,870 452 214,577 - (87,910) (87,910) 252 252 At December 31, 2019 15,698 255,047 30,076 24,180 197,395 3,729 2,059 412,948 941,132 1,317 (53) 1,264 277 (3) - 274 - - - 1,538 1,538 150 (60) - - 90 - - (874) 754 812,116 (108,169) 703,947 193,424 4,828 1,459 199,711 - (86,340) (1,567) 815,751 815,751 208,843 (8,498)) 13,870 452 214,667 - (87,910) (622) 941,886 s l a i c n a n F i 81 Zenith Bank Plc Annual Report December 31, 2019 Consolidated and Separate Statements of Changes in Equity as at December 31, 2019 Bank In millions of Naira Share capital Share premium Fair value reserve Statutory reserve SMIEIS reserve Credit risk reserve Retained earnings Total equity Restated 1 January 2018 Adjustments , 255,047 8,399 127,243 3,729 Impact of adopting IFRS 9 at 1 January 2018 - - - - - Restated 1 January, 2018 15,698 255,047 8,399 127,243 3,729 Proﬁt for the year Fair value movements on equity instruments Total comprehensive income for the year Transfer between reserves Dividends At 31 December, 2018 At 01 January 2019 Proﬁt for the year Fair value movements on equity instruments Total comprehensive income for the year Transfer between reserves Dividends - - - - - - - - - - 15,698 255,047 15,698 255,047 - - - - - - - - - - - 1,459 1,459 - - 9,858 9,858 - 13,870 13,870 - - - 24,822 - 152,065 152,065 - - - - - 26,700 - - - - - - 3,729 3,729 - - - - - Balance at December 31, 2019 15,698 255,047 23,728 178,765 3,729 The accompanying notes are an integral part of these consolidated and separate ﬁnancial statements. - - - - - - - - - - - - - - - - 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) 238,635 675,032 238,635 675,032 178,003 - 178,003 13,870 178,003 191,873 (26,700) - (87,910) (87,910) 302,028 778,995 82 Consolidated and Separate Statement of Cash Flows for the Year Ended December 31, 2019 In millions of Naira Cash flows from operating activities Proﬁt after tax for the year 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 (increase)/decrease in loans and advances Net (increase)/decrease in other assets Net decrease/(increase) in treasury bills with maturities greater than three months Group Bank Note(s) 2019 2018 2019 2018 208,843 193,424 178,003 165,480 8 8 8 8 27,754 (908) (2,473) (341) 43(i) (10,905) 21,436 3,078 (1,932) 5,949 25 26 10 31 6 7 10 13 13,303 (807) 5,337 539 1,990 16,648 2,399 (1,795) 27,778 27,148 (928) (2,473) (354) (10,905) 18,887 2,795 (5,532) 5,949 9,396 (1,051) 6,441 527 1,990 14,625 2,187 (5,395) 27,778 (415,563) (440,052) (339,310) (367,816) 148,532 144,458 126,237 124,156 (147) 34,451 17,774 (259) 38,261 1,224 (152) 22,017 21,382 43(iv) (492,717) 161,690 (513,382) 43(x) 43(ii) 3,863 3,050 194,352 (187,329) (4,853) 183,300 Net (increase)/decrease in treasury bills (FVTPL) 43(iii) (197,798) 37,343 (197,801) 37,343 Net decrease/(increase) in assets pledged as collateral 43(xi) 161,321 (124,925) 161,321 (124,925) Net decrease/(increase) in investment securities 43(i) 1,513 (203,264) (7,833) (5,755) Net increase in restricted balances (cash reserves) 43(xiii) (55,479) (58,357) (55,479) (58,386) Net increase in due from banks with maturity greater than three months 18 (223,413) - (223,413) Net increase in customer deposits Net increase/(decrease) in other liabilities Net increase in derivative assets Net decrease in derivative liabilities Interest received Dividend received Interest paid Tax paid VAT paid 43(v) 43(vi) 43(xii) 43(xiv) 564,135 252,380 134,974 (16,298) (3,896) (2,233) (31,607) (3,810) 664,555 165,524 (3,896) (2,233) 102,396 (169,903) 187,192 (42,970) 43 (viii) 407,104 434,846 335,518 365,125 10 1,932 1,795 5,532 5,395 43 (ix) (135,575) (134,201) (114,398) (116,234) 13(c) 43(vi) (36,308) (37,925) (23,370) (26,742) (381) (260) (381) (260) Net cash flows (used in)/generated from operations 339,168 94,352 390,093 184,314 (241) 26,627 4,704 135,770 (28,366) (33,619) - 76,541 (10,860) (31,607) (3,810) s l a i c n a n F i 83 Zenith Bank Plc Annual Report December 31, 2019 Consolidated and Separate Statement of Cash Flows for the Year Ended December 31, 2019 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 Group Bank Note(s) 2019 2018 2019 2018 25 (62,333) (35,712) (50,901) (30,501) 43(vii) 26 2,976 (2,118) 3,490 (3,928) 530 (1,539) 406 (3,260) Purchase of equity securities 21 (50) (34,200) (50) (34,200) Net cash used in investing activities (61,525) (70,350) (51,960) (67,555) Cash flows from financing activities Repayment & repurchase of debt securities issued 31 (340,358) - (340,358) - Borrowed funds Proceeds from long term borrowing Repayment of long term borrowing Proceeds from onlending facility Repayment of onlending facility Lease liability principal payment Acquisition of additional interest in Zenith Bank Ghana Dividends paid to shareholders 30 30 29(b) 29(b) 44(vi) 22(i) 39 198,358 370,606 252,364 391,810 (313,139) (289,842) (381,049) (352,326) 135,681 (136,105) (2,196) (622) 57,194 (46,933) (2,760) - 135,681 57,194 (136,105) (46,933) (2,196) (622) (2,760) - (87,910) (86,340) (87,910) (86,340) Net cash generated from / (used in) financing activities (546,291) 1,925 (560,195) (39,355) Net (decrease)/increase in cash and cash equivalents (268,648) 25,927 (222,062) 77,404 Analysis of changes in cash and cash equivalents : Cash and cash equivalent at the beginning of the year 947,038 916,342 610,915 533,511 (decrease)/increase in cash and cash equivalents (268,648) 25,927 (222,062) 77,404 Eﬀect of exchange rate movement on cash balances (7,675) 4,769 - - Cash and cash equivalents at the end of the year 40 670,715 947,038 388,853 610,915 The accompanying notes are an integral part of these consolidated and separate ﬁnancial statements. 84 s l a i c n a n F i 85 Notes Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 1. General 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 (The Gambia) Limited and Zenith Nominees Limited. The Bank also has a representative oﬃce in China in addition to operating a branch of Zenith Bank (UK) Limited in the United Arab Emirates. ii.) The consolidated ﬁnancial statements for the year ended December 31, 2019 comprise the Bank and its subsidiaries (together referred to as “the Group” and individually as “Group entities”) and the separate ﬁnancial statements comprise the Bank. The consolidated and separate ﬁnancial statements for the year ended December 31, 2019 were approved for issue by the Board of Directors on January 28, 2020. The Group does not have any unconsolidated structured entity. 2.0 (a) Changes in accounting policies assets. Also, additional interest expense as a result of the unwinding of the lease liability. Disclosures on IFRS 16. 3) i.) IFRS 16 Leases The Group has adopted IFRS 16, “Leases” as issued by the IASB in July 2014 with a date of transition of 1 January 2019, which resulted in changes in accounting policies. As permitted by the transitional provision of the standard, the Group has chosen the modiﬁed retrospective approach to the application of IFRS 16. This approach allows the Group not to restate comparative ﬁnancial information. The major impact of the adoption of this standard is that the Group will be required to capitalize all leases (i.e. recognize a right-of-use asset and a lease liability) with the exemption of certain short-term leases and leases of low-value assets. IFRIC 23 Uncertainty over income tax treatment The amendment clariﬁes how to determine the accounting tax position when there is uncertainty over income tax treatments. The Interpretation requires an entity to: • determine whether uncertain tax positions are assessed separately or as a group; and assess whether it is probable that a tax authority will accept an uncertain tax treatment used, or proposed to be used, by an entity in its income tax ﬁlings: If yes, the entity should determine its accounting tax position consistently with the tax treatment used or planned to be used in its income tax ﬁlings. If no, the entity should reﬂect the eﬀect of uncertainty in determining its accounting tax position. • • • 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 consequential amendments to other standards with initial date of application of January 1, 2019. The eﬀect of initially applying these standards is mainly attributed to the following, including any 1) 2) Recognition of right-of-use assets and lease liability for operating leases. Additional depreciation on the right-of-use The Group has adopted IFRIC 23 eﬀective 1 January 2019. (b) 2.1 (a). Signiﬁcant accounting policies Except as noted in Note 2.0(a), the Group has consistently applied the following accounting policies to all periods presented in these consolidated and separate ﬁnancial statements, unless otherwise stated. Basis of preparation 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 86 (b). (c) 2.2 (a) 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. This is the ﬁrst set of consolidated and separated ﬁnancial statements in which IFRS 16 has been applied. Changes arising from the initial application of IFRS 16 or accounting policies are disclosed in Note 2.14 Basis of measurement The ﬁnancial statements have been prepared under the historical cost convention with the exception of the following: • liabilities measured at Financial assets and amortised cost; Derivative ﬁnancial measured at fair value; and Non-derivative ﬁnancial instruments, carried at fair value through proﬁt or loss, or fair value through OCI are measured at fair value. instruments which are • • 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. Basis of Consolidation Subsidiaries 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. 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, investments in subsidiaries are measured at cost. 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. 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. The Group’s share of its associates’ post-acquisition proﬁts or losses is recognised in proﬁt or loss, and its share of post- acquisition movements in reserves are recognised 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 in the associate, 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. (b) (c) s l a i c n a n F i 87 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 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. (d) interests are measured at Non-controlling interests Non-controlling 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. 2.3 Translation of foreign currencies (c) Foreign currency transactions and balances 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 separate and consolidated ﬁnancial statements. Except as otherwise indicated, ﬁnancial information presented in Naira has been rounded to the nearest million. (a) (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) 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 all resulting exchange diﬀerences are recognised in other comprehensive income and presented within equity as foreign currency translation reserves. (ii) (iii) 88 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. 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. When a gain or loss on non-monetary item is recognised in other comprehensive income, any exchange component of that gain or loss shall be recognised in other comprehensive income. Conversely, when a gain or loss on a non-monetary item is recognised in proﬁt or loss, any exchange of that gain or loss shall be recognised in proﬁt or loss. 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 2.4 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. 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 non- restricted balances with central banks, treasury bills and other eligible bills, amounts due from other banks and short- term government securities. 2.5 (a) Financial instruments 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). 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. All other ﬁnancial assets including 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. Subsequent measurement ﬁnancial Subsequent instruments are measured either at amortised cost or fair value depending on their classiﬁcation category. initial measurement, to • • (b) (c) (i) Classiﬁcation 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) • Financial liabilities (ii) 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 s l a i c n a n F i 89 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 required to be measured at FVTPL, or The Group elects to measure the ﬁnancial liability at FVTPL (using the fair value option). the present value of any expected payment when a payment under the contingent liability has become probable and the unamortised fee. and loan contracts guarantees Financial 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 at the higher of the loss allowance determined in accordance with IFRS 9 (see note 3.2.18) and the amount initially recognised less, when appropriate, the cumulative amount of income recognised in accordance with the principles of IFRS 15. The Group has issued no loan commitments that are measured at FVTPL. Liabilities arising from ﬁnancial guarantees and loan commitments are included within provisions. 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 Business model assessment The Group assesses the objective of a business model in which an asset is held at a portfolio level because this best reﬂects the way the business is managed, and information is provided to management. The information considered includes: • the stated policies and objectives for the portfolio and the operation of those policies in practice. In particular, whether management’s strategy focuses on earning contractual interest revenue, maintaining a particular interest rate proﬁle, matching the duration of the ﬁnancial assets to the duration of the liabilities that are funding those assets or realising cash ﬂows through the sale of the assets; how the performance of the portfolio is evaluated and reported to the Group’s management; the risks that aﬀect the performance of the business model (and the ﬁnancial assets held within that business model) and its strategy for how those risks are managed; how managers of the business are compensated (e.g. whether compensation is based on the fair value of the assets managed or the contractual cash ﬂows collected); and the frequency, volume and timing of sales in prior periods, the reasons for such sales and its expectations about future sales activity. However, information about sales activity is not considered in isolation, but as part of an overall assessment of how the Group’s stated objective for managing the ﬁnancial assets is achieved and how cash ﬂows are realised. • • • • Financial instruments 2.5 Financial assets that are held for trading or managed and whose performance is evaluated on a fair value basis are measured at FVTPL because they are neither held to collect contractual cash ﬂows nor held both to collect contractual cash ﬂows and to sell ﬁnancial assets. Assessment of whether contractual cash flows are solely payments of principal and interest For the purposes of this assessment, ‘principal’ is deﬁned as the fair value of the ﬁnancial asset on initial recognition. ‘Interest’ is deﬁned as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as proﬁt margin. In assessing whether the contractual cash ﬂows are SPPI, the Group considers the contractual terms of the instrument. • (iii) 90 This includes assessing whether the ﬁnancial asset contains a contractual term that could change the timing or amount of contractual cash ﬂows such that it would not meet this condition. In making the assessment, the Group considers: • contingent events that would change the amount and timing of cash ﬂows; leverage features; prepayment and extension terms; terms that limit the Group’s claim to cash ﬂows from speciﬁed assets (e.g. non-recourse loans); and features that modify consideration of the time value of money (e.g. periodical reset of Interest rate). • • • The Group holds a portfolio of long-term ﬁxed-rate loans for which the Group has the option to propose to revise the interest rate at periodic reset dates. These reset rights are limited to the market rate at the time of revision. The borrowers have an option to either accept the revised rate or redeem the loan at par without penalty. The Group has determined that the contractual cash ﬂows of these loans are SPPI because the option varies the interest rate in a way that is consideration for the time value of money, credit risk, other basic lending risks and costs associated with the principal amount outstanding. Reclassifications Financial assets are not reclassiﬁed subsequent to their initial recognition, except in the period after the Group changes its business model for managing ﬁnancial assets. (d) (i) Derecognition 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 (ii) (e) 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-and- repurchase transactions. 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. Financial liabilities The Group derecognises a ﬁnancial liability when its contractual obligations are discharged or cancelled, or expire. 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 s l a i c n a n F i 91 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 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 (2.9)), 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 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. 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. 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. 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 (f ) (g) (h) 92 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. 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) (j) 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. 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 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. 2.6 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. Non- hedging derivative assets and liabilities are not reclassiﬁed subsequent to their initial recognition. Impairment 2.7 The Group recognises loss allowances for ECL on the following ﬁnancial instruments that are not measured at FVTPL: • Financial assets that are debt instruments; s l a i c n a n F i 93 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 • • • 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 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. • • 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. Reversal of Impairment and Backward Transfer Criteria When the Group has measured the loss allowance for a ﬁnancial instrument at an amount equal to lifetime ECL in the previous reporting period but determines at the current reporting date that criteria for recognizing the lifetime ECL is no longer met i.e. cured, the Group measures the loss allowance at an amount equal to 12-month ECL at the current reporting date. 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. Financial instrument for which a 12-month ECL is recognised are referred to as ‘stage 1 ﬁnancial instruments’. However, the Group observes the following backward transfer criteria (probationary period) to monitor if the criteria for recognizing the lifetime ECL has decreased signiﬁcantly before the backward transfer can be eﬀected on the credit rating of the customer; Life-time ECL are the ECL that result from all possible default events over the expected life of the ﬁnancial instrument. Financial instruments for which a lifetime ECL is recognised but which are not credit-impaired are referred to as ‘Stage 2 ﬁnancial instruments’. Financial instruments for which lifetime ECL is recognised which are credit impaired are referred to as ‘Stage 3 ﬁnancial instruments”. Loss allowances for other assets and lease receivables are always measured at an amount equal to lifetime ECL. The Group considers debt investment securities to have low credit risk when its credit risk rating is equivalent to the globally understood deﬁnition of ‘investment grade’ or its is a sovereign debt instruments issued in the local currency. 90 days probationary period to move a ﬁnancial instrument from Lifetime ECL not credit-impaired (Stage 2 ﬁnancial instruments) to 12 months ECL (Stage 1 ﬁnancial instruments); 90 days probationary period to move a ﬁnancial instrument from Lifetime ECL credit-impaired (Stage 3 ﬁnancial instruments) to Lifetime ECL not impaired (Stage 2 ﬁnancial instruments); 180 days probationary period to move a loan from Lifetime ECL credit-impaired (Stage 3 ﬁnancial instruments) to 12 months ECL (Stage 1 ﬁnancial instruments). The Group also considers other qualitative criteria where necessary. Impairment gains arising from backward transfers will be recognized as part of impairment losses on ﬁnancial instruments.’ 2.7.1 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 ﬂows that are • • 94 2.7.2 Credit-impaired financial assets At each reporting date, the Group assesses whether ﬁnancial assets carried at amortised cost are credit-impaired referred to as ‘Stage 3 ﬁnancial instruments. 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. 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. 2.7.3 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. • • • • • • • 2.7.4 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 lost. This determination is made after considering information such as the continuous deterioration in the customer’s ﬁnancial po- sition, 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 recov- ery 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 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. Reclassification of financial instruments 2.8 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 ﬁnancial assets in accordance with the new model. The 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. Restructuring of financial instruments 2.9 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 and ECL are measured as follows; • If the expected in derecognition of the existing asset, then the expected cash ﬂows arising from the modiﬁed ﬁnancial asset restructuring will not result s l a i c n a n F i 95 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 • 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. 2.10 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 and other non-cash assets 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) In certain cirumstances, property may be repossessed following the foreclosure on loans that are in default. Repossessed properties are measured at the lower of carrying amount and fair value less cost to sell and reported within ‘Other asset’. Property and equipment 2.11 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 item 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. Land is not depreciated. 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 Land (Not depreciated) Motor vehicles Oﬃce equipment Furniture and ﬁttings Computer equipment Buildings 4 years 5 years 5 years 3 years 50 years Leasehold improvement Over the remaining lease period Right of use assets Lower of lease term or the useful life for the speciﬁed class of item Depreciation is included in proﬁt or loss. 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. 2.12 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. 96 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) 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 adequate technical, ﬁnancial and other resources to complete the development and to use/sell the software product are available the expenditure attributable to the software product during its development can be reliably measured. (ii) (iii) (iv) (v) (vi) 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. residual values Amortisation methods, useful 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. Impairment of non-financial assets 2.13 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. 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. Leases 2.14 Policy applicable before 1 January 2019 (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 straightline 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 s l a i c n a n F i 97 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 (b) as an expense in the period in which termination takes place. A Group company is the lessor Lease and instalment sale contracts are primarily ﬁnancing transactions in banking activities, with rentals and less unearned ﬁnance charges, being included in Loans and advances to customers in the statement of ﬁnancial position. instalments receivable, 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 classifed as operating leases. Receipts of operating leases are accounted for as income on the straightline basis over the period of the lease. Policy applicable from 1 January 2019. The Group has initially adopted IFRS 16 Leases from 1 January 2019. IFRS 16 introduced a single, on-balance sheet accounting model for leases. As a result, the Group, as a lessee has recognized the right-of-use assets representing its right to use the underlying assets and lease liabilities representing its obligation to make lease payments. Lessors accounting remains similar to previous accounting policies. B. The major lease transaction wherein the Group/Bank is a lessee relates to the lease of Bank’s branches. As permitted by the standard, the Group has applied IFRS 16 using the modiﬁed retrospective approach. Accordingly, the comparative information presented for 2018 is not restated – i.e it is presented, as previously reported, under IAS 17 and related interpretations and the eﬀect of applying IFRS 16 is recognised in the opening retained earnings at 1 January 2019. The details of the changes in accounting policies are disclosed below. A. Deﬁnition of a lease The Group has elected to apply the practical expedient available on transition to IFRS 16 not to reassess whether a contract is or contains a lease. Accordingly, the deﬁnition of a lease in accordance with IAS 17 and IFRIC 4 will continue to apply to those leases entered or modiﬁed before 1 January 2019. 98 Under IFRS 16, a contract is, or contains a lease if the contract conveys a right to control the use of an identiﬁed asset for a period of time in exchange for consideration. The change in deﬁnition of a lease mainly relates to the concept of control. IFRS 16 distinguishes between leases and service contracts on the basis of whether the use of an identiﬁed asset is controlled by the customer. Control is considered to exist if the customer has: • • The right to obtain substantially all of the economic beneﬁts from the use of an identiﬁed asset; and The right to direct the use of that asset. The Group will apply the deﬁnition of a lease and related guidance set out in IFRS 16 to all lease contracts entered into or modiﬁed on or after 1 January 2019 (where the Group is a lessee in the lease contract). At inception or on reassessment of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease and non- lease component on the basis of their relative stand- alone prices. However, for leases of properties in which it is a lessee, the Group has elected not to separate non- lease components and will instead account for the lease and non-lease component as a single component. Group / Bank as a lessee Leases, under which the Bank possess a contract that conveys the right to control the use of an identiﬁed asset for a period of time in exchange for consideration is disclosed in the Bank’s statement of ﬁnancial position and recognized as a leased asset. To assess whether a contract conveys the right to control the use of an identiﬁed asset for a period of time, the Bank assesses whether, throughout the period of use, it has both of the following: (a) the right to obtain substantially all of the economic beneﬁts from use of the identiﬁed asset, and the right to direct the use of the identiﬁed asset. (b) The Group has elected not to recognize right-of-use assets and lease liabilities for some leases of low value assets. The Group recognizes expenses associated with these leases as an expense on straight line basis over the lease term. The Group presents right-of-use assets as a separate class under ‘property and equipment’. The Group presents lease liability in other liabilities in the statement of ﬁnancial position. i. Significant accounting policies The Group recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of- use asset is initially measured at cost, and subsequently at cost less any accumulated depreciation and impairment losses, and adjusted for certain remeasurements of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate. The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payment made. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in the estimate of the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised. The Group has applied judgement to determine the lease term for some lease contracts in which it is a lessee that include renewal options. The assessment of whether the Group is reasonably certain to exercise such options impacts the lease term, which signiﬁcantly aﬀects the amount of lease liabilities and right-of-use assets recognized. C. ii. Transition leases as Previously, the Group classiﬁed property operating leases under IAS 17. These properties are the Bank’s branch oﬃces. • lease IAS 17, At transition, for leases classiﬁed as operating liabilities were leases under measured at the present value of the remaining lease payments, discounted at the Group’s incremental borrowing rate as at 1 January 2019. Right-of-use assets are measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments - the Group applied this approach to all other leases. The Group leases an aircraft. The Group classiﬁed this lease as a ﬁnance lease under IAS 17. At the date of initial application, the Group measured the right of use asset and lease liability at the amount of the ﬁnance lease asset and liability immediately before the date of initial application of IFRS 16. The Group used following practical the expedients when applying IFRS 16 to leases previously classiﬁed as operating leases under IAS 17. Applied the exemption not to recognize right- of-use assets and liabilities for leases with less than 12 months of lease term. Excluded initial direct costs from measuring the right-of-use asset at the date of initial application.• Used hindsight when determining the lease term if the contract contains options to extend or terminate the lease. • • instalments receivable, Group / Bank as a lessor Lease and instalment sale contracts are primarily ﬁnancing transactions in banking activities, with rentals less unearned ﬁnance and 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 capitalized to the value of the lease amount receivable and accounted for over the lease term as an adjustment to the eﬀective interest rate method. The accounting policies applicable to the Group as a lessor are not diﬀerent from those under IAS 17. The Group is not required to make any adjustments on transition to IFRS 16 for lease in which it acts as a lessor. The Group recognizes assets held under a ﬁnance lease in its statement of ﬁnancial position and present them as a receivable at an amount equal to the net investment in the lease. Initially, the Group will recognize a ﬁnance lease receivable at the amount equal to the net investment in the lease. Subsequently, ﬁnance income will be recognized at a constant rate on the net investment. During any ‘payment free’ period, this will result in the accrued ﬁnance income increasing the ﬁnance lease receivable. For ﬁnance leases, the lease payments included in s l a i c n a n F i 99 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 the measurement of the net investment in a lease at commencement date includes variable lease payments that depend on an index or a rate; other variable payments (e.g. those linked to future performance or use of an underlying asset) are excluded from the measurement of the net investment and are instead recognized as income when they arise. The treatment adopted for variable lease payments under operating leases are consistent with these requirements. D. Impacts on the ﬁnancial statements On transition to IFRS 16, the Group recognized additional right-of-use assets and additional lease liabilities as summarized below: In millions of Naira 1 January 2019 Additional Right-of-use assets presented as part of property and equipment Lease liability presented in other liabilities 17,618 10,692 When measuring the lease liabilities for leases that were classiﬁed as operating leases, the Group discounted lease payments using its incremental borrowing rates as at 1 January 2019. The weighted- average rate applied is 16.4%. In millions of Naira 1 January 2019 Operating prepayments as at 31 December 2018. lease presented as part of Additional right-of-use asset as a result of extension option which are reasonably certain to be exercised. Recognition exemption for leases of low-value Recognition exemption for short term leases Right-of-use asset recognized as at 1 January 2019 in property and equipment 10,149 7,559 (2) (88) 17,618 As a result of initially applying IFRS 16, in relation to the leases that were previously classiﬁed as operating leases, the Group recognized N16.69 billion of right-of-use assets and N11.21 billion of lease liabilities as at 31 December 2019. Also, in relation to those leases under IFRS 16, the Group has recognized depreciation and interest cost, instead of operating lease expense. During the year ended 31 December 2019, the Group recognized N1.45 million of depreciation charges and N3.49 million of interest cost from the lease liabilities. Provisions 2.15 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. 2.16 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 100 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 8% and 10% 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. (c) (d) (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 personnel expenses in the proﬁt or loss. (e) 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. 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. Share capital and reserves 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. 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) 2.17 (a) (b) (f ) (g) (h) (i) Share premium Premiums from the issue of shares are reported in share premium. 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 (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. Institutions Act of 1991 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 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 non-distributable. Transfer to this reserve is no longer mandatory. 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. Retained earnings Retained earnings comprise the undistributed proﬁts from previous periods which have not been reclassiﬁed to any speciﬁed reserves. Fair value reserve Comprises fair value movements on equity instruments carried at FVOCI. 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. s l a i c n a n F i 101 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 2.18 Recognition of interest income and expense 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. • interest rate for ﬁnancial When calculating the eﬀective 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. 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 credit- impaired, then the calculation of interest income reverts to the gross basis. For ﬁnancial assets that were credit-impaired on initial recognition, interest income is calculated by applying the credit- adjusted 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 2.7.2. 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 2.20). Fees, commission and other income 2.19 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 2.18). 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 102 equity securities. Dividends are presented in net trading gains, or other income based on the underlying classiﬁcation of the equity investment. a) 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. 2.20 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. 2.21 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. • • • • Current tax Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year, and any adjustment to tax payable or receivable in respect of previous years. The amount of current tax payable or receivable is the best estimate of the tax amount expected to be paid or received that reﬂects uncertainty related to income taxes, if any. It is measured using tax rates enacted or substantively enacted at the reporting date and is assessed as follows: Company income tax is computed on taxable proﬁts. Tertiary education tax is computed on assessable proﬁts. National Information Technology Development Agency levy is computed on proﬁt before tax. Nigeria Police Trust Fund levy is computed on net proﬁt (i.e. proﬁt after deducting all expenses and taxes from revenue earned by the company during the year). 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 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. 2.22 Current and deferred income tax Income tax expense comprises current tax (company income tax, tertiary education tax National Information Technology Development Agency levy and Nigeria Police Trust Fund levy) and deferred tax. It is recognised in proﬁt or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income. The Bank had determined that interest and penalties relating to income taxes, including uncertain tax treatments, do not meet the deﬁnition of income taxes, and therefore are accounted for under IAS 37 Provisions, Contingent Liabilities and Contingent Assets. Total amount of tax payable under CITA is determined based on the higher of two components namely Company Income Tax (based on taxable income (or loss) for the year); and minimum tax. Taxes based on proﬁt for the period are treated as income tax in line with IAS 12. Minimum tax Minimum tax which is based on a gross amount is outside the scope of IAS 12 and therefore, are not presented as part of income tax expense in the proﬁt or loss. Minimum tax is determined based on the sum of: • the highest of; 0.25% of revenue of N500,000, 0.5% of gross proﬁt, 0.25% of paid up share capital and 0.5% of net assets; and 0.125% of revenue in excess of N500,000. • Where the minimum tax charge is higher than the Company Income Tax (CIT), a hybrid tax situation exists. In this situation, the CIT is recognised in the income tax expense line in the proﬁt or loss and the excess amount is presented above the income tax line as minimum tax. The Bank oﬀsets the tax assets arising from withholding tax (WHT) credits and current tax liabilities if, and only if, it has a legally enforceable right to set oﬀ the recognised amounts, and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. The tax asset is reviewed at each reporting date and written down to the extent that it is no longer probable that future economic beneﬁt would be realised. s l a i c n a n F i 103 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 (b) investments Deferred tax Deferred tax is recognised in respect of temporary diﬀerences between the carrying amounts of assets and liabilities for ﬁnancial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for: – temporary diﬀerences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that aﬀects neither accounting nor taxable proﬁt or loss; – temporary diﬀerences related to in subsidiaries, associates and joint arrangements to the extent that the Bank is able to control the timing of the reversal of the temporary diﬀerences and it is probable that they will not reverse in the foreseeable future; and – taxable temporary diﬀerences arising on the initial recognition of goodwill. Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary diﬀerences to the extent that it is probable that future taxable proﬁts will be available against which they can be used. Future taxable proﬁts are determined based on the reversal of relevant taxable temporary diﬀerences. If the amount of taxable temporary diﬀerences is insuﬃcient to recognise a deferred tax asset in full, then future taxable proﬁts, adjusted for reversals of existing temporary diﬀerences, are considered, based on the business plans of the Company. 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; such reductions are reversed when the probability of future taxable proﬁts improves. 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. Deferred tax is measured at the tax rates that are expected to be applied to temporary diﬀerences when they reverse, using tax rates enacted or substantively enacted at the reporting date, and reﬂects uncertainty related to income taxes, if any. The measurement of deferred tax reﬂects the tax consequences that would follow from the manner in which the Company expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are oﬀset only if certain criteria are met. Earnings per share 2.23 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. Segment reporting 2.24 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 [Management/Board] in order to make decisions about 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. Fiduciary activities 2.25 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. 2.26 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. 3. Risk management Enterprise Risk Management 3.1 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. 104 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. b. c. d. e. 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. 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. 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. 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. b. c. d. e. f. 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. s l a i c n a n F i 105 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 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, 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. b. c. d. 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. lines of authority and responsibility identiﬁcation, measurement, monitoring and 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 for managing individual risk elements in line with the Board’s overall direction; Risk 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; Ensure established by the Board; and Ensure that business lines comply with risk parameters and prudent limits established by the Board; the boundaries remains within that risk b. c. d. e. f. g. h. 106 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. 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 Available information points to a mild pick-up of activity in the second half of 2019,, following a subdued performance in the ﬁrst half of 2019 which was weighed by yet another contraction of the vital oil industry. Although the manufacturing Purchasing Managers’ Index (PMI) fell from April’s ﬁve-month high in May, the two-month average lies above that of the ﬁrst quarter, signaling that business dynamics remain upbeat. Encouragingly, new orders from abroad quickened to a year-to- date high in May. Furthermore, bank lending to the private sector accelerated notably in April, which, coupled with slightly higher business conﬁdence in May, bodes well for overall activity in the quarter. The economy is seen gaining some traction this year. In particular, increased credit provision and the implementation of the minimum wage hike should lend support to consumer demand and the non-oil segment of the economy. However, the slow progress on structural reforms and oil price volatility pose key risks to the outlook. The Bank regularly assesses it’s resilience to changes in micro and macro environments with speciﬁc actions to address any observed or anticipated challenges. The Bank strongly believe it is well positioned to deal with liquidity risk and funding challenges that may arise from any adverse situations and our capital and earnings capacity (proﬁtability) can withstand the shocks that may arise. Zenith Bank Plc will continue to support its customers as much as possible in terms of foreign exchange funding challenges; credit performance obligations (restructuring repayments to match cash-ﬂows, where necessary); Some of the key risk management strategies in the period would include the following: (a) sales and Continue to monitor impact of global economy in commodity pricing, Foreign Direct Investment (FDI) inﬂows and general behavior of local economy to the changes in the global market. Source for cheaper and stable funds Drive other income sources - Increase marginal value of current assets utilization and their derivable income as much as possible. Seek new sources and champions. Pursue other government activities especially trapping utilization of government funds for projects and other activities Further develop SME/Retail product penetrations Develop market hub initiative to host market players and drive retail participation Ensure that the Net Interest Margin (NIM) is maintained for all changes in interest rates. 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. Cautiously grow risk assets while maintaining adequate level of capital. (b) (c) (d) (e) (f ) (g) (h) (i) (j) (k) (l) (m) Credit Risk 3.2 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 through commitments to extend credit, letters of guarantee, letters of credit, securities purchased under reverse repurchase agreements, deposits with ﬁnancial institutions, brokerage 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; industry or customer will be Exposures to any 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 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 b. c. d. s l a i c n a n F i 107 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 e. Estimated Rate of Recovery, which is a measure of the portion of the debt that can be recovered through realisation of assets and collateral should default occur. (i) (ii) Internal and external research and market intelligence reports; and Regulatory agencies reports 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 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) 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. industry, and Credit assessment of the borrower’s macro-economic factors; 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. b. c. d. e. f. g. Unrated Individually insigniﬁcant (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. (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: 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 framework, solid structure and infrastructure, risk monitoring and control activities enable the Group to deal with the emerging risks and challenges with a high level of conﬁdence and determination. 108 The framework for credit risk assessment at Zenith is well-deﬁned and institutionally predicated on: a. in and line with key assessment of 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; Well-deﬁned target market and risk asset acceptance criteria; Rigorous ﬁnancial, credit and overall risk analysis for each customer/transaction; Regular portfolio examination performance indicators and periodic stress testing; Continuous concentrations 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. b. c. d. e. f. g. h. i. j. 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 Management Global Credit Committee N1 billion and above (Not exceeding 20% of total shareholders’ fund) 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. s l a i c n a n F i 109 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 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 counterparty 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) 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, b. trademarks, machinery equipment, patents, farm products, general intangibles, etc. These require a security agreement (usually a ﬂoating debenture) which has to be registered and, must be enforceable under Nigerian law; Stocks and shares of publicly quoted companies; Domiciliation of contracts proceeds; 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. c. d. e. 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 addressed immediately. 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) and other sovereigns. Details of collateral pledged by customers against the carrying amount of loans and advances as at December 31, 2019 are as follows: In millions of Naira Secured against real estate Secured by shares of quoted companies Cash Collateral, lien over ﬁxed and ﬂoating assets Unsecured Total Gross amount ECL Allowance Net carrying amount Group Bank Total exposure Value of collateral Total exposure Value of collateral 214,040 27,759 1,301,733 918,827 2,462,359 (156,794) 2,305,565 222,648 4,118 1,070,602 - 1,297,368 - 1,297,368 187,659 5,813 1,285,343 911,837 2,390,651 (151,179) 2,239,472 105,637 4,118 1,060,953 - 1,170,708 - 1,170,708 110 Group December 31, 2019 Disclosure by Collateral Property/Real estate Equities Cash Collateral, lien over ﬁxed and ﬂoating assets Grand total: Fair value of collateral Grand total: Gross loans Grand total: ECL Allowance Grand total: Net amount Term loan Overdrafts On lending Finance lease Total 173,073 150 732,119 905,342 35,815 3,968 41,677 81,460 1,760,501 212,548 119,912 34,328 1,640,589 178,220 12,574 - 296,640 309,214 483,024 2,435 480,589 1,186 - 165 1,351 6,286 119 222,648 4,118 1,070,601 1,297,367 2,462,359 156,794 6,167 2,305,565 Grand total: Amount of undercollaterization/ (overcollaterization) (735,247) (96,760) (171,375) (4,816) (1,008,198) December 31, 2019 Term loan Overdrafts On lending Finance lease Total Against 12 months ECL loans and advances Property/Real estate Equities Cash Collateral, lien over ﬁxed and ﬂoating assets Fair value of collateral Gross loans ECL Allowance Net amount 119,237 150 673,805 793,192 20,257 1,503 37,039 58,799 1,499,536 132,221 25,961 2,762 1,473,575 129,459 12,541 - 296,640 309,181 475,591 1,603 473,988 1,186 153,221 - 1,653 165 1,007,649 1,351 1,162,523 6,240 2,113,588 103 30,429 6,137 2,083,159 Amount of undercollaterization/(overcollaterization) (680,383) (70,660) (164,807) (4,786) (920,636) December 31, 2019 Term loan Overdrafts On lending Finance lease Total Against lifetime ECL not credit-impaired loans and advances Property/Real estate Equities Cash Collateral, lien over ﬁxed and ﬂoating assets Fair value of collateral Gross loans ECL Allowance Net amount 52,028 - 50,181 102,209 143,288 12,986 130,302 2,710 834 2,158 5,702 30,172 2,082 28,090 - - - - 7,263 734 6,529 - - - - 31 3 28 54,738 834 52,339 107,911 180,754 15,805 164,949 Amount of undercollaterization/(overcollaterization) (28,093) (22,388) (6,529) (28) (57,038) s l a i c n a n F i 111 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 December 31, 2019 Term loan Overdrafts On lending Finance lease Total Against lifetime ECL credit-impaired loans and advances Property/Real estate Equities Cash Collateral, lien over ﬁxed and ﬂoating assets Fair value of collateral Gross loans ECL Allowance Net amount Amount of undercollaterization/(overcollaterization) Bank December 31, 2019 Disclosure by Collateral Property/Real estate Equities Cash Collateral, lien over ﬁxed and ﬂoating assets Grand total: Fair value of collateral Grand total: Gross loans Grand total: ECL Allowance Grand total: Net amount Grand total: Amount of undercollaterization/ (overcollaterization) 1,808 12,848 - 8,134 9,942 117,677 80,965 36,712 (26,770) 1,631 2,480 16,959 50,155 29,484 20,671 (3,712) 33 - - 33 171 97 74 (41) - - - - 15 13 1 (1) 14,688 1,631 10,614 26,934 168,017 110,559 57,458 (30,524) Term loan Overdrafts On lending Finance lease Total 70,344 150 728,469 798,963 21,533 3,968 37,179 62,679 1,707,326 194,020 115,551 33,074 1,591,775 160,946 792,812 98,267 12,574 - 296,640 309,214 483,024 2,435 480,589 171,375 1,186 105,637 - 4,118 165 1,062,453 1,351 1,172,208 6,281 2,390,651 119 151,179 6,162 2,239,472 4,811 1,067,264 December 31, 2019 Term loan Overdrafts On lending Finance lease Total Against 12 months ECL loans and advances Property/Real estate Equities Cash Collateral, lien over ﬁxed and ﬂoating assets Fair value of collateral Gross loans ECL Allowance Net amount 18,388 150 670,176 688,714 13,319 1,503 31,227 46,049 1,451,551 119,541 23,064 2,372 1,428,487 117,169 Amount of undercollaterization/(overcollaterization) 739,773 71,120 12,541 - 296,640 309,181 475,591 1,603 473,988 164,807 1,186 - 45,435 1,653 165 998,208 1,351 1,045,295 6,235 2,052,918 103 27,143 6,132 2,025,776 4,781 980,481 112 December 31, 2019 Term loan Overdrafts On lending Finance lease Total Against lifetime ECL not credit-impaired loans and advances Property/Real estate Equities Cash Collateral, lien over ﬁxed and ﬂoating assets Fair value of collateral Gross loans ECL Allowance Net amount Amount of undercollaterization/(overcollaterization) 51,480 - 50,181 101,661 138,680 11,534 127,146 25,485 2,579 834 2,009 5,422 30,080 2,005 28,075 22,653 - - - - 7,263 734 6,529 6,529 - - - - 31 3 28 28 54,059 834 52,190 107,083 176,054 14,276 161,778 54,695 December 31, 2019 Term loan Overdrafts On lending Finance lease Total Against lifetime ECL credit-impaired loans and advances Property/Real estate Equities Cash Collateral, lien over ﬁxed and ﬂoating assets Grand total: Fair value of collateral Grand total: Gross loans Grand total: ECL Allowance Grand total: Net amount Grand total: Amount of undercollateriza-tion/ (overcollaterization) 476 - 8,113 8,589 117,095 80,953 36,142 27,553 5,634 1,631 2,443 9,708 44,399 28,697 15,702 5,994 33 - - 33 171 97 74 41 - - - - 14 13 1 1 6,143 1,631 10,556 18,330 161,679 109,760 51,919 33,589 No loss allowance was computed for loans and advances amounting to N3.52 billion for which the collateral value exceeded the amount of loan exposure. Details of collateral pledged by customers against carrying amount of loans and advances as at December 31, 2018 are as follows: In millions of Naira December 31, 2018 Secured against real estate Secured by shares of quoted companies Cash collateral, lien over ﬁxed and ﬂoating assets Unsecured Total Gross amount ECL Allowance Net carrying amount Group Bank 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 s l a i c n a n F i 113 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 Group December 31, 2018 Disclosure by Collateral Property/Real estate Equities Cash Collateral, lien over ﬁxed and ﬂoating assets Grand total: Fair value of collateral Grand total: Gross loans Grand total: ECL Allowance 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 1,419,276 208,021 156,366 31,999 1,262,910 176,022 101 - 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 Grand total: Amount of undercollaterization/(overcollaterization) 633,980 101,272 December 31, 2018 Term loan Overdrafts On lending Finance lease Total Against 12 months ECL loans and advances Property/Real estate Equities Cash Collateral, lien over ﬁxed and ﬂoating assets Fair value of collateral Gross loans ECL Allowance 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 December 31, 2018 Term loan Overdrafts On lending Finance lease Total Against lifetime ECL not credit-impaired loans and advances Property/Real estate Equities Cash Collateral, lien over ﬁxed and ﬂoating assets Fair value of collateral Gross loans ECL Allowance Net amount Amount of undercollaterization/(overcollaterization) 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 36,040 347,260 115,704 114 December 31, 2018 Term loan Overdrafts On lending Finance lease Total Against lifetime ECL credit-impaired loans and advances Property/Real estate Equities Cash Collateral, lien over ﬁxed and ﬂoating assets Fair value of collateral Gross loans ECL Allowance 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/(overcollaterization) (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 December 31, 2018 Disclosure by Collateral Property/Real estate Equities Cash Collateral, lien over ﬁxed and ﬂoating assets Grand total: Fair value of collateral Grand total: Gross loans Grand total: ECL Allowance 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 1,353,101 178,740 154,678 25,276 1,198,423 153,464 569,493 78,714 101 - 267,407 267,508 385,922 4,903 381,019 113,511 - - 77 77 33,697 5,410 932,158 971,265 3,301 1,921,064 141 184,998 3,160 1,736,066 3,083 764,801 December 31, 2018 Term loan Overdrafts On lending Finance lease Total Against 12 months ECL loans and advances Property/Real estate Equities Cash Collateral, lien over ﬁxed and ﬂoating assets Fair value of collateral Gross loans ECL Allowance 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 s l a i c n a n F i 115 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 December 31, 2018 Term loan Overdrafts On lending Finance lease Total Against lifetime ECL not credit-impaired loans and advances Property/Real estate Equities Cash Collateral, lien over ﬁxed and ﬂoating assets Fair value of collateral Gross loans ECL Allowance Net amount Amount of undercollaterization/(overcollaterization) 2,294 343 212,397 215,034 321,662 30,739 290,923 75,889 3,750 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 December 31, 2018 Term loan Overdrafts On lending Finance lease Total Against lifetime ECL credit-impaired loans and advances Property/Real estate Equities Cash Collateral, lien over ﬁxed and ﬂoating assets Fair value of collateral Gross loans ECL Allowance Net amount Amount of undercollaterization/(overcollaterization) 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) (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. (b) Maximum Exposure to Credit Risk Before Collateral Held or Credit Enhancements 3.2.7 The Group’s maximum exposure to credit risk at December 31, 2019 and December 31, 2018 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 December 31, 2019 and December 31, 2018 respectively for loans and advances to customers and amounts due from banks, is set out below: 116 (a) Geographical sectors The following table breaks down the Group’s main credit exposure at their carrying amounts, as categorised by geographical region at December 31, 2019 and December 31, 2018 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. In millions of Naira December 31, 2019 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 In millions of Naira December 31, 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 Group Bank Nigeria Rest of Africa Outside Africa Nigeria Rest of Africa Outside Africa 879,996 824,119 431,728 8,134 203,857 92,722 62,496 56,263 167,274 - 78,025 101,996 - 960 19 - - 620,944 285,244 - 308 879,449 822,449 431,728 - 189,358 92,722 61,253 2,503,052 404,518 906,515 2,476,959 79,318 413,656 261,495 754,469 - 39,640 22,980 62,620 - 91,878 79,447 79,318 413,656 261,495 171,325 754,469 - - - - - - - - - - - - - - - 482,070 - - - 482,070 - - - - Group Bank Nigeria Rest of Africa Outside Africa Nigeria Rest of Africa Outside Africa 902,107 818,314 592,935 13,214 164,349 88,826 59,754 52,299 182,246 - - 67,754 - 1,343 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 - - - - s l a i c n a n F i 117 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 Gross loans and advances to customers and the Non-performing loan portion per geographical region as at December 31, 2019 *Carrying amounts presented in the table below is determined as gross loans less impairment allowances (Impairment is measured in line with IFRS9). 