Zenith Bank Plc Annual Report 2020

Plain-text annual report

Contents Strategic Report 01 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 Chief Executive Oﬃcer’s Review Board of Directors (in pictures) Directors’ Report Governance & Sustainability 02 10. 11. 12. 13. 14. 15. 16. Financials 03 17. 18. 19. 20. 21. Statement of Corporate Responsibility Corporate Governance Report Statement of Directors’ Responsibilities in Relation to the Financial Statements Report of the Audit Committee Independent Auditor’s Report Sustainability Report Report to the Directors on the Outcome of the Board Evaluation 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 04 22. 23. 24. 25. Value Added Statement Five Year Financial Summary Share Capital History Forms 2 4 5 6 9 21 24 30 34 42 52 53 69 70 71 76 82 84 85 86 89 92 248 250 254 255 Strategic Report 01Zenith Bank Plc Annual Report December 31, 2020 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 Dame (Dr.) Adaora Umeoji Mr. Ahmed Umar Shuaib Dr. Temitope Fasoranti Mr. Dennis Olisa Mr. Henry Oroh 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 COMPANY SECRETARY Michael Osilama Otu REGISTERED OFFICE AUDITOR REGISTRAR AND TRANSFER OFFICE 4 Zenith Bank Plc Zenith Heights Plot 87, Ajose Adeogun Street, Victoria Island, Lagos PricewaterhouseCoopers (PwC) Professional Services Landmark Towers, 5B Water Corporation Road Victoria Island Lagos Veritas Registrars Limited (formerly Zenith Registrars Limited) Plot 89 A, Ajose Adeogun Street, Victoria Island, Lagos Lagos Results at a Glance/ Key Performance Indices Financial Highlights In millions of Naira 31-Dec-20 31-Dec-19 % 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 420,813 299,682 511,893 (256,032) 255,861 230,565 7.34 2,919,342 5,339,911 8,481,272 1,117,473 22.4% 3.1% 7.9% 2.1% 1.5% 50.0% 66.2% 54.7% 23% 4.29% 415,563 267,031 475,119 (231,825) 243,295 208,844 6.65 2,462,359 4,262,289 6,346,879 941,886 23.8% 3.4% 8.2% 3.0% 1.1% 48.8% 57.3% 57.8% 22% 4.30% 1% 12% 8% 10% 5% 10% 10% 19% 25% 34% 19% -6% -9% -4% -31% 34% 2% 16% -5% 5% 0% Strategic Report 5 Zenith Bank Plc Annual Report December 31, 2020 Group Financial Highlights ZENITH BANK PLC – 2020 GROUP FINANCIAL HIGHLIGHTS FYE 2020 Total deposits grew by 25% (N1,078bn) reflecting public confidence in the Zenith brand. The funding mix was also rebalanced towards cheaper retail deposits. Total deposits - Group (N'bn) 5,340 4,262 3,438 3,690 2,984 6,000 5,000 4,000 3,000 2,000 1,000 0 Total assets grew by 34% (N2,134bn) to close at N8.5trn enhancing our balance sheet. Total assets - Group (N'bn) 8,481 5,595 5,956 6,347 4,739 2016 2017 2018 2019 2020 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2016 2017 2018 2019 2020 5% growth in PBT is attributable to the growth in both interest and non-interest income as well as reduction in funding costs. Profit after tax increased by 10% (N21.7bn) driven by improved profit before tax as well as an efficient tax management strategy. Profit before tax - Group (N'bn) Profit after tax - Group (N'bn) 243 232 256 199 151 231 209 193 174 124 250 200 150 100 50 0 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 300 250 200 150 100 50 0 6 Confidential to Zenith Bank Plc| 1 ZENITH BANK PLC – 2020 GROUP FINANCIAL HIGHLIGHTS FYE 2020 (cid:27)hareholders(cid:55) funds grew year-on-year by 18.(cid:14)% to N1,117bn providing ade(cid:46)uate buffer for business expansion. Total s(cid:24)are(cid:24)olders' fund - Group (N'bn) 1,117 942 812 816 (cid:25)99 1200 1000 800 600 400 200 0 (cid:21)onsistent and growing dividend payout in the last 7 years. The payout increased by 7% year-on-year. (cid:29)ith this proposed dividend we are recording a dividend yield of 12% (201(cid:17)(cid:18) 15%). (cid:9)i(cid:35)idend (N) 2(cid:4)70 2(cid:4)80 2(cid:4)80 3(cid:4)00 1(cid:4)75 1(cid:4)80 2(cid:4)02 2014 2015 2016 2017 2018 2019 2020 3(cid:4)00 2(cid:4)00 1(cid:4)00 0(cid:4)00 2016 2017 2018 2019 2020 (cid:26)eturn on (cid:19)verage (cid:22)(cid:46)uity ((cid:26)o(cid:19)(cid:22)) and (cid:26)eturn on (cid:19)verage (cid:19)sset ((cid:26)o(cid:19)(cid:19)) dropped year-on-year on the bac(cid:40) of increased shareholders(cid:55) funds and total assets respectively. ROAE/ROAA 23(cid:4)30(cid:2) 22(cid:4)90(cid:2) 23(cid:4)80(cid:2) 23(cid:4)80(cid:2) 22(cid:4)40(cid:2) 3(cid:4)00(cid:2) 3(cid:4)40(cid:2) 3(cid:4)30(cid:2) 3(cid:4)40(cid:2) 3(cid:4)10(cid:2) 30.00% 20.00% 10.00% 0.00% 2016 2017 2018 2019 2020 (cid:18)(cid:17)(cid:15)(cid:16) (cid:18)(cid:17)(cid:15)(cid:15) (cid:22)ffective funding cost management giving rise to reduction in interest expense by 18% despite significant growth in the (cid:23)roup(cid:55)s deposit base by 25%. 2020 2019 Interest expense 2020 Borrowed funds and leases 33% Time deposits 24% Current accounts 25% Borrowed funds and leases 46% Savings 18% Current accounts 8% Savings 14% Time deposits 32% Strategic Report 7 Confidential to Zenith Bank Plc| (cid:4) s t h g i l h g H i l i i a c n a n F p u o r G 8 Zenith Bank Plc Annual Report December 31, 2020 Corporate Proﬁle & Strategy INTRODUCTION Zenith Bank Group is the largest bank in Nigeria by total assets size and Tier 1 Capital and is the tenth largest bank in Africa as measured by Tier 1 Capital (The Banker, July 2020). Zenith Bank is an international bank with operations in the United Kingdom, United Africa Emirates and three other West African countries apart from Nigeria, namely, Ghana, Sierra Leone and Gambia. In Nigeria we have a strong franchise and reputation and are either the top or one of the leaders in key ﬁnancial variables such as customer deposits, total assets, earnings and proﬁtability. Within thirty years of its existence, Zenith Bank 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. The combined intellectual capital and dedication of the staﬀ, Management and Board have shaped Zenith Bank into the world-class institution that it is today. Over the years the Zenith Bank 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 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 Bank is easily associated with the following attributes in the Nigerian banking industry: Innovation • • Good financial performance • Stable and dedicated management team • Highly Skilled Personel • Leadership in the use of Information and Commu- nication Technology • Strategic distribution channels • Good asset quality Strategic Report 9 Zenith Bank Plc Annual Report December 31, 2020 Corporate Proﬁle & Strategy OUR VISION OUR MISSION OUR VALUE . Integrity . Professionalism . Excellence . Ethics . Commitment · Transparency · Service “.....to build the Zenith brand into a reputable international ﬁnancial institution recognized for innovation, superior customer service and performance while creating premium value for all stakeholders”. “....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” 10 Business Focus Zenith Bank Group is a customer centric, innovation and technology enabled ﬁnancial services organisation that is geared towards surpassing its customers’ expectations. It focuses and channels its resources only on its core business segments, international subsidiary businesses, its pension/custodian services and nominees business only. Core Business Segments a) The Bank’s core business segments provide a broad range of banking products and services to both corporate and retail customers. These business activities are conducted through the following business units: • • • • • Institutional and Investment Banking Corporate Banking Commercial/SMEs Retail Banking Public Sector Banking Institutional and Investment Banking The Institutional and Investment Banking Unit (the “IIBU”) manages the Group’s business relationship with other banks, ﬁnancial institutions, multilateral agencies, securities houses, insurance companies, asset management companies and other non-bank ﬁnance companies, private equity and venture funds. The IIBU also assists individuals, corporations and governments in raising capital by underwriting and/or acting as the client’s agent in the issuance of securities as well as assisting companies in mergers and acquisitions processes. The unit through its Treasury sub unit provides ancillary services such as market-marking, derivatives trading, ﬁxed income instruments, foreign exchange, commodities and equity securities and manages the group’s correspondent banking relationships. The Treasury sub-group works closely with 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. Strategic Report 11 Zenith Bank Plc Annual Report December 31, 2020 Corporate Proﬁle & Strategy 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, medium and micro enterprises (MSMEs), and other commercial businesses which also includes all unincorporated entities (such as societies, clubs, churches, mosques etc). It oﬀers loans and advances 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 The Group’s strategic objective is to become the market leader in the retail market. To this end, the Group provides retail banking products and services through its extensive branch network and ever widening array of digital channels driven by cutting edge technology. The Group’s retail strategy includes categorizing the retail market into two major broad segments namely; PRESTIGE (rich and aﬄuent) and WAVE (retail aﬄuent and mass). These two broad segments drive the Group’s design of retail deposits products and services which range from standard to specialized savings, current, domiciliary and investment accounts. Specialized products include the Zenith Children Accounts (ZECA), Individual Current and Savings Accounts, Easysave Classic and Premium Accounts (ﬁnancial inclusion customers), Aspire Savings Accounts (tertiary institution students), Timeless Accounts (senior citizens) and Platinum and Gold Current Accounts (high net worth individuals) etc. 12 Also, the Group oﬀers a wide range of digital products and services such as internet banking, mobile banking services (mobile app), *966 EazyBanking, Zenith Scan to Pay, EazyMoney etc. Furthermore, the Group oﬀers other channels such as ATMs, cards and POS terminals which have been designed to meet the ever changing needs of the retail segment of the banking industry. In addition, the Group oﬀers credit products including personal loans, advances, mortgages, asset ﬁnance, and credit cards through our traditional channels. These credit products can also be accessed through some of the Group’s digital channels such as *966 EazyBanking and there are plans to on-board these as well on the internet banking and mobile banking application. The Group recognizes that attracting, winning and retaining this segment of customers is through the development of customer value propositions (CVPs) unique to each customer sub-segment. To ensure eﬀective delivery of these CVPs through branches as well as through digital channels, the Group employs advanced analytics to identify micro segments and customer spending patterns. Also, in order to maximize customer acquisition, customer growth, and customer retention, the Group constantly carries out environmental scanning and closely monitors key trends in the retail industry. Recently, the Group, in addition to the on boarding of super agents, deployed agency banking services across the 36 states of the federation to ensure the bank has a touch point at every location in the country. The Bank has on-boarded about 40,000 agents as at 31st December 2020. This is to service mostly 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. Also, the Group collaborates with selected Fintechs and Micro Finance Banks to make the Group’s innovative products and services available to their customers and vice versa. The Group regularly reviews its retail strategies to ensure eﬃcient execution as well as to ensure that the Group is on course to become the market leader in retail in an ever changing banking landscape. The Group will continue to leverage on cutting edge technology to deliver best in class retail products and services that will be adapted to the digital demands of retail customers. The Group will also continue to enable market leading capabilities, developing bestin-class digital products and solutions as well as increasing speed to market supported by agility of innovation. 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: Strategic Report 13 Zenith Bank Plc Annual Report December 31, 2020 Corporate Proﬁle & Strategy 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 in ﬁxed eﬀective treasury management, Zenith UK trades 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. 14 Pension and Custodial Services 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 2020, total funds under its custody amounted to approximately N5.643 trillion. Zenith Pensions has 112 funds under its custody. 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-today basis. Zenith Nominees Limited Zenith Nominees Limited provides nominees, trustees, administrators and executorship services for non-pension assets. It started operations in 2018. As at 31 December 2020, total funds under its custody amounted to approximately N603 billion. 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 Continue to seek, employ and retain the best personnel available Continuous investment in training and retraining 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 strong risk management and corporate governance practices • • • • • • • • • • • • 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. Strategic Report 15 Zenith Bank Plc Annual Report December 31, 2020 Corporate Proﬁle & Strategy 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. 14. 15. Continue to deliver superior and tailormade service experience to all our customers at all times Continue to develop deeper and broader relationship with all clients and strive to understand their individual and industry peculiarities with a view to developing speciﬁc solutions for each segment of our customer base Continue to expand our operations by adding new distribution channels especially in the digital space Consolidate our leadership as a banking service provider in Nigeria by continuing to build on long standing relationships, capabilities and the strength of our brand and reputation to drive our international business network expansion Continually enhance our processing and systems platforms to deliver new capabilities and improve operational eﬃciencies and achieve economies of scale. Maintain strong risk management and corporate 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 subregion to encourage them to use our foreign subsidiaries for businesses they are currently transacting with other banks Our foreign subsidiaries will target companies that currently have trade partners in Nigeria and other locations where we have presence across the globe and process their trade transactions through the Zenith Bank network. This approach is aimed at encouraging cross border marketing and the routing of a portion of their international trade transactions through the Group. The idea is to demonstrate to the local companies that their relationship with Zenith Bank in their country and dealing with Zenith Bank in another country will be mutually beneﬁcial. “Our Strategic Plan is part of a process of our development, and attempts to engender a commitment to continuous improvement, by focusing and harnessing the energies of everyone in the group. We believe that the concepts of strategic readiness, life-long learning and community engagement encourage and support quality in all aspects of the Bank’s performance.” The lending businesses in all our subsidiaries will focus primarily on international and export trade transactions. It will involve discounting international trade bills for companies and also providing short-term credits to ﬁnancial institutions that use the bank as their correspondent bank. MARKET AND BUSINESS STRATEGY The strategic objectives of the Group in the next ﬁve years include: • to be amongst and remain one of the top tier banks in Africa in terms of proﬁtability, balance sheet size, risk assets quality, ﬁnancial stability and operational eﬃciency; Re-channelling its eﬀorts in deploying more electronic banking products, following the divestment from non-core banking operations. The Group will look to strengthen its retail banking business by consolidating on its retail banking 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 banking industry in Nigeria. • • 16 • Improving its capacity to meet its customers’ changing and increasing banking needs as well as sustain high quality growth despite the volatile business environment. Enhancing the Group’s internal operating systems to reduce costs 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 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 2020, the geographical spread of the Group’s business locations is as follows: Geographical Locations Branches Cash Centres Non-Banking Operations Federal Republic of Nigeria Republic of Ghana United Kingdom Sierra Leone The Gambia China Representative Oﬃce Total 392 28 2 7 6 1 436 155 10 - 12 - - 177 3 - - - - - 3 As shown above, the Group also has 177 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. Strategic Report 17 Zenith Bank Plc Annual Report December 31, 2020 ATM network The Group has a total of 2,042 ATM machines with 1,960 in Nigeria, 62 in Ghana, 14 in Sierra Leone and 6 in The Gambia. The ATM machines are mounted in branches and strategic locations such as airports, university campuses, large shopping malls and premises of large manufacturing ﬁrms employing large numbers of workers. Due to collaboration and shared services arrangements which the Bank has with other banks, ATM cards issued by the Bank are accepted by the ATM machines of other institutions. The Bank also collaborates with other card issuing agencies internationally recognised cards, such as MasterCard, Visa and Verve, in diﬀerent currencies to their customers. to oﬀer 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 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; 18 • • • • • • • • • *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 selfservice. These include retrieve card PIN, Block Cards, manage card less withdrawal, select preferred USSD account to debit, perform transaction above N100,000.00 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 involved in the generation of monthly payroll while also remitting funds electronically to staﬀ accounts. The platform provides, database backup, payroll reports, customization option, secure payment authorization and salary payments; Xpath (Customised Branch Collections) allows customers to collect or receive remittance from their key distributors and customers through any branch of the Group. The platform also enables customers to capture speciﬁc information relating to their account. Other features of the product include the provision of electronic receipts, PIN Vending and direct integration; Internet Banking - a real-time solution that provides customers with access to their account 24 hours a day, 7 days a week via the internet; EaZymoney, Zenith Bank’s mobile money platform is a wallet payment solution that allows customers make withdrawals(cash- out), make deposits(cash-in), transfer funds, pay bills (DSTV, Electricity etc. ) make purchases and top up airtime using their mobile phones. 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. Strategic Report 19 Zenith Bank Plc Annual Report December 31, 2020 The Zenith Bank Virtual Card - The Zenith Bank Virtual Card is speciﬁcally designed for web transactions and can be used to shop online (accepted locally and internationally), pay bills and subscriptions etc. The Zenith Bank virtual card can be used over Internet Banking and the USSD platform (*966#). 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. • • COVID 19 Pandemic Response As we transit to the new normal amid this pandemic, the health and safety of our employees, customers and other stakeholders are of utmost importance to us while we remain focused on preserving value for our shareholders. We have set a clear direction and communicated this eﬀectively to all staﬀ and other stakeholders in accordance with our Business Continuity Plan (BCP). Remote working and electronic selfservices for our traditional banking services have been established. Our BCPs are constantly being reviewed and strengthened to reﬂect the current and potential impacts of Covid-19 pandemic. We have also developed a strategic crisis-action plan to guide our response across all Covid-19 scenarios - short, medium and long term, while leveraging on emerging opportunities. Executive Management has encouraged virtual meetings and discussions of the bank activities across various teams. x Several stress tests to assess the possible impacts of Covid-19 on our liquidity, capital adequacy and earning capacity had been conducted. We remain resilient to short and medium term shocks from the adverse impacts of coronavirus pandemic. We review our loan books continuously and closely monitor all assets and liabilities classes to ensure suﬃcient liquidity to meet our ﬁnancial obligations. We are engaging our customers in key sectors of the economy to better understand their current challenges and provide eﬀective and bespoke actions to alleviate their hardships while preserving shareholders’ funds. We have increased our investment in IT and Cyber Security infrastructure to enable us meet the increasing digital needs of our customers while protecting our organization and customers from all cyber security threats. • • • • • • • • • 20 Notice of Annual General Meeting NOTICE IS HEREBY GIVEN that the Thirtieth Annual General Meeting of Zenith Bank Plc will hold at the Civic Centre, Ozumba Mbadiwe Street, Victoria Island, Lagos State at 9.00 a.m. on Tuesday the 16 day of March, 2021 to transact the following business: ORDINARY BUSINESS 1. To present and consider the Bank’s Audited Accounts for the ﬁnancial year ended 31 December, 2020, the Reports of the Directors, Auditors and Audit Committee thereon. 2. To declare a ﬁnal dividend. 3. To elect the following Directors retiring by rotation: (i) Mr. Gabriel Ukpeh (ii) Mr. Jeﬀrey Efeyini (iii) Mr. Henry Oroh 4. To ratify the appointment of Messrs PWC as External Auditors of the bank. 5. To authorize the Directors to ﬁx the remuneration of the Auditors. 6. Disclosure of the remuneration of Managers of the bank. 7. To elect members of the Audit Committee. SPECIAL BUSINESS 8. To consider and if thought ﬁt, to pass the following as ordinary resolution: “That the remuneration of the Directors of the Bank for the year ending December 31, 2021 be and is hereby ﬁxed at N25 million only”. Dated this 22nd day of February, 2021 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 24 hours before the time of holding the meeting. A proxy need not be a member of the company. Shareholders should note that the Corporate Aﬀairs Commission has in view of the Covid19 pandemic and following the Government’s restriction on public gathering approved that attendance to the Meeting shall only be by proxy to ensure public health and safety. Shareholders are therefore requested to submit their completed proxy forms appointing any of the listed proxies in line with the Corporate Aﬀairs Commission’ Guidelines to the oﬃce of the Company’s Registrars, Veritas Registrars Limited, 89A, Ajose Adeogun Street, Victoria Island, Lagos State and/or enquiry@veritasregistrars.com and th veritasregistrars@ veritasregistrars.com not later than 15 March, 2021 to enable the Bank stamp the proxy forms and lodge same with the Registrars not later than 24 hours prior to the time of the meeting. The Proceedings will also be streamed live on the Bank’s website and social media platforms. Strategic Report 21 Zenith Bank Plc Annual Report December 31, 2020 2. CLOSURE OF REGISTER OF MEMBERS The Register of Members and Transfer Books of the Company will be closed 9th March 2021, to enable the Registrar prepare for the payment of dividend. 3. DIVIDEND WARRANTS If approved, dividend warrants for the sum of N2.70K for every share of 50K (bringing the total dividend for the ﬁnancial year ended December 31, 2020 to N3.00K) will be paid via emandate on the 16th March, 2021, to shareholders whose names are registered in the register of members at the close of business on the 8th day of March, 2021. Shareholders are advised to forward particulars of 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. 4. AUDIT COMMITTEE In accordance with Section 404(6) of the Companies and Allied Matters Act, 2020, any shareholder may nominate another shareholder for appointment to the Audit Committee. Such nomination should be in writing and should reach the Company Secretary at least 21 days before the Annual General Meeting. 5 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 th submitted to the Company on or before the 15 day of March, 2021. 6. UNCLAIMED DIVIDEND WARRANTS AND SHARE CERTIFICATES Shareholders are hereby informed that a number of share certiﬁcates and dividend warrants have been returned to the Registrars as “unclaimed”. A list of all unclaimed dividend will be circulated with the Annual Report and Financial Statements. Any member aﬀected by this notice is advised to write to or call at the oﬃce of the Bank’s Registrars, Veritas Registrars Limited, Plot 89A, Ajose Adeogun Street, Victoria Island, Lagos during normal working hours. 7. E-DIVIDEND Notice is hereby given to all shareholders to open bank accounts for the purpose of dividend payment in line with the Securities and Exchange Commission (SEC) directives. Detachable application forms for edividend and ebonus 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 22 s r o t c e r i D f o d r a o B 24 JIM OVIA, CON The year 2020 was characterised by a very challenging macroeconomic environment brought about by the Coronavirus (COVID-19) pandemic, which had a significant impact on businesses globally. The resilience of our Bank, however, enabled us to weather the economic headwinds. My Fellow Shareholders, Distinguished Guests, Ladies and Gentlemen, I am delighted to welcome you to the 2020 Annual General Meeting of our Bank and to present to you the Annual Report and Financial Statements for the ﬁnancial year ended December 31, 2020. I would like to sincerely thank you all for your unwavering commitment and loyalty, which have contributed immensely to the continued success of our Bank. CHAIRMAN’S STATEMENT The year 2020 was characterised by a very challenging macroeconomic environment brought about by the Coronavirus (COVID-19) pandemic, which had a signiﬁcant impact on businesses globally. The resilience of our Bank, however, enabled us to weather the economic headwinds. Against this backdrop, it is therefore pertinent to review the economic environment within which our Bank operated during the year under review. MACROECONOMIC REVIEW In the outgone year, the Nigerian economy witnessed one of its deepest recessions since the early 1990s following the deleterious health and economic crisis caused by the Coronavirus pandemic. The spread of the virus and its rapid spin into a global pandemic in early 2020 triggered severe the economy. MPR was eased by 100 basis points in May 2020, from 13.5 per cent to 12.5 per cent, and another 100 basis points in September 2020, from 12.5 per cent to 11.5 per cent. This is the lowest MPR since 2016. Similarly, the Cash Reserve Requirement (CRR) was adjusted by 500 basis points in January from 22.5 to 27.5 per cent. The asymmetric corridor was changed from +200/-500 basis points to +100/-700 basis points around the MPR during the MPC meeting held in September. The apex bank also leveraged its development ﬁnance tools to boost the ﬂow of credit to the real sector to stimulate output growth. The Federal Government, through the Federal Ministry of Finance, unveiled a ﬁscal stimulus package of NGN2.3 trillion to ease contractionary concerns. These measures, combined with a relative improvement in local and global economic activities, supported the economy’s rebound in the last quarter of the year. global macroeconomic shock, with a far-reaching impact on In 2020, headline inﬂation, measured by the Consumer Price the domestic economy. According to the National Bureau of Index (CPI), witnessed a steady rise. According to the NBS, Statistics (NBS), Gross Domestic Product (GDP) grew by 1.87 per cent in Q1 2020 but contracted by 6.10 per cent and 3.62 per cent in Q2 and Q3, 2020, respectively, before returning to the growth path in Q4, 2020 at 0.11 per cent. Overall, in 2020, the annual growth of real GDP was estimated at –1.92 per cent, a decline of 4.20 percentage points compared to the 2.27 per cent recorded in 2019. The weak performance of the economy in 2020 was largely attributed to the steep fall in global oil prices, the inﬂation rate stood at 12.13 per cent in January. It rose consistently to 15.75 per cent in December, the highest rate recorded in three years, bringing the average inﬂation rate to 13.25 per cent in 2020. The persistent inﬂationary pressure witnessed in the year was driven by rising food prices and supply chain disruptions linked to Covid-19-related lockdown and containment measures and exchange rate volatility. Throughout the year, headline inﬂation remained outside the target range of weaker domestic demand, and lower level of economic activities 6.0-9.0 per cent set by the CBN. due to measures, such as nationwide lockdown, put in place to contain the spread of the virus. To insulate the economy from the eﬀects of the global pandemic, as well as to quicken the pace of economic recovery, a raft of commendable monetary and ﬁscal stimulus packages were rolled out by the monetary and ﬁscal authorities. Notably, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) cut the Monetary Policy Rate (MPR) twice in 2020 The global oil market opened the year 2020 on a relatively high note, with U.S. West Texas Intermediate (WTI) trading nearly $60 and Brent averaging $64 per barrel in January. However, prices plummeted as the economic eﬀects of the COVID-19 pandemic began to kick-in. The plunge was so massive that for the ﬁrst time in the long history of oil futures trading, a contract went negative in April 2020 as global oil demand collapsed due to a low level of business activity caused by lockdowns and movement and to increase the ﬂow of credit to the key productive sectors of travel restrictions implemented in many economies. B O A R D O F D I R E C T O R S 25 s r o t c e r i D f o d r a o Towards the end of 2020, crude oil prices rebounded as the B Organization of Petroleum Exporting Countries (OPEC) and closing the year at about $35.37billion. The sharp fall in external reserves within the ﬁrst few months of the year was mainly due participating non-OPEC countries cut output to match weaker to the crash in crude oil prices, increased foreign exchange demand. Nonetheless, oil prices lost more than a ﬁfth of their intervention at the forex market and lower foreign portfolio value in 2020 – Brent fell 21.5 per cent for the year, while the investment inﬂows. However, the foreign exchange reserve was OPEC Reference Basket (ORB) dropped 25 per cent, to average subsequently supported by improved oil receipts. $41.47/b in 2020. World oil demand is estimated to have declined by 9.8 million barrels per day (mb/d) year-on-year to an average The Federation Account Allocation Committee (FAAC) disbursed of 90mb/d in 2020. a total of NGN7.68 trillion among the three tiers of Government as allocations in 2020, a signiﬁcant decline of more than half a In 2020, the CBN adjusted the oﬃcial exchange rate of the Naira trillion when compared with the NGN8.2 trillion in the preceding twice, from NGN307/$1 to NGN360/$1 in March, and then to year. The decrease is attributable to shrinking government NGN381.0/$ in July. Consequently, the average Naira exchange revenue receipt due to the socioeconomic crisis caused by rate depreciated across all segments of the market, averaging the COVID-19 pandemic. The Federal Government and many NGN381.00/$1 at the interbank, NGN471.62/$1 at the Bureau De states of the federation revised their 2020 expenditure plans Change (BDC) segment and NGN392.27/$1 at the Investors’ and downwards due to shortfalls in revenue. Exporters’ (I&E) Window in 2020. The exchange rate remained pressured as the COVID-19 pandemic triggered a short supply of In 2020, the Nigerian Stock Exchange (NSE) witnessed a bullish foreign exchange due to a signiﬁcant drop in crude oil prices in trend. The All-Share Index (ASI) opened at 26,842.07 index points the global commodities market. but closed the year at 40,270.72, representing an appreciation of 50.02 per cent. While market capitalisation was at N12.958trillion Nigeria witnessed a signiﬁcant depletion in the stock of foreign at the start of the year, it recorded a 62.49 per cent growth exchange reserves in 2020. At the beginning of the year, Nigeria’s to N21.056trillion at the close of the year. The outstanding external reserves stood at $38.01billion but continued to decline performance of the market was supported by the relatively low to its lowest levels within the year at about $33.52billion in April. yield in the ﬁxed income market, which resulted in increased This was followed by a rise to about $36.60billion in May, before participation of domestic investors in the equities market. The persistent inflationary pressure witnessed in the year was driven by rising food prices and supply chain disruptions linked to Covid-19-related lockdown and containment measures and exchange rate volatility. 26 CHAIRMAN’S STATEMENT FINANCIAL RESULTS As mentioned earlier, the year 2020 was characterised by signiﬁcant global and domestic economic developments with far-reaching implications for the Nigerian ﬁnancial services sector. As a resilient brand, however, we were able to leverage THE BOARD OF DIRECTORS There were no changes to the composition of the Board of the Bank during the period under review. However, on January 3, 2021, one of the Bank’s Non-Executive Directors, Prof. Oyewusi Ibidapo-Obe, passed on. We pray that God will grant him eternal the innate opportunities within the environment and record a rest. performance that further attests to the Group’s sound ﬁnancial health. INVESTMENT IN TECHNOLOGY Zenith Bank is committed to setting the pace in the adoption The Group’s gross earnings grew by 5 per cent from of ﬁnancial technology. Consequently, we have N662.25billion in 2019 to N696.45billion in 2020. Proﬁt-Before- Tax (PBT) rose by 5 per cent, from N243.29billion in 2019 to N255.86billion in 2020, while Proﬁt-After-Tax (PAT) rose by 10 immensely in new technologies and digital solutions in the year under review. This is in line with our pledge to create value for our highly esteemed customers through our wide range of per cent, from N208.84billion in 2019 to N230.57billion in 2020. innovative products and services. Total deposits was N5.34trillion for the year ended December 31, 2020, representing a 25 per cent increase over the previous year’s ﬁgure of N4.26trillion. During the same period, total assets of the Group grew by 34 per cent from N6.35trillion to CORPORATE SOCIAL RESPONSIBILITY Zenith Bank is committed to building a more sustainable and inclusive economy. As such, we have continued to integrate N8.48trillion, while shareholders’ funds rose by 19 per cent, from sustainability principles N941.89billion to N1.12trillion. in our business operations and DIVIDEND Zenith Bank remains committed to consistently delivering superior returns to our highly esteemed shareholders by ensuring that a signiﬁcant portion of our proﬁt is set aside for you. In a clear demonstration of this commitment, and despite the macroeconomic headwinds brought about by COVID-19, we had declared and paid an interim dividend of 30kobo per share in the course of the 2020 ﬁnancial year. We hereby propose a ﬁnal dividend of N2.70kobo per share. If approved, this will bring the total dividend for the year ended December 31, 2020, to N3 per share. As a resilient brand, however, we were able to leverage the innate opportunities within the environment and record a performance that further attests to the Group’s sound financial health. B O A R D invested O F D I R E C T O R S 27 s r o t c e r i D f o d r a o investment decisions in line with global best practices. During B the last year, we made considerable progress in this regard, sports in Nigeria through its sponsorship of the Nigeria Football Federation (NFF), the Zenith Women Basketball League, and the bearing in mind our role in accelerating the achievement of the Zenith Bank Delta Principals’ Cup, to name a few. United Nations Sustainable Development Goals (SDGs). Our sustainability and Corporate Social Responsibility (CSR) billion as part of the Coalition Against COVID-19 (CACOVID), a initiatives are hinged on the belief that today’s business private sector-led initiative to support the Nigerian Government In response to the Covid-19 pandemic, the Bank donated NGN1 performance is not all about the ﬁnancial numbers – we believe to combat the Covid-19 crisis. that an institution’s social investments, contributions to inclusive economic growth and development as well as improvements Apart from our healthcare sector interventions, we expanded in the condition of the physical environment, all constitute a our support for women-owned businesses in the year under balanced scorecard. review. As a testament to our achievements in these areas, Zenith Bank won the awards for “Best Company in Promotion of Through our CSR initiatives, we have embodied the overarching Good Health and Wellbeing” and “Best Company in Promotion objective of the 17 SDGs, which provide a framework for of Gender Equality and Women Empowerment” in Africa at the addressing the major challenges confronting our society. Our 2020 Sustainability, Enterprise and Responsibility Awards (SERAs). social investments are targeted at health, education, women and youth empowerment, sports development and public infrastructure enhancement. MACROECONOMIC OUTLOOK Although the outlook for the domestic economy, and indeed the global economy, remains largely uncertain as the pandemic To demonstrate our commitment to creating and expanding continues to impact economies, most economic prognoses opportunities, the Bank regularly makes donations towards the suggest a modest recovery in 2021. On the domestic front, setting up of ultramodern ICT centres in several educational the recovery witnessed in the last quarter of 2020 is expected institutions across the country. It also supports various to continue, supported by easing OPEC production cuts and developmental projects and healthcare delivery causes in higher oil prices. Thus, the IMF forecast the Nigerian economy Nigeria. The Bank equally contributes to the development of to expand by 1.5 per cent in 2021, while the World Bank expects Zenith Bank is committed to building a more sustainable and inclusive economy. As such, we have continued to integrate sustainability principles in our business operations and investment decisions in line with global best practices. During the last year, we made considerable progress in this regard, bearing in mind our role in accelerating the achievement of the United Nations Sustainable Development Goals (SDGs). 