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 201,543 1,629 3,488 198,055 201,543 1,629 1,828,217 94,779 140,839 1,687,379 1,828,086 94,779 Impairment Allowance 3,488 140,839 138,681 95,005 26,271 101,065 47,299 24,278 1,338 1,423 112 176 6,339 - 3,556 2,837 177 282 2,153 3,462 135,125 138,681 92,168 26,094 95,005 26,271 100,783 101,065 45,146 20,816 - - 1,338 1,423 112 176 - - 3,556 2,837 177 282 - - Carrying amount 198,055 1,687,248 135,125 92,168 26,094 100,783 - - 2,462,359 105,796 156,794 2,305,565 2,390,651 99,457 151,179 2,239,472 Gross loans and advances and non-performing portion per geographical region as at 31 December 2018 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 113,319 1,071 3,330 109,989 113,319 1,071 1,553,639 87,650 177,322 1,376,317 1,553,037 87,650 Impairment Allowance 3,330 177,294 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 - - Carrying amount 109,989 1,375,743 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 1,736,066 118 (b) Industry sectors Gross loans and advances to customers and the non-performing loan portion per industry sector as at 31 December, 2019 *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 Agriculture Oil and gas Consumer Credit Manufacturing Real estate and construction Finance and insurance Government Power Transportation Communication Education General Commerce 162,123 619,414 153,892 489,526 80,922 34,542 362,836 81,785 65,385 383 32,537 12,683 5,353 11,943 513 121 4 143 111,344 31,179 8,854 291,736 1,193 9,744 454 53,837 19,562 8,917 11,732 3,672 403 32,873 312 14,726 1,021 9,285 161,669 565,577 134,330 480,609 69,190 30,870 48,912 65,073 96,618 7,833 161,636 383 617,978 32,537 153,416 12,683 474,411 76,195 14,798 81,630 63,533 8,802 5,064 9,795 513 121 - 80 1,193 5,912 107,153 31,176 362,433 361,667 282,451 269,434 454 53,713 19,515 8,199 11,520 944 292 32,872 119 14,722 1,020 7,809 161,182 564,265 133,901 466,212 64,675 13,853 361,375 48,757 63,414 92,431 7,782 261,625 2,462,359 105,796 156,794 2,305,565 2,390,651 99,457 151,179 2,239,472 Gross loans and advances to customers and the non-performing loan portion per industry sector as at December 31, 2018 In millions of Naira Group Bank Loans and advances to customers Loans and advances to customers Gross loans NPL Impairment Allowance Carrying amount Agriculture Oil and gas Consumer Credit Manufacturing Real estate and construction Gross loans 115,303 559,284 78,450 450,020 39,504 NPL 1,180 35,939 8,571 2,164 7,841 Finance and insurance 6,307 2,642 Government Power Transportation Communication Education General Commerce 310,265 85,417 51,982 83,987 36,779 199,222 170 51 330 24,083 7,608 9,924 Impairment Allowance 1,889 65,043 7,236 26,132 6,122 2,875 1,956 14,247 2,550 47,779 5,482 12,098 Carrying amount 113,414 494,241 71,214 115,303 1,180 551,105 35,939 77,814 423,888 442,778 33,382 39,506 3,432 6,307 2,641 308,309 309,721 71,170 49,432 36,208 31,297 81,610 19,402 5,021 187,124 198,412 74,085 23,996 8,571 2,114 7,841 158 8 185 171 9,826 1,889 64,505 7,209 25,487 6,124 2,875 1,945 14,201 1,360 47,138 208 12,057 113,414 486,600 70,605 417,291 33,382 3,432 307,776 67,409 18,042 26,947 4,813 186,355 2,016,520 100,503 193,409 1,823,111 1,921,064 92,630 184,998 1,736,066 Impairment was not recognised on N509 million of the Bank’s total loan exposure as a result of the collateral value applied being higher than the loan exposure. s l a i c n a n F i 119 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 3.2.9 Credit quality analysis All other ﬁnancial assets are neither past due nor impaired. Loans and advances to customers of N452 billion which are neither past due nor impaired have been renegotiated (December 31, 2018: N295 billion). Group December 31, 2019 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 AAA 936,278 991,956 431,797 707,245 BBB to BB - - - - 527,968 63,680 92,722 - Gross amount 936,278 991,956 431,797 707,245 591,648 92,722 ECL - impairment Carrying amount - (563) (69) (142) (551) - 936,278 991,393 431,728 707,103 591,097 92,722 In millions of Naira Loans and Advances 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 ** This includes on-lending facilities. Term loans ** Overdraft 1,975,127 150,551 117,847 2,243,525 27,564 13,720 81,062 122,346 2,121,179 132,221 30,172 50,155 212,548 2,761 2,084 29,484 34,329 178,219 Others 6,240 31 15 6,286 2,462,359 103 3 13 119 30,428 15,807 110,559 156,794 6,167 2,305,565 Other financial assets 64,541 - 64,541 (777) 63,764 Total 2,113,588 180,754 168,017 In millions of Naira Loans and Advances 12 months ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total A AA AAA B BB BBB C CC CCC D UNRATED Gross amount ECL-Impairment Carrying amount 120 510,098 716,791 385,478 19,735 284,193 96,455 - - - 47 100,791 2,113,588 (30,429) 2,083,159 20,454 5,178 - 4,544 136,540 12,971 - 1 - - 1,066 180,754 (15,806) 164,948 6,095 - 14 8 93,478 2,206 52 190 1,281 49,282 15,411 536,647 721,969 385,492 24,287 514,211 111,632 52 191 1,281 49,329 117,268 168,017 2,462,359 (110,559) (156,794) 57,458 2,305,565 In millions of Naira Term loan 12 months ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total A AA AAA B BB BBB CC CCC D UNRATED Gross amount ECL-Impairment Carrying amount 438,779 698,710 376,835 19,735 284,193 74,389 - - - 82,935 1,975,576 (27,564) 1,948,012 7,157 4,857 - 3,001 120,642 12,545 1 - - 807 149,010 (13,376) 135,634 2,270 - - - 71,938 1,395 2 843 35,833 5,566 448,206 703,567 376,835 22,736 476,773 88,329 3 843 35,833 89,308 117,847 2,242,433 (81,062) (122,002) 36,785 2,120,431 In millions of Naira Overdraft 12 months ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired A AA AAA B BB BBB C CC CCC D UNRATED Gross amount ECL-Impairment Carrying amount 67,448 16,089 8,643 - - 21,717 - - - 48 17,832 131,777 (2,761) 129,016 13,267 322 - 1,543 15,900 426 - - - - 257 31,715 (2,427) 29,288 3,815 - 14 8 21,540 811 52 188 438 13,450 9,840 50,156 (29,484) 20,672 Total 84,530 16,411 8,657 1,551 37,440 22,954 52 188 438 13,498 27,929 213,648 (34,672) 178,976 s l a i c n a n F i 121 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 In millions of Naira Others 12 months ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired A AA BBB UNRATED Gross amount ECL-Impairment Carrying amount Bank December 31, 2019 3,870 1,991 349 31 6,241 (103) 6,138 29 - - 2 31 (3) 28 10 - - 4 14 (13) 1 Total 3,909 1,991 349 37 6,286 (119) 6,167 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 879,449 822,466 431,797 482,212 BBB to BB - - - - 126,216 63,680 Gross amount 879,449 822,466 431,797 482,212 189,896 - (17) (69) (142) (538) 879,449 822,449 431,728 482,070 189,358 92,722 92,722 - 92,722 - 61,973 - 61,973 (720) 61,253 Total 2,052,918 176,054 161,679 Others 6,235 31 15 Term loans** Overdraft Loans and Advances 1,927,142 145,943 117,265 2,190,350 24,668 12,269 81,050 117,987 2,072,363 119,541 30,080 44,399 194,020 2,372 2,005 28,697 33,074 160,946 6,281 2,390,651 100 3 15 118 27,140 14,277 109,762 151,179 6,163 2,239,472 ECL - impairment Carrying amount 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 ** This includes on-lending facilities. 122 In millions of Naira Loans and Advances 12 months ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired A AA AAA B BB BBB C CC CCC D UNRATED Gross amount ECL-Impairment Carrying amount 510,097 716,704 385,478 - 284,193 93,144 - - - 48 63,254 2,052,918 (27,143) 2,025,775 20,454 5,178 - - 136,542 12,971 - - - - 909 176,054 (14,276) 161,778 6,095 - 14 8 93,479 2,206 52 188 1,281 49,284 9,072 Total 536,646 721,882 385,492 8 514,214 108,321 52 188 1,281 49,332 73,235 161,679 2,390,651 (109,760) (151,179) 51,919 2,239,472 In millions of Naira Term loan 12 months ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total A AA AAA BB BBB CCC D UNRATED Gross amount ECL-Impairment Carrying amount 438,779 698,623 376,835 284,193 72,119 - - 56,593 1,927,142 (24,668) 1,902,474 7,157 4,857 - 120,642 12,545 - - 742 145,943 (12,269) 133,674 2,270 - - 71,938 1,396 843 35,834 4,984 448,206 703,480 376,835 476,773 86,060 843 35,834 62,319 117,265 2,190,350 (81,050) (117,987) 36,215 2,072,363 s l a i c n a n F i 123 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 In millions of Naira Overdraft 12 months ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired A AA AAA B BB BBB C CC CCC D UNRATED Gross amount ECL-Impairment Carrying amount In millions of Naira A AA BBB UNRATED Gross amount ECL-Impairment Carrying amount Group December 31, 2018 67,448 16,089 8,643 - - 20,676 - - - 48 6,636 119,540 (2,372) 117,168 3,815 - 14 8 21,540 811 52 188 438 13,450 4,084 44,400 (28,697) 15,703 13,267 322 - - 15,900 426 - - - - 165 30,080 (2,005) 28,075 Others 12 months ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired 3,871 1,991 349 24 6,235 (103) 6,132 29 - - 2 31 (3) 28 11 - - 4 15 (13) 2 Total 84,530 16,411 8,657 8 37,440 21,913 52 188 438 13,498 10,885 194,020 (33,074) 160,946 Total 3,911 1,991 349 30 6,281 (119) 6,162 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 954,416 1,000,632 593,061 676,243 BBB to BB - - - - 518,124 49,760 Gross amount 954,416 1,000,632 593,061 676,243 567,884 - (72) (126) (1,969) (2,572) 954,416 1,000,560 592,935 674,274 565,312 88,826 88,826 - 88,826 - 62,080 - 62,080 (710) 61,370 ECL - impairment Carrying amount 124 In millions of Naira Loans and Advances 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 Bank December 31, 2018 Term loans Overdraft 916,359 350,833 152,084 1,419,276 11,123 32,383 112,859 156,365 1,262,911 158,264 21,214 28,543 208,021 2,623 1,857 27,519 31,999 176,022 Others 376,827 11,253 1,143 Total 1,451,450 383,300 181,770 389,223 2,016,520 2,220 1,800 1,025 5,045 15,966 36,040 141,403 193,409 384,178 1,823,111 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 879,355 130,993 321,662 152,084 19,204 28,543 376,826 11,254 1,143 1,387,174 352,120 181,770 1,353,101 178,740 389,223 1,921,064 11,080 30,739 112,859 154,678 793 1,694 22,789 25,276 2,220 1,800 1,024 5,044 14,093 34,233 136,672 184,998 1,198,423 153,464 384,179 1,736,066 s l a i c n a n F i 125 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 At December 31, 2019 Loans and advances to customers Loans and advances to customers Group Bank AAA AA to A BBB to BB Below B Unrated 385,492 1,258,613 650,133 50,853 117,268 2,462,359 Group 385,492 1,258,528 622,543 50,853 73,235 2,390,651 Bank At December 31, 2018 Loans and advances to customers Loans and advances to customers AAA AA to A BBB to BB Below B Unrated B- 787,799 340,500 620,051 172,714 63,728 31,728 2,016,520 787,799 340,500 620,051 172,714 - - 1,921,064 3.2.10 Amounts Arising from ECL For inputs, assumptions and techniques used for estimating impairment see accounting policy in note 2.7 3.2.11 Amounts Arising from ECL Corporate exposures Retail exposures All exposures – Information obtained during periodic review of customer ﬁles – e.g. – Internally collected data – Payment record – this includes audited ﬁnancial statements, management accounts, budgets and on customer behaviour – overdue status as well as a range of projections. e.g. utilisation of credit card variables about payment ratios Examples of areas of particular focus are: gross proﬁt margins, ﬁnancial facilities leverage ratios, debt service coverage, compliance with covenants, quality – Aﬀordability metrics – Utilisation of the granted limit – Requests for and granting of of management, senior management changes – External data from credit forbearance – Data from credit reference agencies, press articles, changes in external reference agencies, including credit ratings industry-standard credit scores – 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 – 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. 126 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. 3.2.13 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. 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. The credit risk grades are reviewed bi-annually. 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. 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. its expert credit Using 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 Life- time 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. s l a i c n a n F i 127 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 The Group monitors the eﬀectiveness of the criteria used to identify signiﬁcant increases in credit risk by regular reviews (annually) to conﬁrm that: • the criteria are capable of identifying signiﬁcant increases in credit risk before an exposure is in default; 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). • • 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. 3.2.14 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 the modiﬁcation does not result in derecognition, the 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 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. 128 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 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 while 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. 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. The Group has identiﬁed and documented key drivers of credit risk and credit losses for its ﬁnancial assets and, using an analysis of historical data, has estimated relationships between macro- economic variables and its non-performing loans. 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. Some of the macroeconomic variables considered include Crude Oil price, Foreign Exchange rate, GDP growth rate, Inﬂation rate. However from the statistical analysis of the various macroeconomic variables, the result infers that the key drivers for its portfolios are inﬂation rate and foreign exchange rate. The economic scenarios used as at December 31, 2019 included the following key indicators for Nigeria for the years ending 31 December 2019 to 2020. 2020 2021 Foreign exchange rate Base Base 362.26 Upside 366.03 Downside 398.49 Base 362.26 Upside 326.03 Downside 398.49 Inﬂation rate forecast Base 11.73 Upside 10.56 Downside 12.91 Base 11.73 Upside 10.23 Downside 12.50 Predicted relationships between the key indicators and default and loss rates on the Bank’s portfolio has been developed by analysing historical data over the past 5 years. 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. 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 s l a i c n a n F i 129 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 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, longer period. The maximum the Group considers a 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 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 for 2019 represent allowance account for credit losses and reﬂect measurement basis under IFRS 9. 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 December 31, 2019 12-month ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total 12-month ECL December 31, 2018 Lifetime ECL not credit- impaired Lifetime ECL credit- impaired - - - - 72 (35) - 526 563 - - - - 72 (35) - 526 563 1,305 (1,243) 10 72 283,845 283,845 490,319 - - - - - - Total 1,305 (1,243) 10 72 490,319 130 In millions of Naira 12-month ECL Off balance sheet exposure Balance at 1 January Net remeasurement of loss allowances (see note 8) Write-oﬀs Closing balance Gross amount 8,011 (2,473) - 5,538 988,414 December 31, 2019 Lifetime ECL not credit impaired Lifetime ECL credit impaired Total 12-month ECL December 31, 2018 Lifetime ECL not credit- impaired Lifetime ECL credit- impaired Total - - - - - - - - 8,011 (2,473) 5,538 2,526 5,337 148 8,011 988,414 831,251 - - - - 2,526 5,337 148 8,011 831,251 In millions of Naira 12-month ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total 12-month ECL December 31, 2019 December 31, 2018 Lifetime ECL not credit- impaired Lifetime ECL credit- impaired Total Assets pledged as collateral at ammortised cost Balance at 1 January Net remeasurement of loss allowances (see note 8) Closing balance Gross amount 126 (57) 69 316,276 - - - - - - 126 (57) 1,202 (1,076) - - 69 126 316,276 593,061 In millions of Naira Loans and advances to customers at amortised cost Balance at 1 January - Transfer to 12-month ECL - Transfer to lifetime ECL not credit-impaired - Transfer to lifetime ECL credit-impaired Net remeasurement of loss allowances (see note8) New ﬁnancial assets originated or purchased Write-oﬀs and recoveries Foreign exchange and other movements Closing balance Gross amount December 31, 2019 12-month ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total 12-month ECL December 31, 2018 Lifetime ECL not credit- impaired Lifetime ECL credit- impaired 141,403 193,408 152,967 253,174 15,965 5,235 36,040 (4,855) (7,486) 7,564 (380) (78) 64,620 382 35,586 (248) (22,215) 22,913 (134) (698) (2,078) (36,022) 38,100 (42,298) (46,836) 89,134 - - - 5,380 12,658 (4,455) 13,583 14,074 22,890 (27,128) 9,836 12,605 698 868 14,171 1,550 1,540 377 3,467 - 807 - (60,971) (60,971) (277) (3,928) (3,398) - (148) - 195 (73,962) (73,962) 847 894 30,428 15,806 110,559 156,794 15,965 36,040 141,403 193,409 2,113,588 180,754 168,017 2,462,359 1,451,450 383,300 181,770 2,016,520 - - 1,202 (1,076) 126 593,061 Total - - - s l a i c n a n F i 131 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 In millions of Naira 12-month ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total 12-month ECL December 31, 2019 December 31, 2018 LifetimeECL not credit- impaired Lifetime ECL credit- impaired Investment securities at amortised cost Balance at 1 January Net remeasurement of loss allowances (see note 8) Write-oﬀs Foreign exchange and other movements Closing balance Gross amount 2,572 (27) - (1,994) 551 234,857 In millions of Naira Other financial assets 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 - - - - - - 2,572 (27) (1,994) 1,773 (430) 1,229 551 2,572 234,857 513,154 - - - December 31, 2019 Lifetime ECL December 31, 2018 Lifetime ECL 710 36 - 31 777 64,541 4,831 395 (4,516) - 710 62,080 In millions of Naira 12-month ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total 12-month ECL December 31, 2019 December 31, 2018 LifetimeECL not credit- impaired Lifetime ECL credit- impaired 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 1,969 (789) - (1,038) 142 707,245 - - - - - - - - - - - - 1,969 (789) - 1,938 - (1,038) - 31 142 1,969 707,245 676,243 - - - - - - 132 Total 1,773 (430) 1,229 - - - 2,572 513,154 Total - 1,938 - 31 1,969 - - - - - - 676,243 Bank In millions of Naira 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 December 31, 2019 12-month ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total 12-month ECL December 31, 2018 LifetimeECL not credit- impaired Lifetime ECL credit- impaired 72 (55) - - 17 - - - - - (55) - - - - 72 - 17 1,186 (1,114) 72 - - - - - - 114,352 114,352 306,802 In millions of Naira 12-month ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total 12-month ECL December 31, 2019 December 31, 2018 Lifetime ECL not credit- impaired Lifetime ECL credit- impaired Off balance sheet exposure Balance at 1 January Net remeasurement of loss allowances (see note 8) Closing balance Gross amount 8,011 (2,473) - 5,538 754,469 - - - - - - - - 8,011 (2,473) - 5,538 1,571 6,441 8,011 754,469 775,355 - - - - - - Total 1,186 (1,114) 72 306,802 Total 1,571 6,441 8,011 775,355 In millions of Naira 12-month ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total 12-month ECL December 31, 2019 December 31, 2018 Lifetime ECL not credit- impaired Lifetime ECL credit- impaired Total Assets pledged as collateral at ammortised cost Balance at 1 January Net remeasurement of loss allowances (see note 8) Closing balance Gross amount 126 (57) 69 316,276 - - - - - - 126 (57) 69 1,202 (1,076) 126 316,276 593,061 - - - - - - 1,202 (1,076) 126 593,061 s l a i c n a n F i 133 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 In millions of Naira 12-month ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total 12-month ECL December 31, 2019 December 31, 2018 Lifetime ECL not credit- impaired Lifetime ECL credit- impaired Total Loans and advances to customers at amortised cost Balance at 1 January - Transfer to 12-month ECL - Transfer to lifetime ECL not credit-impaired - Transfer to lifetime ECL credit-impaired Net remeasurement of loss allowances (see note8) New ﬁnancial assets originated or purchased Write-oﬀs Foreign exchange and other movements Closing balance Gross amount 14,092 5,236 (7,486) 34,233 (4,856) 7,564 (380) (78) 60,761 382 (22,215) 33,245 (248) 22,913 (134) (698) 136,673 184,998 141,832 235,838 (2,078) (36,021) 38,100 (42,298) (46,836) 89,134 - - - - - - 4,774 12,658 (4,455) 12,977 15,912 23,619 (33,602) 5,929 12,605 698 868 14,171 1,550 1,540 377 3,467 - - - - (60,967) (60,967) - - (60,236) (60,236) - - 27,143 14,276 109,760 151,179 14,092 34,233 136,673 184,998 2,052,919 176,053 161,679 2,390,651 1,387,174 352,119 181,770 1,921,064 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 December 31, 2019 Lifetime ECL December 31, 2018 Lifetime ECL 698 22 - - 720 61,973 4,832 383 (4,517) 698 59,104 In millions of Naira 12-month ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total 12-month ECL December 31, 2019 December 31, 2018 Lifetime ECL not credit- impaired Lifetime ECL credit- impaired Due from other Banks Balance at 1 January Net remeasurement of loss allowances (see note 8) Closing balance Gross amount 931 (789) 142 482,212 - - - - - - - - 931 (789) 142 - 931 931 482,212 394,397 - - - - 134 Total - 931 931 - - - - 394,397 In millions of Naira 12-month ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total 12-month ECL December 31, 2019 December 31, 2018 Lifetime ECL not credit- impaired Lifetime ECL credit- impaired - - - - - - - - - - 565 (27) - 538 358 207 - 565 113,959 102,508 - - - - - - - - - Total 358 207 - 565 102,508 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 565 (27) - 538 113,959 (a) Expected Credit Loss Migration Matrix In millions of Naira Stage as at December 31, 2019 12-month ECL Lifetime ECL not credit-impaired Lifetime ECL credit-impaired Stage as at 1 January 2019 Lifetime ECL not credit-impaired 12- months ECL Lifetime ECL credit-impaired Gross 9,302 4,855 380 14,537 7,486 6,014 78 13,578 (b) Summary of migrations December 31, 2019 12 month ECL (migration from lifetime ECL not credit impaired and lifetime ECL credit-impaired) Lifetime ECL not credit-impaired (migration from 12 months ECL and lifeteime ECL credit-impaired) Lifetime ECL credit impaired (migration from 12 months ECL and lifetime ECL not credit-impaired) 2,078 36,021 70,792 108,891 5,235 7,564 38,099 In millions of Naira Stage as at December 31, 2018 12-month ECL Lifetime ECL not credit-impaired Lifetime ECL credit-impaired 12- months ECL Lifetime ECL not credit-impaired Stage as at 1 January 2018 Lifetime ECL credit-impaired Gross 12,160 248 134 12,542 22,215 9,780 698 32,693 (b) Summary of migrations December 31, 2018 12 month ECL (migration from lifetime ECL not credit impaired and lifetime ECL credit-impaired) Lifetime ECL not credit-impaired (migration from 12 months ECL and lifeteime ECL credit-impaired) Lifetime ECL credit impaired (migration from 12 months ECL and lifetime ECL not credit-impaired) 42,299 46,836 47,162 136,297 382 22,913 89,135 s l a i c n a n F i 135 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 Summary of loss allowance by class of ﬁnancial instruments also showing ECL coverage ratio as at December 31, 2019. Group Financial Statement Items In millions of Naira On-balance sheet items Assets pledged as collateral Treasury bills Loans and advances to customers at amortised cost Debt investment securities at amortised cost Other ﬁnancial assets measured at amortised cost 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 % % % % 0.02 0.20 1.44 0.23 0.02 3.09 - - - - 8.74 65.80 - - - - - - 8.74 65.80 0.02 0.20 6.37 0.23 1.20 0.02 4.89 - - - - - - - 0.65 0.85 . - 0.25 - - 0.42 0.51 8.74 65.80 3.69 316,276 283,845 - - - - 316,276 283,845 69 563 - - - - 69 563 2,113,588 180,754 168,017 2,462,359 30,429 15,806 110,559 156,794 234,857 64,541 - - - - 234,857 551 64,541 707,245 777 142 - - - - - - 551 142 777 1.20 Due from other Banks 707,245 Subtotal 3,013,107 180,754 168,017 3,361,878 32,389 15,806 110,559 158,754 Off-balance sheet items Loans and other credit related commitments 545,174 79,318 363,922 96,911 1,085,325 - - - - - - - - - - 545,174 79,318 3,528 677 363,922 923 96,911 1,085,325 410 5,538 - - - - - - - - - - 4,098,432 180,754 168,017 4,447,203 37,927 15,806 110,559 164,292 3,528 677 0.65 0.85 923 0.25 410 5,538 0.42 2.17 0.93 Letters of credit Usance Financial guarantee and similar contracts Performance bonds and guarantees Undrawn overdraft balance Subtotal Total 136 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 % % % % Bank Financial Statement Items In millions of Naira On-balance sheet items Assets pledged as collateral Treasury bills Loans and advances to customers at amortised cost Debt investment securities at amortised cost Other ﬁnancial assets measured at amortised cost 316,276 114,352 - - - - 316,276 114,352 69 17 - - - - 69 17 2,052,919 176,054 161,679 2,390,652 27,143 14,276 109,760 151,179 113,959 61,973 - - - - - - 113,959 61,973 482,212 538 720 142 - - - - - - 538 720 142 Due from other Banks 482,212 Subtotal 2,659,479 176,054 161,679 2,997,212 28,487 14,276 109,760 152,523 0.02 0.01 1.32 0.47 1.18 0.03 3.00 - - - - 8.11 67.89 - - - - - - 8.11 67.89 Off-balance sheet items Loans and other credit related commitments Letters of credit Usance Financial guarantee and similar contracts Performance bonds and guarantees Undrawn overdraft balance Subtotal Total 413,656 79,318 261,495 96,911 851,380 - - - - - - - - - - 413,656 79,318 3,528 677 261,495 923 96,911 851,380 410 5,538 - - - - - - - - - - 3,528 677 0.85 0.42 923 0.35 410 5,538 0.42 2.04 0.97 - - - - - - - . - - - 8.11 67.89 3,510,859 176,054 161,679 3,848,592 34,025 14,276 109,760 158,061 0.02 0.01 6.32 0.47 1.18 0.03 5.09 0.85 0.85 0.35 0.42 0.65 4.11 s l a i c n a n F i 137 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 Summary of loss allowance by class of ﬁnancial instruments also showing ECL coverage ratio as at December 31, 2018. 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 collateral Treasury bills 490,319 - - - - 593,061 126 490,319 72 - - - - Loans and advances to 1,451,450 383,300 181,770 2,016,520 15,965 36,040 141,403 193,408 customers at amortised cost Debt investment 513,154 securities at amortised cost Debt investment 49,760 securities at FVOCI Other ﬁnancial assets 62,080 measured at amortised cost - - - - - - 513,154 2,572 49,760 - 62,080 710 Due from other Banks 676,243 676,243 Subtotal 3,836,067 383,300 181,770 4,401,137 1,969 21,414 - - - - - - - - 126 0.02 72 0.01 1.10 2,572 0.50 - - 710 1.14 36,040 141,403 198,857 1,969 0.29 0.56 Off-balance sheet items Loans and other credit related commitments Letters of credit Usance 356,939 147,189 Financial guarantee and similar contracts Performance bonds and 327,123 831,251 - - - - - - - - 356,939 147,189 5,312 1,940 327,123 759 831,251 8,011 - - - - - - - - 5,312 1,940 1.49 1.32 759 0.23 8,011 0.96 0.63 4,667,318 383,300 181,770 5,232,388 29,425 36,040 141,403 206,868 guarantees Subtotal Total 138 - - - - 9.40 77.79 - - - - - - - - 9.40 77.79 - - - - - - . - - 9.40 77.79 0.02 0.01 9.59 0.50 - 1.14 0.29 4.52 1.49 1.32 0.23 0.96 3.95 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 collateral Treasury bills 306,802 - - - - 593,061 126 306,802 72 - - - - Loans and advances to 1,387,174 352,119 181,770 1,921,064 14,092 34,233 136,673 184,998 customers at amortised cost Debt investment 102,508 securities at amortised cost Debt investment 49,760 securities at FVOCI Other ﬁnancial assets 59,104 measured at amortised cost Other non-ﬁnancial assets 18,064 Due from other Banks 394,397 - - - - - - - - - - 102,508 565 49,760 - 59,104 698 18,064 560 394,397 931 - - - - - - - - - - Subtotal 2,910,870 352,119 181,770 3,444,760 17,044 34,233 136,673 187,950 Off-balance sheet items Loans and other credit related commitments Letters of credit Usance 321,754 147,189 Performance bonds and 306,412 guarantees Subtotal Total 775,355 - - - - - - - - 321,754 147,189 306,412 5,311 1,941 759 775,355 8,011 - - - - - - - - 5,311 1,941 759 8,011 3,686,225 352,119 181,770 4,220,115 25,055 34,233 136,673 195,961 126 0.02 72 0.02 1.02 565 0.55 - - 698 1.18 560 3.10 931 0.24 6.13 1.65 1.32 0.24 1.03 0.68 - - - - 9.72 75.19 - - - - - - - - - - 9.72 75.19 - - - - - - . - - 9.72 75.19 0.02 0.02 9.63 0.55 - 1.18 3.10 0.24 5.46 1.65 1.32 0.25 1.03 4.64 s l a i c n a n F i 139 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 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. 