28 CHAIRMAN’S STATEMENT domestic output to grow by 1.1 per cent in 2021. In addition second wave of the COVID-19 pandemic and its impact on crude to the stimulus packages to reﬂate the economy, growth is oil demand, oil prices and capital ﬂows. Overall, the economic expected to be driven by an uptick in private consumption and prospect in 2021 remains that of cautious optimism. investment and government spending as enunciated in the 2021 budget. APPRECIATION The year 2020 was no doubt a challenging but successful year The Federal Government of Nigeria (FGN) 2021 budget has for us as a Bank. Clearly, the superior performance recorded an aggregate expenditure estimate [inclusive of General in the year was made possible by the collective eﬀorts of all Operating Expenses (GOEs) and project tied loans] of our stakeholders. Therefore, I am grateful to our customers for N13.59trillion, representing a 25.7 per cent increase compared their unﬂinching loyalty, our Staﬀ and Management for their to the N10.81trillion (inclusive of GOEs and project tied loans) dedication and commitment, and our Board for continually revised budget for 2020 ﬁscal year. A breakdown of the budget guiding the Bank along the path of sustained growth. estimates show that N4.13trillion (30.36 per cent) was budgeted for capital expenditure; N5.64trillion (41.52 per cent) for recurrent Ladies and gentlemen, I welcome you to the 2021 ﬁnancial year (non-debt) expenditure; N3.32trillion (24.47 per cent) for debt with the ﬁrm assurance of continued excellent performance by servicing; and N496.53billion (3.65 per cent) for statutory our Bank. transfers. Aggregate budget revenue for 2021 is projected at N7.99trillion, 36.35 per cent higher than the N5.86trillion Thank you. estimated for 2020. The 2021 Budget is predicated on crude oil production of 1.86 million barrels per day, crude oil price of $40 per barrel, and an average exchange rate of N379/dollar. On the monetary policy side, CBN policy actions such as Jim Ovia, CON development ﬁnance initiatives, measures to boost credit ﬂow Chairman to the private sector through the Loan-to-Deposit Ratio (LDR), etc., are expected to provide momentum for growth. The apex bank expects that the various stimulus initiatives will support further economic recovery in Q1 2021 and beyond. However, the downside to this prospect remains persistent inﬂationary pressures and rising debt burden, which could weigh on Nigeria’s growth prospects. On the global front, ongoing vaccination is expected to support recovery by driving a moderate rebound in economic activities across most economies. However, there are concerns about the economic impact of lockdown measures in the face of the 29 s r o t c e r i D f o d r a o B 30 EBENEZER ONYEAGWU In 2020, the global economy witnessed one of its deepest recessions, following the devastating health and economic crisis caused by the Coronavirus (COVID-19) pandemic. It gives me great honour and pleasure to welcome you, our highly esteemed shareholders, to the 2020 Annual General Meeting. In 2020, the global economy witnessed one of its deepest recessions, following the devastating health and economic crisis caused by the Coronavirus (COVID-19) pandemic. The pandemic triggered leading to a severe macroeconomic shock sharp decline in aggregate demand and supply; disruptions in global supply chain and trade; rising sovereign and corporate debts; heightened ﬁnancial market vulnerabilities; low prices of crude oil and other commodities; etc. Consequently, the global economy contracted by an estimated 4.3 per cent in 2020. The Nigerian economy slipped into recession in Q3 2020 but recovered in the fourth quarter. According to the National Bureau of Statistics (NBS), aggregate output, measured by Gross Domestic Product (GDP), grew by 1.87 per cent in the ﬁrst quarter of 2020 but contracted by 6.10 per cent and 3.62 per cent in Q2 and Q3, respectively, before growing by 0.11 per cent in Q4 2020. The decline recorded during the second and third quarters of the year was attributable primarily to the steep fall in global oil prices and weaker domestic demand caused by the COVID-19 pandemic. Also, measures put in place to contain the spread of the virus, such as nationwide lockdown, resulted in signiﬁcantly lower levels of both domestic and international economic activity. In addition, EndSARS protests in October 2020 escalated security concerns and crippled economic activity in some major cities in the country. Overall, annual economic performance was subdued as the country recorded negative GDP growth of -1.92 per cent in 2020. In a bid to stimulate growth in the Nigerian economy amidst the pandemic, the Central Bank of Nigeria (CBN) rolled out a raft of initiatives. These measures include an extension of a one-year moratorium on principal repayments across all the CBN intervention facilities; reduction of interest rate on all CBN intervention facilities from 9 per cent to 5 per cent per annum; establishment of a NGN50 billion Targeted Credit Facility through the Nigeria Incentive-based Risk Sharing System for Agricultural Lending (NIRSAL) Microﬁnance Bank; and creation of a NGN100 billion credit support for the healthcare industry to meet the increasing demand for healthcare services and products. Others include regulatory forbearance for deposit money banks (DMBs) to consider temporary restructuring of repayment terms and extension of tenor of term loans for businesses and households most aﬀected by the COVID-19 pandemic. These include creation of a NGN1 trillion manufacturing and agricultural support fund for the agriculture and manufacturing sectors; and establishment of a $39.4 billion infrastructure development company in collaboration with the African Finance Corporation (AFC) and the Nigeria Sovereign Investment Authority (NSIA) to leverage on local and international funds to undertake signiﬁcant capital infrastructure projects in Nigeria. In the course of the year, like all institutions, we were impacted by pandemic-related lockdowns and restrictions. We responded by activating our robust business continuity plan, which meant that critical systems remained operational with our personnel working remotely from home. The pandemic prompted an adjustment in our strategy to ensure that we continue to create value for customers, employees and investors. In particular, the need to understand the impact of pandemic related disruptions on various customer segments prompted an adjustment in our strategy. Consequently, we ramped up support for our clients, GMD/CEO’S REVIEW especially SMEs, to improve credit access and create more opportunities for their growth. Supporting all our clients is critical in the journey towards recovery from the revenue losses that many businesses have suﬀered due to the pandemic. COVID-19 has accelerated the eﬀorts towards digital transformation in our operations and service delivery. As private and public institutions implemented measures to reduce exposure to the virus, we have witnessed a preference for digital channels compared to traditional in-person channels, boosting digital ﬁnance and e-commerce. A signiﬁcant surge in volume of online and contactless transactions processed via Unstructured Supplementary Service Data (USSD), Quick Response (QR) code, mobile and web platforms was recorded, especially during citywide lockdowns. Given this trend, we have focused on expanding our robust digital infrastructure, continually assessing how we can make our digital ﬁnance suite more resilient. Amidst the pandemic, our commitment to the Sustainable Development Goals has not waned. We further entrenched sustainable banking principles into our operations, carrying out signiﬁcant corporate social responsibility initiatives with a special focus on the health, public infrastructure, and security sectors. We believe that businesses should strive to deliver positive social, environmental and economic impact in the pursuit of proﬁt. Since sustainability is integrated into our business strategy, we are well-positioned to create value for all stakeholders irrespective of the challenges prevalent in the operating environment. As a testament to our market leadership, robust and best in class service, and steadfast commitment to global best practices, we received several awards and recognitions in 2020, including “Most Valuable Banking Brand in Nigeria 2020” (The Banker), “Biggest Bank in Nigeria by Tier-1 capital 2020” (The Banker), “Best Bank in Nigeria 2020” (Global Finance Magazine), “Best Corporate Governance (Financial Services) Africa 2020” (Ethical Boardroom), “Retail Bank of the Year 2020” (BusinessDay Newspapers), and “Bank of the Year 2020” (The Banker Magazine, Financial Times Group). The Bank also received recognition as the “Best Company in Promotion of Good Health and Well-Being” for interventions in the health sector during the pandemic and “Best Company in Promotion of Gender Equality and Women Empowerment” at the 2020 Sustainability, Enterprise and Responsibility Awards (SERAS). B O A R D O F D I R E C T O R S 31 GMD/CEO’S REVIEW Nigeria’s economic growth outlook for 2021 is brighter but remains fragile. The CBN expects its initiatives to increase credit ﬂows to key productive sectors to stimulate output growth and strengthen the economic recovery, which started in Q4 2020 as the country exited recession. The World Bank projects that the Nigerian economy will grow by 1.1 per cent in 2021, driven by an uptick in private consumption, as well as investments in growth sectors – Agriculture and Information & Communication Technology (ICT), and government consumption. There are reasons for cautious optimism that the worst of the pandemic is likely behind, even though COVID-19 infections could spike occasionally. The scientiﬁc community now has a better understanding of the virus and how to safeguard segments of the population that are most susceptible to a negative outcome. The development of COVID-19 therapeutics and the roll-out of vaccines is a massive positive sentiment that will be driving optimism in the days ahead. Other positive developments for the domestic economy include improving asset yields, rising crude prices, and the commencement of the African Continental Free Trade Area (AfCFTA). In addition, payment system expansion and widespread adoption of innovations like open banking and Quick Response (QR) code will open up more opportunities in the retail segment of the ﬁnancial services market. Within this environment, we will continue to strive to explore new growth frontiers in order to continue to enhance value creation for all our stakeholders. Thank you. EBENEZER ONYEAGWU Group Managing Director / CEO s r o t c e r i D f o d r a o B The pandemic prompted an adjustment in our strategy to ensure that we continue to create value for customers, employees and investors. In particular, the need to understand the impact of pandemic-related disruptions on various customer segments prompted an adjustment in our strategy. 32 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. 34 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 of accounting from Auchi Polytechnic, widely recognized as an institution that has produced some of Nigeria’s most renowned Chartered Accountants. 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, immediately after graduation. He subsequently became a Fellow (FCA) of the Institute of Chartered Accountants of Nigeria (ICAN) in 2003. He is also a Fellow of Nigerian Institute of Management (NIM), The Chartered Institute of Bankers of Nigeria (CIBN), Institute of Credit Administrators (ICA) and Senior Associate Member, Risk Management Institute of Nigeria (RIMAN). Furthermore, Mr. Onyeagwu is an alumnus of the prestigious University of Oxford, England, from where he obtained a Postgraduate Diploma in Financial Strategy, and a certiﬁcate in Macroeconomics. He also has a Masters Degree in Accounting and Financial Services from Salford Business School, University of Salford, Manchester, United Kingdom. He 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. He has over 29 years of experience in the banking industry in Nigeria, out of which he has recorded 19 years 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 professionalism, competence, integrity and commitment to the objectives of the bank saw him rise swiftly between 2003 and 2005, ﬁrst, as Assistant General Manager, then Deputy General 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, multinationals and public institutional relationships, among others. B O A R D 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 Financial Control & Strategic Planning, Treasury & Correspondent Groups, Human Resources Group, Oil & Gas Group, and Credit Risk Management Group. Mr. Onyeagwu was named Deputy Managing Director of the bank in 2016. In that capacity, he deputized for the Group Managing Director and Chief Executive Oﬃcer of the bank and also had direct oversight of the bank’s Financial Control and Strategic Planning, Risk Management, Retail Banking, Institutional and Corporate banking business portfolios, IT Group, Credit Administration and Treasury & Foreign Exchange Trading. O F 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 decision-making. D I Mr. Onyeagwu is the Chairman of Zenith Pensions Custodian Limited and Zenith Nominees Limited. He is also on the Board of Zenith Bank (UK) Limited, FMDQ Holdings Plc, Shared Agent Network Expansion Facilities (SANEF) Limited and Lagos State Security Trust Fund (LSSTF). He is a member of The African Trade Gateway Advisory Council of Afreximbank, The Wall Street Journal CEO Council and The International Monetary Conference (IMC) – which comprises CEOs of largest ﬁnancial Institutions drawn from 28 countries in the world. He also served on the board of Zenith Bank Ghana Limited, Zenith General Insurance, Zenith Securities Limited, Zenith Assets Management Company, Zenith Madicare Limited and Africa Finance Corporation (AFC). He is very well noted for his tenacity, entrepreneurial spirit, high sense of innovation and creativity and very inspirational leadership skills. Within the market, he is highly respected for his consistent 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. R E C T O R S 35 Group Managing Director/CEO s r o t c e r i D f o d r a o B DAME (DR.) ADAORA UMEOJI With over 20 years cognate banking and broad executive management experience, Dame (Dr.) Adaora Umeoji rose through the ranks to her current position. 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 leadership and people management. in high-level Bankers’ meetings with impactful contributions towards the advancement of the banking industry and national economic growth and development. She has delivered several motivational speeches at strategic sessions aimed at mentoring youths and managers, especially banking professionals. Beyond banking, Dame (Dr.) Adaora Umeoji supports research and learning on inspirational leadership, mentorship, talent development, collaboration, change and adaptability, strategic thinking, innovation and creativity, amongst others. the strategic thinking and management She attended programme at Wharton Business School, Pennsylvania, USA and also holds a Certiﬁcate in Management from Harvard Business School, Boston, USA. Dame (Dr.) Adaora Umeoji promotes the Pink Breath Cancer Care Foundation which supports several healthcare programs within the six geopolitical zones of Nigeria. She is a member of notable professional bodies including the Chartered Institute of Bankers of Nigeria, Institute of Credit Administration, Nigerian Institute of Management, Institute of Certiﬁed Public Accountants of Nigeria and Institute of Chartered Mediators and Conciliators. Dame (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. Dame (Dr.) Adaora Umeoji has at diﬀerent times participated Dame (Dr.) Adaora Umeoji has won numerous awards for excellence and creativity in management. Her contribution towards improving 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-governmental organizations both within and outside the country. As a result of her passion in promoting professionalism in the banking industry and improving the well-being of the less privileged, Dr Adaora Umeoji founded the Catholic Bankers Association of Nigeria (CBAN), a platform she uses to promote ethical banking and service to humanity. 36 Deputy Managing Director PROF. CHUKUKA ENWEMEKA JEFFREY EFEYINI He is a Professor at the 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 America. 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, Univer- sity of Kansas (Medical Center), Kansas City, United States of America as well as Associate Professor of Orthopaedics and Rehabilitation, Uni- versity 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. B O A R D O F 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. D 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. 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. I R E C T O R S 37 Non-Executive DirectorNon-Executive Director 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). s r o t c e r i D f o d r a o B GABRIEL UKPEH PROF. OYEWUSI IBIDAPO-OBE 38 Non-Executive DirectorNon-Executive Director ENGR. MUSTAFA BELLO DR. AL-MUJTABA ABUBAKAR 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. I 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. 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 R E C T O R S 39 Non-Executive DirectorNon-Executive Director 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 29 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 and zones in Lagos which includes Ikeja Zone, Apapa Zone, Ilupeju Zone, South West Region and was Group Head of Oil & Gas, Conglom- erate 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 Zenith Pensions Custodian Limited and 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. s r o t c e r i D f o UMAR SHUAIB d r AHMED a o B DR. TOPE FASORANTI 40 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. B O A R D 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. O F 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. D I R E C T O R S 41 Executive DirectorExecutive Director Zenith Bank Plc Annual Report December 31, 2020 Directors’ Report for the Year Ended December 31, 2020 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, 2020. Legal form 1. 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. The Bank is also listed on the London Stock Exchange. There have been no material changes to the nature of the Group’s business from the previous year. Principal activities and business review 2. 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 six new branches and no branch was closed. As at December 31, 2020 the Group had 436 branches, 177 cash centers; 2,042 ATM terminals; 83,766 POS terminals and 9,905,449 cards issued to its customers. (December 31, 2019: 430 branches, 178 cash centers, 2,093 ATM terminals, 50,427 POS terminals and 7,745,176 cards issued). 3. Operating results Gross earnings of the Group increased by 5.2% and proﬁt before tax increased by 5.2% . Highlights of the Group’s operating results for the year under review are as follows: Gross earnings Proﬁt before tax Income tax expense Proﬁt after tax Non- controlling interest Profit attributable to the equity holders of the parent Appropriations Transfer to statutory reserve Transfer to retained earnings and other reserves Basic and diluted earnings per share (Naira) 42 31-Dec-20 31-Dec-19 N' Million N' Million 696,450 662,251 255,861 (25,296) 230,565 (191) 243,294 (34,451) 208,843 (150) 230,374 208,693 33,912 29,875 196,462 178,818 230,374 208,693 7.34 6.65 4. Dividends The Board of Directors, pursuant to the powers vested in it by the provisions of section 426 of the Companies and Allied Matters Act (CAMA 2020) of Nigeria, proposed a ﬁnal dividend of N2.70 per share which in addition to the N0.30 per share as interim dividend amounts to N3.00 per share (2019: Interim dividend of N0.30 per share and a ﬁnal dividend of N2.50 per share) from the retained earnings account as at December 31, 2020. This will be presented for ratiﬁcation by the shareholders at the 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 301 and 302 of the Companies and Allied Matters Act (CAMA 2020) and the listing requirements of the Nigerian Stock Exchange is as follows: Interests in shares Director Jim Ovia, CON. Designation Direct Indirect Direct Indirect Chairman / Non-Executive Director 3,546,199,395 1,525,904,916 3,546,199,395 1,513,137,010 Number of Shareholding December 31, 2020 December 31, 2019 Prof. Chukuka Enwemeka Non-Executive Director Mr. Jeﬀrey Efeyini Non Executive Director Prof.Oyewusi Ibidapo-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 Mr. Ebenezer Onyeagwu Group Managing Director Dame (Dr.) Adaora Umeoji Deputy Managing Director Mr. Ahmed Umar Shuaib Executive Director Dr. Temitope Fasoranti Executive Director Mr. Dennis Olisa Mr. Henry Oroh Executive Director Executive Director 127,137 541,690 1,000,000 32,660 - - 46,500,000 68,873,169 9,577,343 8,075,000 10,122,316 7,827,027 - - - - - - - 127,137 541,690 421,426 32,660 - - 45,500,000 - - - - - - - 1,710,123 68,873,169 1,710,123 - - - - 7,577,343 5,075,000 7,122,316 7,827,027 - - - - 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, Quantum Zenith Securities Ltd) Adaora Umeoji: (Palaise Vendome Limited) Directors’ Remuneration 6. The Bank ensures that remuneration paid to its Directors complies with the provisions of the Code of Corporate Governance issued by its regulators. Strategic Report 43 Zenith Bank Plc Annual Report December 31, 2020 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 arears. - 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 Changes on the Board 7. There were no changes made on the Board for the year ended December 31, 2020 Directors’ interests in contracts 8. For the purpose of section 303(1) and (3) of Companies and Allied Matters Act of Nigeria, (CAMA 2020), all contracts with related parties during the year were conducted at arm’s length. Information relating to related parties transactions are contained in Note 38 to the ﬁnancial statements. Acquisition of own shares 9. 