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 credit committee may, from time to time, grant approval for restructuring of certain facilities due to the following reasons: Where the execution of the loan purpose and the repayment are no longer realistic in light of new cash ﬂows; To avoid unintended default arising from adverse business conditions; To align loan repayment with new pattern of achievable cash ﬂows; Where there are proven cost over runs that may signiﬁcantly impair the project repayment capacity; 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. c. d. The Group’s risk exposure is within established limits; Risk taking decisions are in line with business strategy and objectives set by the Board of Directors; The expected payoﬀs compensate for the risks taken; and e. Suﬃcient capital, as a buﬀer, is available to take risk. is Where customer’s business environment; there temporary downturn in the The Group proactively manages its market risk exposures in both the trading and non-trading books within the acceptable levels. a. b. c. d. e. f. g. Where the customer’s going concern status is NOT in doubt or threatened; and The revised terms of restructured facilities usually include extended maturity, changing timing of interest payments and amendments to the terms of the loan agreement. Market risk 3.3 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 is to continuously identify, manage and control market risk exposure within acceptable parameters, while optimizing the return on risks taken. 3.3.1 Management of market risk The Group has an independent Market Risk Management unit which assesses, monitors, manages and reports on 140 The Group’s market risks exposures are broadly categorised into: (i) Trading Market Risks - These are risks that arise primarily through trading activities and market making activities. These activities include position- income in foreign exchange and ﬁxed taking 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. Group 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 Investment securities Other ﬁnancial assets Liabilities Customer deposits Derivative liabilities Other ﬁnancial liabilities On-lending facilities Borrowings Debt securities issued Bank 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 Investment securities Other ﬁnancial assets Liabilities Customer deposits Derivative liabilities Other ﬁnancial liabilities On-lending facilities Borrowings Debt securities issued At December 31, 2019 At December 31, 2018 Note Carrying Amount Trading Non- trading Carrying Amount Trading Non- trading 15 16 17 18 19 20 21 24 27 32 28 29 30 31 936,278 - 936,278 954,416 - 954,416 991,393 708,114 283,279 1,000,560 510,313 490,247 431,728 115,520 316,208 592,935 184,812 408,123 707,103 - 707,103 674,274 - 674,274 92,722 92,722 - 88,826 88,826 - 2,305,565 - 2,305,565 1,823,111 - 1,823,111 591,097 12,257 578,840 565,312 4,970 560,342 63,764 4,262,289 - - 63,764 61,370 4,262,289 3,690,295 - - 61,370 3,690,295 14,762 14,762 - 16,995 16,995 - 330,552 392,871 322,479 39,092 - - - - 363,764 190,408 392,871 393,295 322,479 437,260 39,092 361,177 - - - - 190,408 393,295 437,260 361,177 At December 31, 2019 At December 31, 2018 Note Carrying Amount Trading Non- trading Carrying Amount Trading Non- trading 15 16 17 18 19 20 21 24 27 32 28 29 30 31 879,449 - 879,449 902,073 - 902,073 822,449 708,114 114,335 817,043 510,313 306,730 431,728 115,520 316,208 592,935 184,812 408,123 482,070 - 482,070 393,466 - 393,466 92,722 92,722 - 88,826 88,826 - 2,239,472 - 2,239,472 1,736,066 - 1,736,066 189,358 12,257 177,101 156,673 4,970 151,703 61,253 3,486,887 - - 61,253 58,406 3,486,887 2,821,066 - - 58,406 2,821,066 14,762 14,762 - 16,995 16,995 - 380,798 392,871 329,778 39,092 - - - - 386,061 212,006 392,871 393,295 329,778 458,463 39,092 361,177 - - - - 212,006 393,295 458,463 361,177 s l a i c n a n F i 141 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 (Value-at-risk) approach 3.3.2 Measurement of Market Risk The Group adopts Non-VAR 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. 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. 142 Group The table below summarizes the Group’s exposure to foreign currency exchange rate risk at 31 December, 2019 and 31 December, 2018. Included in the table are the Group’s ﬁnancial instruments at carrying amounts, categorised by currency. In millions of Naira At December 31, 2019 Assets Cash and balances with central bank 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 In millions of Naira At December 31, 2018 Assets Investment securities Other ﬁnancial assets Liabilities Customer deposits Derivative liabilities Other ﬁnancial liabilities On-lending facilities Borrowings Debt securities issued Naira Dollar GBP Euro Others Total 35,289 8,310 3,875 845,021 872,564 431,728 32,376 74,855 - - 595,047 - 1,275,254 966,764 323,972 222,712 21,090 189 - - 3,298 17,868 8,678 33,192 43,261 43,784 118,829 - - - 39,344 37,038 936,278 991,393 431,728 707,103 92,723 - 14,626 11,223 - 40,244 2,305,565 - - 591,099 64,541 3,876,861 1,820,001 114,607 69,068 239,894 6,120,430 3,095,031 816,091 98,892 27,912 224,363 4,262,289 14,762 317,679 392,871 - - - - 1,812 - - 209 - - 25 - 14,762 319,725 392,871 - - 297,556 39,092 7,104 16,439 1,380 322,479 - - - 39,092 3,820,343 1,152,739 107,807 44,560 225,768 5,351,218 56,518 667,262 6,800 24,508 14,126 769,212 Naira Dollar GBP Euro Others Total - - - 2,100,306 1,203,619 63,148 43,868 279,354 3,690,295 16,995 - 59,284 121,994 393,295 - - - 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 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 930,701 592,935 54,201 88,826 1,957 - - - - - 67,902 1,000,560 497,803 34,100 52,825 35,346 - - Loans and advances to customers (gross) 926,163 830,868 1,006 592,935 674,274 88,826 48,857 1,823,111 66,360 17,854 565,312 61,370 - 16,217 1,283 - 75,163 274,055 5,760,804 176,771 320,897 7,006 10,892 3,212,788 2,132,025 - 25,618 66,773 Net Exposure 642,908 7,975 3,625 27,905 (11,039) 671,374 143 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 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 6% and 9% (December 31, 2018: 15% and 30%, with all other variables held constant. US Dollar eﬀect of 6% (31 December 2018: 15%) up or (down) movement on proﬁt before tax and statement of ﬁnancial position size (in millions of Naira) US Dollar eﬀect of 9% (31 December 2018: 30%) up or (down) movement on proﬁt before tax and statement of ﬁnancial position size (in millions of Naira) 31-Dec-19 31-Dec-18 2,651 5,303 5,891 11,782 Bank The table below summarizes the Bank’s exposure to foreign currency exchange rate risk at December 31, 2019 and December 31, 2018. Included in the table are the Bank’s ﬁnancial instruments at carrying amounts, categorised by currency. In millions of Naira At December 31, 2019 Assets Cash and balances with central bank 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 Net Exposure 144 Naira Dollar GBP Euro Others Total - 82 - - 840,032 822,449 431,728 28,644 92,722 30,886 7,102 1,429 - - - - - - 422,556 3,560 26,379 - - - - - 932 - 879,449 822,449 431,728 482,070 92,722 1,274,050 950,570 184,565 61,253 4,794 - 14,486 283 2,239,472 - - - - 189,359 61,253 3,735,443 1,408,806 10,744 42,294 1,215 5,198,502 2,401,854 1,056,876 10,045 17,564 548 3,486,887 14,762 369,971 392,871 - - - - - 329,778 39,092 - - - - - - - - - - - - - - - 14,762 369,971 392,871 329,778 39,092 3,179,458 1,425,746 10,045 555,985 (16,940) 699 17,564 24,730 548 4,633,361 667 565,141 In millions of Naira At December 31, 2018 Assets Naira Dollar GBP Euro Others Total Cash and balances with central bank 435,137 459,300 5,389 2,247 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 815,086 592,935 29,211 88,826 - 932,004 788,477 154,806 54,047 1,867 3,940 1,957 - - - - - 339,070 4,760 16,818 3,607 - 147 - 418 - 15,416 - - - 22 - - - - - 902,073 817,043 592,935 393,466 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 16,995 105,202 393,295 - 91,400 - 849 457,614 - 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 Exposure 500,938 (19,125) 80 573 19 482,486 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 December 31, 2019 was 364.70 and 361.84 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 6% and 9% (December 31, 2018: 15% and 30%), with all other variables held constant. In millions of Naira US Dollar eﬀect of 6% (31 December 2019: 15%) up or (down) movement on proﬁt before tax and balance sheet size US Dollar eﬀect of 9% (31 December 2019: 30%) up or (down) movement on proﬁt before tax and statement of ﬁnancial position size (in millions of Naira) 31-Dec-19 31-Dec-18 2,541 5,082 9,881 19,762 Interest Rate Risk 3.3.4 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. s l a i c n a n F i 145 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 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 Total interest repricing gap At December 31, 2019 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) Investment securities (Amortized cost and fair value through OCI) Liabilities Customer deposits Derivative liabilities On-lending facilities Borrowings Debt securities issued Note Carrying Amount Rate sensitive Non rate sensitive 15 16 17 18 19 20 21 24 27 32 28 29 30 31 936,278 283,279 316,207 707,103 92,722 2,462,359 578,840 63,764 2,000 283,279 316,207 707,103 92,722 2,462,359 515,159 - 934,278 - - - - - 63,680 63,764 5,440,552 4,378,829 1,061,722 4,262,289 14,762 330,552 392,871 322,479 39,092 3,674,292 14,762 - 392,871 322,479 39,092 587,997 - 330,552 - - - 5,362,045 4,443,496 918,549 78,507 (64,667) Up to 1 month 1 - 3 months 3 - 6 months 6 - 12 months Over 1 year Total rate sensitive 2,000 15,340 11,638 504,261 9,414 430,344 51,753 - 60,969 79,758 47,686 22,800 88,653 16,220 - 55,059 3,406 122,386 16,742 - 151,911 15,715 32,770 43,766 - - 205,690 - - 2,000 283,279 316,207 707,103 92,722 105,346 179,293 1,658,723 2,462,359 2,196 7,311 437,680 515,160 1,024,750 316,086 305,135 430,766 2,302,093 4,378,830 1,545,702 3,242 12,439 15,852 5,250 - 735 3,952 1,597 4,286 2,318 1,716 - - 28,596 22,081 230,256 - - - 2,107,717 3,674,292 - 377,119 41,545 39,092 14,762 392,871 322,478 39,092 1,561,383 49,698 28,365 238,576 2,565,473 4,443,494 Total interest repricing gap (536,633) 266,388 276,770 192,190 (263,380) (64,665) 146 At December 31, 2018 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) Other ﬁnancial assets Liabilities Customer deposits Derivative liabilities On-lending facilities Borrowings Current income tax Financial liabilities Total interest repricing gap In millions of Naira At December 31, 2018 Assets Cash and balances with central banks Treasury 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) Liabilities Customer deposits 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 32 29 30 13 28 954,416 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 5,089,430 4,430,517 864,783 465,650 468,505 - 190,408 - - - 658,913 - Up to 1 month 1 - 3 months 3 - 6 months 6 - 12 months Over 1 year Total rate sensitive 7,500 - - - 211,269 243,457 194,041 351,793 - - 7,500 1,000,560 3,000 123,929 27,475 187,419 251,112 660,078 4,944 137,132 - 241 27,920 80,020 659 - 14,097 87,026 75,012 9,641 41,865 4,314 - 592,935 674,274 88,826 314,277 1,398,064 2,016,520 105,389 334,492 515,552 1,023,923 476,226 397,651 1,010,384 1,987,982 4,896,167 1,062,367 116,163 6,907 44,655 - - 6,682 3,277 - - 7,130 3,268 47,712 - 180,588 886 139 9,516 6,343 1,251 2,035,244 3,221,790 - 287,776 431,277 179,338 16,996 392,935 437,620 361,177 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 s l a i c n a n F i 147 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 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-19 31-Dec-18 4,101 44,891 Bank The table below summarizes the Bank’s interest rate gap position: At December 31, 2019 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 Note Carrying Amount Rate sensitive Non rate sensitive 15 16 17 18 19 20 21 19 27 32 28 29 30 31 879,449 114,335 316,207 482,070 92,722 2,390,651 177,100 61,253 2,000 114,335 316,207 482,070 92,722 2,390,651 113,420 - 877,449 - - - - - 63,680 61,253 4,513,787 3,511,405 1,002,382 3,486,887 14,762 380,798 392,871 329,778 39,092 2,898,889 14,762 -- 392,871 329,778 39,092 4,644,188 3,675,392 (130,401) (163,987) 587,997 - 380,798 - - - 968,795 33,587 148 At December 31, 2019 In millions of Naira Assets Cash and balances with central banks 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 2,000 1,242 11,639 279,229 9,414 - 34,058 79,758 47,686 22,800 - 23,201 3,406 122,386 16,742 - 55,833 15,715 32,770 43,766 - - 205,690 - - 2,000 114,334 316,208 482,071 92,722 Loans and advances to customers (Gross) 411,816 88,653 105,346 179,293 1,605,543 2,390,651 Investment securities (Amortized cost and fair value through OCI) - 4,668 235 3,689 104,828 113,420 715,340 277,623 271,316 331,066 1,916,061 3,511,406 Liabilities Customer deposits Derivative liabilities On-lending facilities Borrowings Debt securities issued 4,251 1,600,013 2,898,890 1,281,780 3,242 12,439 12,262 5,250 - 584 3,953 1,597 2,318 1,716 - - 28,600 22,081 230,254 - - - - 377,119 48,843 39,092 14,763 392,871 329,778 39,092 Total interest repricing gap (582,121) 231,511 243,101 92,527 (149,006) (163,988) 1,297,461 46,112 28,215 238,539 2,065,067 3,675,394 At December 31, 2018 Note Carrying Amount Rate sensitive Non rate sensitive 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 Total interest repricing gap 15 16 17 18 19 20 21 24 27 13 28 32 29 30 902,073 817,043 592,935 393,466 88,826 1,921,064 156,673 58,406 7,500 817,043 592,935 393,466 88,826 1,921,064 106,913 - 4,930,486 3,927,747 2,821,066 16,995 212,006 393,295 458,463 361,177 2,352,561 16,995 - 393,295 458,463 361,177 4,263,002 3,582,491 667,484 345,256 894,573 - - - - - 49,760 58,406 1,002,739 468,505 - 212,006 - - - 680,511 322,228 s l a i c n a n F i 149 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 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) Investment securities (Amortized cost and fair value through OCI) Liabilities Customer deposits Derivative liabilities On-lending facilities Borrowings Other Up to 1 month 1 - 3 months 3 - 6 months 6 - 12 months Over 1 year Total rate sensitive 7,500 817,043 592,935 393,466 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 79,607 659 - 915 4,713 14,097 83,120 11,032 41,865 - 88,826 296,620 1,333,926 1,921,064 48,150 47,072 106,913 712,968 427,556 291,400 858,999 1,636,824 3,927,747 831,197 74,685 1,444,109 2,352,561 2,354 3,268 216 140 - 47,712 10,368 287,283 6,682 3,277 - - - 180,588 5,490 1,251 452,973 179,338 16,997 393,295 458,463 361,177 6,907 44,655 - - 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 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 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. In millions of Naira 31-Dec-19 31-Dec-18 Eﬀect of 300 basis points movement on proﬁt before tax 2,166 48,184 The eﬀect of 300 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 securities held by the group is composed mainly of the following: (i) 8.883% equity holding in African Finance Corporation (AFC) valued at N62.8 billion and cost N40 billion. (ii) 3.6% equity holding in Nigerian Interbank Settlement Scheme (NIBBS) valued at N820 million and cost N50 million. is a private sector-led The AFC 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. NIBSS was incorporated in 1993 and is owned by all licensed banks including the Central Bank of Nigeria (CBN). The Company is responsible for handling inter-bank payments, funds transfer and settlement, and it also operates the Nigerian Automated Clearing System (NACS). 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). Liquidity risk 3.4 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. 150 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. (a). (b). 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; Monitoring balance sheet liquidity ratios against internal and regulatory requirements; Maintaining a diverse range of funding sources with adequate back-up facilities; Managing the concentration and proﬁle of debt maturities; Monitoring deposit concentration in order to avoid undue reliance on large individual depositors and satisfactory overall funding mix; ensure a Maintaining up-to-date funding and contingency plans. These plans identify early indicators of stress 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; Regular conduct of stress testing, coupled with testing of contingency funding plans from time to time. liquidity b. c. d. e. f. g. 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: Conducts on a regular basis appropriate stress tests so as to; (i) (ii) Identify sources of potential liquidity strain; and Ensure that current liquidity exposures continue to conform to the liquidity risk tolerance established by the board. Analyses the separate and combined impact of possible future liquidity stresses on: Cash ﬂows; (i) Liquidity position; and (ii) Proﬁtability. (iii) 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. b. Changes in market condition; 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; establishes a clear allocation of roles and clear lines of management responsibility; is formally documented; includes clear invocation and escalation procedures; is regularly tested and the result shared with the ALCO and Board; outlines that Group’s operational arrangements for managing a huge funding run; is suﬃciently disruptions in a range of payment and settlement; outlines how the Group will manage both internal communications and its external stakeholders; and to withstand simultaneous those with robust b. c. d. e. f. g. h. 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. s l a i c n a n F i 151 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 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 and savings 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. Exposure to liquidity risk (a) 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. At year end Average for the period Maximum for the period Minimum for the period Liquidity reserve (b) The table sets out the component of the Group’s liquidity reserve. GROUP BANK 31-Dec-19 31-Dec-18 31-Dec-19 31-Dec-18 57.25% 68.90% 85.47% 37.52% 80.91% 82.59% 88.87% 74.63% 57.18% 68.05% 80.41% 36.00% 75.35% 74.33% 82.10% 67.04% 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 152 31-Dec-19 31-Dec-18 Carrying value Fair value Carrying value Fair value 936,278 991,393 707,103 591,097 431,728 936,278 993,396 707,103 658,162 471,470 954,416 954,416 1,000,560 1,000,729 675,309 565,312 592,935 675,312 555,379 377,444 3,657,599 3,766,409 3,788,532 3,563,280 31-Dec-19 31-Dec-18 Carrying value Fair value Carrying value Fair value 879,449 822,449 482,070 189,358 431,728 879,449 823,109 482,212 201,079 471,470 902,073 817,043 393,466 156,673 592,935 902,073 817,181 393,466 153,920 377,444 2,805,054 2,857,319 2,862,190 2,644,084 Financial assets available to support funding (c) The table below sets out the availability of the Group’s ﬁnancial assets to support future funding Group In millions of Naira 31-Dec-19 31-Dec-18 Note Encum- bered Unenc- umbered Total Encum- bered Unenc- umbered Total - - - - - - - - Cash and balances with central banks Treasury bills Assets pledged as collateral Due from other banks Loans and advances Investment securities Financial assets Bank In millions of Naira 15 16 17 18 - 21 24 760,950 175,328 936,278 705,471 248,945 954,416 - 991,956 991,956 - 1,000,560 1,000,560 431,728 - 431,728 592,935 707,245 707,245 2,462,359 2,462,359 591,650 591,650 - - - - 67,274 592,935 67,274 2,016,520 2,016,520 565,312 565,312 64,541 64,541 13,822 44,584 58,406 Cash and balances with central banks Treasury bills Assets pledged as collateral Due from other banks Loans and advances Investment securities Financial assets 15 16 17 18 - 21 24 31-Dec-19 31-Dec-18 Note Encum- bered Unenc- umbered Total Encum- bered Unenc- umbered 760,950 118,499 879,449 705,471 - 822,466 822,466 - 431,728 - 431,728 592,935 Total 902,073 817,043 592,935 393,466 196,602 817,043 - 393,466 482,212 482,212 2,390,651 2,390,651 189,358 189,358 - - - 1,921,064 1,921,064 156,673 156,673 61,253 61,253 13,822 44,584 58,406 Financial assets pledged as collateral (d) The total ﬁnancial assets recognized in the statement of ﬁnancial position that have been pledged as collateral for liabilities as at December 31, 2019 and December 31, 2018 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. s l a i c n a n F i 153 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 Note Up to 1 month 1 - 3 months 3 - 6 months 6 - 12 months Over 1 year Gross nominal inflow/ (outflow) Carrying amount 15 16 17 18 20 21 24 19 27 28 29 30 31 32 254,132 - - - 682,106 936,238 936,278 130,190 337,192 203,413 29,124 504,182 406,030 51,753 38,109 98,530 47,702 88,633 16,222 - 19,717 122,438 104,368 2,686 - 519,163 102,545 32,781 - 588,738 - 1,189,958 838,654 707,103 991,393 431,728 707,103 173,291 1,533,243 2,305,565 2,305,565 11,394 3,067 742,106 22,588 824,161 591,097 63,764 63,764 1,413,519 588,279 452,622 842,241 3,568,781 6,865,442 6,026,928 - - - - 9,414 22,800 16,742 43,766 - - - - 9,414 22,800 16,742 43,766 - - - - - 92,722 - 92,722 92,722 - 92,722 185,444 4,241,370 15,851 125,315 6,717 2,574 - 735 - 862 - - 44,669 - 30,671 1,460 4,302 - 2,691 237,869 1,477 31 205,237 382,600 24,606 43,552 4,262,289 4,262,289 330,552 392,871 340,389 46,489 330,552 392,871 322,479 39,092 4,375,976 60,520 33,728 246,339 656,026 5,372,590 5,347,283 - - - 3,242 5,249 3,953 - - - 3,242 5,249 3,953 - 2,318 - 2,318 - - - - - 14,762 - 14,762 14,762 - 14,762 29,524 Group At December 31, 2019 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 154 At December 31, 2018 Note Up to 1 month 1 - 3 months 3 - 6 months 6 - 12 months Over 1 year Gross nominal inflow/ (outflow) Carrying amount 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's deposits Financial liabilities Borrowings Debt securities issued Financial guarantees contracts Derivative liabilities Trading: Inﬂow Outﬂow 15 16 17 18 20 21 24 19 27 28 30 31 38 248,945 - - 211,269 243,457 194,041 3,000 123,929 27,475 660,078 344,904 - - 241 80,020 659 27,920 - 87,026 75,012 705,471 351,793 187,419 9,641 - - 251,112 4,314 954,416 954,416 1,000,560 1,000,560 592,935 674,274 592,935 674,274 314,277 1,190,292 2,016,520 2,016,520 100,420 389,221 565,312 565,312 - 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 - - - - - - - 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 3,566,115 116,163 886 6,682 3,277 77,907 43,648 44,655 46,391 - 7,130 3,268 47,712 37,394 23,559 113,251 9,516 287,416 216,662 72,376 - 191,616 6,615 212,471 3,700,809 204,029 287,120 257,238 685,514 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 s l a i c n a n F i 155 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 Bank At December 31, 2019 Note Up to 1 month 1 - 3 months 3 - 6 months 6 - 12 months Over 1 year Gross nominal inflow/ (outflow) Carrying amount 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 liabilities Trading: Inﬂow Outﬂow 15 16 17 18 20 21 24 19 27 28 29 30 31 32 197,343 96,741 29,124 279,301 387,502 2,785 38,109 - 231,496 98,530 47,702 88,633 6,675 - 150,096 19,717 122,438 104,368 2,686 - 682,106 402,759 102,545 32,781 - 588,738 - 173,291 1,485,678 11,394 297,147 879,449 881,092 838,654 482,222 879,449 822,449 431,728 482,070 2,239,472 2,239,472 320,687 189,358 - - 556 22,588 61,253 61,253 1,030,905 473,036 399,305 723,326 3,076,257 5,702,829 5,105,779 - - - - 9,414 22,800 16,742 43,766 - - - - 9,414 22,800 16,742 43,766 - - - - - 92,722 92,722 - - - 92,722 92,722 3,469,752 12,262 125,315 6,767 2,574 - - - 44,669 - 584 - 869 30,671 1,460 4,266 23 3,486,887 3,486,887 - 255,483 2,711 382,774 237,869 1,477 24,606 43,552 380,798 393,121 340,389 46,489 380,798 392,871 329,778 39,092 3,604,408 56,931 33,584 246,323 706,438 4,647,684 4,629,426 - 3,242 - 3,242 - 5,249 - 5,249 - 3,953 - 3,953 - 2,318 - 2,318 - - - - - 14,762 14,762 - - - 14,762 14,762 156 At December 31, 2018 Note Up to 1 month 1 - 3 months 3 - 6 months 6 - 12 months Over 1 year Gross nominal inflow/ (outflow) Carrying amount 15 16 17 18 20 21 24 19 27 28 29 30 31 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: Outﬂow Inﬂow 196,602 182,137 3,000 387,596 312,789 - 6,283 - 195,199 123,929 241 79,607 659 - - 705,471 155,676 284,031 - - 27,475 187,419 251,112 - 916 4,713 902,073 817,043 592,935 393,466 902,073 817,043 592,935 393,466 83,120 11,032 296,620 1,148,928 1,921,064 1,921,064 48,150 96,832 156,673 156,673 - 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 2,821,066 2,821,066 212,006 393,295 463,138 410,702 212,006 393,295 393,295 361,177 2,743,812 74,685 216 15,804 44,655 46,391 - 6,682 3,277 88,443 2,354 3,268 47,712 37,394 101,254 84,998 10,368 287,283 216,662 74,248 - 191,616 6,615 212,471 2,850,662 173,087 282,344 335,115 659,000 4,300,207 4,180,839 2,850,662 - - 6,907 6,682 3,268 - - - - - - - - - - - - - 139 - - - - 6,907 6,682 3,268 139 - - - - - - - - 16,995 16,996 35,156 - - - - - - - - 52,152 16,995 s l a i c n a n F i 157 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 The amounts in the table above have been compiled as follows. Type of financial instrument Basis on which amounts compiled Non-derivative ﬁnancial ﬁnancial assets Issued ﬁnancial guarantee contracts liabilities and Derivative ﬁnancial liabilities and ﬁnancial assets held for risk management purposes Trading derivative liabilities and assets forming part of the Group’s proprietary trading 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 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. 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. 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, 2019 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 79,318 545,174 363,922 62,972 16,346 394,651 135,665 77,040 19,528 - 12,747 44,128 988,414 534,663 171,539 56,875 - 2,111 108,959 111,070 - - 114,267 114,267 158 At December 31, 2018 Carrying amount Less than 3 months 3 -6 months 6 - 12 months 1 to 5 Years More than 5 years In millions of Naira Financial guarantees Usance Letters of Credit Performance bonds and Guarantees Total Bank At December 31, 2019 In millions of Naira Financial guarantees Usance Letters of Credit Performance bonds and Guarantees Total At December 31, 2018 In millions of Naira Financial guarantees Usance Letters of Credit Performance bonds and Guarantees Total 147,189 356,939 327,123 831,251 Carrying amount 299,445 55,357 79,318 413,656 261,495 754,469 Carrying amount 299,445 55,357 147,189 321,754 306,412 775,355 100,638 203,327 71,251 44,422 142,873 45,981 2,129 10,714 48,998 375,216 233,276 61,841 - 25 100,028 100,053 - - 60,865 60,865 Less than 3 months 3 -6 months 6 - 12 months 1 to 5 Years More than 5 years 102,937 9,672 1,602 - 31,708 78,292 82,106 14,032 62,972 16,346 299,445 102,937 55,357 14,032 - 9,672 31,708 417,774 133,315 41,380 - 1,602 78,292 79,894 - - 82,106 82,106 Less than 3 months 3 -6 months 6 - 12 months 1 to 5 Years More than 5 years 102,937 9,672 1,602 - 31,708 78,292 82,106 14,032 100,638 180,202 68,040 44,422 133,813 2,129 7,731 40,855 42,763 348,880 219,090 52,623 - 8 100,028 100,036 - - 54,726 54,726 Fair value of financial assets and liabilities 3.5 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. a. b. c. Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. 