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 26 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. 11. Shareholding analysis The shareholding pattern of the Bank as at 31 December, 2020 is as stated below: No. of Shareholders Percentage of Shareholders Number of holdings Percentage Holdings (%) 540,089 79,951 22,378 1,232 191 202 64 2 83.8506 % 12.4127 % 3.4743 % 0.1913 % 0.0297 % 0.0314 % 0.0099 % 0.0003 % 1,600,471,228 1,649,026,287 3,742,557,959 2,594,952,811 1,327,572,762 4,418,860,987 11,234,533,343 4,828,518,410 644,109 100 % 31,396,493,787 5.10 % 5.25 % 11.92 % 8.27 % 4.23 % 14.07 % 35.78 % 15.38 % 100 % Share range 1-10,000 10,001 - 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 44 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 84.0302 % 12.4250 % 3.3271 % 0.1579 % 0.0257 % 0.0248 % 0.0084 % 0.0009 % 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 8,811,404,604 640,835 100 % 31,396,493,787 5.10 % 5.22 % 11.04 % 6.95 % 3.70 % 11.01 % 28.92 % 28.06 % 100 % 12. Substantial interest in shares According to the register of members as at 31 December, 2020, 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, 2019, the following shareholders held more than 5% of the issued share capital of the Bank. Jim Ovia, CON 3,546,199,395 11.29 % 13. Donations and charitable gifts The Bank made contributions to charitable and non-political organisations amounting to N3,285 million during the year ended December 31, 2020 (December 31, 2019: N2,729 million). The beneﬁciaries are as follows: Various State Government infrastructure/Security Trust Funds Contribution to Coalition Against COVID (CACOVID) Other medical donations Other COVID-19 relief materials Private Health Care Alliance Lagos state (Abule-Ado explosion) emergency relief fund Donations for new radiology and orthopaedic facilities Sponsorship of Nigeria Football Federation ICT equipments for Educational Institutions St. Saviour's school sponsorship Donation to ICAN - Capacity building Other donations individually below N10 million 31-Dec-20 N’ Million 1,408 1,000 176 119 100 100 100 87 53 22 10 110 3,285 Strategic Report 45 Zenith Bank Plc Annual Report December 31, 2020 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. Impact of Brexit 15. Following UK’s exit from the European Union (EU) in January 2020, the Group has reviewed its initial assessments of the impact. Overall, the Group does not anticipate any negative impact on its ability to continue to do business proﬁtably. This assessment covers business model, capital, liquidity and operations and is premised on the fact that it does not have any signiﬁcant exposure to EU markets. Furthermore, the Group believes that none of its signiﬁcant sources of revenue is at risk due to Brexit. Further, the Group does not anticipate any impact on Eurobond trading as bonds are usually traded globally and settled via Euroclear. It is expected that this will be unchanged, and that UK’s exit will have minimal impact on pricing. Eurobond client base is mostly in Nigeria and UK. European Fund Managers mainly have UK oﬃces and it is believed that they would not be restricted from dealing with the Zenith UK. Similarly, minimal impact is anticipated on the Bank’s Non-Deliverable Forwards (NDF) trading as all counterparties are based in London or Africa. Most of the Group liquid assets are denominated in Nigerian Naira. Additionally, the possible risks that the Group envisages are the possibility of rates in the UK remaining static due to the heightened level of fragility and uncertainty; the anticipation that regulation for banks conducting business across the European Union (“EU”) will increase, in view of expected changes to EU regulation; and the risk to ﬁnancial stability. The Group believes that the above factors are unlikely to have a signiﬁcant eﬀect on the Group as it has very little direct interaction with Europe since its main operations are in Africa, Middle East and the UK. The Group believes that it will be able to cope with the regulatory demands and the current capital needs in the UK. 16. Disclosure of customer complaints in financial statements for the year ended December 31, 2020 Description Number Amount claimed Amount refunded 31-Dec-20 31-Dec-19 31-Dec-20 N. 31-Dec-19 N. 31-Dec-20 N. 31-Dec-19 N. Pending complaints brought forward Received Complaints Resolved Complaints Unresolved Complaints escalated to CBN for intervention / carried forward 549 175,702 92,352 83,899 188 769 408 180,765,030,644 17,033,494,506 12,982,196 27,009,119 27,938,837,259 167,782,649,956 8,823,953 222,775,473 145,716,214,240 4,051,113,818 3,722,876,538 421,465,468 549 62,987,653,663 180,765,030,644 - Employment of disabled persons 17. Human resources (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. 46 (ii) Health, safety and welfare at work The Group enforces strict health and safety rules and practices at the work environment, which are reviewed and tested regularly. The COVID-19 pandemic also presented an opportunity for the Group to enhance its health and safety protocols in all its operating locations. The Group also provides medical insurance cover for staﬀ and immediate family members. Fire prevention and ﬁre-ﬁghting equipment are installed in strategic locations within the Group’s premises, while occassional ﬁre drills are conducted to create awareness amongst staﬀ. The Group operates both a Group Personal Accident and the Workmen’s Compensation Insurance covers for the beneﬁt of its employees. It also operates a contributory pension plan in line with the Pension Reform Act. Employee training and development (iii) The Group ensures, through various fora, that employees are informed on matters concerning them. Formal and informal channels are also employed in communication with employees with an appropriate two-way feedback mechanism. In accordance with the Group’s policy of continuous development, training facilities are provided in well-equipped training centres. These are complemented by on-the-job training. (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 Gender Number Gender Percentage Male Female Total Male Female 12 37 49 1 22 23 13 59 72 92 % 63 % 68 % 8% 37 % 32 % Gender Number Gender Percentage Male Female Total 23 16 9 5 7 4 - 1 5 1 - - 1 - 39 14 6 7 4 1 1 49 23 72 Male 59 % 64 % 83 % 100 % 100 % -% 100% 68 % Female 41% 36% 17% -% -% 100% -% 32 % Strategic Report 47 Zenith Bank Plc Annual Report December 31, 2020 18. Auditors During the year messers KPMG Professional Services resigned as auditors in line with the Central Bank of Nigeria’s directive, on ten years maximum tenor for external auditors of banks. Acordingly Messers Pricewaterhouse Coopers (PWC) were appointed as Group auditors and they have indicated their willingness to continue in oﬃce as auditors. In accordance with section 401 of the Companies and Allied matters Act, in section 401 (CAMA 2020); resolution will be proposed at the Annual General Meeting to authourize the directors to determine their remuneration. By order of the Board Michael Osilama Otu (Esq.) Company Secretary January 28, 2021 FRC/2013/MULTI/00000001084 48 Governance & Sustainability 02Zenith Bank Plc Annual Report December 31, 2020 Statement of Corporate Responsibility for the Financial Statements for the Year Ended December 31, 2020 In line with the provision of S. 405 of CAMA 2020, we have reviewed the audited ﬁnancial statements of the bank for the year ended December 31, 2020 and based on our knowledge conﬁrm as follows: (i) (ii) The audited ﬁnancial statements do not contain any untrue statement of material fact or omit to state a material fact, which would make the statements misleading. The audited ﬁnancial statements and all other ﬁnancial information included in the statements fairly present, in all material respects, the ﬁnancial condition and results of operation of the bank as of and for the year ended December 31, 2020. (iii) The bank’s internal controls has been designed to ensure that all material information relating to the bank and its subsidiaries is received and provided to the Auditors in the course of the audit. (iv) The bank’s internal controls were evaluated within 90 days of the ﬁnancial reporting date and are eﬀective as of 31 December 2020. (v) That we have disclosed to the bank’s Auditors and the Audit Committee the following information: (a) there are no signiﬁcant deﬁciencies in the design or operation of the bank’s internal controls which could adversely aﬀect the bank’s ability to record, process, summarise and report ﬁnancial data, and have discussed with the auditors any weaknesses in internal controls observed in the cause of the Audit. (b) there is no fraud involving management or other employees which could have any signiﬁcant role in the bank’s internal control. (vi) There are no signiﬁcant changes in internal controls or in other factors that could signiﬁcantly aﬀect internal controls subsequent to the date of this audit, including any corrective actions with regard to any observed deﬁciencies and material weaknesses. 28 January 2021. Mukhtar Adam, PhD Chief Financial Oﬃcer FRC/2013/MUL Tl/00000003196 Mr. Ebenezer Onyeagwu Group Managing Director / CEO FRC/2013/ICAN/00000003788 52 Corporate Governance Report for the Year Ended December 31, 202 1. Introduction 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 that it is consistent 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. b. c. 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. In addition to the above Codes, the Bank complies with jurisdictions relevant disclosure requirements where it operates. in other 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. 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. Directors are fully abreast of their responsibilities and 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 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. Governance & Sustainability 53 Zenith Bank Plc Annual Report December 31, 2020 Corporate Governance Report for the Year Ended 31 December, 2020 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; b. review and approving the Bank’s ﬁnancial statements; c. reviewing and approving the Bank’s ﬁnancial objectives, business plans and budgets, including capital allocations and expenditures; d. monitoring corporate performance against the strategic plans and business, operating and capital budgets; e. implementing the Bank’s succession planning; f. approving acquisitions and divestitures of business operations, strategic investments and alliances and major business development initiatives; g. approving delegation of authority for any unbudgeted expenditure; h. 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; i. assessing its own eﬀectiveness in fulﬁlling its responsibilities, including monitoring the eﬀectiveness of individual directors. 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 Mr. Ebenezer Onyeagwu Group Managing Director/CEO Dame (Dr.) Adaora Umeoji Deputy Managing Director Mr. Umar Shuaib Ahmed Dr. Temitope Fasoranti Mr. Dennis Olisa Mr. Henry Oroh Executive Director Executive Director Executive Director Executive Director The Board meets at least once every quarter but may hold extra-ordinary sessions to address urgent matters requiring the attention of the Board. 54 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 Group Managing Director/Chief Executive Oﬃcer, who is supported by Executive Management. The Group 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 Governance, 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 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 a 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 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. Governance & Sustainability 55 Zenith Bank Plc Annual Report December 31, 2020 Corporate Governance Report for the Year Ended 31 December, 2020 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. The membership of the Committee during the year is as follows: Mr. Gabriel Ukpeh - Chairman Mr. Jeﬀrey Efeyini Prof. Chukuka Enwemeka Dr. Al-Mujtaba Abubakar Mr. Ebenezer Onyeagwu Dame (Dr.) Adaora Umeoji Dr. Temitope Fasoranti Terms of reference • To conduct a quarterly review of all collateral security for Board consideration and approval; • • • • • • • • • To recommend criteria by which the Board of Directors can evaluate the credit facilities presented from various customers; To review the credit portfolio of the Bank; To approve all credit facilities above Management approval limit; To establish and periodically review the bank’s credit portfolio in order to align organizational strategies, goals and performance; To evaluate on an annual basis the components of total credit facilities as well as market competitive data and other factors as deemed appropriate, and to determine the credit level based upon this evaluation; To make recommendations to the Board of Directors with respect to credit facilities based upon performance, market competitive data, and other factors as deemed appropriate; To recommend to the Board of Directors, as appropriate, new credit proposals, restructure plans, and amendments to existing plans; To recommend non-performing credits for write-oﬀ by the Board; To perform such other duties and responsibilities as the Board of Directors may assign from time to time. 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. 56 The membership of the Committee during the year is as follows: Prof. Oyewusi Ibidapo-Obe – Chairman Mr. Jeﬀrey Efeyini Mr Gabriel Ukpeh Mr. Henry Oroh Dame (Dr.) Adaora Umeoji Mr. Ebenezer Onyeagwu 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. Ebenezer Onyeagwu Governance & Sustainability 57 Zenith Bank Plc Annual Report December 31, 2020 Corporate Governance Report for the Year Ended 31 December, 2020 Mr. Ahmed Umar Shuaib Mr. Dennis Olisa Terms of reference • The primary responsibility of the Committee is to ensure that sound policies, procedures and practices are in place for the risk- wide management of the Bank’s material risks and to report the results of the Committee’s activities to the Board of Directors; • • • • • • • • • Design and implement 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) (b) (c) the magnitude of all material business risks; the processes, procedures and controls in place to manage material risks; and the overall eﬀectiveness of the risk management process; To ensure the implementation of the approved cybersecurity policies, standards and delineation of cybersecurity responsibilities. To ensure that cybersecurity processes are conducted in line with the business requirements, applicable laws and regulation. To engage the Chief Information Security Oﬃcer (CISO) whose duties includes amongst others – responsibility for the implementation of approved cybersecurity policies and standards as well as to focus on the bank-wide cybersecurity activities and the mitigation of cybersecurity risks in the bank. 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 Committee’s terms of reference The Board Audit and Compliance Committee have the following responsibilities as delegated by the Board of Directors: • Ascertain whether the accounting and reporting policies of the Bank are in accordance with legal requirements and acceptable ethical practices; 58 • • • 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; 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; Governance & Sustainability 59 Zenith Bank Plc Annual Report December 31, 2020 Corporate Governance Report for the Year Ended 31 December, 2020 • • • • • • 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 Cßommittee: 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 Committee’s terms of reference • To determine a fair reasonable and competitive 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; • • • • • • • • 60 • • • • • • • 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 404(2) (CAMA 2020). 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 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 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; Governance & Sustainability 61 Zenith Bank Plc Annual Report December 31, 2020 Corporate Governance Report for the Year Ended 31 December, 2020 • • • • 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) (b) (c) (d) (e) (f ) Management Committee (MANCO); Assets and Liabilities Committee (ALCO); Management Global Credit Committee (MGCC); Risk Management Committee (RMC) Information Technology (IT) Steering Committee Sustainability Steering Committe (a) Management Committee (MANCO) The Management Committee comprises the senior 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 Group 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. 62 (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. (d) Risk Management Committee (RMC) This Committee is responsible 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 Management Committee and also ensures that the Committee’s decisions and policies are implemented. The members of the Committee include the Group Managing Director, two Executive Directors, the Chief Risk Oﬃcer and all divisional and group heads. (e) Information Technology (IT) Steering Committee The Information Technology (IT) Steering Committee is 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. Membership of the committee is as follows: The Group Managing Director/Chief Executive Oﬃcer; Two (2) Executive Directors; Chief Financial Oﬃcer; Chief Inspector; Chief Risk Oﬃcer; Chief Compliance Oﬃcer Chief Information Security Oﬃcer/Head of Infotech; Head of Infotech - Software; Head of Infotech - Enginering; 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Head of Card Services; 11. Group Head of IT Audit; 12. 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. Governance & Sustainability 63 Zenith Bank Plc Annual Report December 31, 2020 Corporate Governance Report for the Year Ended 31 December, 2020 The Committee present quarterly reports to the Board Risk Management 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 The 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. 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: • • Fixed remuneration, taking into account the level 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. 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. 64 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 link on its 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. 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. 14. Monitoring Compliance With Corporate Governance The Bank as at December 31, 2020 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 exercises 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 Board of Directors of the subsidiaries 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. Governance & Sustainability 65 Zenith Bank Plc Annual Report December 31, 2020 Corporate Governance Report for the Year Ended 31 December, 2020 • • • • 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 reports are analyzed and presented to Executive Management and the Group Board of Directors for decision making and fulﬁlment of its oversight function. Group Performance & Strategy Review/Budget Session The Managing Directors and senior management team of the respective Subsidiaries of the Bank attend the annual Group’s Performance & Strategy Review/Budget Session during which their performances are analyzed and recommendations made towards achieving continuous improvement in ﬁnancial, social and environmental performance. The annual 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. 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 66 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 15. 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. 16. 