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). This hierarchy requires the use of observable market data when available. The Group considers relevant and observable market prices in its valuations where possible. s l a i c n a n F i 159 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 Classification of financial assets and liabilities and fair value hierarchy Group The table below sets out the Group’s classiﬁcation of each class of its ﬁnancial assets and liabilities and fair value heirachy In millions of Naira Note At December 31, 2019 At December 31, 2018 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 : Equity securities (unquoted) Debt securities 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 Amortised cost Customer deposits Other ﬁnancial liabilities On-lending facilities Borrowings Debt securities issued 16 21 19 21 21 15 16 17 18 20 21 24 32 27 28 29 30 31 708,114 708,114 1&2 510,313 510,313 1&2 12,257 92,722 12,257 92,722 1 2 4,970 4,970 88,826 88,826 115,520 115,520 1&2 208,382 208,382 63,680 280,854 63,680 280,854 936,278 936,278 283,282 285,282 316,207 355,950 707,103 707,103 2,305,565 2,305,565 3 2 - 1&2 1&2 - 3 49,760 49,760 205,753 205,753 954,416 954,416 490,247 490,424 592,935 585,826 674,274 675,312 1,823,111 1,728,567 234,305 301,370 1,2&3 510,582 496,543 63,764 63,764 14,762 14,762 4,262,289 4,262,289 330,552 330,552 392,871 392,871 322,479 322,479 39,092 39,092 - 2 - - 3 3 3 61,370 61,370 16,995 16,995 3,690,295 3,690,295 177,810 190,408 393,295 393,295 437,260 437,260 361,177 361,177 1 2 - 3 1 - 1 1 2 3 1 - 2 - - 3 3 2 160 Bank The table below sets out the Bank’s classiﬁcation of each class of its ﬁnancial assets and liabilities. In millions of Naira Note Carrying Value Fair value Fair value hierarchy Carrying Value Fair value Fair value hierarchy At December 31, 2019 At December 31, 2018 Assets Carried at FVTPL: Treasury bills Investment securities (FGN bonds) Derivative assets Asset pledged as collateral Carried at FVOCI : Equity 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 amortized cost: 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 31 708,114 708,114 1&2 510,313 510,313 1&2 12,257 92,722 12,257 92,722 1 2 4,970 4,970 88,826 88,826 115,520 115,520 1 & 2 208,382 208,382 63,680 63,680 879,449 879,449 114,335 114,995 316,207 355,950 482,070 482,070 2,239,472 2,239,472 3 - 1&2 1&2 - 3 49,760 49,760 902,073 902,073 306,730 306,868 592,935 585,826 393,466 393,466 1,736,066 1,638,254 113,421 125,141 1,2&3 102,508 99,190 58,406 58,406 61,253 61,253 14,762 14,762 3,486,887 3,486,887 380,798 380,798 392,871 392,871 329,778 329,778 39,092 39,092 - 2 - - 3 3 3 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 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. s l a i c n a n F i 161 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 Financial instruments measured at fair value At December 31, 2019 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 December 31, 2019 At December 31, 2018 In millions of Naira Financial assets Notes Level1 Level2 Level3 16 16 21 21 19 32 21 361,380 90,815 12,257 15,665 - - - 346,734 9,041 - - 92,722 14,762 - - - - - - - 63,680 480,117 463,259 63,680 49,760 50 13,870 63,680 Notes Level1 Level2 Level3 Treasury bills (FVTPL) (unpledged) 16 362,639 147,674 Treasury bills pledged under repurchase agreement (FVTPL) FGN bonds FVTPL (unpledged) FGN bonds pledged under repurchase agreement (FVTPL) Derivative assets Derivative liabilities Investment securities Reconciliation of Level 3 items At 1 January Addition Gain recognised through other comprehensive income At December 31, 2018 16 21 21 19 32 21 162 - - - - - - 179,259 553 4,970 23,570 - - - - - 88,826 16,995 - 49,760 570,438 254,048 49,760 14,101 34,200 1,459 49,760 Unobservable inputs used in measuring fair value Level 3 fair value measurements (a) The table below sets out information about signiﬁcant unobservable inputs used at December 31, 2019 and December 31, 2018 in measuring ﬁnancial instruments categorized as level 3 in the fair value hierarchy Type of financial instrument Fair values at December 31, 2019 Valuation technique Significant unobservable input Range of estimates (average) for unobservable inputs Fair value measurement sensitivity to unobservable inputs N63.68 billion Unquoted equity investment Equity DCF model. adjusted with recent similar transactions. -Discount rate. -Estimate cash ﬂow. Risk premium of 10.63% above risk- free interest rate (1.92%) (31 Dec. 2018:11.50 - 12.50% above risk free rate (3.01%)) 5-year Compound Annual Growth Rate (CAGR) of cash ﬂow of 6.5% (December 2018: 8- 9% (15.20%)) 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. The eﬀect of unobservable inputs on fair value measurements (b) 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 December 31, 2019 At December 31, 2018 Favourable changes Unfavourable changes Favourable changes Unfavourable changes Unquoted investment securities 1,770.00 (1,662.00) 2,140.00 (870.00) 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 December 31, 2019 included a risk premium 10.63% above the risk-free interest rate of 1.92% (December 31, 2018: 12.44% - 13.44%) respectively above risk free rate of 3.01%). s l a i c n a n F i 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). (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 December 31, 2019: N761 billion, December 31, 2018: N705 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. 163 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 (iii) (iv) (v) (vi) short Treasury bills and investment securities Treasury bills term represent 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 discounted cashﬂow the basis of 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. 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. Other financial assets/financial liabilities liabilities Other ﬁnancial assets/ﬁnancial represent monetary assets, which usually have a short recycle period and as such, whose fair values approximate their carrying amount. 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 maturity. (vii) Derivatives for the remaining term to 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. Capital management 3.6 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 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 3 December 2020. The Group’s Capital Adequacy is reviewed regularly to meet regulatory requirements and standard of international best 164 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. 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 its expansion strategies and 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 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. b. c. 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 in accordance with the guidelines. (SIB) The table below shows the computation of the Group’s capital adequacy ratio for the year ended December 31, 2019 as well as the December 31, 2018 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. s l a i c n a n F i 165 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 In millions of Naira 31-Dec-19 Adjusted impact of IFRS 9 transition on 31-Dec-19 Group 31-Dec-18 31-Dec-19 Adjusted impact of IFRS 9 transition on 31-Dec-18 Bank Adjusted impact of IFRS 9 transition on 31-Dec-19 31-Dec-18 Adjusted impact of IFRS 9 transition on 31-Dec-18 Tier 1 capital Share capital Share premium Statutory reserves SMEIES reserve Retained earnings IFRS 9 Transitional Adjustment Total qualifying Tier 1 capital Deferred tax assets Intangible assets Investment in capital of ﬁnancial subsidiaries Adjusted Total qualifying Tier 1 capital Tier 2 capital Basel II 15,698 255,047 170,695 3,729 439,510 - 884,679 (11,885) Basel II 15,698 Basel II 15,698 255,047 255,047 170,695 143,320 3,729 439,510 43,268 927,947 (11,885) 3,729 346,215 - 764,009 (9,513) (16,497) (16,497) (16,678) - - - Basel II 15,698 255,047 143,320 3,729 346,215 64,901 828,910 (9,513) (16,678) - Basel II 15,698 255,047 152,065 3,729 328,590 - 755,129 (11,223) (15,109) (10,896) Basel II 15,698 255,047 152,065 3,729 328,590 41,420 796,549 (11,223) (15,109) (10,896) Basel II 15,698 255,047 127,865 3,729 263,781 - 666,120 (9,197) (15,399) (25,604) Base II 15,698 255,047 127,865 3,729 263,781 62,192 728,249 (9,197) (15,399) (24,145) 856,297 899,565 737,818 802,719 717,901 759,321 641,524 703,653 Other comprehensive income (OCI) Total qualifying Tier 2 capital 54,257 54,257 54,257 54,257 48,354 48,354 48,354 48,354 (23,729) (23,729) (23,729) (23,729) (9,858)) (9,858) (8,399) (9,858) Net Tier 2 Capital Total regulatory capital Risk-weighted assets Credit risk Market risk Operational risk 54,257 910,554 54,257 48,354 953,822 77786,172 48,354 851,073 - - - - 717,901 759,321 641,524 703,653 3,134,029 3,134,029 2,050,298 2,050,298 2,806,711 2,806,711 1,755,076 1,755,076 170,392 891,735 170,392 88,914 891,735 945,361 88,914 945,361 52,423 810,268 52,423 810,268 53,562 881,691 53,562 881,691 Total risk-weighted assets 4,196,156 4,196,156 3,084,573 3,084,573 3,669,402 3,669,402 2,690,329 2,690,329 Risk-weighted Capital Adequacy Ratio (CAR) 22 % 23 % 25 % 28 % 20 % 21 % 24 % 26 % 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 Year 2 Year 3 Year 4 60% 40% 20% -% 166 4. Critical accounting estimate and judgements The Group makes estimates and assumptions that aﬀect the reported amounts of assets and liabilities within the next ﬁnancial year. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Impairment losses on loans and advances 4.1 Measurement of the expected credit loss 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 signiﬁcantly; Incorporation of forward-looking information; Establishing groups of similar ﬁnancial assets for the purposes of measuring ECL. increased • • • • • 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. ii) iii) 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. 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. Level 3 : Valuation techniques using signiﬁcant includes all inputs. This category unobservable instruments where the 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 is subject to income taxes 4.3 The Group 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. Deferred Tax Assets and Liabilities The deferred tax assets and liabilities recognized by the Group is dependent on the availability of taxable proﬁt in the foreseeable future to utilize the deferred tax. The Group reviews the carrying amount of the deferred tax at the end of each reporting period and recognizes an amount such that it is probable that suﬃcient taxable proﬁt will be available which the Group can use the beneﬁt therefrom. In determining the deferred tax assets recognized in the ﬁnancial statements, the Group has applied judgement in estimating the deferred tax recoverable in the foreseeable future. This involves the estimation of future income and s l a i c n a n F i 167 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 (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: (i) (ii) Where Prudential Provisions is greater than IFRS provisions, the resulting diﬀerence should be transferred from the general distributable regulatory credit risk reserve. reserve account to a non- Where Prudential Provisions is less than IFRS provisions, the IFRS determined provision is charged to the statement of comprehensive income. The cumulative balance in the regulatory risk reserve is thereafter transferred to the general reserve account. (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 December 31, 2019. expenses, and the consideration of non-taxable income and disallowable expenses in order to arrive at the future taxable proﬁt / loss. Eﬀective January 2022, the tax exemption granted on short term Federal Government of Nigeria securities [such as Treasury bills, promissory notes etc.] and non-Federal Government of Nigeria Bonds, and the interest earned by the holder of these instruments, under the Companies Income Tax (Exemption of Bonds and Short Term Government Securities) Order, 2011, elapses. In determining the extent to which it is probable that future taxable proﬁt will be available against which the unused tax losses of the Group can be utilized, the Group has applied judgment that the Federal Government of Nigeria (FGN) will likely extend the Companies Income Tax (Exemption of Bonds and Short Term Government Securities) Order, 2011, beyond 2021, in order to stimulate continuous participation in the treasury bills market and to meet government funding needs. See note 23 for details on deferred tax. Prudential Adjustments 4.4 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. 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: 168 Provision for loan losses per prudential guidelines In millions of Naira Loans and advances -Lost - Doubtful - Substandard - Watchlist - Performing Other ﬁnancial assets (a) Impairment assessment under IFRS Loans and advances 12-months ECL credit Life-time ECL Not impaired Life- time ECL credit impaired (b) Due from Banks- 12 months ECL (c) Treasury bills- 12 months ECL (d) Asset pledged as collateral- 12 months ECL (e) Investment securities- 12 months ECL (f ) Other ﬁnancial assets- ECL allowance (g) Other non-ﬁnancial assets (h) Oﬀ Balance Sheet Exposures- 12 months ECL (i) (m)=(b)+(c)+(d)+(e)+(f )+(g)+(h)+(i) (n)=(a)-(m) Reversal from)/transfer to retained earnings at year end Bank 31-Dec 19 31-Dec 18 57,477 17,831 986 10,605 40,620 1,514 129,033 27,143 14,276 109,760 151,179 - 142 17 69 538 720 183 5,538 158,386 (29,353) - 66,900 10,970 1,575 11,156 31,485 833 122,920 14,092 34,233 136,673 184,998 - - - - 763 1,628 560 8,011 195,960 (73,040) - s l a i c n a n F i 169 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 5. Segment analysis The 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 - Nigeria This 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 Europe These 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, 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. is used No single external customer 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. 170 d n a s s o l r o t ﬁ o r p f o t n e m e t a t s e h t n i s t n u o m a e h t f o n o i t a i l i c n o c e r e h t w o h s o s l a l s e b a t . l e h T w o e b s e b a t l e h t n i d e d u c n l i s i t n e m g e s l e b a t r o p e r h c a e g n d r a g e r n o i t a m r o n f i I . n o i t i s o p l i a c n a n ﬁ f o t n e m e t a t s d n a s s o l r o t ﬁ o r p f o t n e m e t a t s s p u o r G e h t n i s t n u o m a e h t o t l s t n e m g e s e b a t r o p e r e h t r o f n o i t i s o p l i a c n a n ﬁ f o t n e m e t a t s 1 1 1 7 5 , - 1 1 1 7 5 , 4 3 3 1 , 7 3 3 3 , 0 4 4 2 5 , , 9 7 8 6 4 3 6 , , 3 9 9 4 0 4 5 , ) 3 9 6 3 0 2 ( , ) 3 9 1 3 5 1 ( , , 2 7 5 0 5 5 6 , , 6 8 1 8 5 5 5 , 4 2 8 6 1 6 , 9 1 8 1 7 4 , 0 1 6 3 2 5 , 1 0 1 5 7 3 , , 9 2 9 1 6 4 5 , , 5 7 4 9 5 6 4 , d e t a d i l o s n o C s n o i t a n m i i l E s t n e m g e s e b a t r o p e r l l a t o T e p o r u E a c i r f A s e c i v r e s n a i d o t s u c s n o i s n e p d n a l i a t e r e t a r o p r o C i a i r e g N e d i s t u O a i r e g N i - 1 5 2 2 6 6 , ) 2 3 5 8 4 1 ( , ) 2 3 0 4 2 ( , ) 1 9 3 6 4 2 ( , , 4 9 2 3 4 2 ) 1 5 4 4 3 ( , 3 4 8 8 0 2 , d e t a d i l o s n o C 1 5 2 2 6 6 , - ) 6 8 1 6 ( , ) 6 8 1 6 ( , - 6 8 5 2 , ) 0 0 4 ( 0 0 0 4 , - 6 8 1 6 , , 1 5 2 2 6 6 , 7 3 4 8 6 6 , ) 8 1 1 1 5 1 ( ) 2 3 0 4 2 ( , , ) 1 9 9 5 4 2 ( 4 9 2 7 4 2 , ) 1 5 4 4 3 ( , - 7 0 1 7 2 1 5 2 , 5 2 1 8 6 , 9 7 0 6 , , 9 9 9 8 6 5 7 2 1 5 2 , 2 3 2 8 6 , 8 7 0 5 7 5 , ) 2 4 1 4 ( , ) 9 3 7 0 2 ( , ) 7 3 2 6 2 1 ( , 3 1 1 ) 6 4 4 7 ( , 2 5 6 3 1 , ) 9 3 2 2 ( , ) 9 3 7 ( ) 6 0 4 3 2 ( , ) 1 6 2 1 2 ( , ) 6 8 2 7 1 2 ( , 3 9 4 5 2 , ) 3 5 7 7 ( , 9 4 1 8 0 2 , ) 9 5 4 4 2 ( , 0 0 0 4 , 5 4 8 2 1 2 , 3 1 4 1 1 , 0 4 7 7 1 , 0 9 6 3 8 1 , s n o i t a n m i i l E s t n e m g e s e b a t r o p e r l l a t o T e p o r u E a c i r f A s e c i v r e s n a i d o t s u c s n o i s n e p d n a l i a t e r e t a r o p r o C i a i r e g N e d i s t u O a i r e g N i s t n e m g e s s s e n i s u b r e h t o m o r f d e v i r e D s r e m o t s u c l a n r e t x e m o r f d e v i r e D a r i a N f o s n o i l l i m n I 9 1 0 2 , 1 3 r e b m e c e D : e u n e v e R s t e s s a l i a c n a n ﬁ n o s s o l t n e m r i a p m I s e s n e p x e g n i t a r e p o d n a n m d A i * e u n e v e r l a t o T e s n e p x e t s e r e t n I x a t e r o f e b t ﬁ o r P x a t r e t f a t fi o r P e s n e p x e x a T a r i a N f o s n o i l l i m n I 9 1 0 2 , 1 3 r e b m e c e D * * e r u t i d n e p x e l a t i p a C s e i t i l i b a i l l e b a ﬁ i t n e d I l s t e s s a e b a ﬁ i t n e d I : e u n e v e R i . 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 d n a s t e s s a e b g n a t n l i i n o e r u t i d n e p x e f o s t s i s n o c e r u t i d n e p x e l a t i p a C * * . s n o i t a r e p o e h t f o n o i t a c o l e h t n o d e s a b d e t a c o l l a e r a s e u n e v e R * s l a i c n a n F i 171 d n a s s o l r o t ﬁ o r p f o t n e m e t a t s e h t n i s t n u o m a e h t f o n o i t a i l i c n o c e r e h t w o h s o s l a l s e b a t e h T . w o e b l 9 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 l s e b a t e h t n i d e d u c n l i s i t n e m g e s l e b a t r o p e r h c a e i g n d r a g e r n o i t a m r o n f I r o f s t n e m e t a t S 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 9 1 0 2 , 1 3 r e b m e c e D t r o p e R l l a u n n A c P k n a B h t i n e Z i l o s n o C e h t o t s e t o N . n o i t i s o p l i a c n a n ﬁ f o t n e m e t a t s d n a s s o l r o t ﬁ o r p f o t n e m e t a t s s p u o r G e h t n i s t n u o m a e h t o t l s t n e m g e s e b a t r o p e r e h t r o f n o i t i s o p l i a c n a n ﬁ f o t n e m e t a t s , 0 1 7 5 5 9 5 , , 9 5 9 9 3 1 5 , ) 0 1 0 0 6 1 ( , ) 2 0 0 6 2 1 ( , , 0 2 7 5 1 1 6 , , 1 6 9 5 6 2 5 , 3 4 4 1 8 6 , 1 9 3 4 5 4 , 2 0 5 1 0 6 , , 4 2 5 1 8 3 , 6 8 8 9 7 9 4 , , 5 3 9 2 8 2 4 , - 4 4 3 0 3 6 , 4 4 3 0 3 6 , , ) 8 5 4 4 4 1 ( ) 2 7 3 8 1 ( , ) 9 2 8 5 3 2 ( , 5 8 6 1 3 2 , ) 1 6 2 8 3 ( , 4 2 4 3 9 1 , - ) 3 2 0 6 ( , ) 3 2 0 6 ( , - - 3 2 4 2 , ) 0 0 4 ( ) 0 0 0 4 ( , ) 0 0 0 4 ( , 3 2 0 6 , 4 4 3 0 3 6 , 7 6 3 6 3 6 , ) 1 8 8 6 4 1 ( , ) 2 7 3 8 1 ( , , ) 9 2 4 5 3 2 ( , 5 8 6 5 3 2 ) 1 6 2 8 3 ( , 4 2 4 7 9 1 , 4 3 1 5 5 4 3 8 5 , 2 6 3 9 1 , 2 9 4 8 6 , 0 9 4 2 4 5 , 6 9 4 9 1 , 7 4 5 8 6 , 4 2 3 8 4 5 , ) 6 7 8 1 ( , 2 8 1 1 , ) 0 7 2 6 ( , 2 3 5 2 1 , ) 3 6 3 2 ( , ) 9 4 8 0 2 ( , ) 6 5 1 4 2 1 ( , ) 1 4 2 4 ( , ) 3 1 3 5 1 ( , ) 9 8 3 1 2 ( , ) 0 7 7 7 0 2 ( , 8 6 0 2 2 , ) 3 1 3 7 ( , , 5 8 0 1 0 2 ) 5 8 5 8 2 ( , 9 6 1 0 1 , 5 5 7 4 1 , 0 0 5 2 7 1 , d e t a d i l o s n o C s n o i t a n m i i l E s t n e m g e s e b a t r o p e r l l a t o T e p o r u E a c i r f A * * * s e c i v r e s n a i d o t s u c s n o i s n e p d n a l i a t e r e t a r o p r o C i a i r e g N e d i s t u O a i r e g N i 6 7 2 4 3 , - 6 7 2 4 3 , 9 8 3 6 2 1 1 6 7 3 3 , d e t a d i l o s n o C s n o i t a n m i i l E s t n e m g e s e b a t r o p e r l l a t o T e p o r u E a c i r f A * * * s e c i v r e s n a i d o t s u c s n o i s n e p d n a l i a t e r e t a r o p r o C i a i r e g N e d i s t u O a i r e g N i s t n e m g e s s s e n i s u b r e h t o m o r f d e v i r e D s r e m o t s u c l a n r e t x e m o r f d e v i r e D a r i a N f o s n o i l l i m n I 8 1 0 2 , 1 3 r e b m e c e D : e u n e v e R s t e s s a l i a c n a n ﬁ n o s s o l t n e m r i a p m I s e s n e p x e g n i t a r e p o d n a n m d A i * e u n e v e r l a t o T e s n e p x e t s e r e t n I x a t e r o f e b t ﬁ o r P x a t r e t f a t fi o r P e s n e p x e x a T a r i a N f o s n o i l l i m n I 8 1 0 2 , 1 3 r e b m e c e D * * e r u t i d n e p x e l a t i p a C s e i t i l i b a i l l e b a ﬁ i t n e d I l s t e s s a e b a ﬁ i t n e d I : e u n e v e R i . 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 d n a s t e s s a e b g n a t n l i i n o e r u t i d n e p x e f o s t s i s n o c e r u t i d n e p x e l a t i p a C * * b 3 4 e t o n e e s * * * . s n o i t a r e p o e h t f o n o i t a c o l e h t n o d e s a b d e t a c o l l a e r a s e u n e v e R * In millions of Naira 31-Dec-19 31-Dec-18 31-Dec-19 31-Dec-18 Group Bank 6. Interest and similar income Loans and advances to customers Placement with banks and discount houses Treasury bills Promissory note Commercial papers Government and other bonds 232,946 26,897 81,108 5,748 367 68,497 273,179 13,886 100,537 - - 52,450 220,210 18,911 52,127 5,748 367 41,947 415,563 440,052 339,310 258,440 6,608 64,002 - - 38,766 367,816 Included in interest income on loans and advances is interest income on advances under ﬁnance lease of N724 million (31 December, 2018: N671 million). 7. Interest and similar expense Current Savings accounts Time deposits Borrowed funds and lease 11,624 21,625 47,334 67,949 10,952 18,698 42,299 72,509 10,387 21,394 35,041 59,415 10,258 18,532 30,172 65,194 148,532 144,458 126,237 124,156 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. Included in the interest expense on borrowed funds and lease is N3,494 million and N3,079 million for Group and Bank respectively, which represents interest expense on lease liability. 8. Impairment loss/(write back) on ﬁnancial and non-ﬁnancial instruments ECL on financial instruments: Loans and advances( see note 3.2.18) Investment securities (see note 3.2.18) Treasury Bills (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 ECL on ﬁnancial instruments Impairment (credit)/charge on non-financial instruments: Oﬀ balance sheet (see note 3.2.18) Other non ﬁnancial assets (see note 24) 27,754 (27) (35) 36 (789) (57) 26,882 (2,473) (377) 24,032 13,303 (430) (1,237) 395 1,938 (1,078) 12,891 5,337 144 18,372 27,148 (27) (55) 23 (789) (57) 26,243 (2,473) (377) 23,393 9,396 207 (1,111) 383 931 (1,078) 8,728 6,441 144 15,313 s l a i c n a n F i 173 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 In millions of Naira 31-Dec-19 31-Dec-18 31-Dec-19 31-Dec-18 Group Bank 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) 21,879 2,051 19,623 3,202 42,511 3,725 7,849 2,381 536 6,021 4,896 114,674 (14,568) 100,106 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 20,046 - 19,623 2,921 41,162 1,233 - 2,381 278 6,021 3,102 96,767 (13,126) 83,641 15,231 - 18,008 7,596 19,307 1,161 - 3,239 449 4,518 2,998 72,507 (8,383) 64,124 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 43(vii)) Income on cash handling Foreign currency revaluation gain (See note b below) 1,932 147 597 11,540 14,216 1,795 259 601 15,292 17,947 5,532 152 400 4,754 10,838 5,395 241 428 11,415 17,479 (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 174 (7,427) 114,320 10,905 117,798 (16,783) 94,478 2,507 80,202 (7,427) 114,294 10,905 117,772 (16,783) 94,478 2,507 80,202 In millions of Naira Group Bank 31-Dec-19 31-Dec-18 31-Dec-19 31-Dec-18 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 2,448 892 12,898 4,377 2,439 9,846 1,313 7,908 11,762 4,563 14,429 1,977 3,449 2,751 2,402 3,824 268 21 2,751 28,654 3,609 5,847 1,025 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 1,512 590 12,898 3,427 2,136 9,071 859 7,433 11,762 3,968 11,822 1,836 2,883 2,340 1,642 3,419 268 21 2,729 28,654 3,195 5,687 39 735 535 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 An amount of N1,313 million and N859 million for Group and Bank respectively have been represented as operating lease expense, which represent the amount of straight line amortisation on short term lease in which the Group/ Bank has applied the recognition exception. 129,453 137,897 118,191 124,576 13. Taxation (a) Major components of the tax expense Minimum tax expense (see note i below) - 4,052 Income tax expense Corporate tax Information technology tax Dividend tax (see note (i) below) Prior year (over)/under provision Tertiary Education tax Police trust fund levy Current income tax Deferred tax expense: 12,770 1,980 22,105 - - 10 11,031 2,056 20,673 275 77 - - - 1,980 22,053 - - 10 4,052 - 1,902 20,673 - - - 36,865 34,112 24,043 22,575 (Reversal)/origination of temporary diﬀerences Income tax expense Total tax expense (2,414) 34,451 34,451 97 34,209 38,261 (2,026) 22,017 22,017 - 22,575 26,627 s l a i c n a n F i 175 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 The Bank was assessed based on the dividend tax on 2018 ﬁnancial year proﬁt (minimum tax rule). In millions of Naira 31-Dec-19 31-Dec-18 31-Dec-19 31-Dec-18 (b) Reconciliation of effective tax rate Group Bank Proﬁt before income tax 243,294 231,685 200,020 192,107 Tax calculated at the weighted average Group rate of 30% (2018: 30%) 72,988 69,506 60,006 57,632 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 Unrecognised deferred tax asset Dividend tax paid Tertiary education tax Changes in estimate relating to prior year Police trust fund levy Total tax expense - 1,834 (1,377) 9,158 (78,806) (84,852) - 2,409 13,963 22,053 - - 10 4,052 2,056 17,644 20,673 1,126 275 - - 1,828 (77,823) - 1,980 13,963 22,053 - - 10 - 8,212 (83,488) 4,052 1,902 17,644 20,673 - - - 34,451 38,261 22,017 26,627 In millions of Naira 31-Dec-19 31-Dec-18 31-Dec-19 31-Dec-18 (c) The movement in the current income tax payable balance is as follows: At start of the year Tax paid Minimum tax Current income tax charge (see note 13a) At end of the year 9,154 8,915 (36,308) (37,925) - 36,865 9,711 4,052 34,112 9,154 5,954 (23,370) - 24,043 6,627 6,069 (26,742) 4,052 22,575 5,954 176 In millions of Naira 31-Dec-19 31-Dec-18 31-Dec-19 31-Dec-18 Group Bank 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) 208,693 193,147 178,003 165,480 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 6.65 31,396 31,396 6.15 31,396 31,396 5.67 31,396 31,396 5.27 Basic and diluted earnings per share are the same, as the Bank has no potentially dilutive ordinary shares 15. Cash and balances with central banks 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 55,255 120,073 680,261 80,689 936,278 254,171 682,107 148,266 100,679 624,782 80,689 954,416 954,416 - 39,417 79,082 680,261 80,689 133,466 63,136 624,782 80,689 879,449 902,073 197,342 682,107 902,073 - 936,278 954,416 879,449 902,073 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. Included in the Mandatory reserve is the sum of N78.8 billion which arose as a result of the Bank’s shortfall in the regulatory loan to depost ratio (LDR) Mandatory reserve deposit is reported net of N98.1 billion (December 31, 2018: N4.3 billion) which relates to Diﬀerentiated Cash Reserve Requirement (DCRR) Scheme. Under the DCRR scheme, Deposit Money Banks (DMBs) interested in providing credit ﬁnancing to Greenﬁeld (New) and Brownﬁeld (expansion) projects in the Real Sector (Agriculture and Manufacturing) may request for the release of funds from their CRR to ﬁnance the projects. (b) Special Cash Reserve Requirement represents a 5% special intervention reserve held with the Central Bank of Nigeria as a regulatory requirement. s l a i c n a n F i 177 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 In millions of Naira 16. Treasury bills Treasury bills (FVTPL) Treasury bills (Amortized cost) ECL Allowance on treasury bills (Amortized cost) (see note 3.2.18) Classified as: Current Group Bank 31-Dec-19 31-Dec-18 31-Dec-19 31-Dec-18 708,111 283,845 (563) 510,313 490,319 (72) 708,114 114,352 (17) 510,313 306,802 (72) 991,393 1,000,560 822,449 817,043 991,393 1,000,560 822,449 817,043 991,393 1,000,560 822,449 817,043 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). In millions of Naira 17. Assets pledged as collateral Treasury bills pledged as collateral Bonds pledged as collateral Treasury bills under repurchase agreement Bonds under repurchase agreement ECL Allowance on assets pledged and under repo 11,697 11,697 23,819 23,819 11,697 11,697 20,847 20,847 Group Bank 31-Dec-19 31-Dec-18 31-Dec-19 31-Dec-18 - 105,135 198,611 128,051 (69) 5,100 94,046 373,336 120,579 (126) - 105,135 198,611 128,051 (69) 5,100 94,046 373,336 120,579 (126) 431,728 592,935 431,728 592,935 Included in assets pledged as collateral for Group/Bank are treasury bills and bonds at amortised cost of N98,755 million and N217,521 million (December 31, 2018: N202,110 million and N191,054 million) respectively. All other assets pledged as collateral for Group/Bank are treasury bills and bonds at fair value 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) N27.84 billion (December 31, 2018: N28.18 billion), Federal Inland Revenue Services N8.08 billion (December 31, 2018: N8.04 billion), V-Pay N44.87 million (December 31, 2018: N44.70 million), Interswitch Limited N2.15 billion (December 31, 2018: N2.15 billion), the Bank of Industry (Nigeria) N39.53 billion (December 31, 2018: N44.03 billion), E- Tranzact N44.87 million (December 31, 2018: N44.00 million), CBN Real Sector Support Fund (RSSF) N24.77 billion (December 31, 2018: N13.95 billion) and System Specs/RMITA N2.68 billion (December 31, 2018: N2.69 billion). 