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 Board 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 Ibidapo-Obe Mr.Gabriel Ukpeh Engr.Mustafa Bello Dr. Al-Mujtaba Abubakar Dame (Dr.) Adaora Umeoji Mr. Ebenezer Onyeagwu Mr. Ahmed Umar Shuaib Dr. Temitope Fasoranti Mr. Dennis Olisa Mr. Henry Oroh 5 5 4 5 5 5 5 5 5 5 5 5 5 5 4 N/A 4 4 N/A 4 N/A  4 4 N/A 4 N/A N/A Note: N/A - Not Applicable (Not a Committee member) 4 N/A 4 N/A 4 4 N/A N/A 4 4 N/A N/A N/A 4 4 N/A N/A 4 4 4 4 N/A N/A N/A N/A N/A N/A N/A 4 N/A 4 4 N/A N/A 4 4 N/A 4 4 N/A 4 N/A 4 N/A 4 N/A 4 4 4 4 N/A N/A N/A N/A N/A N/A Governance & Sustainability 67 Zenith Bank Plc Annual Report December 31, 2020 Corporate Governance Report for the Year Ended 31 December, 2020 Dates for Board and Board Committee meetings held within the year to December 31, 2020 Board meetings 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 28-Jan-20 27-Jan-20 29-Apr-20 28-Apr-20 23-Jul-20 22-Jul-20 22-Oct-20 21-Oct-20 27-Jan-20 28-Apr-20 21-Jul-20 20-Oct-20 27-Jan-20 28-Apr-20 21-Jul-20 20-Oct-20 27-Jan-20 28-Apr-20 21-Jul-20 20-Oct-20 27-Jan-20 28-Apr-20 21-Jul-20 20-Oct-20 27-Jan-20 28-Apr-20 21-Jul-20 20-Oct-20 17. 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 attended 4 4 4 4 4 4 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 68 Statement of Directors’ Responsibilities in Relation to the Financial Statements for the Year Ended December 31, 2020 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, 2020, Financial Reporting Council of Nigeria Act, 2011, the Banks and Other Financial Institutions Act, Cap B3, Laws of the Federation of Nigeria, 2020 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, 2020 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, 2021 _________________________ Mr. Ebenezer Onyeagwu Group Managing Director / CEO FRC/2013/ICAN/00000003788 January 28, 2021 69 Zenith Bank Plc Annual Report December 31, 2020 Report of the Audit Committee for the Year Ended December 31, 2020 In compliance with Section 404(7) of the Companies and Allied Matters Act of Nigeria CAMA 2020, we have reviewed the consolidated and separate ﬁnancial statements of Zenith Bank Pic for the period ended 31st December, 2020 and hereby state as follows: 1. 2. 3. 4. 5. The scope and planning of the audit were adequate in our opinion; The accounting and reporting policies of the Group and Bank conformed with the statutory requirements and agreed ethical practices; The Internal Control and Internal Audit functions were operating eﬀectively; and The External Auditor’s ﬁndings as stated in the management letter are being dealt with satisfactorliy by the management. Related party transactions and balances have been disclosed in note 37 to the Financial Statements in accordance with requirements of the International Financial Reporting Standards (IFRS) and the Central Bank of Nigeria (CBN) directives 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 26, 2021 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 70 (cid:2)(cid:3)(cid:1)(cid:4) (cid:2)(cid:8)(cid:4)(cid:6)(cid:11)(cid:6)(cid:9)(cid:5)(cid:6)(cid:8)(cid:15)(cid:19)(cid:3)(cid:18)(cid:4)(cid:7)(cid:16)(cid:10)(cid:12)(cid:1)(cid:14)(cid:19)(cid:13)(cid:6)(cid:11)(cid:10)(cid:12)(cid:17)(cid:19) (cid:38)(cid:85)(cid:111)(cid:99)(cid:65)(cid:48)(cid:111)(cid:30)(cid:48)(cid:81)(cid:43)(cid:48)(cid:92)(cid:97)(cid:111)(cid:85)(cid:49)(cid:111)(cid:40)(cid:48)(cid:82)(cid:68)(cid:99)(cid:65)(cid:111)(cid:20)(cid:41)(cid:82)(cid:73)(cid:111)(cid:33)(cid:74)(cid:44)(cid:111) (cid:2)(cid:21)(cid:17)(cid:22)(cid:13)(cid:15)(cid:5)(cid:9)(cid:6)(cid:14)(cid:10)(cid:22) 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(cid:11)(cid:48)(cid:36)(cid:20)(cid:42)(cid:25)(cid:5)(cid:57)(cid:13)(cid:20)(cid:31)(cid:43)(cid:48)(cid:6)(cid:57)(cid:14)(cid:33)(cid:31)(cid:26)(cid:45)(cid:33)(cid:20)(cid:57) Governance & Sustainability 71 Zenith Bank Plc Annual Report December 31, 2020 (cid:1)(cid:4)(cid:12)(cid:13)(cid:2)(cid:11)(cid:3)(cid:6)(cid:10)(cid:13)(cid:7)(cid:2)(cid:10)(cid:10)(cid:5)(cid:8)(cid:9)(cid:13) 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(cid:41)(cid:113)(cid:107)(cid:133)(cid:110)(cid:6)(cid:124)(cid:145)(cid:59)(cid:63)(cid:86)(cid:96)(cid:86)(cid:132)(cid:140)(cid:145)(cid:130)(cid:107)(cid:145)(cid:64)(cid:107)(cid:102)(cid:126)(cid:86)(cid:102)(cid:133)(cid:70)(cid:145)(cid:59)(cid:124)(cid:145)(cid:59)(cid:145)(cid:84)(cid:107)(cid:87)(cid:102)(cid:84)(cid:145)(cid:64)(cid:107)(cid:102)(cid:64)(cid:70)(cid:113)(cid:102)(cid:7)(cid:145)(cid:68)(cid:86)(cid:124)(cid:64)(cid:96)(cid:107)(cid:124)(cid:86)(cid:102)(cid:84)(cid:17)(cid:145)(cid:59)(cid:124)(cid:145)(cid:59)(cid:110)(cid:110)(cid:96)(cid:86)(cid:64)(cid:59)(cid:63)(cid:96)(cid:70)(cid:7)(cid:145)(cid:100)(cid:59)(cid:126)(cid:128)(cid:70)(cid:113)(cid:124)(cid:145)(cid:113)(cid:70)(cid:96)(cid:59)(cid:126)(cid:70)(cid:68)(cid:145)(cid:126)(cid:107)(cid:145)(cid:84)(cid:107)(cid:86)(cid:102)(cid:84)(cid:145)(cid:64)(cid:107)(cid:102)(cid:64)(cid:70)(cid:114)(cid:102)(cid:145)(cid:59)(cid:102)(cid:68)(cid:145) Governance & Sustainability 73 Zenith Bank Plc Annual Report December 31, 2020 (cid:2)(cid:3)(cid:1)(cid:4) 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As a reputable and responsible brand, the Bank has entrenched sustainable banking principles and standards into its business operations and investment decisions, in line with global best practices. We have fully integrated environmental and social (E&S) risks considerations into our credit approval process. Zenith Bank remains committed to promoting sustainable banking practices, improving the quality of life 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, wealth creation, and employment generation. This consciousness inﬂuences our business investments and lending activities and continually propels us to seek innovative ways to support wealth creation. Our strategy is to support the government’s eﬀorts at diversifying 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 identiﬁes and channels funds to sectors and industries with considerable potential to spur economic growth and the overall wellbeing of the people. 76 The Bank also prioritises green investments, supporting and funding projects that promote the wellbeing of the larger society while preserving the physical environment. We are conscious of our environmental footprint and remain focused on investing responsibly in the best interest of our stakeholders. The focus areas of our CSR endeavours during the year mirror the Sustainable Development Goals (SDGs) of the United Nations and include security, healthcare, education and skills development, sports development, youth & women empowerment, and public infrastructure development. Social Investments and Community Development Despite the relatively slow economic growth and challenging business environment brought about by the global COVID-19 pandemic, Zenith Bank has remained committed to enhancing the welfare and prosperity of communities through our social investments. In the year under review, Zenith Bank’s total social investments stood at NGN3.285 billion, representing 1.66 per cent of our Proﬁt After Tax (PAT). Government Infrastructure and Security: Zenith Bank enhanced its engagement with the government and other relevant stakeholders tasked with peace and security. The assessment emanating from the engagement formed the basis for our contribution to various States’ Governments Security Trust Fund and infrastructure. Thus, in 2020, we invested the sum of NGN1.408 billion in security trust funds and various government infrastructure projects. By boosting the operations and eﬀectiveness of relevant security agencies, the safety of communities is enhanced. 77 Health: Our health initiatives in the outgone year focused mainly on supporting government eﬀorts to curb the eﬀects of the COVID-19 pandemic. Zenith Bank donated NGN1 billion to the Coalition Against COVID-19 (CACOVID). Also, NGN119 million was invested in other COVID-19 relief initiatives. We also donated NGN100 million to the Abule Ado Emergency Relief Fund for the care of victims of the gas explosion. In 2020, we invested in medical interventions for low-income individuals faced with various life-threatening medical conditions and supported various health programmes, complementing the government’s eﬀorts at improving life expectancy in the country. We supported the Private Sector Health Alliance of Nigeria with a donation of NGN100 million, and we made a donation of NGN 100 million towards the construction of the Radiology and Orthopaedic Center at General Hospital Marina. Other donations towards medical interventions amounted to about NGN176 million. Our total investment in the health sector in the year under review was NGN1.595 billion. Our health sector investments earned Zenith Bank an award as the “Best Company in Promotion of Good Health and Well-Being” at the 2020 Sustainability Enterprise Responsibility Awards (SERAs). Sports: In 2020, the COVID-19 pandemic greatly hampered sporting events. Our major sports initiatives include the title sponsorship of the Delta State Principals’ Cup, the Nigerian Football Federation (NFF), and the Zenith National Women’s Basketball League in partnership with the Nigerian Basketball Federation (NBBF). 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 within the year under review was about NGN87 million since most of the events could not hold due to the pandemic. Education: In line with our ﬁrm commitment to developing the Nigerian education sector, we committed over NGN95 million to educational initiatives in the outgone ﬁnancial year. Some of our educational initiatives in the year under review include donations towards the educational endowment fund of St. Saviour’s School, Ikoyi, the Nigerian Academy of Science, training of 100 teachers and ﬂag-oﬀ of Microsoft Oﬃce Specialist World Championship, a donation to ICAN’s Capacity building activities, and the Zenith Academic Excellence Award for Best Graduating Students in selected Federal Universities. Environmental Sustainability and Carbon Footprint Management Zenith Bank considers environmental and social (E&S) risk management critical to the bank’s sustainability strategy. Our Environmental and Social Management System (ESMS) provides a clear framework for the management of E&S risks associated with the Bank’s investments. We take measures to mitigate and minimise the risks identiﬁed during the E&S risk due diligence process. Zenith Bank’s ESMS aligns with the Equator Principles, Presented to ZENITH BANK PLC Plot 84, Ajose Adeogun Street, Victoria Island Lagos – Nigeria For its Greenhouse Gas Auditing and Reporting for the calendar year 2019, using V4 Advisors’ tool that is in compliance with the Greenhouse Gas Corporate Standard and ISO 14064-1, 2006. V4 Advisors’ calculation and reporting tool has been reviewed by WRI for conformance with the GHG Protocol Corporate Standard. Contacting V4 Advisors: www.V4advisorsdmcc.com – mobile: +971 (0) 50 668 1073 – V4 Advisors DMCC Registered in Dubai 78 International Finance Corporation the Standards, among other global sustainability principles. (IFC) Performance The automation of our E&S Risk Exposure Assessment process was a major milestone in our resolve to ensure sustainable ﬁnancing of every project we invest in. Our target remains to broaden our E&S risk coverage to all projects, irrespective of the sector 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 NGN3.1 trillion were screened and assessed for E&S risk. While working on expanding coverage, we hope to signiﬁcantly improve E&S monitoring of existing credit customers and projects. In line with Zenith Bank’s carbon emission reduction strategy, we are working towards powering all our operations from alternative (renewable) sources such as solar energy. As of the end of the year 2020, we increased the number of buildings powered by solar energy to over 400, while 1,092 Automated Teller Machines (ATMs) are currently powered by solar energy. We have also automated several banking processes to reduce the consumption of paper in our daily operations. We engaged V4 Advisors to measure our carbon emissions within the period under review, with the aim of managing and reducing our footprint in line with regulatory and global expectations. Workplace The Bank remains committed to building a conducive work environment. We understand that a safe, healthy and secure workplace contributes to increased productivity and employee satisfaction. Strict implementation of our Health, Safety and Environment (HSE) Management Plan also supports the safety of vendors, contractors and other stakeholders. To boost the safety culture in the Bank, we trained 280 employees in Basic Emergency Response in 2020. prohibit discrimination, bullying and harassment of any form. We strive to build an inclusive work environment where people are valued and respected and given equal opportunities to fulﬁl their potential. Our employees, contractors, agents, consultants and business partners are encouraged to treat others with dignity and respect, in conformity with the United Nations Universal Declaration of Human Rights (UDHR). In response to the pandemic, we implemented remote work and other social distancing initiatives in compliance with COVID-19 protocols stipulated by the government. We also made considerable eﬀort to ensure the safety of our oﬃces by providing face masks and sanitisers while promoting good hygiene practices. Employees and their immediate family members were able to access the services of top-class medical hospitals retained by the Bank. The Bank has developed human rights assessment courses, namely “Introduction to Human Rights Framework and the Rights of the Child”, “Understanding the Implications of Human Rights Non-compliance”, and “Human Rights in Business Transactions ” to train staﬀ across all levels on the basics of human rights. These courses have been deployed on our Learning Management Portal and made mandatory for staﬀ, from entry-level to executive management level. Human Rights Zenith Bank is committed to respecting human rights and works to safeguard the rights of people. The Bank has a robust Human Rights Policy, which lays down guidelines on how our employees are expected to relate among themselves and with all other stakeholders within our business operations. We Women Empowerment Zenith Bank remains committed to gender equality and women empowerment. We operate a gender-inclusive workplace culture and also oﬀer products and services designed speciﬁcally for women. In 2020, women represented 49 per cent of our total workforce. The male/female ratio for senior management level 79 staﬀ for 2020 was 68:32. In the year under review, we invested over NGN196 million in capacity building for our female employees, and 2,832 employees participated in two trainings: ‘Choosing to Lead as a Woman’ and ‘Women in Leadership: Moving Beyond Gender Roles as a Leader’. 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, including many other beneﬁts which will help women grow their businesses and increase sales. Facilities and loans to female entrepreneurs under the initiative stood at roughly NGN4 billion during the period. In recognition of these women-focused eﬀorts, the bank was recognised as “Best Company in Gender Equality” at the 2020 Sustainability Enterprise Responsibility Awards (SERAs). Sustainable Supply Chain Management As part of eﬀorts to comply with the principles of responsible consumption and production, we have integrated environmental and social conditions into our Code of Conduct for Suppliers, Vendors and Contractors. The aim is to promote sustainable business practices, and to ensure high- quality products and services, value for money and responsible sourcing of raw materials in our supply chain. Consequently, in 2020, we administered our “Code of Conduct” on all major vendors, suppliers and contractors of the bank and periodically screened all third-party business partners to ensure their compliance with E&S guidelines. Because Information Communication Technology (ICT) facilities and equipment constitute a substantial part of our procurement, we strive to empower local communities and businesses by ensuring that our procurement policy deliberately promotes the patronage of local ICT vendors. Our engagement with IT vendors is guided by laid down service level agreements and compliance with our Code of Conduct, while our Tender Committee oversees the process of selection of vendors. Zenith Bank’s procurement practices have positively impacted the economy, creating jobs, income and economic empowerment for households. 80 As part of efforts to comply with the principles of responsible consumption and production, we have integrated environmental and social conditions into our Code of Conduct for Suppliers, Vendors and Contractors. Financial Inclusion Zenith Bank has continued to support ﬁnancial inclusion and literacy in the country. The bank has developed initiatives for nurturing ﬁnancial inclusion in the country. Our ﬁnancial literacy initiatives are geared towards empowering the ﬁnancially excluded groups by providing them with essential information and adequate knowledge of the various types of ﬁnancial products and services that are accessible to them. Physical activities were curtailed in 2020 as a result of the pandemic. Our ﬁnancial inclusion drive is supported by our numerous retail products such as the Zenith Children’s Account (ZECA), Zenith Integrated Student Account (ZISA), Aspire Account, Easy Save Accounts (Classic & Premium), EazyMoney, Agent Banking, Zenith Mobile Banking, and Unstructured Supplementary Service Data service (*966#). Training and Capacity Building Capacity building remains one of the key people development strategies of the Bank. In 2020, we continued to carry out E&S risk management training for all our employees using online platforms. As part of our sustainability acculturation strategy, we made signiﬁcant progress with the integration of Environmental and Social Risk Management sessions into the quarterly Anti-Money Laundering and Operational Risks training bank-wide, the quarterly Business Summit of the Bank, and the orientation programme for boarding of new employees. We also publish “Sustainability Titbits”, Sustainability Lifestyle Tips” “Safety Nuggets” and “Sustainability Headlines” weekly to create awareness on E&S issues. Reporting Zenith Bank is a member of the United Nations Global Compact, the United Nations Environment Programme Finance Initiative (UNEP-FI), and a signatory to the CBN Nigerian Sustainable Banking Principles (NSBP). Consequently, we remain fully committed to sustainability reporting. In October 2020, the bank published its ﬁfth standalone 2019 Sustainability Report titled ‘Creating Value and Opportunities’ to demonstrate our economic, environmental and social progress in the ﬁnancial year 2019. The report aligns with several sustainability guidelines, including the Nigerian Stock Exchange (GRI) Sustainability (NSE) and Global Reporting Reporting Guidelines. Additionally, Zenith Bank sends biannual progress reports to the CBN as well as annual reports to the IFC, UNGC, PROPARCO, and AfDB, among others. Initiative Conclusion Zenith Bank remains committed to sustainable banking and has put in place a robust governance structure that supports lending, wealth creation and community its sustainable empowerment initiatives. We understand that our brand thrives on the sustainable value we create for our stakeholders. As such, we will seek continuous improvement in our processes to build on our successes and work towards achieving our sustainable banking ambitions. 