178 Assets exchanged under repurchase agreement as at December 31, 2019 are with the following counterparties (note 30): In millions of Naira Counterparties JP Morgan (see note 30) ABSA (see note 30) Standard Bank South Africa (see note 30) Mashreq Bank (see note 30) Societe Generale Bank (see note 30) Goldman Sachs (see note 30) Group Bank Carrying value of asset Carrying value of liability Carrying value of asset Carrying value of liability 49,617 103,271 22,385 24,813 75,768 50,808 326,662 36,534 82,352 27,635 18,320 55,433 36,950 49,617 103,271 22,385 24,813 75,768 50,808 36,534 82,352 27,635 18,320 55,433 36,950 257,224 326,662 257,224 Assets exchanged under repurchase agreement as at December 31, 2018 are with the following counterparties (note 30): In millions of Naira Counterparties JP Morgan ABSA Standard Bank First Abu Dhabi Societe Generale Bank Standard Bank London Classified as: Current Non-current Group Bank 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 12,979 493,915 210,373 221,355 431,728 108,416 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 36,926 365,966 493,915 365,966 436,491 156,444 592,935 210,373 221,355 431,728 436,491 156,444 592,935 In millions of Naira 31-Dec-19 31-Dec-18 31-Dec-19 31-Dec-18 Group Bank 18. Due from other banks Current balances with banks within Nigeria Current balances with banks outside Nigeria Placements with banks and discount houses ECL Allowance Classified as: Current Non-current 8,155 171,410 527,680 (142) 707,103 529,771 177,332 707,103 13,214 204,724 458,305 (1,969) 674,274 674,274 - 674,274 - 154,654 327,558 (142) 482,070 304,738 177,332 482,070 - 196,384 198,013 (931) 393,466 393,466 - 393,466 s l a i c n a n F i 179 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 Included in balances with banks outside Nigeria is the amount of N22.32 billion and N46.35 billion for the Group and Bank respectively (December 31, 2018: N41.18 billion and N41.05 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). In millions of Naira 31-Dec-19 31-Dec-18 31-Dec-19 31-Dec-18 Due from banks with maturity greater than 3 months: 223,413 - 223,413 - Group Bank 19. Derivative assets Instrument types (fair value): Forward and Swap Contracts Futures contracts Total Instrument types (Notional amount) : Forward and Swap Contracts Futures contract Total 91,204 1,518 92,722 729,726 319,968 87,467 1,359 88,826 730,715 320,797 91,204 1,518 92,722 729,726 319,968 87,467 1,359 88,826 730,715 320,797 1,049,694 1,051,512 1,049,694 1,051,512 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 N7.4 billion (31 December, 2018 net loss of N16.8 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 Gross loans and advances to customers Less: ECL Allowance (see note 3.2.18) Gross Loans classified as: Current Non-current 212,548 1,760,501 483,024 6,286 2,462,359 (156,794) 208,021 1,419,276 385,922 3,301 2,016,520 (193,409) 194,020 1,707,326 483,024 6,281 2,390,651 (151,179) 178,740 1,353,101 385,922 3,301 1,921,064 (184,998) 2,305,565 1,823,111 2,239,472 1,736,066 803,636 1,658,723 608,556 1,407,964 785,108 1,605,543 566,279 1,354,785 2,462,359 2,016,520 2,390,651 1,921,064 Movement in ECL Allowance as at December 31, 2019 is presented in Note 3.2.18. 180 Included in Loans and advances are loans to other banks of N139.39 billion and N7.66 billion for Group and Bank respectively (December 31, 2018: N51.8 billion and Nil respectively). In millions of Naira 31-Dec-19 31-Dec-18 31-Dec-19 31-Dec-18 Group Bank 21. Investment securities Debt securities At amortised cost (see note iii) At FVTOCI ECL Allowance (see note 3.2.18) Net debt securities measured at amortised cost Debt securities (measured at fair value through proﬁt or loss) (see note ii) Net debt securities Equity securities 234,857 280,854 (551) 515,160 12,257 527,417 307,401 205,753 (2,572) 510,582 4,970 515,552 113,959 102,508 - (538) 113,421 12,257 125,678 - (565) 101,943 4,970 106,913 At fair value through other comprehensive income (see note (i) below) 63,680 49,760 63,680 49,760 591,097 565,312 189,358 156,673 Movement in impairment allowance on investment securities is presented in Note 3.2.18 Classified as: Current Non-current 8,592 582,505 591,097 132,124 433,188 565,312 8,592 180,766 189,358 28,342 128,331 156,673 (i) 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. (ii) The Group’s debt securities measured at FVTPL comprise FGN bonds (December 31, 2019: N12.26 billion; December 31, 2018; N2.99 billion) and Eurobonds (December 31, 2019; Nil, December 31, 2018; N1.98 billion). (iii) The Group’s debt securities measured at amortised cost can be analysed as follows: Sovereign (Federal) Sub-sovereign (State) Corporate bonds 487,870 19,768 8,073 484,899 24,663 3,592 86,118 19,768 8,073 74,253 24,663 3,592 515,711 513,154 113,959 102,508 s l a i c n a n F i 181 4 8 8 7 6 5 , 7 2 3 4 4 1 , ) 0 8 5 3 5 1 ( , 5 0 9 0 1 , 2 2 3 4 1 , 0 9 7 7 , - - 0 5 0 6 7 9 4 , - 0 7 8 3 1 , ) 1 5 5 ( - 8 4 6 1 9 5 , 0 8 6 3 6 , 7 9 0 1 9 5 , 0 8 6 3 6 , 1 5 9 0 3 3 , 1 5 7 6 6 2 , ) 4 9 4 7 3 ( , ) 0 9 9 1 ( , 9 5 4 1 , 7 0 2 8 , 4 8 8 7 6 5 , ) 2 7 5 2 ( , 1 0 1 4 1 , 0 0 2 4 3 , - - - 9 5 4 1 , - 0 6 7 9 4 , 2 1 3 5 6 5 , 0 6 7 9 4 , - - - 2 5 4 3 5 7 5 0 2 , 9 4 6 4 7 , - 4 5 8 0 8 2 , 4 5 8 0 8 2 , - 3 5 7 5 0 2 , - - - - - 3 5 7 5 0 2 , 3 5 7 5 0 2 , 1 0 4 7 0 3 , 6 3 0 8 5 , ) 0 7 3 8 3 1 ( , - - 0 9 7 7 , ) 1 5 5 ( 7 5 8 4 3 2 , 6 0 3 4 3 2 , 4 8 5 4 8 2 , 0 2 8 4 2 , ) 6 8 0 0 1 ( , - - 3 8 0 8 , 1 0 4 7 0 3 , ) 2 7 5 2 ( , 9 2 8 4 0 3 , - - 0 7 9 4 , 2 9 5 1 1 , ) 0 1 2 5 1 ( , 5 0 9 0 1 , - 7 5 2 2 1 , 7 5 2 2 1 , 6 6 2 2 3 , 8 7 9 1 , ) 8 0 4 7 2 ( , ) 0 9 9 1 ( , - 4 2 1 - 0 7 9 4 , 0 7 9 4 , l a t o T r e h t o h g u o r h t e u l a v r i a f t a s e i t i r u c e s y t i u q E e m o c n i e v i s n e h e r p m o c e v i s n e h e r p m o c r e h t o h g u o r h t e u l a v r i a f t a s e i t i r u c e s t b e D t s o c d e s i t r o m a t a s e i t i r u c e s t b e D s s o l r o t fi o r p t a s e i t i r u c e s t b e D h g u o r h t e u l a v r i a f e m o c n i e v i s n e h e r p m o c r e h t o n i d e s i n g o c e r e u a v r i a f l n i s e g n a h c m o r f i s n a G ) 1 1 e t o n e e s ( s s o l r o t ﬁ o r p n i d e s i n g o c e r e u a v r i a f l n i s e g n a h c m o r f i s n a G ) s s o r G ( 9 1 0 2 , 1 y r a u n a J t A n o i t p m e d e r / s l a s o p s i D s n o i t i d d A a r i a N f o s n o i l l i m n I p u o r G e m o c n i e v i s n e h e r p m o c r e h t o n i d e s i n g o c e r e u a v r i a f l n i s e g n a h c m o r f i s n a G ) 1 1 e t o n e e s ( s s o l r o t ﬁ o r p n i d e s i n g o c e r e u a v r i a f l n i s e g n a h c m o r f i s n a G ) s s o r G ( 8 1 0 2 , 1 3 r e b m e c e D t A ) t e N ( 8 1 0 2 , 1 3 r e b m e c e D t A e c n a w o l l A L C E d e u r c c a t s e r e t n I ) s s o r G ( 9 1 0 2 , 1 3 r e b m e c e D t A e c n a w o l l A L C E ) t e N ( 9 1 0 2 , r e b m e c e D 1 3 t A d e u r c c a t s e r e t n I ) s s o r G ( 8 1 0 2 , 1 y r a u n a J t A n o i t p m e d e r / s l a s o p s i D s n o i t i d d A : s w o l l o f s a d e s i r a m m u s s i p u o r G e h t r o f s e i t i r u c e s t n e m t s e v n i s s o r g n i t n e m e v o m e h T s e i t i r u c e s t n e m t s e v n i n i t n e m e v o M ) b ( 9 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 i i a c n a n F e t a r a p e S d n a d e t a d 9 1 0 2 , 1 3 r e b m e c e D t r o p e R l l a u n n A c P k n a B h t i n e Z i l o s n o C e h t o t s e t o N 1 0 7 8 6 , 0 5 8 3 2 7 5 1 , 0 6 7 9 4 , ) 1 6 7 4 6 ( , 5 0 9 0 1 , 0 7 8 3 1 , - - 0 7 8 3 1 , 3 4 9 3 , - ) 8 3 5 ( - 6 9 8 9 8 1 , 0 8 6 3 6 , 8 5 3 9 8 1 , 0 8 6 3 6 , 4 1 8 7 1 1 , 3 5 6 3 6 , ) 0 6 6 8 2 ( , ) 0 9 9 1 ( , 9 5 4 1 , 2 6 9 4 , 1 0 1 4 1 , 0 0 2 4 3 , - - - 9 5 4 1 , ) 5 6 5 ( - 8 3 2 7 5 1 , 0 6 7 9 4 , 3 7 6 6 5 1 , 0 6 7 9 4 , 8 0 5 2 0 1 , 9 5 0 7 5 , ) 1 5 5 9 4 ( , - - 3 4 9 3 , ) 8 3 5 ( 9 5 9 3 1 1 , 1 2 4 3 1 1 , 7 4 4 1 7 , 5 7 4 7 2 , ) 2 5 2 1 ( , - - 8 3 8 4 , ) 5 6 5 ( 8 0 5 2 0 1 , 3 4 9 1 0 1 , - - 0 7 9 4 , 2 9 5 1 1 , ) 0 1 2 5 1 ( , 5 0 9 0 1 , - 7 5 2 2 1 , 7 5 2 2 1 , 6 6 2 2 3 , 8 7 9 1 , ) 8 0 4 7 2 ( , ) 0 9 9 1 ( , - 4 2 1 - 0 7 9 4 , 0 7 9 4 , l a t o T t a s e i t i r u c e s y t i u q E r e h t o h g u o r h t e u l a v r i a f e m o c n i e v i s n e h e r p m o c ) s r e p a p l a i c r e m m o c e v i s n e h e r p m o c g n d u l c n i ( i d n a e t o n e m o c n i y r o s s i m o r p s s o l r o t fi o r p h g u o r h t t s o c d e s i t r o m a t a s e i t i r u c e s t b e D e u l a v r i a f t a s e i t i r u c e s t b e D ) 1 1 e t o N e e s ( s s o l r o t ﬁ o r p n i d e s i n g o c e r e u a v r i a f l n i s e g n a h c m o r f i s n a G r e h t o n i d e s i n g o c e r e u a v r i a f l n i s e g n a h c m o r f i s n a G a r i a N f o s n o i l l i m n I k n a B ) s s o r G ( 9 1 0 2 , 1 y r a u n a J t A n o i t p m e d e r / s l a s o p s i D s n o i t i d d A ) s s o r G ( 9 1 0 2 , 1 3 r e b m e c e D t A ) t e N ( 9 1 0 2 , 1 3 r e b m e c e D t A e c n a w o l l A L C E e m o c n i e v i s n e h e r p m o c d e u r c c a t s e r e t n I n o i t p m e d e r / s l a s o p s i D 8 1 0 2 , 1 y r a u n a J t A s n o i t i d d A e m o c n i e v i s n e h e r p m o c r e h t o n i d e s i n g o c e r e u a v r i a f l n i s e g n a h c m o r f i s n a G ) 1 1 e t o n e e s ( s s o l r o t ﬁ o r p n i d e s i n g o c e r e u a v r i a f l n i s e g n a h c m o r f i s n a G ) s s o r G ( 8 1 0 2 , 1 3 r e b m e c e D t A ) t e N ( 8 1 0 2 , 1 3 r e b m e c e D t A e c n a w o l l A L C E d e u r c c a t s e r e t n I : s w o l l o f s a d e s i r a m m u s e b y a m k n a B e h t r o f s e i t i r u c e s t n e m t s e v n i n i t n e m e v o m e h T s l a i c n a n F i 183 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 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 (see (i) below) 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 (i) Acquisition of NCI 31-Dec-19 31-Dec-19 31-Dec-18 Ownership interest% Carrying amount 99.4200 100.0000 99.9900 99.9600 99.0000 99.0000 7,066 21,482 2,059 1,038 1,980 1,000 6,444 21,482 2,059 1,038 1,980 1,000 34,625 34,003 In March 2019, the Group acquired an additional 1.35% interest in Zenith Bank Ghana, increasing its ownership from 98.07% to 99.42%. The carrying amount of Zenith Bank Ghana’s net assets in the Group’s consolidated ﬁnancial statements on the date of acquisition was N 64,828 million. The following table summarises the eﬀect of changes in the Bank’s ownership interest in Zenith Bank Ghana In millions of Naira Carrying amount of NCI acquired (N64,828*1.35%) Consideration paid to NCI in cash An increase in equity attributable to owners of the Bank 874 (622) 252 184 h t i n e Z d e t i m i L i e e n m o N h t i n e Z n o i s n e P n a i d o t s u C a i b m a G k n a B h t i n e Z k n a B h t i n e Z e n o e L a r r e S i K U a n a h G c l P s e i r t n e k n a B h t i n e Z k n a B h t i n e Z k n a B h t i n e Z n o i t a n m i i l E h t i n e Z p u o r G - 4 1 6 ) 2 0 1 ( 2 1 5 ) 0 5 1 ( 2 6 3 4 3 0 7 6 1 , - 5 4 - 7 - - - 8 4 4 1 7 4 ) 3 1 ( 7 7 7 9 , ) 7 4 1 2 ( , 7 1 6 7 , ) 2 9 2 2 ( , 5 2 3 5 , - - 3 1 5 - 4 2 1 9 8 0 8 , 0 0 5 4 1 , - - 8 0 2 1 4 2 6 1 3 1 , - 6 1 7 1 , ) 6 2 9 ( 0 9 7 ) 6 6 1 ( 4 2 6 2 6 4 3 , 2 3 0 9 , - 5 1 3 2 , - 0 4 7 1 7 3 1 , - - 1 0 3 9 9 2 0 8 ) 6 3 ( 2 0 9 3 , ) 3 6 9 2 ( , 3 0 9 ) 8 7 3 ( 5 2 5 2 0 4 4 , 9 1 3 2 1 , - 8 6 5 2 , - 7 8 9 1 , - - 1 2 8 3 3 1 8 6 8 2 1 , 3 1 1 7 2 1 5 2 , ) 8 8 5 1 1 ( , 2 5 6 3 1 , ) 9 3 2 2 ( , 3 1 4 1 1 , - - 9 1 ) 3 0 7 ( 4 1 6 2 6 , ) 1 1 1 8 3 ( , 0 0 8 3 2 , ) 9 0 2 7 ( , 1 9 5 6 1 , - 9 9 3 8 4 , 3 2 9 5 4 1 , 6 1 8 9 3 2 , 1 4 1 3 7 , - 6 1 8 0 2 , 4 4 2 5 8 2 , - 9 3 5 6 4 9 7 6 , 4 5 6 1 9 7 1 , - 9 8 7 1 4 , 6 5 2 1 0 1 , - 2 0 1 0 6 1 4 , 5 8 2 2 6 1 6 1 , 5 6 8 1 , 1 9 9 4 2 , 0 0 6 7 1 , 2 0 0 3 2 , 5 2 8 6 1 6 , 7 1 2 1 3 4 , 7 8 6 4 6 5 , ) 4 7 2 1 4 3 ( , ) 3 9 3 3 2 ( , , 0 2 0 0 0 2 ) 7 1 0 2 2 ( , - 6 8 1 2 , ) 6 8 1 6 ( , - ) 0 0 0 4 ( , 1 5 2 2 6 6 , ) 5 2 9 4 9 3 ( , ) 2 3 0 4 2 ( , 4 9 2 3 4 2 , ) 1 5 4 4 3 ( , 3 0 0 8 7 1 , ) 0 0 0 4 ( , 3 4 8 8 0 2 , 9 4 4 9 7 8 , 9 4 4 2 2 8 , 8 2 7 1 3 4 , , 0 7 0 2 8 4 2 2 7 2 9 , , 2 7 4 9 3 2 2 , 8 5 3 9 8 1 , 5 2 6 4 3 , 3 2 2 1 1 , 2 1 4 1 7 , 6 5 4 5 6 1 , 9 0 1 5 1 , , 3 7 0 5 3 4 5 , - - - - ) 1 ( - ) 1 4 9 0 0 1 ( , 8 7 2 6 3 9 , 3 9 3 1 9 9 , 8 2 7 1 3 4 , 3 0 1 7 0 7 , 2 2 7 2 9 , 7 9 0 1 9 5 , , 5 6 5 5 0 3 2 , 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 ( 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 9 1 0 2 , 1 3 r e b m e c e D 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 - n o n d n 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 I 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 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 s t e s s A 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 · x a t e r o f e b t ﬁ o r P s t e s s a l i a c n a n ﬁ n o i t a x a T r a e y e h t r o f t fi o r P ) 5 2 6 4 3 ( , - - - - ) 6 2 1 8 6 ( , ) 3 9 6 3 0 2 ( , 5 8 8 1 1 , 5 9 3 7 7 , 6 1 2 5 8 1 , 7 9 4 6 1 , , 9 7 8 6 4 3 6 , i s e i r a d i s b u s n i 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 s l a i c n a n F i 185 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 d t L n a i d o t s u C k n a B h t i n e Z d t L a i b m a G d t L e n o e L a r r e S i d t L K U k n a B h t i n e Z k n a B h t i n e Z d t L a n a h G k n a B h t i n e Z c l P s e i r t n e k n a B h t i n e Z n o i t a n m i i l E h t i n e Z p u o r G - - 2 8 4 1 4 7 1 - - - - - 7 1 6 2 6 2 9 2 2 , - - - 1 0 2 2 1 , 8 1 8 6 1 , 3 5 2 2 2 4 , 0 3 1 4 2 3 , - 6 4 2 1 7 9 6 - - - - - 7 6 1 6 0 2 , - - - - - 8 2 5 1 , 9 2 8 9 9 , - - - - ) 5 7 0 1 ( , - 3 8 0 6 3 , - - - 1 4 5 1 , 5 6 8 1 , 6 5 0 2 2 , 1 9 9 4 2 , 2 7 5 4 , 0 0 6 7 1 , 6 5 0 4 , 2 0 0 3 2 , 5 1 2 3 9 , 9 7 0 2 7 , 5 2 8 6 1 6 , 7 1 2 1 3 4 , , 7 8 8 6 8 4 3 , - 2 6 7 4 1 , 7 2 6 6 , , 1 6 0 6 8 3 , 1 7 8 2 9 3 8 7 7 9 2 3 , 2 9 0 9 3 , 5 9 9 8 7 7 , , 3 7 0 5 3 4 5 , - - - - - - ) 9 9 2 7 ( , ) 5 4 0 1 6 1 ( , ) 8 2 6 4 3 ( , ) 2 7 9 2 0 2 ( , , 9 8 2 2 6 2 4 , 5 2 2 6 7 4 1 , 1 1 7 9 , 4 6 7 3 6 3 , 1 7 8 2 9 3 , 9 7 4 2 2 3 , 2 9 0 9 3 , 6 8 8 1 4 9 , , 9 7 8 6 4 3 6 , 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 9 1 0 2 , 1 3 r e b m e c 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 - - - - - - - - 8 6 9 ) 0 0 0 4 ( , 5 8 1 3 , 3 5 1 - 6 9 6 9 4 8 3 5 1 1 - 1 2 2 6 1 1 1 0 3 , 5 7 1 3 , 2 3 - ) 2 ( 1 7 4 7 1 4 9 8 7 1 ) 4 1 1 6 ( , 9 1 8 2 1 , - 5 0 7 6 , 3 7 6 7 1 , 2 2 9 2 , 0 0 3 7 2 , 5 0 7 6 , 4 0 4 4 3 , ) 6 4 5 2 5 ( , ) 3 0 4 8 ( , , 3 9 0 0 9 3 ) 5 9 1 0 6 5 ( , ) 0 6 9 1 5 ( , ) 7 8 1 0 8 ( , 1 3 6 7 5 , ) 6 4 3 4 ( , 8 6 1 9 3 3 , ) 1 9 2 6 4 5 ( , ) 5 2 5 1 6 ( , 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 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 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 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 ) 5 4 5 6 2 ( , ) 2 6 0 2 2 2 ( , ) 2 0 9 6 2 ( , ) 8 4 6 8 6 2 ( , 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 8 9 5 0 4 , 6 6 9 1 , 9 1 0 6 1 , - , 5 1 9 0 1 6 , 3 5 8 8 8 3 , 8 9 3 3 7 2 ) 6 6 7 2 1 ( , , 0 3 7 3 3 2 8 3 0 7 4 9 , ) 5 7 6 7 ( , 5 1 7 0 7 6 , 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 r a e y f o d n e t A 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 ) 5 4 5 6 2 ( , ) 2 6 0 2 2 2 ( , ) 2 0 9 6 2 ( , ) 8 4 6 8 6 2 ( , 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 o f s t n e m e t a t S 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 9 1 0 2 , 1 3 r e b m e c e D t r o p e R l l a u n n A c P k n a B h t i n e Z i l o s n o C e h t o t s e t o N 9 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 h t i n e Z d e t i m i L i e e n m o N h t i n e Z n o i s n e P n a i d o t s u C a i b m a G k n a B h t i n e Z k n a B h t i n e Z e n o e L a r r e S i K U a n a h G c l P s e i r t n e k n a B h t i n e Z k n a B h t i n e Z k n a B h t i n e Z n o i t a n m i i l E h t i n e Z p u o r G 8 1 0 2 , 1 3 r e b m e c e D 7 3 3 ) 0 8 ( - 7 8 ) 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 ( , , 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 ( , , 0 8 4 5 6 1 ) 0 0 0 4 ( , 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 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 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 s l a i c n a n F i 187 h t i n e Z d t L e e n m o N i d t L n a i d o t s u C n o i s n e P h t i n e Z k n a B h t i n e Z d t L a i b m a G d t L e n o e L a r r e S i d t L K U d t L a n a h G c l P s e i r t n e k n a B h t i n e Z k n a B h t i n e Z k n a B h t i n e Z k n a B h t i n e Z n o i t a n m i i l 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 ( - 4 2 7 1 , - - - - - - - 5 2 2 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 , 5 2 9 4 6 , 3 4 4 1 8 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 , 8 1 0 2 , 1 3 r e b m e c 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 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 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 r o f s t n e m e t a t S 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 9 1 0 2 , 1 3 r e b m e c e D t r o p e R l l a u n n A c P k n a B h t i n e Z i l o s n o C e h t o t s e t o N 9 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 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 Nominees Limited provides nominees, trustees, administrators and executorship services for non-pension assets. 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 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. In millions of Naira Gross investment Share of proﬁt b/f Diminution in investment Balance at end of the year Group Bank 31-Dec-19 31-Dec-18 31-Dec-19 31-Dec-18 103 440 (543) - 103 440 (543) - 103 - (103) - 103 - (103) - s l a i c n a n F i 189 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 23. Deferred tax asset In millions of Naira Group December 31, 2019 Movements in temporary differences during the year 01-Jan-19 Recognised in profit or loss 31-Dec-19 Asset Property and equipment Other assets Unutilized capital allowances ECL Allowance on not-credit impaired ﬁnancial instruments Tax loss carry forward Foreign exchange diﬀerences (12,033) (2) 14,682 4,832 1,926 108 9,513 8,727 593 (8,872) (2,097) 4,137 (116) 2,372 (3,306) 591 5,810 2,735 6,063 (8) 11,885 Movements in temporary differences during the period 01-Jan-19 Recognised in profit or loss 31-Dec-19 Liabilities Property and equipment Impairment allowance on not-credit impaired ﬁnancial instruments 51 16 67 (42) - (42) 9 16 25 December 31, 2018 Movements in temporary differences during the year 01-Jan-18 Recognised in profit or loss 31-Dec-18 Asset Property and equipment Other assets ECL Allowance on not-credit impaired ﬁnancial instruments Unutilized capital allowances Tax loss carry forward Foreign exchange diﬀerences (11,987) (2) 4,832 14,682 1,926 110 9,561 (46) (12,033) - - - - (2) (48) (2) 4,832 14,682 1,926 108 9,513 Movements in temporary differences during the year 01-Jan-18 Recognised in profit or loss 31-Dec-18 Liabilities Property and equipment Impairment allowance on not-credit impaired ﬁnancial instruments 2 16 18 49 - 49 51 16 67 190 Bank In millions of Naira December 31, 2019 Movements in temporary differences during the year 01-Jan-19 Recognised in profit or loss 31-Dec-19 Asset Property and equipment ECL Allowance on not-credit impaired ﬁnancial instruments Unutilized capital allowances Tax loss carried forward December 31, 2018 (12,324) 4,912 14,683 1,926 9,197 8,956 (2,194) (8,873) 4,137 2,026 (3,368) 2,718 5,810 6,063 11,223 Movements in temporary differences during the year 01-Jan-18 Recognised in profit or loss 31-Dec-18 Asset Property and equipment ECL Allowance on not-credit impaired ﬁnancial instruments Unutilized capital allowances Tax loss carried forward (12,324) 4,912 14,683 1,926 9,197 - - - - - (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 ECL allowance on not credit-impaired ﬁnancial instruments is N60.2 billion as at December 31, 2019. (December 31, 2018: N44.2 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 December 31, 2019 to N11.2 billion. Thus the Bank has not recognised deferred tax asset of N49 billion in these ﬁnancial statements. The amount of deductible temporary diﬀerences for which no deferred tax asset is recognised is detailed below: In millions of Naira Property and equipment ECL Allowance on ﬁnancial instruments not-credit impaired Unutilised capital allowance Unrelieved losses Balance at end of the year 31-Dec-19 31-Dec-18 Gross Amount Tax Impact Gross Amount Tax Impact (49,025) 39,566 84,567 88,257 163,365 (14,708) 11,870 25,370 26,477 49,009 (6,887) 22,670 58,817 42,217 116,817 (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 l a i c n a n F i 191 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 In millions of Naira 31-Dec-19 31-Dec-18 31-Dec-19 31-Dec-18 Group Bank 24. Other assets Non financial assets Prepayments Other non-ﬁnancial assets Gross other non-ﬁnancial assets less impairment (see note (i) below) Net other non-ﬁnancial assets Other financial assets Electronic card related receivables Intercompany receivables Deposit for investment in AGSMEIS Receivables Deposits for shares Gross other ﬁnancial assets Less: ECL Allowance(see note 3.2.18) Net other ﬁnancial assets Total other assets (Net) 13,457 357 13,814 (183) 13,631 19,398 740 20,138 (560) 19,578 42,019 47,256 - 22,096 426 - 64,541 (777) 63,764 77,395 - 13,822 1,002 - 62,080 (710) 61,370 80,948 9,983 359 10,342 (183) 10,159 38,555 210 22,096 392 720 61,973 (720) 61,253 71,412 17,322 742 18,064 (560) 17,504 43,395 637 13,822 530 720 59,104 (698) 58,406 75,910 Deposit for investment in AGSMEIS represents funds deposited with the CBN for future equity investments in agricultural, small and medium enterprises in line with the CBN directives (See note 34(e)). Classified as: Current Non-current 53,071 24,324 80,948 - 77,395 80,948 46,368 25,044 71,412 75,910 - 75,910 See note 3.2.18 for movement in impairment allowance for other ﬁnancial assets as at December 31, 2019. (i) 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 560 (377) 183 416 144 560 560 (377) 183 416 144 560 192 s s e r g o r p s r e h t O - s t e s s a s e l c i h e V t f a r c r i A - t e s s a t n e m p u q e i i t n e m p u q e d n a s t n e m e v o r p m i l a t o T n i k r o W e s u f o t h g R i r o t o M e s u f o t h g R i r e t u p m o C s g n i t t fi d n a e r u t i n r u F l d o h e s a e L s g n d i l i u B d n a l 3 3 6 8 6 2 , 9 8 5 1 2 , 3 3 3 2 6 , 0 0 5 7 , - - ) 3 6 1 5 ( , ) 9 5 6 2 ( , ) 0 2 6 0 1 ( , - ) 7 8 1 ( ) 1 8 0 1 ( , - - - - - 8 3 1 8 1 , 4 9 ) 8 1 ( 5 2 9 0 2 , 4 4 7 3 , ) 8 2 2 ( ) 0 3 1 1 ( , - - - - - 0 0 6 2 1 , 0 6 7 9 2 , 2 0 2 8 , 7 8 1 ) 7 1 1 ( ) 1 3 6 ( ) 3 0 3 ( 4 4 1 3 2 3 , 1 0 2 7 1 , 8 3 1 8 1 , 7 8 3 3 2 , 0 0 6 2 1 , 8 9 0 7 3 , 9 8 3 9 7 , 8 5 2 3 1 , 4 3 4 8 7 9 2 , ) 5 4 3 ( ) 8 1 4 1 ( , 6 9 2 4 9 , 4 3 3 1 2 , 3 0 5 3 , 1 0 5 3 7 3 ) 3 0 5 ( ) 2 9 1 ( 6 1 0 5 2 , 1 8 9 3 5 , 2 2 7 4 , 3 1 5 4 , ) 2 7 6 ( ) 0 0 4 ( ) 4 0 4 1 ( , 0 4 7 0 6 , - - - 5 5 0 9 2 , 6 6 2 3 , 7 4 3 2 , 8 6 6 4 3 , 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 ﬀ o e t i r w / s l a s o p s i D i e c n e r e ﬀ d e g n a h c x E 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 d n e e h t t A 8 1 0 2 , 1 3 r e b m e c e D p u o r G 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 s s e r g o r p s r e h t O - s t e s s a s e l c i h e V t f a r c r i A - t e s s a t n e m p u q e i i t n e m p u q e d n a s t n e m e v o r p m i l a t o T n i k r o W e s u f o t h g R i r o t o M e s u f o t h g R i r e t u p m o C s g n i t t fi d n a e r u t i n r u F l d o h e s a e L s g n d i l i u B d n a l 8 1 0 2 , 1 3 r e b m e c e D 6 9 4 9 1 1 , 6 3 4 1 2 , - ) 0 7 6 ( ) 4 3 3 2 ( , 8 2 9 7 3 1 , - - - - - - - - - - 9 4 4 1 , 4 0 3 5 1 , 6 8 7 2 , ) 6 ( ) 5 3 7 ( ) 7 3 1 ( - - - 0 7 4 1 , 0 6 2 1 , 9 4 4 1 , 2 1 2 7 1 , 0 3 7 2 , 0 2 4 7 2 , 8 0 2 2 , ) 2 ( ) 3 5 1 ( ) 0 2 2 ( 3 5 2 9 2 , 6 1 2 5 8 1 , 1 0 2 7 1 , 7 3 1 9 4 1 , 9 8 5 1 2 , - 9 8 6 6 1 , 5 7 1 6 , 1 2 6 5 , 0 7 8 9 , 0 3 1 1 1 , 5 4 8 7 , 0 4 3 2 , 4 0 9 1 5 , 1 8 0 0 1 , 5 1 ) 0 4 9 ( ) 2 6 1 ( 8 9 8 0 6 , 8 9 3 3 3 , 5 8 4 7 2 , 1 7 8 6 1 , 2 0 3 2 , ) 5 6 ( ) 0 6 2 ( ) 8 0 1 ( 0 4 7 8 1 , 6 7 2 6 , 3 6 4 4 , 7 2 5 6 , 0 5 3 1 , 8 5 ) 6 4 2 ( ) 3 4 ( 6 4 6 7 , - - - - - - 4 9 0 3 5 , 4 5 4 7 4 , 8 6 6 4 3 , 5 5 0 9 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 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 ﬀ o e t i r w / s l a s o p s i D i e c n e r e ﬀ d e g n a h c x E r a e y e h t f o d n e e h t t A 9 1 0 2 , r e b m e c e D 1 3 t A 8 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 ) l i N : 8 1 0 2 , 1 3 r e b m e c e D ( 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 t n e m r i a p m i o n e r e w e r e h T . ) l i N : 8 1 0 2 , 1 3 r e b m e c e D ( 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 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 . 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 s l a i c n a n F i 193 I ) P W ( s s e r g o r p s r e h t O - s t e s s a s e l c i h e V t f a r c r i A - t e s s a t n e m p u q e i i t n e m p u q e e c ffi o s t n e m e v o r p m i l a t o T n i k r o W e s u f o t h g R i r o t o M e s u f o t h g R i r e t u p m o C d n a s g n i t t fi e r u t i n r u F l d o h e s a e L s g n d i l i u B d n a l 8 1 0 2 , 1 3 r e b m e c e D k n a B 9 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 i i a c n a n F e t a r a p e S d n a d e t a d 9 1 0 2 , 1 3 r e b m e c e D t r o p e R l l a u n n A c P k n a B h t i n e Z i l o s n o C e h t o t s e t o N 2 0 4 4 4 2 , 3 6 1 0 2 , 1 0 9 0 5 , 2 8 1 7 , - - ) 4 3 ( ) 0 6 9 1 ( , - - ) 4 3 ( ) 0 2 6 0 1 ( , - - - - - 0 5 6 1 1 , 8 4 8 8 1 , 9 6 1 3 , 4 9 ) 8 1 ( ) 2 0 9 ( - - - - - - 0 0 6 2 1 , 3 8 8 6 2 , 7 0 4 7 , 3 7 8 1 ) 0 7 ( - 9 0 3 3 9 2 , 1 9 6 6 1 , 0 5 6 1 1 , 1 9 1 1 2 , 0 0 6 2 1 , 0 1 4 4 3 , 4 3 4 5 7 , 8 0 8 2 1 , - 8 7 9 2 , 4 2 1 ) 5 4 9 ( 9 9 3 0 9 , 8 1 9 7 1 , 9 2 6 1 , 7 1 0 5 ) 2 2 ( - 1 0 5 3 4 , 0 9 7 3 , 3 1 5 4 , ) 6 1 1 ( ) 1 2 ( - - - - 5 5 0 9 2 , 6 6 2 3 , 7 4 3 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 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 t r a t s e h t t A s n o i t i d d A t s o C i t s o c t s n a g a ﬀ o e t i r W 3 3 0 0 2 , 7 6 6 1 5 , 8 6 6 4 3 , r a e y e h t f o d n e e h t t A I ) P W ( s s e r g o r p s r e h t O - s t e s s a s e l c i h e V t f a r c r i A - t e s s a t n e m p u q e i i t n e m p u q e e c ffi o s t n e m e v o r p m i l a t o T n i k r o W e s u f o t h g R i r o t o M e s u f o t h g R i r e t u p m o C d n a s g n i t t fi e r u t i n r u F l d o h e s a e L s g n d i l i u B d n a l 8 1 0 2 , 1 3 r e b m e c e D - 8 4 5 0 1 1 , 7 8 8 8 1 , ) 2 8 5 1 ( , , 3 5 8 7 2 1 - - - - - - - - 8 8 1 1 , 9 2 9 3 1 , 5 3 5 2 , ) 6 ( ) 6 5 6 ( - - 0 7 4 1 , 0 6 2 1 , 8 8 1 1 , 2 0 8 5 1 , 0 3 7 2 , 6 5 4 5 6 1 , 1 9 6 6 1 , 4 5 8 3 3 1 , 3 6 1 0 2 , - 2 6 4 0 1 , 9 8 3 5 , 9 1 9 4 , 0 7 8 9 , 0 3 1 1 1 , 9 2 3 5 2 , 8 4 6 1 , ) 2 ( ) 8 6 ( 7 0 9 6 2 , 3 0 5 7 , 4 5 5 1 , 8 5 2 9 4 , 9 8 6 9 , 5 1 ) 4 3 8 ( 8 2 1 8 5 , 1 7 2 2 3 , 6 7 1 6 2 , 5 5 3 4 1 , 1 4 6 1 , ) 5 6 ( ) 0 2 ( 1 1 9 5 1 , 2 2 1 4 , 3 6 5 3 , 6 2 9 7 0 2 6 , 8 5 ) 4 ( 7 8 1 7 , - - - - - 0 8 4 4 4 , 4 9 2 7 3 , 8 6 6 4 3 , 5 5 0 9 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 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 9 1 0 2 , 1 3 r e b m e c e D t A 8 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 ) l i N : 8 1 0 2 , 1 3 r e b m e c e D ( 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 t n e m r i a p m i o n e r e w e r e h T . ) l i N : 8 1 0 2 , 1 3 r e b m e c e D ( 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 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 . 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 In millions of Naira 31-Dec-19 31-Dec-18 31-Dec-19 31-Dec-18 Group Bank 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 28,905 22,099 24,876 19,377 867 - 582 2,118 32,472 12,227 670 - - 3,078 15,975 16,497 639 81 2,158 3,928 28,905 9,110 717 1 - 2,399 12,227 16,678 - - 966 1,539 27,381 - 81 2,158 3,260 24,876 9,477 7,289 - - - 2,795 12,272 15,109 - 1 - 2,187 9,477 15,399 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.. In 2018, N81 million was reclassiﬁed from property and equipment to intangible assets. 27. Customers' deposits Demand Savings Term Domiciliary Classified as: Current 1,985,020 1,934,766 1,422,508 1,286,187 614,297 495,714 1,167,258 492,206 462,433 800,890 588,454 379,627 1,096,298 435,291 368,816 730,772 4,262,289 3,690,295 3,486,887 2,821,066 4,262,289 3,690,295 3,486,887 2,821,066 s l a i c n a n F i 195 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 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 Lease liability (see note (c) below AMCON payable Electronic card related payables Customers’ foreign transactions payables Oﬀ Balance Sheet ECL allowance (see note (a) below) Group Bank 31-Dec-19 31-Dec-18 31-Dec-19 31-Dec-18 22,315 99,225 13,777 20,259 4,626 80,243 25,588 22,194 7,634 13,065 16,088 5,538 41,179 31,511 13,195 22,164 509 36,345 5,832 11,568 9,542 4,266 6,286 8,011 46,354 99,269 13,095 63,309 4,513 80,243 25,588 16,297 7,634 12,951 6,007 5,538 41,046 31,346 12,317 50,563 508 36,345 5,832 11,568 9,542 3,903 1,025 8,011 Total other financial liabilities 330,552 190,408 380,798 212,006 Non financial liabilities Tax collections Other payables Total other non ﬁnancial liabilities 2,018 31,194 33,212 1,8244 39,484 41,308 1,832 3,431 5,263 Total other liabilities 363,764 231,716 386,061 1,578 9,879 11,457 223,463 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 340,557 23,207 363,764 213,429 18,287 231,716 363,990 22,071 205,176 18,287 386,061 223,463 923 410 4,205 5,538 759 1,941 5,311 8,011 923 410 4,205 5,538 759 1,941 5,311 8,011 See note 3.2.18 for movement in ECL allowance for oﬀ balance sheet exposure. (b) The amounts above for ﬁnancial guarantee contracts represents the deferred income initially recognised less cumulative amortisation 196 In millions of Naira 31-Dec-19 31-Dec-18 31-Dec-19 31-Dec-18 Group Bank (c) Lease liability This relates to an Aircraft and lease rental for properties used by the Group. The net carrying amount of leased assets, included within property and equipment is N26.59 billion (Bank: N20.33 billion) as at December 31, 2019. (December 31, 2018: N11.13 billion, for both Group and Bank). The future minimum lease payments on the lease liabilities 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 lease liabilities is as follows at end of the years: Not more than one year Between one and ﬁve years More than ﬁve years At end of the year 7,394 20,592 16,126 (21,918) 22,194 6,534 10,232 5,428 22,194 2,760 11,043 10,123 (12,358) 11,568 915 3,656 6,997 11,568 5,072 15,807 11,996 (16,578) 16,297 4,539 7,703 4,055 16,297 2,760 11,043 10,123 (12,358) 11,568 915 3,656 6,997 11,568 The Group does not face any signiﬁcant risk with regards to the lease liability. Also the Bank's exposure to liquidity risk as a result of leases are monitored by the Bank's enterprise risk management unit. s l a i c n a n F i 197 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 In millions of Naira 31-Dec-19 31-Dec-18 31-Dec-19 31-Dec-18 Group Bank 29. On-lending facilities (a) This comprises: Central Bank of Nigeria (CBN) Commercial Agri- culture 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) Paddy Aggregation Scheme (Phase 2) Funds (ix) Creative Industry Financing Initiative (x) Maize Aggregation Scheme (xi) Accelerated Agricultural Development Scheme (xii) Classified as: Current Non-current (b) Movement in on-lending facilities At beginning of the year Addition during the year Repayment during the year At end of the year 40,666 39,827 14,590 1,353 135,869 83,302 43,689 21,139 2,500 74 4,006 5,856 51,735 44,678 16,416 4,223 139,835 88,226 34,276 13,906 - - - - 40,666 39,827 14,590 1,353 135,869 83,302 43,689 21,139 2,500 74 4,006 5,856 51,735 44,678 16,416 4,223 139,835 88,226 34,276 13,906 - - - - 392,871 393,295 392,871 393,295 15,752 377,119 392,871 - 393,295 393,295 15,752 377,119 392,871 - 393,295 393,295 393,295 135,681 (136,105) 392,871 383,034 57,194 (46,933) 393,295 393,295 135,681 (136,105) 392,871 383,034 57,194 (46,933) 393,295 198 (i) (ii) (iii) (iv) (v) 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 3% 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. 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. 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 4% per annum payable quarterly in arrears and the Bank is under obligation to on-lend to customers at an all-in interest rate of 9% per annum. This facility is not secured. The Micro Small & Medium Scale Enterprises Development Fund (MSMEDF) is an intervention fund established to support the channeling of low interest funds to the MSME sub-sector of the Nigerian economy. The facility attracts an interest rate of 3% 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. 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 on- lending 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. 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. 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 billion. The activities targeted by the Facility are manufacturing, agricultural value chain and selected service subsectors. The funds are received from the CBN at 3%, and disbursed at 9% to the beneﬁciary. 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 3% which are then disbursed to qualifying customers at the rate of 9% per annum. Paddy Aggregation Scheme (PAS) was established by the Central Bank of Nigeria to provide funding to millers for the purchase of home grown rice paddy. Loans are disbursed to the Bank at 3% for on lending to beneﬁciaries at 9% per annum for up to 24 months. Creative Industry Financing Initiative (CIFI) is a scheme established by the Central Bank of Nigeria to provide long term and low interest funding to players in the creative industry. Areas of interest include Information Technology, Fashion, Movie Production/Distribution and Music. Loans are disbursed to beneﬁciaries for up to 10 years at 9% per annum.The fund is disbursed to the bank at 5% interest rate. Maize Aggregation Scheme (MAS) was established by the Central Bank of Nigeria to provide funding to (vi) (vii) (viii) (ix) (x) (xi) s l a i c n a n F i 199 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 processors for the purchase of home grown maize. Loans of up to N2billion are disbursed to the Bank at 3% for on lending to beneﬁciaries at 9% per annum for 12 months. (xii) Accelerated Agricultural Development Scheme (AADS) was established by the Central Bank of Nigeria to help states develop at least 2 crops/agricultural commodities in which they have comparative advantage. The fund is disbursed to the Bank at 2% per annum. Each state is allowed a facility of N1.5billion at 9% per annum and repayments are made via ISPO deductions. In Millions of Naira 31-Dec-19 31-Dec-18 31-Dec-19 31-Dec-18 Group Bank 30. Borrowings Long term borrowing comprise: Due to ADB (i) Due to KEXIM (ii) Due to EIB Due to PROPARCO (iii) Societe Generale Bank (iv) Due to ABSA Bank (v) Due to J P Morgan Chase Bank (vi) Due to Standard Bank London Due to Standard Bank South Africa (vii) Due to IFC (viii) Due to First Abu Dhabi Bank Due to Zenith Bank (UK) Due to Goldman Sachs (ix) Due to Mashreq Bank (x) Due to Zenith Bank Ghana (xi) 17,681 22,877 - 5,884 55,433 82,352 36,534 - 27,635 18,813 - - 36,950 18,320 - 29,005 4,726 2,528 10,758 27,209 63,175 108,417 36,926 49,023 24,276 81,217 - - - - 17,681 22,877 - 5,884 55,433 82,352 36,534 - 27,635 18,813 - - 36,950 18,320 7,299 322,479 437,260 329,778 29,005 4,726 2,528 10,758 27,209 63,175 108,416 36,926 49,023 24,276 81,217 10,437 - - 10,767 458,463 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 (December 31, 2018: nil). The assets exchanged under repurchase agreements with counter parties are disclosed in note 17. 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 200 280,934 41,545 322,479 437,260 198,358 (313,139) 322,479 345,921 91,339 437,260 356,496 370,606 (289,842) 437,260 280,934 48,844 329,778 458,463 252,364 (381,049) 329,778 356,357 102,106 458,463 418,979 391,810 (352,326) 458,463 (i) (ii) Due to ADB The amount due to African Development Bank (ADB) the (US $48.5million) of N17.68billion 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 N17.68billion (US $48.5million) will mature in February 2021. represents Due to KEXIM The amount of N22.88 billion (US $62.73 million) represents the outstanding balance from ten(10) short term loan facilities of US $12million, US $13.2million, US $9million, US $9.6million, US $12.29million, US $5million, US $12million, US $8.4million, US $11.4million, and US $9.61million granted by The Export-Import Bank of Korea (KEXIM) in March 2019, April 2019, May 2019, June 2019, July 2019, August 2019, September 2019, October 2019, November 2019, and December 2019 respectively. Interest is payable monthly at 3 month LIBOR+1.6% for all running obligations. Final repayments on these facilities are due in March 2020, April 2020, May 2020, June 2020, July 2020, August 2020, September 2020, October 2020, November 2020, and December 2020 respectively. (iii) Due to Proparco The amount due to Proparco of N5.88billion (US $16.14million) 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 in February and December 2013 (PROPARCO) respectively. The facilities are priced at 6 months Libor+3.76% and 6 months Libor+3.76% 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 N850million (US $2.33million) and N5.03 billion (US $13.8 million) respectively. (iv) Societe Generale Bank The amount of N55.43billion (US $152 million) represents the outstanding balance on two short-term dollar facilities of US $40 million and US $160 million granted to the Bank in September 2019 by Societe Generale Bank. Interest is payable upon maturity at the rate of 4.07% and 4.17% per annum and the facility will mature in September 2020. (v) Due to ABSA The amount of N82.35 billion (US $225.81 million) represents the amount payable by the Bank on dollar repurchase facilities of US$100 million,US$75 million, and US$50 million granted by ABSA in September 2019, November 2019, and December 2019 respectively. Interest is payable on maturity at a ﬁxed rate of 4.91, 4.40% and 4.79% per annum respectively. The facilities will mature in September 2020, November 2020, and December 2020 respectively. (vi) Due to JP Morgan The amount of N36.53billion (US $100.16 million) represents the outstanding balance on two short- term dollar facilities of US $40 million and US $160 million granted to the Bank in September 2019 and October 2019 respectively by JP Morgan. Interest is payable upon maturity at the rate of 4.05% and 3.98% per annum and the facility will mature in September 2020 and October 2020 respectively. (vii) Due to Standard Bank South Africa The amount of N27.64 billion ($75.77 million) represents the outstanding balance on a dollar short- term facilities of US $75 million granted by Standard Bank of South Africa in July 2018. The facility is priced at 3 months LIBOR plus 2.78%. The facility has a maturity date in October 2020. (viii) Due to IFC The amount of N18.81billion (US $51.58 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. s l a i c n a n F i (ix) Due to Goldman Sachs ($101.32 million) The amount of N36.95billion represents the outstanding balance on dollar short- term facility of US $100 million granted by Goldman Sachs in September 2019. The facility is priced at 4.19% payable at maturity and would mature in September 2020. (x) Due to Mashreq Bank The amount of N18.32billion ($50.23 million) represents the outstanding balance on dollar short-term facility of US $50 million granted by Mashreq Bank in November 2019. The facility is priced at 4.19% payable at maturity and would mature in November 2020. 201 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 (xi) Due to Zenith Bank Ghana The amount of N7.30billion ($20.0 million) represents the outstanding balance on a dollar short-term facility of US $30 million granted to Zenith Bank Ghana in 2018. The facility is priced at 7.5% per annum and is due to mature in December 2021. The facility has been eliminated on consolidation. 31. Debt securities issued in Millions of Naira Due to Euro bond holders Group Bank 31-Dec-19 31-Dec-18 31-Dec-19 31-Dec-18 39,092 39,092 361,177 361,177 39,092 39,092 361,177 361,177 The amount of N39.09 billion ($107 million) represents the outstanding balance due on the second tranche of US $500 million Eurobond notes issued by Zenith Bank Plc in May 2017 with a maturity date of May 2022. Interest is priced at 7.375%, payable semiannually with a bullet repayment of the principal sum at maturity. The total amount is non-current. The First Tranche of Eurobond was issued in April 2014, and priced at 6.25%, it was fully repaid on 17th April 2019. In September 2019, the Bank repurchased US 392 million out of the outstanding US $500 million Eurobond notes for cash, pursuant to its tender oﬀer. The Group has not had any defaults of principal, interest or other breaches with respect to the debt securities during the year (December 31, 2018: Nil). Movement in debt securities issued At start of the period/year Revaluation loss for the year Repurchase during the year Contractual repayment Accrued interest during the year At end of the year Classified as: Current Non-current 32. Derivative liabilities Instrument types (Fair value): Forward and Swap Contracts Futures contracts 202 361,177 5,949 (142,151) (198,207) 12,324 39,092 - 39,092 39,092 13,622 1,140 14,762 332,931 27,778 - (24,443) 24,911 361,177 180,720 180,457 361,177 16,236 759 16,995 361,177 5,949 (142,151) (198,207) 12,324 39,092 - 39,092 39,092 13,622 1,140 14,762 332,931 27,778 - (24,443) 24,911 361,177 180,720 180,457 361,177 16,236 759 16,995 in Millions of Naira 31-Dec-19 31-Dec-18 31-Dec-19 31-Dec-18 Group Bank Instrument types (Notional Amount): Forward and Swap Contracts Futures contracts Classified as: Current Non-current 208,263 277,716 231,382 302,882 208,263 277,716 231,382 302,882 485,979 534,264 485,979 534,264 14,762 16,995 14,762 16,995 - - - - 14,762 16,995 14,762 16,995 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 N7.43 billion (31 December, 2018 net loss of N16.78 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 N92.72 and N14.76 billion respectively (December 31, 2018 N88.83 and N17.00 billion respectively). 33. Share capital Authorised 40,000,000,000 ordinary shares of 50k each (31 Dec 2018: 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 2018: 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 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. s l a i c n a n F i 203 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 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-19 31-Dec-18 31-Dec-19 31-Dec-18 255,047 255,047 255,047 255,047 The nature and purpose of the reserves in equity are as follows: (b) (c) (d) Share premium: Premiums from the issue of shares are reported in share premium. Retained earnings: Retained earnings represent undistributed proﬁts, net of statutory appropriations attributable to the ordinary shareholders. 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. Sec- tion 16(1) of the Bank and Other Financial Institutions Act of 1991 (amended), stipulates that an appropria- tion 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 N27.05 billion (December 31, 2018: N24.82 billion) representing 15% of Zenith Bank's proﬁt after tax was appropriated. (e) SMIEIS/AGSMIES reserves: This reserve represents the aggregate amount of ap- propriations from proﬁt after tax to ﬁnance equity in- vestments 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 re- spectively. 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 con- tributions were 10% of proﬁt after tax and were expect- ed 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 guide- lines 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 achiev- ing sustainable economic development and employ- ment generation. The small and medium scale industries equity invest- ment scheme reserves are non-distributable. Fair value reserve: Comprises fair value movements on equity instru- ments that are carried at fair value through other com- prehensive income. Foreign currency translation reserve: Comprises ex- change diﬀerences resulting from the translation to Naira of the results and ﬁnancial position of Group companies that have a functional currency other than Naira. Regulatory reserve for credit risk: This reserve represents the cummulative diﬀerence between the loan loss pro- vision determined per the Prudential Guidelines and the allowance/reserve for loan losses as determined in line with the principles of IFRS 9. Non-controlling interest: This is the component of shareholders equity as reported on the consolidated statement of ﬁnancial position which represents the ownership interest of shareholders other than the par- ent of the subsidiary. See note 22(i) for the changes in non-controlling interest during the year. (f ) (g) (h) (i) 204 In millions of Naira Movement in Non-controlling interest At start of the year Proﬁt for the year Foreign currency translation diﬀerences Acquisition of NCI without change in control* At financial year end 35. Pension contribution 31-Dec-19 31-Dec-18 1,538 150 (60) (874) 754 1,264 277 (3) - 1,538 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 8% and 10% 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 N3.92 billion and N2.94 billion respectively (31 December 2018: N4.05 billion and N3.15 billion). In millions of Naira 31-Dec-19 31-Dec-18 31-Dec-19 31-Dec-18 Group Bank 36. Personnel expenses Compensation for the staﬀ are as follows: Salaries and wages Other staﬀ costs Pension contribution 65,831 8,103 3,924 77,858 57,957 6,547 4,052 68,556 51,966 7,128 2,944 62,038 47,971 5,536 3,150 56,657 (a) The average number of persons employed during the year by category: Executive directors Management Non-management Number Number Number Number 12 433 6,960 7,405 14 443 7,137 7,594 6 358 5,618 5,982 6 387 5,860 6,253 s l a i c n a n F i 205 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 The table below shows the number of employees, whose earnings during the year, fell within the ranges shown below: Number Number Number 1,467 75 475 1,083 1,382 31 2,892 7,405 1,566 107 706 1,015 1,421 841 1,938 7,594 1,069 - 414 929 1,189 24 2,357 5,982 Number 1,114 - 626 849 1,225 833 1,606 6,253 Group Bank 31-Dec-19 30-Jun-18 31-Dec-19 30-Jun-18 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 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 2,043 405 2,448 1,048 370 1,418 1,428 84 1,512 26 125 550 185 735 28 125 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 38 39 13 13 Number Number Number Number 206 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 December 31, 2019 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 December 31, 2019 Effective holding % Nominal share capital held 99.42 % 100.00 % 99.99 % 99.96 % 99.00 % 99.00 % 7,066 21,482 2,059 1,038 1,980 1,000 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 December 31, 2018 83,570 - 159 53 - 67,194 7,301 - - - 540 - - - 3,600 - - - - - 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 38,836 14,169 2,876 97 200 74,828 491 88 59 2 - 2 52 1 3,600 134 - - - 2,288 The Group does not have signiﬁcant restrictions on its ability to access or use its assets and settle its liabilities other than those s l a i c n a n F i 207 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 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 N1,116 million and N917,981 million respectively (December 31, 2018: N1,138 million and N986 million 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 and non-executive directors, 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-19 31-Dec-18 31-Dec-19 31-Dec-18 Group Bank Key management compensation Short term beneﬁts Post employment beneﬁts Fees and sitting allowances Loans and advances At start of the year Granted during the year Repayment during the year At end of of the year Interest earned 1,226 919 405 2,550 1,180 1,010 (426) 1,764 60 1,222 20 370 1,612 199 1,016 (35) 1,180 41 724 906 84 1,714 1,022 1,010 (390) 1,642 60 724 7 185 916 225 824 (27) 1,022 41 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. Loans granted to key management are performing. Mortgage loans amounting to N1,642 million (December 31, 2018: N1,180 million) are secured by the underlying assets. 208 Relationship/Name Loans Deposits Interest received Interest paid December 31, 2019 Name of company 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 Oviation limited Sirius Lumina Ltd - Former Director Director / Prof. Sam Enwemeka December 31, 2018 Name of company Cyberspace Network Relationship/ Name Loans Deposits Interest received Interest paid 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 - - - 796 - - 2 85 1,146 1,598 1,578 1 796 4,410 - - - 48 - - 48 - - - 35 - - 35 - - - - 3 3 226 32 968 1,660 - 2,886 - - - - - - - - 8 6 - 14 lease transaction was conducted at arm’s length and the lease liability as at year end December 31, 2019 (Note 28c) was N10.99 billion ( December 31, 2018 – N11.57 billion) The Bank paid N5.71 billion (31 December 2018 N12.2 billion) 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 222 (December 31, 2018: 195) litigation suits in the ordinary course of business. The total amount claimed in the cases against the Group is estimated at N27 billion (December 31, 2018: N28 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. 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. Loans granted to related parties are performing. No impairment has been recognised in respect of loans granted to related parties (December 31, 2018: Nil). During the year, Zenith Bank Plc paid N1.78 billion as insurance premium to Zenith General Insurance Limited (31 December 2018: N1.86 billion). These expenses were reported as operating expenses. The amount of N4,198 billion (December 31, 2018: N4,357 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. The Bank entered into a 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 s l a i c n a n F i 209 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 Capital commitments (b) At the reporting date, the Group had capital commitments amounting to N5.5 billion (December 31, 2018: N6.24 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-19 31-Dec-18 31-Dec-19 31-Dec-18 Performance bonds and guarantees (see note i below) 363,922 Usance (see note ii below) Letters of credit (see note ii below) Assets under custody (See Note iii below) 79,318 545,174 988,414 5,174,795 327,123 147,189 356,939 831,251 4,356,973 261,495 79,318 413,656 754,469 5,174,795 306,412 147,189 321,754 775,355 4,356,973 (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 December 31, 2019, performance bonds and guarantees worth N84 billion (December 31, 2018: N59.4 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. The amount includes N4,198 billion (December 31, 2018: N4,357 billion) which represents the full amount of the Group's guarantee for the assets held by its subsidiary, Zenith Pensions Custodian Limited's custodial business as required by the National Pensions Commission of Nigeria. The residual amount of N977 billion (December 31,2018: N932 billion) is held under the custodial business of Zenith Nominees Limited. (iii) 39. Dividend per share Group Bank 31-Dec-19 31-Dec-18 31-Dec-19 31-Dec-18 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 78,491 9,419 87,910 87,910 31,396 2.80 0.30 2.50 76,921 9,419 86,340 87,910 31,396 2.80 0.30 2.50 78,491 9,419 87,910 87,910 31,396 2.80 0.30 2.50 76,921 9,419 86,340 The Board of Directors, pursuant to the powers vested in it by the provisions of Section 379 of the Companies and Allied Matters 210 Act of Nigeria, Cap C20 LFN 2004, proposed an interim dividend of N0.30 per share and a ﬁnal dividend of N2.50 per share (December 31, 2018: interim; N0.30, ﬁnal; N2.50) from the retained earnings account as at December 31, 2019. 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 December 31, 2019 and December 31, 2018 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-19 31-Dec-18 31-Dec-19 31-Dec-18 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 175,328 248,945 118,499 196,602 11,697 23,819 11,697 20,847 483,690 670,715 674,274 947,038 258,657 388,853 393,466 610,915 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 4 Penalty for incomplete documentation of newly opened accounts Fines for non-compliance with ATM installation procedures. Fines for non-compliance with Anti-money laundering procedures. Penalty for improper classiﬁcation of corporate accounts. 42. Events after the reporting period 2,000,000 2,000,000 2,000,000 15,000,000 21,000,000 No signiﬁcant event that requires disclosure occured between the reporting date and the date when the ﬁnancial statements were issued. s l a i c n a n F i 211 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 In millions of Naira 43. Statement of cash ﬂow workings (i) Debt securities (see note 21) Group Bank 31-Dec-19 31-Dec-18 31-Dec-19 31-Dec-18 December 31, 2019 At 1 January 2019 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 December 31, 2018 At 1 January 2018 Gains from changes in fair value recognised in proﬁt or loss (see note 11) Additions Disposals (sale, transfers and redemption) Interest accrued Movement for cash ﬂow statement Recognised in cash ﬂow statement Debt securities at fair value through profit or loss Debt securities at a mortised cost and FVTOCI Debt securities at fair value through profit or loss Debt securities at a mortised cost 4,970 10,905 11,592 (15,210) - - 12,257 (3,618) - 513,154 - 132,685 (138,370) 7,790 - 515,259 2,105 1,513 4,970 10,905 11,592 (15,210) - - 12,257 (3,618) - 102,508 - 57,059 (49,551) 3,943 - 113,959 11,451 (7,833) Debt securities at fair value through profit or loss Debt securities at amortised cost and FVTOCI Debt securities at fair value through profit or loss Debt securities at a mortised cost 32,266 (1,990) 1,978 (27,408) 124 4,970 (25,306) - 284,584 - 230,573 (10,086) 8,063 513,154 228,570 (203,264) 32,266 (1,990) 1,978 (27,408) 124 4,970 (25,306) - 71,447 - 27,475 (1,252) 4,838 102,508 31,061 (5,755) (ii) Treasury bills (Amortised cost) (see note 16) December 31, 2019 31-Dec-19 31-Dec-18 31-Dec-19 31-Dec-18 Treasury bills (Amortised cost) Treasury bills (with 3 months maturity) Changes Recognised in cashflow statement 283,845 (11,697) 272,148 194,352 490,319 (23,819) 466,500 114,352 (11,697) 102,655 183,300 306,802 (20,847) 285,955 212 December 31, 2018 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 Treasury bills (Amortised cost) Treasury bills (with 3 months maturity) Changes Recognised in cashflow statement 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 (iii) Treasury bills (FVTPL) (see note 16) December 31, 2019 Treasury bills (FVTPL) 31-Dec-19 31-Dec-18 31-Dec-19 31-Dec-18 708,111 510,313 708,114 510,313 Recognised in cashflow (197,798) (197,801) December 31, 2018 Treasury bills (FVTPL) Recognised in cashflow 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 510,313 37,343 547,656 510,313 37,343 547,656 (iv) Loans and advances (see note 20) December 31, 2019 Gross loans and advances Changes Write oﬀ Interest receivables 31-Dec-19 31-Dec-18 31-Dec-19 31-Dec-18 2,462,359 (445,839) (65,253) 18,375 2,016,520 235,652 (73,962) - 2,390,651 (469,587) (60,967) 17,172 1,921,064 196,005 (60,235) - (492,717) 161,690 (513,382) 135,770 December 31, 2018 Gross loans and advances 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 2,016,520 2,252,172 1,921,064 2,117,069 Changes Write-back Write oﬀ 235,652 - (73,962) 161,690 108,637 (6,535) (7,196) 94,906 196,005 - (60,235) 135,770 76,155 (6,535) (7,196) 62,424 s l a i c n a n F i 213 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 (v) Customer deposits December 31, 2019 As per ﬁnancial statement Changes Interest payables December 31, 2018 As per ﬁnancial statement Changes Group Bank 31-Dec-19 31-Dec-18 31-Dec-19 31-Dec-18 4,262,289 3,690,295 3,486,887 2,821,066 571,994 (7,859) 564,135 252,380 - - 665,821 (1,266) 664,555 76,541 - - 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 3,690,295 3,437,915 2,821,066 2,744,525 252,380 252,380 454,294 - 76,541 76,541 191,562 - (vi) Other liabilities (see note 29) December 31, 2019 31-Dec-19 31-Dec-18 31-Dec-19 31-Dec-18 As per statement of ﬁnancial position Changes Finance lease principal repayments Finance lease interest repayments oﬀ balance sheet ECL allowance VAT paid Net cash movement 363,764 (137,299) (2,196) (564) 5,466 (381) 231,716 11,307 (2,760) - 8,011 (260) 386,061 (167,849) (2,196) (564) 5,466 (381) 223,463 5,869 (2,760) - 8,011 (260) 134,974 (16,298) 165,524 (10,860) December 31, 2018 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 As per statement of ﬁnancial position Changes Finance lease repayments ECL allowance VAT paid Net cash movement 231,716 11,307 (2,760) 8,011 (260) (16,298) 243,023 (24,801) - - 2,235 (27,036) 223,463 5,869 (2,760) 8,011 (260) (10,860) 229,332 23,946 - - (1,814) 22,132 214 (vii) Profit on disposal of property and equipment Cost (see note 25) Accummulated depreciation (see note 25) Net book value Sales proceed Recognised in cash flow statement (viii) Interest received Group Bank 31-Dec-19 31-Dec-18 31-Dec-19 31-Dec-18 5,163 (2,334) 2,829 (2,976 147 4,157 (926) 3,231 3,490 259 1,960 (1,582) 378 (530) 152 2,262 (2,097) 165 406 241 31-Dec-19 31-Dec-18 31-Dec-19 31-Dec-18 Interest income as per ﬁnancial statement Interest receivables Recognised in cash flow statement 415,563 (8,459) 407,104 440,052 (5,206) 434,846 339,310 (3,792) 335,518 367,816 (2,691) 365,125 (ix) Interest paid 31-Dec-19 31-Dec-18 31-Dec-19 31-Dec-18 Interest expense as per ﬁnancial statement Interest payables Recognised in cash flow statement 148,532 (12,957) 135,575 144,458 (10,257) 134,201 126,237 (11,839) 114,398 124,156 (7,922) 116,234 (x) Other assets Other assets (see note 24) Changes Write oﬀ of asset Recognised in cash flow statement Other assets Changes Write oﬀ of asset Recognised in cash flow statement 31-Dec-19 31-Dec-18 31-Dec-19 31-Dec-18 77,395 3,863 - 3,863 79,678 7,568 (4,518) 3,050 71,412 (4,853) - 74,652 (23,848) (4,518) (4,853) (28,366) 31-Dec-19 31-Dec-18 31-Dec-19 31-Dec-18 79,678 7,568 (4,518) 3,050 87,246 - - - 74,652 (23,848) (4,518) (28,366) 50,804 - - - s l a i c n a n F i 215 Zenith Bank Plc Annual Report December 31, 2019 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2019 (xi) Asset pledged as collateral Asset pledged as collateral Impairment Recognised in cash flow (xii) Derivative Asset Forward contract Future contract Group Bank 31-Dec-19 31-Dec-18 31-Dec-19 31-Dec-18 431,671 69 431,740 161,321 592,935 126 593,061 (124,925) 431,671 69 431,740 161,321 592,935 126 593,061 (124,925) 31-Dec-19 31-Dec-18 31-Dec-19 31-Dec-18 91,204 1,518 92,722 87,467 1,359 88,826 91,204 1,518 92,722 (3,896) 87,467 1,359 88,826 (31,607) Recognised in cash flow (3,896) (31,607) (xiii) Restricted balances (Cash Reserve) Mandatory reserve deposit with central bank Special Cash Reserve 31-Dec-19 31-Dec-18 31-Dec-19 31-Dec-18 680,261 80,689 760,950 624,782 80,689 705,471 680,261 80,689 760,950 624,782 80,689 705,471 Recognised in cashflow (55,479) (58,357) (55,479) (58,386) (xiiv) Derivative liabilities Forward contract Futures contract Recognised in cashflow 31-Dec-19 31-Dec-18 31-Dec-19 31-Dec-18 13,622 1,140 14,762 (2,233) 16,236 759 16,995 (3,810) 13,622 1,140 14,762 (2,233) 16,236 759 16,995 (3,810) 216 (cid:37)(cid:80)(cid:1)(cid:90)(cid:80)(cid:86)(cid:1)(cid:80)(cid:88)(cid:79)(cid:1)(cid:66)(cid:1)(cid:84)(cid:85)(cid:80)(cid:83)(cid:70)(cid:13)(cid:1)(cid:83)(cid:70)(cid:84)(cid:85)(cid:66)(cid:86)(cid:83)(cid:66)(cid:79)(cid:85)(cid:13)(cid:1)(cid:84)(cid:86)(cid:81)(cid:70)(cid:83)(cid:78)(cid:66)(cid:83)(cid:76)(cid:70)(cid:85)(cid:1) (cid:80)(cid:83)(cid:1)(cid:66)(cid:79)(cid:90)(cid:1)(cid:80)(cid:85)(cid:73)(cid:70)(cid:83)(cid:1)(cid:85)(cid:90)(cid:81)(cid:70)(cid:1)(cid:80)(cid:71)(cid:1)(cid:67)(cid:86)(cid:84)(cid:74)(cid:79)(cid:70)(cid:84)(cid:84)(cid:32)(cid:1)(cid:1) (cid:42)(cid:71)(cid:1)(cid:90)(cid:70)(cid:84)(cid:13)(cid:1)(cid:90)(cid:80)(cid:86)(cid:1)(cid:68)(cid:66)(cid:79) EARN MONEY (cid:88)(cid:74)(cid:85)(cid:73)(cid:1)(cid:59)(cid:70)(cid:79)(cid:74)(cid:85)(cid:73)(cid:1)(cid:35)(cid:66)(cid:79)(cid:76) (cid:52)(cid:74)(cid:78)(cid:81)(cid:77)(cid:90)(cid:1)(cid:87)(cid:74)(cid:84)(cid:74)(cid:85)(cid:1)(cid:66)(cid:79)(cid:90)(cid:1)(cid:80)(cid:71)(cid:1)(cid:80)(cid:86)(cid:83)(cid:1)(cid:67)(cid:83)(cid:66)(cid:79)(cid:68)(cid:73)(cid:70)(cid:84)(cid:1)(cid:85)(cid:80)(cid:69)(cid:66)(cid:90)(cid:1) (cid:66)(cid:79)(cid:69)(cid:1)(cid:84)(cid:74)(cid:72)(cid:79)(cid:1)(cid:86)(cid:81)(cid:1)(cid:71)(cid:80)(cid:83)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:66)(cid:72)(cid:70)(cid:79)(cid:85)(cid:1)(cid:67)(cid:66)(cid:79)(cid:76)(cid:74)(cid:79)(cid:72)(cid:1)(cid:81)(cid:83)(cid:80)(cid:72)(cid:83)(cid:66)(cid:78)(cid:15) MONEY Other National Disclosures 04Zenith Bank Plc Annual Report December 31, 2019 Value Added Statement In millions of Naira 31-Dec-19 31-Dec-19 31-Dec-18 31-Dec-18 % % 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 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 662,251 (123,651) (24,881) 513,719 (24,032) 489,687 (76,072) (67,949) 630,344 (49,224) (95,234) 485,886 (18,903) 466,983 (65,388) (72,509) 345,666 100 329,086 100 77,858 34,451 24,514 9,420 199,423 23 10 7 3 35 68,556 38,261 19,047 84,771 118,451 21 12 6 26 36 345,666 100 329,086 100 Value added represents the additional wealth which the Group has been able to create by its own and employees eﬀorts. 