81 Zenith Bank Plc Annual Report December 31, 2020 Report of the Independent Consultant to the Board of Directors of Zenith Bank PLC. on their Appraisal for the Year Ended 31 December 2020. In compliance with the guidelines of Section 2.8.3 of the Central Bank of Nigeria (CBN) Revised Code of Corporate Governance for Banks in Nigeria Post Consolidation (“the CBN Code”), the Securities and Exchange Commission (SEC) Code of Corporate Governance (“the SEC Code”) and Section 14.1 of the Nigerian Code of Corporate Governance 2018 (“NCCG”), Zenith Bank Plc. (“Zenith bank” or “the Bank”) engaged KPMG Advisory Services to carry out an appraisal of the Board of Directors (“the Board”) for the year ended 31 December 2020. The Codes recommend an annual appraisal of the Board with specific focus on the Board’s structure and composition, responsibilities, processes and relationships, individual director competencies and respective roles in the performance of the Board. We have performed the procedures agreed with Zenith Bank in respect of the appraisal of the Board in accordance with the provisions of the CBN Code, SEC Code and the NCCG. These procedures, which are limited in scope but sufficient for the Board’s objectives in line with the Codes, are different in scope from an external audit. Consequently, no opinion is expressed by us on the activities reported upon. Our approach to the appraisal of the Board involved a review of the Bank’s Board papers and minutes, key corporate governance structures, policies and practices. This included the review of the corporate governance framework and representations obtained from questionnaires and interviews with members of the Board and Senior Management. On the basis of our review, the Bank’s corporate governance practices are largely in compliance with the key provisions of the Codes. Specific recommendations for further improving the Bank’s governance practices have been articulated and included in our detailed report to the Board. These include recommendations on the continuous oversight on the Independent Non- Executive Director process, gender diversity and the (cid:90)(cid:75)(cid:76)s(cid:87)(cid:79)e(cid:3)(cid:69)(cid:79)o(cid:90)(cid:76)n(cid:74) mechanism(cid:17) Olumide Olayinka Partner, KPMG Advisory Services FRC/2013/ICAN/00000000427 (cid:21)(cid:27) (cid:45)(cid:68)n(cid:88)(cid:68)r(cid:92) 2020 82 Financials Financials 83 03Zenith Bank Plc Annual Report December 31, 2020 Consolidated and Separate Statements of Proﬁt or Loss and other Comprehensive Income for the Year Ended December 31, 2020 In millions of Naira Note(s) 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 Group Bank 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 Income tax expense Profit for the year after tax Other comprehensive income: 6 7 8 9 11 10 26 27 37 12 420,813 415,563 342,492 339,310 (121,131) (148,532) (102,111) (126,237) 299,682 267,031 240,381 213,073 (39,534) (24,032) (37,237) (23,393) 260,148 242,999 203,144 189,680 79,332 100,106 61,417 83,641 121,678 117,798 118,601 117,772 50,735 14,216 50,450 10,838 (25,125) (21,436) (22,686) (18,887) (3,537) (3,078) (2,776) (2,795) (79,258) (77,858) (61,515) (62,038) (148,112) (129,453) (136,628) (118,191) 255,861 243,294 210,007 200,020 13a (25,296) (34,451) (12,155) (22,017) 230,565 208,843 197,852 178,003 Items that will never be reclassified to profit or loss: Fair value movements on equity instruments at FVOCI 16,295 13,870 16,295 13,870 Items that are or may be reclassified to profit or loss: Foreign currency translation diﬀerences for foreign operations 15,011 (8,498) Fair value movements on debt securities at FVOCI Income tax relating to fair value movement on debt securities at FVOCI 1,981 (355) 518 (66) - - - - - - Other comprehensive income for the year 32,932 5,824 16,295 13,870 Total comprehensive income for the year 263,497 214,667 214,147 191,873 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) 230,374 208,693 197,852 178,003 191 150 - - 263,277 214,577 214,147 191,873 220 90 - - 14 7.34 6.65 6.30 5.67 The accompanying notes are an integral part of these consolidated and separate ﬁnancial statements. 84 Consolidated and Separate Statements of Financial Position as at December 31, 2020 In millions of Naira Note(s) 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 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 24 25 26 27 28 33 13 24 29 30 31 32 34 35 35 35 35 1,591,768 1,577,875 298,530 810,494 44,496 936,278 991,393 431,728 707,103 92,722 2,779,027 2,305,565 996,916 591,097 - 5,786 169,967 190,170 16,243 - 11,885 77,395 185,216 16,497 1,503,245 1,393,421 298,530 532,377 41,729 2,639,797 333,126 34,625 4,733 159,625 169,080 14,699 879,449 822,449 431,728 482,070 92,722 2,239,472 189,358 34,625 11,223 71,412 165,456 15,109 8,481,272 6,346,879 7,124,987 5,435,073 5,339,911 4,262,289 4,298,258 3,486,887 11,076 11,690 - 703,292 384,573 870,080 43,177 14,762 9,711 25 363,764 392,871 322,479 39,092 11,076 9,117 - 599,464 384,573 874,090 43,177 14,762 6,627 - 386,061 392,871 329,778 39,092 7,363,799 5,404,993 6,219,755 4,656,078 15,698 255,047 521,293 324,461 1,116,499 15,698 255,047 412,948 257,439 941,132 15,698 255,047 382,292 252,195 905,232 15,698 255,047 302,028 206,222 778,995 974 754 - - 1,117,473 941,886 905,232 778,995 8,481,272 6,346,879 7,124,987 5,435,073 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, 2021 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 Financials 85 Zenith Bank Plc Annual Report December 31, 2020 Consolidated and Separate Statements of Changes in Equity as at December 31, 2020 Group Attributable to equity holders of the Parent In millions of Naira Notes 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 15,698 255,047 38,514 9,858 167,520 3,729 1,610 814,213 1,538 815,751 - - - - - - - - - - - - - - 15,698 255,047 15,698 255,047 - - - - - - - - - - - - - (8,438) - - - - 13,870 452 (8,438) 14,322 214,577 90 214,667 - - - 30,076 30,076 - 14,982 - - 14,982 - - - - - 24,180 24,180 - - 16,295 1,626 17,921 - - 29,875 449 (87,910) (87,910) 252 252 197,395 3,729 412,948 941,132 197,395 3,729 2,059 2,059 322,237 208,693 - - - - - - 208,693 (30,324) 412,948 230,374 230,374 (34,119) 208,693 (8,438) 13,870 452 - - 941,132 230,374 14,982 16,295 1,626 - - - - - - - - - - - - - 208,843 (8,498) 13,870 452 (87,910) (622) 941,886 941,886 230,565 15,011 16,295 1,626 - - 150 (60) (874) 754 754 191 29 - - - - - - - - 33,912 207 263,277 220 263,497 (87,910) (87,910) (87,910) - - - - - - - - - - - - - - - - - - - - - - - - - - - 15,698 255,047 45,058 42,101 231,307 3,729 2,266 521,293 1,116,499 974 1,117,473 At 1 January, 2019 Proﬁt for the year Foreign currency translation diﬀerences - Fair value movements on equity instruments Fair value movements on debt securities (net of tax) Total comprehensive income for the Year Transfer between reserves Transactions with owners of the Parent Dividends 40 Acquisition of NCI without change in control At December 31, 2019 At 1 January, 2020 Proﬁt for the year Foreign currency translation diﬀerences Fair value movements on equity instruments Fair value movements on debt securities (net of tax) Total comprehensive income for the year Transfer between reserves Transactions with owners of the Parent Dividends At December 31, 2020 40 86 Notes Share capital premium Share Foreign currency Fair value reserve Statutory reserve SMIEIS reserve Credit risk reservee Retained earnings translation reserve Foreign currency translation diﬀerences - (8,438) Total comprehensive income for the Year (8,438) 14,322 Group Attributable to equity holders of the Parent In millions of Naira At 1 January, 2019 Proﬁt for the year Fair value movements on equity instruments Fair value movements on debt securities (net of tax) Transfer between reserves Transactions with owners of the Parent Dividends 40 Acquisition of NCI without change in control At December 31, 2019 At 1 January, 2020 Proﬁt for the year Foreign currency translation diﬀerences Fair value movements on equity instruments Fair value movements on debt securities (net of tax) Total comprehensive income for the year Transfer between reserves Transactions with owners of the Parent Dividends At December 31, 2020 40 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 30,076 30,076 14,982 14,982 13,870 452 24,180 24,180 16,295 1,626 17,921 - - - - - - - - - 15,698 255,047 15,698 255,047 15,698 255,047 38,514 9,858 167,520 3,729 1,610 - - - - - 29,875 - - - - - - - - - - 197,395 3,729 197,395 3,729 - - - - - 33,912 - - - - - - - 15,698 255,047 45,058 42,101 231,307 3,729 - - - - - 449 - - 2,059 2,059 - - - - - 207 - 2,266 322,237 208,693 - - - 208,693 (30,324) 412,948 230,374 - - - 230,374 (34,119) (87,910) (87,910) 252 252 412,948 941,132 - - 941,132 230,374 14,982 16,295 1,626 Total Non- controlling interest Total equity 814,213 1,538 815,751 208,693 (8,438) 13,870 452 150 (60) - - 208,843 (8,498) 13,870 452 214,577 90 214,667 - - (874) 754 754 191 29 - - - (87,910) (622) 941,886 941,886 230,565 15,011 16,295 1,626 - - - (87,910) 263,277 220 263,497 (87,910) (87,910) 521,293 1,116,499 974 1,117,473 Financials 87 Zenith Bank Plc Annual Report December 31, 2020 Consolidated and Separate Statements of Changes in Equity as at December 31, 2020 Bank In millions of Naira Notes Share capital Share premium Fair value reserve Statutory reserve SMIEIS reserve Credit risk reserve Retained earnings Total equity At 1 January, 2019 Proﬁt for the year Fair value movements on equity instruments Total comprehensive income for the year Transfer between reserves Dividends At December 31, 2019 At 01 January 2020 Proﬁt for the period Fair value movements on equity instruments Total comprehensive income for the year Transfer between reserves Dividends 40 40 , 255,047 9,858 152,065 3,729 - - - - - - - - - - - 13,870 13,870 - - - - - 26,700 - - - - - - 15,698 255,047 23,728 178,765 3,729 15,698 255,047 23,728 178,765 3,729 - - - - - - - - - - - 16,295 16,295 - - - - - 29,678 - - - - - - Balance at December 31, 2020 15,698 255,047 40,023 208,443 3,729 The accompanying notes are an integral part of these consolidated and separate ﬁnancial statements. - - - - - - - - - - - - - - 238,635 178,003 675,032 178,003 - 13,870 178,003 191,873 (26,700) - (87,910) (87,910) 302,028 778,995 302,028 778,995 197,852 197,852 - 16,295 197,852 214,147 (29,678) - (87,910) (87,910) 382,292 905,232 88 Consolidated and Separate Statement of Cash Flows for the Year Ended December 31, 2019 For the year ended 31 December 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 Group Bank Note(s) 2020 2019 2020 2019 230,565 208,843 197,852 178,003 8 8 8 8 37,439 27,754 35,495 27,148 1,392 (706) 1,409 (908) (2,473) (341) 1,079 (706) 1,369 (928) (2,473) (354) Unrealised fair value change in trading bond, bills and derivatives 43(i) (83,476) (10,905) (81,630) (10,905) Depreciation of property and equipment Amortisation of intangible assets Dividend income Foreign exchange revaluation (Gain)/Loss Interest income Interest expense Proﬁt on sale of property and equipment Proﬁt on sale of investment in associate Tax expense Changes in operating assets and liabilities: Net (increase)/decrease in loans and advances Net (increase)/decrease in other assets 26 27 10 32 6 7 10 25,125 21,436 22,686 18,887 3,537 3,078 2,776 2,795 (1,707) (1,932) (5,307) (5,532) (43,441) 5,949 (39,668) 5,949 (420,813) (415,563) (342,492) (339,310) 121,131 148,532 102,111 126,237 (347) (901) 13 25,296 (105,497) (147) - 34,451 17,774 (348) (901) 12,155 (95,529) (152) - 22,017 21,382 43(iv) (385,651) (492,717) (352,819) (513,382) 43(x) (88,605) 3,863 (90,079) (4,853) Net decrease/(increase) in treasury bills with maturities greater than three months 43(ii) (164,637) 194,352 (149,109) 183,300 Net (increase)/decrease in treasury bills (FVTPL) including bills pledged Net decrease/(increase) in assets pledged as collateral 43(iii) 43(xi) 81,210 (197,798) 79,661 (197,801) - 161,321 - 161,321 Net decrease/(increase) in investment securities including bonds pledged 43(i) (244,193) 1,513 (51,521) (7,833) Net increase in restricted balances (cash reserves) 43(xiii) (650,472) (55,479) (609,669) (55,479) Net increase in due from banks with maturity greater than three months 18 67,918 (223,413) 66,725 (223,413) Net increase in customer deposits Net increase/(decrease) in other liabilities Net increase in derivative assets Interest received Dividend received Interest paid Tax paid VAT paid 43(v) 960,138 564,135 761,784 664,555 43(vi) 337,972 134,974 212,884 165,524 43(xii) 75,193 (6,129) 77,960 (6,129) (116,624) 102,396 (149,712) 187,192 43 (viii) 340,642 407,104 303,244 335,518 10 - - - - 43 (ix) (101,461) (135,575) (84,934) (114,398) 13(c) (16,746) (36,308) (2,678) (23,370) 43(vi) - (381) - (381) Net cash flows (used in)/generated from operations 105,811 337,236 65,920 384,561 Financials 89 Zenith Bank Plc Annual Report December 31, 2020 Consolidated and Separate Statement of Cash Flows for the Year Ended December 31, 2020 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 Proceeds from sale of equity securities Purchase of equity securities 21 Dividend received Net cash used in investing activities Cash flows from financing activities Repayment & repurchase of debt securities issued Borrowed funds Additions to long term borrowings Repayment of long term borrowing Additions to onlending facility Repayment of onlending facility Lease payments Acquisition of additional interest in Zenith Bank Ghana Dividends paid to shareholders Net cash used in financing activities 10 32 31 31 30(b) 30(b) 44(vi) 22(i) 40 Group Bank Note(s) 2020 2019 2020 2019 26 (27,194) (62,333) (24,923) (50,901) 43(vii) 27 43(viii) 1,113 (2,473) 901 - 1,707 2,976 (2,118) - (50) 1,932 593 (2,366) 901 - 5,307 530 (1,539) - (50) 5,532 (25,946) (59,593) (20,488) (46,428) - (340,358) - (340,358) 872,332 (114,781) 872,332 (128,685) (353,338) 32,263 (39,758) (742) - - (424) - (2,196) (622) (357,341) 32,263 (39,758) (684) - - (424) - (2,196) (622) (87,910) (87,910) (87,910) (87,910) 422,847 (546,291) 418,902 (560,195) Net (decrease)/increase in cash and cash equivalents 502,712 (268,648) 464,334 (222,062) Analysis of changes in cash and cash equivalents : Cash and cash equivalent at the beginning of the year 670,715 947,038 388,853 610,915 (decrease)/increase in cash and cash equivalents Eﬀect of exchange rate movement on cash balances 502,712 (268,648) 464,334 (222,062) 35,093 (7,675) 29,496 - Cash and cash equivalents at the end of the year 41 1,208,520 670,715 882,683 388,853 The accompanying notes are an integral part of these consolidated and separate ﬁnancial statements. 90 Notes Financials 91 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 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 is domiciled in Nigeria and 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. The consolidated ﬁnancial statements for the period ended December 31, 2020 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 period ended December 31, 2020 were approved for issue by the Board of Directors on January 28, 2021. The Group does not have any unconsolidated structured entity. 2.0 (a) Changes in accounting policies Except as noted below, the Group has consistently applied the accounting policies as set out in Note 2(b) to all periods presented in these consolidated and separate ﬁnancial statements. The Group has adopted the following amendments including any consequential amendments to other standards with initial date of application of January 1, 2020. i.) Amendment to IFRS 3 (Business Combinations) IFRS 3 (Business Combinations) outlines the accounting when an acquirer obtains control of a business (e.g. an acquisition or merger). Such business combinations are accounted for using the ‘acquisition method’, which generally requires assets acquired and liabilities assumed to be measured at their fair values at the acquisition date. The amendments are eﬀective for business combinations for which the acquisition date is on or after the beginning of the ﬁrst annual reporting period beginning on or after January 1, 2020 and to asset acquisitions that occur on or after the beginning of that period. Earlier application is permitted. The amendment relates to the definition of a “business” and they: • Clarify that to be considered a business, an acquired set of activities and assets must include, at a minimum, an input and a substantive process that together signiﬁcantly contribute to the ability to create outputs. Narrow the deﬁnitions of a business and of outputs by focusing on goods and services provided to customers and by removing the reference to an ability to reduce costs. Add guidance and illustrative examples to help entities assess whether a substantive process has been acquired. Remove the assessment of whether market participants are capable of replacing any missing inputs or processes and continuing to produce outputs. • • • 92 Add an optional concentration test that permits a simpliﬁed assessment of whether an acquired • set of activities and assets is not a business. There has been no change in the Group structure within the period as such this amendment does not have an impact on the Group’s ﬁnancial statements. ii.) Amendment to IAS 1 (Presentation of Financial Statements) and IAS 8 (Accounting Policies, Changes in AccountingEstimates and Errors) IAS 1 (Presentation of Financial Statements) and IAS 8 (Accounting Policies, Changes in Accounting Estimates and Errors) have Both been amended by the International accounting standard board (IASB), on October 2018. The amendments are eﬀective for annual reporting periods beginning on or after 1 January 2020, although earlier application was permitted. The purpose for the amendment is to expand on the deﬁnition of materiality and bring more clarity to its characteristics. The revised deﬁnition of “Material” is quoted below: “Information is material if omitting, misstating or obscuring it could reasonably be expected to inﬂuence decisions that the primary users of general purpose ﬁnancial statements make on the basis of those ﬁnancial statements, which provide ﬁnancial information about a speciﬁc reporting entity.” The amendment emphasises ﬁve ways material information can be obscured: • • If the language regarding a material item, transaction or other event is vague or unclear. If information regarding a material item, transaction or other event is scattered in diﬀerent places in the ﬁnancial statements.• If dissimilar items, transactions or other events are inappropriately aggregated. If similar items, transactions or other events are inappropriately disaggregated.• If material information is hidden by immaterial information to the extent that it becomes unclear what information is material. • • • The amendment expands the deﬁnition to include: Obscuring Obscuring material information with information that can be omitted can have a similar eﬀect. Although the term obscuring is new in the deﬁnition, it was already part of IAS 1. Could reasonably be expected to influence The existing deﬁnition referred to ‘could inﬂuence’ which the IASB felt might be understood as requiring too much information as almost anything ‘could’ inﬂuence the decisions of some users even if the possibility is remote. Primary users The existing deﬁnition referred only to ‘users’ which again the IASB feared might be understood too broadly as requiring to consider all possible users of ﬁnancial statements when deciding what information to disclose. The group has incorporated this deﬁnition and guides in preparation of its ﬁnancial statements. (b) 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. Financials 93 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 iii) Interest Rate Benchmark Reform – Amendments to IFRS 7, IFRS 9 and IAS 39 The amendments made to IFRS 7 Financial Instruments: Disclosures, IFRS 9 Financial Instruments and IAS 39 Financial Instruments: Recognition and Measurement provide certain reliefs in relation to interest rate benchmark reforms. The reliefs relate to hedge accounting and have the eﬀect that the reforms should not generally cause hedge accounting to terminate. However, any hedge ineﬀectiveness should continue to be recorded in the income statement. The adoption of phase 1 of the IBOR reform did not lead to a change in the Bank’s accounting policies and do not have any interest hedge accounting. The Bank is currently assessing the impact of the phase 2 amendments. (iv) Revised Conceptual Framework for Financial Reporting The IASB has issued a revised Conceptual Framework which will be used in standard-setting decisions with immediate eﬀect. Key changes include: • • • • • • • increasing the prominence of stewardship in the objective of ﬁnancial reporting. reinstating prudence as a component of neutrality. deﬁning a reporting entity, which may be a legal entity, or a portion of an entity. revising the deﬁnitions of an asset and a liability. removing the probability threshold for recognition and adding guidance on derecognition. adding guidance on diﬀerent measurement basis, and. stating that proﬁt or loss is the primary performance indicator and that, in principle, income and expenses in other comprehensive income should be recycled where this enhances the relevance or faithful representation of the ﬁnancial statements. No changes will be made to any of the current accounting standards. However, entities that rely on the Framework in determining their accounting policies for transactions, events or conditions that are not otherwise dealt with under the accounting standards will need to apply the revised Framework from 1 January 2020. The Group is not impacted as it did not rely on the framework in determining the accounting policies for transactions. Covid-19-related Rent concessions - Amendments to IFRS 16 (v) As