220 In millions of Naira 31-Dec-19 31-Dec-19 31-Dec-18 31-Dec-18 % % 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 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 564,687 (58,288) (67,949) 438,450 (23,393) 415,057 (128,230) (3,087) 538,004 (51,647) {72,509) 413,848 (15,313) 398,535 (121,999) (2,577) 283,740 100 273,959 100 62,038 22,017 21,682 9,420 168,583 22 8 8 33 59 56,657 26,627 16,812 84,771 80,709 21 10 5 69 (15) 283,740 100 265,576 100 Value added represents the additional wealth which the Bank has been able to create by its own and employees eﬀorts. s e r u s o c s i D l l a n o i t a N r e h t O 221 Zenith Bank Plc Annual Report December 31, 2019 Five Year Financial Summary In millions of Naira 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 43 222 31-Dec-19 31-Dec-18 31-Dec-17 31-Dec-16 31-Dec-15 936,278 991,393 431,728 707,103 92,722 954,416 1,000,560 957,663 936,817 669,058 557,359 761,561 377,928 592,935 468,010 328,343 265,051 674,274 88,826 495,803 57,219 459,457 82,860 272,194 8,481 2,305,565 1,823,111 2,100,362 2,289,365 1,989,313 591,097 565,312 330,951 199,478 213,141 - 11,885 77,395 185,216 16,497 - 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 6,346,879 5,955,710 5,595,253 4,739,825 4,006,842 4,262,289 3,690,295 3,437,915 2,983,621 2,557,884 14,762 9,711 25 363,764 392,871 322,479 39,092 5,404,993 941,886 15,698 255,047 412,948 257,439 941,132 754 16,995 9,154 67 231,716 393,295 437,260 361,177 5,139,959 815,751 15,698 255,047 322,237 221,231 814,213 1,538 20,805 8,915 18 243,023 383,034 66,834 8,953 45 214,080 350,657 384 3,579 19 205,062 286,881 356,496 332,931 4,783,137 812,116 263,106 153,464 4,040,760 699,065 258,862 99,818 3,412,489 594,353 15,698 255,047 356,837 183,217 810,799 1,317 15,698 15,698 255,047 261,608 165,729 698,082 983 255,047 200,115 122,900 593,760 593 941,886 815,751 812,116 699,065 594,353 In millions of Naira 31-Dec-19 31-Dec-18 31-Dec-17 31-Dec-16 31-Dec-15 Statement Of Profit Or Loss And Other Comprehensive Income Gross earnings Share of proﬁt / (loss) of associates Interest expense 662,251 - (148,532) 630,344 - (144,458) 745,189 - (216,637) 507,997 - (144,378) 432,535 228 (123,597) Operating and direct expenses (246,393) (235,829) (231,006) (179,921) (167,877) Impairment charge for ﬁnancial and non-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 Related tax Total comprehensive income Earning per share: Basic and diluted (24,032) 243,294 (34,451) 208,843 (8,498) 13,870 - 452 - 5,824 214,667 214,667 665 K (18,372) 231,685 (38,261) 193,424 4,828 1,459 - - - 6,287 199,711 199,711 615 K (98,227) 199,319 (25,528) 173,791 5,233 (2,551) - - - 2,682 176,473 (32,350) 151,348 (27,096) 124,252 30,338 6,636 - - - 36,974 161,226 (15,673) 125,616 (19,953) 105,663 637 (1,752) - - - (1,115) 104,548 553 K 395 K 336 K s e r u s o c s i D l l a n o i t a N r e h t O 223 Zenith Bank Plc Annual Report December 31, 2019 Five Year Financial Summary In millions of Naira 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 31-Dec-19 31-Dec-18 31-Dec-17 31-Dec-16 31-Dec-15 879,449 822,449 431,728 482,070 92,722 902,073 817,043 592,935 393,466 88,826 907,265 799,992 627,385 463,787 735,946 330,900 468,010 325,575 264,320 273,331 57,219 354,405 82,860 266,894 8,481 2,239,472 1,736,066 1,980,464 2,138,132 1,849,225 189,358 34,625 - 11,223 71,412 - 165,456 15,109 156,673 34,003 - 9,197 75,910 - 133,854 15,399 117,814 34,003 - 9,197 56,052 - 118,223 12,088 118,622 33,003 - 6,041 35,410 - 94,613 3,903 150,724 33,003 90 5,131 21,673 - 81,187 2,753 5,435,073 4,955,445 4,833,658 4,283,736 3,750,327 3,486,887 2,821,066 2,744,525 2,552,963 2,333,017 14,762 6,627 - 386,061 392,871 329,778 39,092 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 4,656,078 778,995 4,280,413 675,032 4,135,675 697,983 3,672,783 610,953 3,203,381 546,946 15,698 15,698 15,698 15,698 15,698 255,047 302,028 206,222 778,995 255,047 238,635 165,652 675,032 255,047 287,867 139,371 697,983 255,047 213,107 127,101 610,953 255,047 160,408 115,793 546,946 Total shareholders' equity 778,995 675,032 697,983 610,953 546,946 224 In millions of Naira 31-Dec-19 31-Dec-18 31-Dec-17 31-Dec-16 31-Dec-15 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 564,687 (126,237) (215,037) (23,393) 200,020 (19,688) 180,332 13,870 - 13,870 194,202 (2,551) 574 K 538,004 (124,156) (206,428) (15,313) 192,107 (26,627) 165,480 - 1,459 - 1,459 166,939 113,885 527 K 673,636 (200,672) (208,299) (95,244) 169,421 (16,418) 155,003 - (2,551) - (2,551) 150,452 454,808 (131,910) (162,076) (26,295) 134,527 (20,642) 113,885 - 6,636 - 6,636 120,521 396,653 (114,936) (155,406) (11,091) 115,220 (16,436) 98,784 - (1,752) - (1,752) 97,032 487 K 362 K 315 K s e r u s o c s i D l l a n o i t a N r e h t O 225 Zenith Bank Plc Annual Report December 31, 2019 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 3 1 - D e c - 1 9 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 0 .5 226 Zenith Youth Parade 2019 The 14th Edition The Zenith Youth Parade (ZYP) is a Corporate Social Responsibility (CSR) initiative of Zenith Bank Plc aimed at supporting, nurturing and empowering Nigerian youths. The Zenith Youth Parade (ZYP) is a Corporate Social Responsibility (CSR) initiative of Zenith Bank Plc aimed at supporting, nurturing and empowering Nigerian youths. With participants drawn from select public schools, alternative care homes and family-like care centers across Lagos, the parade has over the years evolved into a mega festival and a With participants drawn from select public schools, alternative care homes and family-like channel for ushering in the Yuletide and New Year seasons, showcasing the best of Nigeria’s care centers across Lagos, the parade has over the years evolved into a mega festival and a entertainment and creative industry while providing a healthy platform for children from channel for ushering in the Yuletide and New Year seasons, showcasing the best of Nigeria’s diverse cultural, religious, ethnic and social backgrounds to interact and have great fun. entertainment and creative industry while providing a healthy platform for children from diverse cultural, religious, ethnic and social backgrounds to interact and have great fun. With the theme “HEROES OF OUR TIMES: PAST, PRESENT AND FUTURE”, this year’s parade was all about giving honour to the deserving Nigerians of diverse disciplines, ages With the theme “HEROES OF OUR TIMES: PAST, PRESENT AND FUTURE”, this year’s and backgrounds, who have made their marks in our world. This hopefully will inspire the parade was all about giving honour to the deserving Nigerians of diverse disciplines, ages children to pursue their dreams with greater vigor and passion, seeing that consistent effort and backgrounds, who have made their marks in our world. This hopefully will inspire the and commitment will always be rewarded. children to pursue their dreams with greater vigor and passion, seeing that consistent effort and commitment will always be rewarded. 227 Style by Zenith The 2nd Edition (cid:186)(cid:45)(cid:204)(cid:222)(cid:143)(cid:105)(cid:3)(cid:76)(cid:222)(cid:3)(cid:60)(cid:105)(cid:152)(cid:136)(cid:204)(cid:133)(cid:3)(cid:211)(cid:176)(cid:228)(cid:187)(cid:93)(cid:3)(cid:204)(cid:133)(cid:105)(cid:3)(cid:195)(cid:105)(cid:86)(cid:156)(cid:152)(cid:96)(cid:3)(cid:105)(cid:96)(cid:136)(cid:204)(cid:136)(cid:156)(cid:152)(cid:3)(cid:156)(cid:118)(cid:3)(cid:156)(cid:213)(cid:192)(cid:3)(cid:121)(cid:62)(cid:125)(cid:195)(cid:133)(cid:136)(cid:171)(cid:3)(cid:143)(cid:136)(cid:118)(cid:105)(cid:195)(cid:204)(cid:222)(cid:143)(cid:105)(cid:3)(cid:118)(cid:62)(cid:136)(cid:192)(cid:93)(cid:3)(cid:220)(cid:62)(cid:195)(cid:3)(cid:133)(cid:105)(cid:143)(cid:96)(cid:3)(cid:62)(cid:204)(cid:3)(cid:204)(cid:133)(cid:105)(cid:3) (cid:186)(cid:45)(cid:204)(cid:222)(cid:143)(cid:105)(cid:3)(cid:76)(cid:222)(cid:3)(cid:60)(cid:105)(cid:152)(cid:136)(cid:204)(cid:133)(cid:3)(cid:211)(cid:176)(cid:228)(cid:187)(cid:93)(cid:3)(cid:204)(cid:133)(cid:105)(cid:3)(cid:195)(cid:105)(cid:86)(cid:156)(cid:152)(cid:96)(cid:3)(cid:105)(cid:96)(cid:136)(cid:204)(cid:136)(cid:156)(cid:152)(cid:3)(cid:156)(cid:118)(cid:3)(cid:156)(cid:213)(cid:192)(cid:3)(cid:121)(cid:62)(cid:125)(cid:195)(cid:133)(cid:136)(cid:171)(cid:3)(cid:143)(cid:136)(cid:118)(cid:105)(cid:195)(cid:204)(cid:222)(cid:143)(cid:105)(cid:3)(cid:118)(cid:62)(cid:136)(cid:192)(cid:93)(cid:3)(cid:220)(cid:62)(cid:195)(cid:3)(cid:133)(cid:105)(cid:143)(cid:96)(cid:3)(cid:62)(cid:204)(cid:3)(cid:204)(cid:133)(cid:105)(cid:3) Eko Energy City, Victoria Island, Lagos from Friday, November 29 to Sunday, December Eko Energy City, Victoria Island, Lagos from Friday, November 29 to Sunday, December 1, 2019. 1, 2019. The fair is an initiative of Zenith Bank to engage the various aspects of our customers’ The fair is an initiative of Zenith Bank to engage the various aspects of our customers’ lifestyle strategically. The three-day fair provided a classy meeting point for purveyors lifestyle strategically. The three-day fair provided a classy meeting point for purveyors of lifestyle products and the public to interact. It included a series of activities like of lifestyle products and the public to interact. It included a series of activities like fashion shows and masterclasses, food fairs, music concerts, and play area for children, fashion shows and masterclasses, food fairs, music concerts, and play area for children, amongst others. amongst others. Apart from serving as a veritable touch-point for creating value for our teeming Apart from serving as a veritable touch-point for creating value for our teeming customers, the fair also provided an opportunity for budding entrepreneurs and retail customers, the fair also provided an opportunity for budding entrepreneurs and retail businesses to nurture and expand their businesses in line with our retail focus, thus businesses to nurture and expand their businesses in line with our retail focus, thus promoting the Federal Government’s agenda of growing SME businesses in Nigeria. promoting the Federal Government’s agenda of growing SME businesses in Nigeria. 2.0 Style the Life you Desire 228 The Aba SME Fair 2.0 Style the Life you Desire ENYIMBA BUSINESS FAIR (cid:186)(cid:45)(cid:204)(cid:222)(cid:143)(cid:105)(cid:3)(cid:76)(cid:222)(cid:3)(cid:60)(cid:105)(cid:152)(cid:136)(cid:204)(cid:133)(cid:3)(cid:211)(cid:176)(cid:228)(cid:187)(cid:93)(cid:3)(cid:204)(cid:133)(cid:105)(cid:3)(cid:195)(cid:105)(cid:86)(cid:156)(cid:152)(cid:96)(cid:3)(cid:105)(cid:96)(cid:136)(cid:204)(cid:136)(cid:156)(cid:152)(cid:3)(cid:156)(cid:118)(cid:3)(cid:156)(cid:213)(cid:192)(cid:3)(cid:121)(cid:62)(cid:125)(cid:195)(cid:133)(cid:136)(cid:171)(cid:3)(cid:143)(cid:136)(cid:118)(cid:105)(cid:195)(cid:204)(cid:222)(cid:143)(cid:105)(cid:3)(cid:118)(cid:62)(cid:136)(cid:192)(cid:93)(cid:3)(cid:220)(cid:62)(cid:195)(cid:3)(cid:133)(cid:105)(cid:143)(cid:96)(cid:3)(cid:62)(cid:204)(cid:3)(cid:204)(cid:133)(cid:105)(cid:3) (cid:186)(cid:45)(cid:204)(cid:222)(cid:143)(cid:105)(cid:3)(cid:76)(cid:222)(cid:3)(cid:60)(cid:105)(cid:152)(cid:136)(cid:204)(cid:133)(cid:3)(cid:211)(cid:176)(cid:228)(cid:187)(cid:93)(cid:3)(cid:204)(cid:133)(cid:105)(cid:3)(cid:195)(cid:105)(cid:86)(cid:156)(cid:152)(cid:96)(cid:3)(cid:105)(cid:96)(cid:136)(cid:204)(cid:136)(cid:156)(cid:152)(cid:3)(cid:156)(cid:118)(cid:3)(cid:156)(cid:213)(cid:192)(cid:3)(cid:121)(cid:62)(cid:125)(cid:195)(cid:133)(cid:136)(cid:171)(cid:3)(cid:143)(cid:136)(cid:118)(cid:105)(cid:195)(cid:204)(cid:222)(cid:143)(cid:105)(cid:3)(cid:118)(cid:62)(cid:136)(cid:192)(cid:93)(cid:3)(cid:220)(cid:62)(cid:195)(cid:3)(cid:133)(cid:105)(cid:143)(cid:96)(cid:3)(cid:62)(cid:204)(cid:3)(cid:204)(cid:133)(cid:105)(cid:3) Eko Energy City, Victoria Island, Lagos from Friday, November 29 to Sunday, December Eko Energy City, Victoria Island, Lagos from Friday, November 29 to Sunday, December 1, 2019. 1, 2019. The fair is an initiative of Zenith Bank to engage the various aspects of our customers’ The fair is an initiative of Zenith Bank to engage the various aspects of our customers’ lifestyle strategically. The three-day fair provided a classy meeting point for purveyors lifestyle strategically. The three-day fair provided a classy meeting point for purveyors of lifestyle products and the public to interact. It included a series of activities like of lifestyle products and the public to interact. It included a series of activities like fashion shows and masterclasses, food fairs, music concerts, and play area for children, fashion shows and masterclasses, food fairs, music concerts, and play area for children, amongst others. amongst others. Apart from serving as a veritable touch-point for creating value for our teeming Apart from serving as a veritable touch-point for creating value for our teeming customers, the fair also provided an opportunity for budding entrepreneurs and retail customers, the fair also provided an opportunity for budding entrepreneurs and retail businesses to nurture and expand their businesses in line with our retail focus, thus businesses to nurture and expand their businesses in line with our retail focus, thus promoting the Federal Government’s agenda of growing SME businesses in Nigeria. promoting the Federal Government’s agenda of growing SME businesses in Nigeria. The Aba SME Fair, a three-day fair held from Thursday, October 17 to Saturday, October 19, 2019, in the city of Aba, Abia State. The event provided a unique opportunity to showcase the ingenuity of the people and put the state on the global fashion map. The event, which was put together by Zenith Bank Plc in partnership with the Abia State Government, was geared towards contributing to the growth and development of SMEs in the state by providing funding, and facilitating access and exposure to both national and international markets for “Made in Aba” products. Some of the major highlights of the fair are the offer of free registration with the Corporate (cid:386)(cid:118)(cid:118)(cid:62)(cid:136)(cid:192)(cid:195)(cid:3)(cid:10)(cid:156)(cid:147)(cid:147)(cid:136)(cid:195)(cid:195)(cid:136)(cid:156)(cid:152)(cid:3)(cid:173)(cid:10)(cid:386)(cid:10)(cid:174)(cid:3)(cid:118)(cid:156)(cid:192)(cid:3)(cid:204)(cid:133)(cid:105)(cid:3)(cid:119)(cid:192)(cid:195)(cid:204)(cid:3)(cid:211)(cid:228)(cid:228)(cid:3)(cid:45)(cid:31)(cid:13)(cid:195)(cid:3)(cid:62)(cid:152)(cid:96)(cid:3)(cid:118)(cid:192)(cid:105)(cid:105)(cid:3)(cid:76)(cid:156)(cid:156)(cid:204)(cid:133)(cid:3)(cid:118)(cid:156)(cid:192)(cid:3)(cid:204)(cid:133)(cid:105)(cid:3)(cid:119)(cid:192)(cid:195)(cid:204)(cid:3)(cid:163)(cid:120)(cid:228)(cid:3)(cid:45)(cid:31)(cid:13)(cid:195)(cid:3)(cid:204)(cid:156)(cid:3) register for the fair as well as an opportunity for the best fashion/creative exhibitors at the fair to participate at the “Style by Zenith 2.0” fair in Lagos. 229 Zenith Tech Fair Maiden Edition FUTURE FORWARD The maiden edition of the Zenith Tech Fair held on Wednesday, November 27, 2019, at the Landmark Events Centre, Victoria Island, Lagos. Themed “Future Forward”, the event covered conversations and exhibitions in (cid:105)(cid:147)(cid:105)(cid:192)(cid:125)(cid:136)(cid:152)(cid:125)(cid:3)(cid:204)(cid:105)(cid:86)(cid:133)(cid:152)(cid:156)(cid:143)(cid:156)(cid:125)(cid:136)(cid:105)(cid:195)(cid:93)(cid:3)(cid:62)(cid:195)(cid:3)(cid:220)(cid:105)(cid:143)(cid:143)(cid:3)(cid:62)(cid:195)(cid:3)(cid:62)(cid:3)(cid:21)(cid:62)(cid:86)(cid:142)(cid:62)(cid:204)(cid:133)(cid:156)(cid:152)(cid:3)(cid:204)(cid:156)(cid:3)(cid:136)(cid:96)(cid:105)(cid:152)(cid:204)(cid:136)(cid:118)(cid:222)(cid:3)(cid:62)(cid:152)(cid:96)(cid:3)(cid:119)(cid:152)(cid:62)(cid:152)(cid:86)(cid:105)(cid:3)(cid:136)(cid:152)(cid:152)(cid:156)(cid:219)(cid:62)(cid:204)(cid:136)(cid:219)(cid:105)(cid:3) startups. The fair showcased leading technology innovations that cut across different aspects (cid:156)(cid:118)(cid:3)(cid:143)(cid:136)(cid:118)(cid:105)(cid:3)(cid:195)(cid:213)(cid:86)(cid:133)(cid:3)(cid:62)(cid:195)(cid:3)(cid:386)(cid:192)(cid:204)(cid:136)(cid:119)(cid:86)(cid:136)(cid:62)(cid:143)(cid:3)(cid:22)(cid:152)(cid:204)(cid:105)(cid:143)(cid:143)(cid:136)(cid:125)(cid:105)(cid:152)(cid:86)(cid:105)(cid:93)(cid:3)(cid:43)(cid:213)(cid:62)(cid:152)(cid:204)(cid:213)(cid:147)(cid:3)(cid:10)(cid:156)(cid:147)(cid:171)(cid:213)(cid:204)(cid:136)(cid:152)(cid:125)(cid:93)(cid:3)(cid:31)(cid:62)(cid:86)(cid:133)(cid:136)(cid:152)(cid:105)(cid:3)(cid:29)(cid:105)(cid:62)(cid:192)(cid:152)(cid:136)(cid:152)(cid:125)(cid:93)(cid:3) (cid:9)(cid:143)(cid:156)(cid:86)(cid:142)(cid:86)(cid:133)(cid:62)(cid:136)(cid:152)(cid:93)(cid:3)(cid:44)(cid:156)(cid:76)(cid:156)(cid:204)(cid:136)(cid:86)(cid:195)(cid:93)(cid:3)(cid:9)(cid:136)(cid:125)(cid:3)(cid:12)(cid:62)(cid:204)(cid:62)(cid:93)(cid:3)(cid:19)(cid:136)(cid:152)(cid:47)(cid:105)(cid:86)(cid:133)(cid:93)(cid:3)(cid:386)(cid:213)(cid:125)(cid:147)(cid:105)(cid:152)(cid:204)(cid:105)(cid:96)(cid:3)(cid:44)(cid:105)(cid:62)(cid:143)(cid:136)(cid:204)(cid:222)(cid:93)(cid:3)(cid:12)(cid:62)(cid:204)(cid:62)(cid:3)(cid:386)(cid:152)(cid:62)(cid:143)(cid:222)(cid:204)(cid:136)(cid:86)(cid:195)(cid:93)(cid:3)(cid:120)(cid:20)(cid:3)(cid:62)(cid:152)(cid:96)(cid:3) Communication Technologies, among others. The lineup of exhibitors included Google, Oracle, IBM, Microsoft, Visa, HP, and (cid:386)(cid:171)(cid:171)(cid:143)(cid:105)(cid:93)(cid:3)(cid:220)(cid:136)(cid:204)(cid:133)(cid:3)(cid:152)(cid:156)(cid:3)(cid:118)(cid:105)(cid:220)(cid:105)(cid:192)(cid:3)(cid:204)(cid:133)(cid:62)(cid:152)(cid:3)(cid:211)(cid:93)(cid:3)(cid:228)(cid:228)(cid:228)(cid:3)(cid:171)(cid:62)(cid:192)(cid:204)(cid:136)(cid:86)(cid:136)(cid:171)(cid:62)(cid:152)(cid:204)(cid:195)(cid:93)(cid:3)(cid:120)(cid:228)(cid:3)(cid:105)(cid:221)(cid:133)(cid:136)(cid:76)(cid:136)(cid:204)(cid:156)(cid:192)(cid:195)(cid:93)(cid:3)(cid:62)(cid:152)(cid:96)(cid:3)(cid:123)(cid:228)(cid:228)(cid:3)(cid:96)(cid:105)(cid:219)(cid:105)(cid:143)(cid:156)(cid:171)(cid:105)(cid:192)(cid:195)(cid:3)(cid:136)(cid:152)(cid:3) attendance. 230 The maiden edition of the Zenith Tech Fair held on Wednesday, November 27, 2019, at the Landmark Events Centre, Victoria Island, Lagos. Themed “Future Forward”, the event covered conversations and exhibitions in (cid:105)(cid:147)(cid:105)(cid:192)(cid:125)(cid:136)(cid:152)(cid:125)(cid:3)(cid:204)(cid:105)(cid:86)(cid:133)(cid:152)(cid:156)(cid:143)(cid:156)(cid:125)(cid:136)(cid:105)(cid:195)(cid:93)(cid:3)(cid:62)(cid:195)(cid:3)(cid:220)(cid:105)(cid:143)(cid:143)(cid:3)(cid:62)(cid:195)(cid:3)(cid:62)(cid:3)(cid:21)(cid:62)(cid:86)(cid:142)(cid:62)(cid:204)(cid:133)(cid:156)(cid:152)(cid:3)(cid:204)(cid:156)(cid:3)(cid:136)(cid:96)(cid:105)(cid:152)(cid:204)(cid:136)(cid:118)(cid:222)(cid:3)(cid:62)(cid:152)(cid:96)(cid:3)(cid:119)(cid:152)(cid:62)(cid:152)(cid:86)(cid:105)(cid:3)(cid:136)(cid:152)(cid:152)(cid:156)(cid:219)(cid:62)(cid:204)(cid:136)(cid:219)(cid:105)(cid:3) startups. The fair showcased leading technology innovations that cut across different aspects (cid:156)(cid:118)(cid:3)(cid:143)(cid:136)(cid:118)(cid:105)(cid:3)(cid:195)(cid:213)(cid:86)(cid:133)(cid:3)(cid:62)(cid:195)(cid:3)(cid:386)(cid:192)(cid:204)(cid:136)(cid:119)(cid:86)(cid:136)(cid:62)(cid:143)(cid:3)(cid:22)(cid:152)(cid:204)(cid:105)(cid:143)(cid:143)(cid:136)(cid:125)(cid:105)(cid:152)(cid:86)(cid:105)(cid:93)(cid:3)(cid:43)(cid:213)(cid:62)(cid:152)(cid:204)(cid:213)(cid:147)(cid:3)(cid:10)(cid:156)(cid:147)(cid:171)(cid:213)(cid:204)(cid:136)(cid:152)(cid:125)(cid:93)(cid:3)(cid:31)(cid:62)(cid:86)(cid:133)(cid:136)(cid:152)(cid:105)(cid:3)(cid:29)(cid:105)(cid:62)(cid:192)(cid:152)(cid:136)(cid:152)(cid:125)(cid:93)(cid:3) (cid:9)(cid:143)(cid:156)(cid:86)(cid:142)(cid:86)(cid:133)(cid:62)(cid:136)(cid:152)(cid:93)(cid:3)(cid:44)(cid:156)(cid:76)(cid:156)(cid:204)(cid:136)(cid:86)(cid:195)(cid:93)(cid:3)(cid:9)(cid:136)(cid:125)(cid:3)(cid:12)(cid:62)(cid:204)(cid:62)(cid:93)(cid:3)(cid:19)(cid:136)(cid:152)(cid:47)(cid:105)(cid:86)(cid:133)(cid:93)(cid:3)(cid:386)(cid:213)(cid:125)(cid:147)(cid:105)(cid:152)(cid:204)(cid:105)(cid:96)(cid:3)(cid:44)(cid:105)(cid:62)(cid:143)(cid:136)(cid:204)(cid:222)(cid:93)(cid:3)(cid:12)(cid:62)(cid:204)(cid:62)(cid:3)(cid:386)(cid:152)(cid:62)(cid:143)(cid:222)(cid:204)(cid:136)(cid:86)(cid:195)(cid:93)(cid:3)(cid:120)(cid:20)(cid:3)(cid:62)(cid:152)(cid:96)(cid:3) Communication Technologies, among others. The lineup of exhibitors included Google, Oracle, IBM, Microsoft, Visa, HP, and (cid:386)(cid:171)(cid:171)(cid:143)(cid:105)(cid:93)(cid:3)(cid:220)(cid:136)(cid:204)(cid:133)(cid:3)(cid:152)(cid:156)(cid:3)(cid:118)(cid:105)(cid:220)(cid:105)(cid:192)(cid:3)(cid:204)(cid:133)(cid:62)(cid:152)(cid:3)(cid:211)(cid:93)(cid:3)(cid:228)(cid:228)(cid:228)(cid:3)(cid:171)(cid:62)(cid:192)(cid:204)(cid:136)(cid:86)(cid:136)(cid:171)(cid:62)(cid:152)(cid:204)(cid:195)(cid:93)(cid:3)(cid:120)(cid:228)(cid:3)(cid:105)(cid:221)(cid:133)(cid:136)(cid:76)(cid:136)(cid:204)(cid:156)(cid:192)(cid:195)(cid:93)(cid:3)(cid:62)(cid:152)(cid:96)(cid:3)(cid:123)(cid:228)(cid:228)(cid:3)(cid:96)(cid:105)(cid:219)(cid:105)(cid:143)(cid:156)(cid:171)(cid:105)(cid:192)(cid:195)(cid:3)(cid:136)(cid:152)(cid:3) attendance. FUTURE FORWARD 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: (cid:44)(cid:3)(cid:75)(cid:72)(cid:85)(cid:72)(cid:69)(cid:92)(cid:3)(cid:68)(cid:73)(cid:191)(cid:85)(cid:80)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:73)ormation 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 (cid:50)(cid:73)(cid:191)(cid:70)(cid:72)(cid:85)’s Name & Sign: Not Credited Pending (cid:36)(cid:2814)(cid:91) 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:53)(cid:40)(cid:42)(cid:44)(cid:54)(cid:55)(cid:53)(cid:36)(cid:53) (cid:57)(cid:40)(cid:53)(cid:44)(cid:55)(cid:36)(cid:54)(cid:3)(cid:53)(cid:40)(cid:42)(cid:44)(cid:54)(cid:55)(cid:53)(cid:36)(cid:53)(cid:54)(cid:3)(cid:47)(cid:44)(cid:48)(cid:44)(cid:55)(cid:40)(cid:39)(cid:15) (cid:27)(cid:28)(cid:36)(cid:15)(cid:3)(cid:36)(cid:45)(cid:50)(cid:54)(cid:40)(cid:3)(cid:36)(cid:39)(cid:40)(cid:50)(cid:42)(cid:56)(cid:49)(cid:3)(cid:54)(cid:55)(cid:53)(cid:40)(cid:40)(cid:55)(cid:15) (cid:57)(cid:44)(cid:38)(cid:55)(cid:50)(cid:53)(cid:44)(cid:36)(cid:3)(cid:44)(cid:54)(cid:47)(cid:36)(cid:49)(cid:39)(cid:15) (cid:47)(cid:36)(cid:42)(cid:50)(cid:54)(cid:17) VERITASREGISTRARS YOU CAN MONITOR YOUR SHARES ALL BY YOURSELF (cid:910) (cid:8)(cid:89)(cid:70)(cid:87)(cid:71)(cid:86)(cid:77)(cid:70)(cid:73) (cid:88)(cid:83) VERITASREGISTRARSONLINE PORTAL (cid:56)(cid:76)(cid:73)(cid:3)(cid:84)(cid:83)(cid:86)(cid:88)(cid:69)(cid:80)(cid:3)(cid:77)(cid:87)(cid:3)(cid:89)(cid:87)(cid:73)(cid:86)(cid:18)(cid:74)(cid:86)(cid:77)(cid:73)(cid:82)(cid:72)(cid:80)(cid:93)(cid:3)(cid:69)(cid:82)(cid:72)(cid:3)(cid:69) (cid:83)(cid:82)(cid:73)(cid:18)(cid:87)(cid:88)(cid:83)(cid:84)(cid:3)(cid:87)(cid:76)(cid:83)(cid:84)(cid:3)(cid:88)(cid:76)(cid:69)(cid:88)(cid:3)(cid:84)(cid:86)(cid:83)(cid:90)(cid:77)(cid:72)(cid:73)(cid:87)(cid:3)(cid:82)(cid:73)(cid:71)(cid:73)(cid:87)(cid:87)(cid:69)(cid:86)(cid:93)(cid:3)(cid:72)(cid:73)(cid:88)(cid:69)(cid:77)(cid:80)(cid:87)(cid:3) (cid:69)(cid:70)(cid:83)(cid:89)(cid:88)(cid:3)(cid:93)(cid:83)(cid:89)(cid:86)(cid:3)(cid:77)(cid:82)(cid:90)(cid:73)(cid:87)(cid:88)(cid:81)(cid:73)(cid:82)(cid:88)(cid:87)(cid:3)(cid:87)(cid:89)(cid:71)(cid:76)(cid:3)(cid:69)(cid:87) (cid:90)(cid:77)(cid:73)(cid:91)(cid:77)(cid:82)(cid:75)(cid:20)(cid:84)(cid:86)(cid:77)(cid:82)(cid:88)(cid:77)(cid:82)(cid:75)(cid:3)(cid:83)(cid:74)(cid:3)(cid:72)(cid:77)(cid:90)(cid:77)(cid:72)(cid:73)(cid:82)(cid:72)(cid:3)(cid:87)(cid:88)(cid:69)(cid:88)(cid:73)(cid:81)(cid:73)(cid:82)(cid:88)(cid:3)(cid:11)(cid:3) (cid:87)(cid:88)(cid:83)(cid:71)(cid:79)(cid:3)(cid:84)(cid:83)(cid:87)(cid:77)(cid:88)(cid:77)(cid:83)(cid:82)(cid:17)(cid:3)(cid:81)(cid:83)(cid:82)(cid:77)(cid:88)(cid:83)(cid:86)(cid:77)(cid:82)(cid:75)(cid:3)(cid:87)(cid:88)(cid:69)(cid:88)(cid:89)(cid:87)(cid:3)(cid:83)(cid:74)(cid:3)(cid:72)(cid:73)(cid:81)(cid:69)(cid:88)(cid:73)(cid:86)(cid:77)(cid:69)(cid:80)(cid:77)(cid:87)(cid:69)(cid:88)(cid:77)(cid:83)(cid:82)(cid:17)(cid:3)(cid:69)(cid:82)(cid:72)(cid:3)(cid:71)(cid:83)(cid:82)(cid:74)(cid:77)(cid:86)(cid:81)(cid:69)(cid:88)(cid:77)(cid:83)(cid:82)(cid:3)(cid:83)(cid:74)(cid:3) (cid:87)(cid:76)(cid:69)(cid:86)(cid:73)(cid:76)(cid:83)(cid:80)(cid:72)(cid:77)(cid:82)(cid:75)(cid:17)(cid:3)(cid:78)(cid:89)(cid:87)(cid:88)(cid:3)(cid:69)(cid:88)(cid:3)(cid:88)(cid:76)(cid:73)(cid:3)(cid:71)(cid:80)(cid:77)(cid:71)(cid:79)(cid:3)(cid:83)(cid:74)(cid:3)(cid:69)(cid:3)(cid:70)(cid:89)(cid:88)(cid:88)(cid:83)(cid:82)(cid:3)(cid:69)(cid:82)(cid:72)(cid:3)(cid:69)(cid:88)(cid:3)(cid:93)(cid:83)(cid:89)(cid:86)(cid:3)(cid:71)(cid:83)(cid:82)(cid:90)(cid:73)(cid:82)(cid:77)(cid:73)(cid:82)(cid:71)(cid:73)(cid:19) (cid:55)(cid:50)(cid:3)(cid:54)(cid:56)(cid:37)(cid:54)(cid:38)(cid:53)(cid:44)(cid:37)(cid:40)(cid:29) (cid:609)(cid:484)(cid:485)(cid:486)(cid:3)(cid:560)(cid:483)(cid:561)(cid:3)(cid:484)(cid:489)(cid:490)(cid:486)(cid:483)(cid:488)(cid:489)(cid:566)(cid:490) (cid:73)(cid:82)(cid:85)(cid:89)(cid:77)(cid:86)(cid:93)(cid:37)(cid:90)(cid:73)(cid:86)(cid:77)(cid:88)(cid:69)(cid:87)(cid:86)(cid:73)(cid:75)(cid:77)(cid:87)(cid:88)(cid:86)(cid:69)(cid:86)(cid:87)(cid:19)(cid:71)(cid:83)(cid:81) (cid:91)(cid:91)(cid:91)(cid:19)(cid:90)(cid:73)(cid:86)(cid:77)(cid:88)(cid:69)(cid:87)(cid:86)(cid:73)(cid:75)(cid:77)(cid:87)(cid:88)(cid:86)(cid:69)(cid:86)(cid:87)(cid:19)(cid:71)(cid:83)(cid:81) (cid:82)(cid:31)(cid:42)(cid:55)(cid:50)(cid:56)(cid:3)(cid:78)(cid:3)(cid:14)(cid:52)(cid:51)(cid:41)(cid:46)(cid:57)(cid:46)(cid:52)(cid:51)(cid:56)(cid:3)(cid:38)(cid:53)(cid:53)(cid:49)(cid:62)

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