a result of the COVID-19 pandemic, rent concessions have been granted to lessees. Such concessions might take a variety of forms, including payment holidays and deferral of lease payments. In May 2020, the IASB made an amendment to IFRS 16 Leases which provides lessees with an option to treat qualifying rent concessions in the same way as they would if they were not lease modiﬁcations. In many cases, this will result in accounting for the concessions as variable lease payments in the period in which they are granted. Effective date is 1 June 2020. The Group had no such Covid -19 related rent concessions as such there is no impact on the Group financial statements. Standards issued but not yet eﬀective (c) The following standards and interpretations had been issued but were not mandatory for annual reporting periods ending on 31 December 2020. Classification of Liabilities as current or non-current - Amendments to IAS 1 The narrow-scope amendments to IAS 1 Presentation of Financial Statements clarify that liabilities are classiﬁed as either current or noncurrent, depending on the rights that exist at the end of the reporting period. Classiﬁcation is unaﬀected by the expectations of the entity or events after the reporting date (eg the receipt of a waver or a breach of covenant). The (i) 94 amendments also clarify what IAS 1 means when it refers to the ‘settlement’ of a liability. The amendments could aﬀect the classiﬁcation of liabilities, particularly for entities that previously considered management’s intentions to determine classiﬁcation and for some liabilities that can be converted into equity. They must be applied retrospectively in accordance with the normal requirements in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. In May 2020, the IASB issued an Exposure Draft proposing to defer the eﬀective date of the amendments to 1 January 2023. The eﬀective date is 1 January 2022 (possibly deferred to 1 January 2023). The impact of this amendment on the Groups ﬁnancial statements is currently under assessment. Reference to the Conceptual Framework - Amendments to IFRS 3 (ii) Minor amendments were made to IFRS 3 Business Combinations to update the references to the Conceptual Framework for Financial Reporting and add an exception for the recognition of liabilities and contingent liabilities within the scope of IAS 37 Provisions, Contingent Liabilities and Contingent Assets and Interpretation 21 Levies. The amendments also conﬁrm that contingent assets should not be recognised at the acquisition date. The eﬀective date is 1 January 2022. The amendment has no eﬀect on the Group ﬁnancial statements for the year, as there has been no business combinations for the reporting period. (iii) Onerous Contracts - Cost of Fulfilling a Contract Amendments to IAS 37 The amendment to IAS 37 clariﬁes that the direct costs of fulﬁlling a contract include both the incremental costs of fulﬁlling the contract and an allocation of other costs directly related to fulﬁlling contracts. Before recognising a separate provision for an onerous contract, the entity recognises any impairment loss that has occurred on assets used in fulﬁlling the contract. The eﬀective date is 1 January 2022. The Group has no contracts as at the reporting dates to which the amendments apply. (iv) 2.1 (a). Annual Improvements to IFRS Standards 2018-2020 The following improvements were ﬁnalised in May 2020: • IFRS 9 Financial Instruments - clariﬁes which fees should be included in the 10% test for derecognition of ﬁnancial liabilities. IFRS 16 Leases - To remove the illustration of payments from the lessor relating to leasehold improvements, to remove any confusion about the treatment of lease incentives. • The eﬀective date is 1 January 2022. Basis of preparation Statement of compliance The ﬁnancial statements are prepared in accordance with International Financial Reporting Standards (IFRS) and comply with IFRS as issued by the International Accounting Standard Board (IASB) and in the manner required by the Companies and Allied Matters Act of Nigeria, the Financial Reporting Council of Nigeria Act, the Banks and other Financial Institutions Act of Nigeria, and relevant Central Bank of Nigeria circulars. (b). Basis of measurement The ﬁnancial statements have been prepared under the historical cost convention with the exception of the following: • Financial assets and liabilities measured at amortised cost; Financials 95 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 • • Derivative ﬁnancial instruments which are 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. 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. (c) 2.2 (a) (b) (c) 96 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) Non-controlling interests Non-controlling interests are measured at their proportionate share of the acquiree’s identiﬁable net assets at the acquisition date. Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. 2.3 Translation of foreign currencies Foreign currency transactions and balances (a) Functional and presentation currency Items included in the ﬁnancial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (functional currency). The parent entity’s functional currency (Nigerian Naira) is adopted as the presentation currency for the separate and consolidated ﬁnancial statements. Except as otherwise indicated, ﬁnancial information presented in Naira has been rounded to the nearest million. (b) Group companies The results and ﬁnancial position of all the Group entities (none of which has the currency of a hyper-inﬂationary economy) that have a functional currency diﬀerent from the presentation currency are translated into the presentation currency as follows: (i) (ii) (iii) 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. On the disposal of a foreign operation, the Group recognises in proﬁt or loss the cumulative amount of exchange diﬀerences relating to that foreign operation. When a subsidiary that includes a foreign operation is partially disposed of or sold, the Group re-attributes the proportionate share of the cumulative amount of the exchange diﬀerences recognised in other comprehensive income to the non-controlling interests in that foreign operation. In the case of any other partial disposal of a foreign operation, the Group reclassiﬁes to proﬁt or loss only the proportionate share of the cumulative amount of exchange diﬀerences recognised in other comprehensive income. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate at the reporting date. (c) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in proﬁt or loss. Non-monetary assets and liabilities denominated in foreign currencies that are measured at historical cost are translated to the functional currency using the exchange rate at the transaction date, and those measured at fair value are translated to the Financials 97 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 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 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. 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 settles the purchase or sale of the instruments (settlement date accounting). Subsequent measurement Subsequent to initial measurement, ﬁnancial instruments are measured either at amortised cost or fair value depending on their classiﬁcation category. 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) 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. • • 2.4 2.5 (a) (b) (c) (i) 98 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. • • • • (ii) (iii) Financial liabilities Financial liabilities are either classiﬁed by the Group as: Financial liabilities at amortised cost; or • Financial liabilities as at fair value through proﬁt or loss (FVTPL). • Financial liabilities are measured at amortised cost by the Group unless either: The ﬁnancial liability is held for trading and is therefore required to be measured at FVTPL, or The Group elects to measure the ﬁnancial liability at FVTPL (using the fair value option). • • Financial guarantees contracts and loan commitments A ﬁnancial guarantee contract is a contract that requires the Group (issuer) to make speciﬁed payments to reimburse the holder for a loss it incurs because a speciﬁed debtor fails to make payment when due in accordance with the original or modiﬁed terms of a debt instrument. Loan commitments’ are ﬁrm commitments to provide credit under pre-speciﬁed terms and conditions. Financial guarantees issued or commitments to provide a loan at a below-market interest rate are initially measured at fair value. Subsequently, they are measured 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. Financials 99 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 Contingent liabilities and commitments are initially recognized at fair value which is also generally equal to the fees received and amortized over the life of the commitment. The carrying amount of contingent liabilities are subsequently measured at the higher of the present value of any expected payment when a payment under the contingent liability has become probable and the unamortised fee. 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 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. 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 100 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 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. (ii) Financial liabilities The Group derecognises a ﬁnancial liability when its contractual obligations are discharged or cancelled, or expire. Financials 101 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 (e) Modiﬁcations of ﬁnancial assets and ﬁnancial liabilities Financial assets If the terms of a ﬁnancial asset are modiﬁed, then the Group evaluates whether the cash ﬂows of the modiﬁed asset are substantially diﬀerent. If the cash ﬂows are substantially diﬀerent, then the contractual rights to cash ﬂows from the original ﬁnancial asset are deemed to have expired. In this case, the original ﬁnancial asset is derecognized (see (d)) and a new ﬁnancial asset is recognised at fair value plus any eligible transaction costs. Any fees received as part of the modiﬁcation are accounted for as follows: - fees that are considered in determining the fair value of the new asset and fees that represent reimbursement of eligible transaction costs are included in the initial measurement of the asset; and - other fees are included in proﬁt or loss as part of the gain or loss on derecognition. If cash ﬂows are modiﬁed when the borrower is in ﬁnancial diﬃculties, then the objective of the modiﬁcation is usually to maximize recovery of the original contractual terms rather than to originate a new asset with substantially diﬀerent terms. If the Group plans to modify a ﬁnancial asset in a way that would result in forgiveness of cash ﬂows, then it ﬁrst considers whether a portion of the asset should be written oﬀ before the modiﬁcation takes place (see below for write oﬀ policy). This approach impacts the result of the quantitative evaluation and means that the derecognition criteria are not usually met in such cases. If the modiﬁcation of a ﬁnancial asset measured at amortised cost or FVOCI does not result in derecognition of the ﬁnancial asset, then the Group ﬁrst recalculates the gross carrying amount of the ﬁnancial asset using the original eﬀective interest rate of the asset and recognises the resulting adjustment as a modiﬁcation gain or loss in proﬁt or loss. For ﬂoating-rate ﬁnancial assets, the original eﬀective interest rate used to calculate the modiﬁcation gain or loss is adjusted to reﬂect current market terms at the time of the modiﬁcation. Any costs or fees incurred and fees received as part of the modiﬁcation adjust the gross carrying amount of the modiﬁed ﬁnancial asset and are amortised over the remaining term of the modiﬁed ﬁnancial asset. If such a modiﬁcation is carried out because of ﬁnancial diﬃculties of the borrower (see (2.9)), then the gain or loss is presented together with impairment losses for stage 1 facilities, for stage 2 and 3 the modiﬁcation gain or loss is disclosed separately. 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. 102 (f ) Oﬀsetting Financial assets and ﬁnancial liabilities are oﬀset and the net amount presented in the statement of ﬁnancial position when, and only when, the Group currently has a legally enforceable right to set oﬀ the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously. Income and expenses are presented on a net basis only when permitted under IFRS, or for gains and losses arising from a group of similar transactions such as in the Group’s trading activity. (g) Amortised cost measurement The amortised cost of a ﬁnancial asset or liability is the amount at which the ﬁnancial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the eﬀective interest rate method of any diﬀerence between the initial amount recognised and the maturity amount, minus any reduction for impairment. (h) Fair value measurement ‘ Fair value’ is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at that date. The fair value of a liability reﬂects its non-performance risk. The best evidence of the fair value of a ﬁnancial instrument at initial recognition is the transaction price – i.e. the fair value of the consideration given or received. However, in some cases the initial estimate of fair value of a ﬁnancial instrument on initial recognition may be diﬀerent from its transaction price. If this estimated fair value is evidenced by comparison with other observable current market transactions in the same instrument (without modiﬁcation or repackaging) or based on a valuation technique whose variables include only data from observable markets, then the diﬀerence is recognised in proﬁt or loss on initial recognition of the instrument. In other cases, the fair value at initial recognition is considered to be the transaction price and the diﬀerence is not recognised in proﬁt or loss immediately but is recognised over the life of the instrument on an appropriate basis or when the instrument is redeemed, transferred or sold, or the fair value becomes observable. If an asset or a liability measured at fair value has a bid price and an ask price, then the Group measures assets and long positions at a bid price and liabilities and short positions at an ask price. Where the Bank has positions with oﬀsetting risks, mid market prices are used to measure the oﬀsetting risk positions and a bid or ask price adjustment is applied only to the net open position as appropriate. The fair value of a demand deposit is not less than the amount payable on demand, discounted from the ﬁrst date on which the amount could be required to be paid. The Group recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which the change has occurred. 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, Financials 103 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 and is consistent with accepted economic methodologies for pricing ﬁnancial instruments. Inputs into valuation techniques reasonably represent market expectations and measures of the risk-return factors inherent in the ﬁnancial instrument. See note 3.5 on fair valuation methods and assumptions. (i) Assets pledged as collateral Financial assets transferred to external parties and which do not qualify for de-recognition are reclassiﬁed in the statement of ﬁnancial position from treasury bills and investment securities to assets pledged as collateral, if the transferee has received the right to sell or re-pledge them in the event of default from agreed terms. Assets pledged as collateral are initially recognised at fair value, and are subsequently measured at amortised cost or fair value as appropriate. These transactions are performed in accordance with the usual terms of securities lending and borrowing. (j) Assets under repurchase agreement Assets under repurchase agreement are transactions in which the Group sells a security and simultaneously agrees to repurchase it (or an asset that is substantially the same as the one sold) at a ﬁxed price on a future date. The Group continues to recognise the securities in their entirety in the statement of ﬁnancial position because it retains substantially all of the risks and rewards of ownership. The cash consideration received is recognised as 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. Non-hedging derivative assets and liabilities are 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. 2.7 Impairment The Group recognises loss allowances for ECL on the following ﬁnancial instruments that are not measured at FVTPL: • • • • Financial assets that are debt instruments; Lease receivables; Financial guarantee contracts issued; and Loan commitments issued. No impairment loss is recognised on equity investments. 104 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. 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’. 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. 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 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. There has been no change in estimation techniques from prior period. Also, signiﬁcant assumptions made during the period can be seen in note 4.4 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. 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; Financials 105 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 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.’ 2.7.2 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 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. 106 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 position, such that the customer can no longer pay the obligation, or that proceeds from the collateral will not be suﬃcient to pay back the entire exposure. Board approval is required for such write-oﬀ. For insider-related loan (loans by the Bank to its own oﬃcers and directors), CBN approval is required. The loan recovery department continues with its recovery eﬀorts and any loan subsequently recovered is treated as other income. Loans and debt securities are written oﬀ (either partially or in full) when there is no realistic prospect of recovery. This is generally the case when the Group determines that the borrower does not have assets or sources of income that 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. The outstanding contractual amounts of assets written oﬀ during the year ended 31 December 2020 was N53.8 billion (31 December, 2019: N60.9 billion). The Group still seeks to recover amounts it is legally owed in full, but which have been written oﬀ due to no reasonable expectation of full recovery. 2.8 2.9 Reclassification of financial instruments Financial assets are required to be reclassiﬁed in certain rare circumstances among the amortised cost, FVOCI and FVTPL categories. When the Group changes its business model for managing ﬁnancial assets, the Group reclassiﬁes all aﬀected 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 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. Financials 107 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 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 of the related loan and fair value less cost to sell and reported within ‘Other asset’. 2.11 Property and equipment Property and equipment are stated at historical cost less accumulated depreciation and accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Where signiﬁcant parts of an 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 Motor vehicles Oﬃce equipment Furniture and ﬁttings Computer equipment Buildings Leasehold improvement Right of use assets Depreciation is included in proﬁt or loss. 108 (Not depreciated) 4 years 5 years 5 years 3 years 50 years Over the remaining lease period Lower of lease term or the useful life for the speciﬁed class of item 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 Cost 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. Costs associated with maintaining computer software programmes are recognised expenses as they are incurred. Development costs that are directly attributable to the design and testing of identiﬁable and unique software products controlled by the Group, are recognised as intangible assets when the following criteria are met: (i) (ii) (iii) (iv) (v) (vi) 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. Subsequent expenditure on computer software is capitalised only when it increases the future economic beneﬁts embodied in the speciﬁc asset to which it relates. Amortisation is recognised in proﬁt or loss on a straight-line basis over the estimated useful life of the software, from the date that the asset is available for use since this most closely reﬂects the expected pattern of consumption of the future economic beneﬁts embodied in the asset. The estimated useful life for computer software is 5 years. Amortisation methods, useful lives and residual values are reviewed at each ﬁnancial period-end and adjusted if appropriate. Intangible assets are derecognized on disposal or when no future economic beneﬁts are expected from their use or disposal. Financials 109 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 2.13 Impairment of non-financial assets The carrying amounts of the Group’s non-ﬁnancial assets, other than deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For intangible assets that have indeﬁnite useful lives or that are not yet available for use, the recoverable amount is estimated each period at the same time. 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. 2.14 Leases 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. The major lease transaction wherein the Group/Bank is a lessee relates to the lease of Bank’s branches. 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. 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. 110 The Group applies 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. B. 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) (b) 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. 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. Financials 111 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 C. Group / Bank as a lessor Lease and instalment sale contracts are primarily ﬁnancing transactions in banking activities, with rentals and instalments receivable, less unearned ﬁnance charges, being included in Loans and advances to customers in the statement of ﬁnancial position. Finance charges earned are computed using the eﬀective interest method which reﬂects a constant periodic return on the investment in the ﬁnance lease. Initial direct costs paid are 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 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. 2.15 Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events and it is probable that an outﬂow of resources embodying economic beneﬁts will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. Provisions are determined by discounting the expected future cash ﬂows using a pre-tax discount rate that reﬂects current market assessments of the time value of money and, where appropriate, the risks speciﬁc to the liability. A provision for restructuring is recognised when the Group has approved a detailed formal plan, and the restructuring either has commenced or has been announced publicly. Future operating costs or losses are not provided for. A provision for onerous contracts is recognised when the expected beneﬁts to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises any impairment loss on the assets associated with that contract. Contingent liabilities are possible obligations that arise from past events whose existence will be conﬁrmed only by the occurrence, or non-occurrence, of one or more uncertain future events not wholly within the Group’s control. Contingent liabilities are not recognised in the ﬁnancial statements but are disclosed in the notes to the ﬁnancial statements. The Group recognises liability for a levy not earlier than when the activity that triggers payment occurs. Also, the Group accrues liability on levy progressively only if the activity that triggers payment occurs over a period of time. However, for a levy that is triggered upon reaching a minimum threshold, no liability is recognised before the speciﬁed minimum threshold is reached. 112 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 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. (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. 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. (c) Termination beneﬁts The Group recognises termination beneﬁts as an expense when the Group is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination beneﬁts as a result of an oﬀer made to encourage voluntary redundancy. The Group settles termination beneﬁts within twelve months and are accounted for as short-term beneﬁts. 2.17 Share capital and reserves (a) (b) (c) 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. Share premium Premiums from the issue of shares are reported in share premium. Financials 113 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 (d) (e) (f ) (g) (h) (i) Statutory reserve Nigerian banking regulations require the Bank to make an annual appropriation to a statutory reserve. As stipulated by Section 16(1) of the Banks and Other Financial Institutions Act of 1991 (amended), an appropriation of 30% of proﬁt after tax is made if the statutory reserve is less than the paid-up share capital and 15% of proﬁt after tax if the statutory reserve is greater than the paid-up share capital. 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 nondistributable. 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 provision determined in line with the principles of IFRS and impairment provision 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. 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. When calculating the eﬀective interest rate for ﬁnancial instruments other than purchased or originated credit-impaired assets, the Group estimates future cash ﬂows considering all contractual terms of the ﬁnancial instrument, but not ECL. For purchased or originated credit impaired ﬁnancial assets, a creditadjusted eﬀective interest rate is calculated using estimated future cash ﬂows including ECL. 114 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. 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 consolidated and separate statement of proﬁt or loss includes only interest on ﬁnancial assets and ﬁnancial liabilities measured at amortised cost and FVTOCI. Interest expense presented in the consolidated and separate statement of proﬁt or loss and other comprehensive income 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). 2.19 Fees, commission and other income Fee and commission income and expense that are integral to the eﬀective interest rate on a ﬁnancial asset or ﬁnancial liability are included in the eﬀective interest rate (see Note 2.18). Financials 115 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 Other fee and commission income – including account servicing fees, fees on electronic products, sales commission, placement fees and syndication fees – is recognised as the related services are performed. If a loan commitment is not expected to result in the draw-down of a loan, then the related loan commitment fee is recognised on a straight-line basis over the commitment period. A contract with a customer that results in a recognised ﬁnancial instrument in the Group’s ﬁnancial statements may be partially in the scope of IFRS 9 and partially in the scope of IFRS 15. If this is the case, then the Group ﬁrst applies IFRS 9 to separate and measure the part of the contract that is in the scope of IFRS 9 and then applies IFRS 15 to the residual. Other fee and commission expenses relate mainly to transaction and service fees, which are expensed as the services are received. Dividend income is recognised when the right to receive income is established. Usually, this is the exdividend date for quoted equity securities. Dividends are presented in net trading gains, or other income based on the underlying classiﬁcation of the equity investment. Dividends on equity instruments designated as at FVOCI that clearly represent a recovery of part of the cost of the investment are presented in OCI. Income on cash handling relates to services provided to customers in processing cash withdrawal and deposits above the regulated limit, provided by the Central Bank of Nigeria. Income is recognised as the service is provided. 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 Net income from other financial instruments at fair value through profit or loss Net income from other ﬁnancial instruments at fair value through proﬁt or loss relates to derivatives held for risk management purposes that do not form part of qualifying hedge relationships. Fair value changes on other derivatives held for risk management purposes, and other ﬁnancial assets and liabilities carried at fair value through proﬁt or loss, are presented in Other Income – Mark to market gain/(loss) on trading investmentsin the Income statement. 2.22 Operating expense Expenses are decreases in economic beneﬁts during the accounting period in the form of outﬂows, depletion of assets or incurrence of liabilities that result in decrease in equity, other than those relating to distributions to equity participants. Expenses are recognized on an accrual basis regardless of the time of spending cash. Expenses are recognized in the income statement when a decrease in future economic beneﬁt related to a decrease in an assets or an increase of a liability has arisen that can be measured reliably. Expenses are measured at historical cost. Only the portion of cost of a previous period that is related to the income earned during the reporting period is recognized as 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. 116 Expenses are recognized in the same reporting period when they are incurred in cases when it is not probable to directly relate them to particular income earned during the current reporting period and when they are not expected to generate any income during the coming years. 2.23 Current and deferred income tax 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. (a) 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). 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 0.25% of gross earnings.: 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. Financials 117 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 (b) 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 investments 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 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 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 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. 2.24 2.25 2.26 118 2.27 Deposit for Investment in AGSMEIS The Agri-Business/Small and Medium Enterprises Investment Scheme is an initiative of Banker’s committee of Nigeria. The contributed funds is meant for supporting the Federal Government’s eﬀort at promoting agricultural businesses as well as Small and Medium Enterprises. In line with this initiative, the Bank will contribute 5% of Proﬁt After Tax yearly to the fund. 3. Risk management 3.1 Enterprise Risk Management The Zenith Bank Group adopts an integrated approach to risk management by bringing all risks together under a limited number of oversight functions. The Group addresses the challenge of risks comprehensively through the Enterprise Risk Management (ERM) Framework by applying practices that are supported by a governance structure consisting of Board- level and executive management committees. As part of its risk management policy, the Group segregates duties between market-facing business units and risk management functions while management is governed by well-deﬁned policies, which are clearly communicated across the Group. Risk related issues are taken into consideration in all business decisions and the Group continually strives to maintain a conservative balance between risk and revenue consideration. Continuous education and awareness of risk management has strengthened the risk management culture across the Group. 3.1.1 Risk Management Philosophy/Strategy The Group considers sound risk management practice to be the foundation of a long lasting ﬁnancial institution. a. 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- Financials 119 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 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. b. c. d. e. f. The Board of Directors provides overall risk management direction and oversight; The Group’s risk appetite is approved by the Board of Directors; Risk management is embedded in the Group as an intrinsic process and is a core competence of all its employees; The Group manages its credit, market, operational and liquidity risks in a coordinated manner within the organisation; The Group’s risk management function is independent of the business divisions; and The Group’s internal audit function reports to the Board Audit Committee and provides independent validation of the business units’ compliance with risk policies and procedures, and the adequacy and eﬀectiveness of the risk management framework on an enterprise-wide basis. The Group continuously modiﬁes and enhances its risk management policies and systems to reﬂect changes in markets, products and international best practices. Training, individual responsibility and accountability, together with a disciplined and cautious culture of control, are an integral part of the Group’s management of risk. The Board of Directors ensures strict compliance with relevant laws, rules and standards issued by the industry regulators and other law enforcement agencies, market conventions, codes of practices promoted by industry associations and internal policies. The compliance function, under the leadership of the Chief Compliance Oﬃcer of the Bank, has put in place a robust compliance framework, which includes: a. b. c. d. 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. 120 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. b. c. d. e. f. g. h. Develop and implement procedures and practices that translate the Board’s goals, objectives, and risk tolerances into operating standards that are well understood by staﬀ; Establish lines of authority and responsibility for managing individual risk elements in line with the Board’s overall direction; Risk identiﬁcation, measurement, monitoring and control procedures; Establish eﬀective internal controls that cover each risk management process; Ensure that the Group’s risk management processes are properly documented; Create adequate awareness to make risk management a part of the corporate culture of the Group; Ensure that risk remains within the boundaries established by the Board; and Ensure that business lines comply with risk parameters and prudent limits established by the Board; The CBN Risk Management Guidelines prescribes quantitative and qualitative criteria for the identiﬁcation of signiﬁcant activities and sets a threshold of contributions for determining signiﬁcant activities in the Bank and its subsidiaries. This practice is essentially to drive the risk control focus of ﬁnancial institutions. Zenith Bank applies a mix of qualitative and quantitative techniques in the determination of its signiﬁcant activities under prescribed broad headings. The criteria used in estimating the materiality of each activity is essentially based on the following: a. b. c. d. 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. 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 Amid the impact of the Covid-19 pandemic, the Nigerian economy slipped into another recession in ﬁve years, contracting by 6.1 and 3.62 per cent, year-on-year, in real terms, in the second and third quarters of 2020 ﬁnancial year, respectively, according to the National Bureau of Statistics (NBS).This technical recession was triggered mainly by the sluggish performance of the oil and gas sector, which recorded negative growth of 13.89 per cent in Q3 2020 relative to a decline of 6.63 per cent recorded in Q2 2020. The adverse performance of the oil and gas sector was occasioned by a sharp slump in crude oil prices (from about $100 in December 2019 to around $49.9 per barrel). Covid-19 pandemic along with global lockdowns and restrictions have resulted in a considerable drop in the aggregate demand for crude oil in the international commodity markets. The development has led Financials 121 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 to signiﬁcant dollar scarcity, a high headline inﬂation rate, and devaluation of the naira against a basket of major currencies in all segments of Nigeria’s foreign exchange market. Indeed, the development and rollouts of Covid-19 Vaccines have, however, brought light at the end of the tunnel as Nigeria’s economy is expected to leverage the momentum to record positive growth of 1.5% in 2021, according to the International Monetary Funds (IMF), provided there are no fresh lockdowns. Already, the International Monetary Funds had forecast a contraction of about -4.1 for the Nigerian economy in 2020. In 2021, we expect a gradual improvement in oil price fundamentals, with positive impacts on Nigeria’s SRA inﬂows and foreign exchange reserves. We foresee reopening of the border to enhance the exports of locally manufactured goods. However, a resurgence in cases of the COVID-19 pandemic could slow economic recovery. Despite the prevailing macroeconomic headwinds in the period under review, Zenith Bank remained resilient and delivered yet another superior ﬁnancial performance, characterized by high-quality assets, robust earnings, and Capital Adequacy Ratio. 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 year would include the following: (a) (b) (c) (d) (e) (f ) (g) (h) (i) (j) (k) (l) The bank’s business continuity activities are constantly being reviewed and strengthened to reﬂect the current and potential impacts of Covid-19 pandemic. The bank has also developed a strategic crisis-action plan to guide the organization’s response across all Covid-19 scenarios - short, medium and long term. Several stress tests to assess the possible impacts of Covid-19 on our liquidity, capital adequacy and earning capacity had been conducted. The bank remains resilient to short and medium term shocks from the adverse impacts of coronavirus pandemic. Continual review of loan book and close monitoring of all assets and liabilities class to ensure suﬃcient liquidity to meet the bank’s ﬁnancial obligations. In line with regulatory requirements, we recognize the Impact of Covid-19 on our risk assets, loan-provisioning and net interest margin. We are engaging our discerning customers in key sectors of the economy to better understand their current challenges and provide eﬀective and bespoke actions to alleviate their hardships while preserving shareholders’ funds. 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. Further develop SME/Retail product sales and 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. 122 (m) (n) (o) (p) (q) 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. 3.2 Credit Risk Credit risk is the risk of a ﬁnancial loss if an obligor does not fully honour its contractual commitments to the Group. Obligors may be borrowers, issuers, counterparties or guarantors. Credit risk is the most signiﬁcant risk facing the Bank in the normal course of business. The Bank is exposed to credit risk not only through its direct lending activities and transactions but also 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. b. c. d. e. f. g. h. Credit is only extended to suitable and well identiﬁed customers and never where there is any doubt as to the ethical standards and record of the intending borrower; Exposures to any industry or customer will be determined by the regulatory guidelines, clearly deﬁned internal policies, debt service capability and balance sheet management guidelines; Credit is not extended to customers where the source of repayment is unknown or speculative, and also where the destination of funds is unknown. There must be clear and veriﬁable purpose for the use of the funds; Credit is not given to a customer where the ability of the customer to meet obligations is based on the most optimistic forecast of events. Risk considerations will always have priority over business and proﬁt considerations The primary source of repayment for all credits must be from an identiﬁable cash ﬂow from the counterparty’s normal business operations or other ﬁnancial arrangements. The realization of security remains a fall back option; A pricing model that reﬂects variations in the risk proﬁle of various credits to ensure that higher risks are compensated by higher returns is adopted; All insiders’ related credits are limited to regulatory and strict internal limits and are disclosed as required; and The consequences for non-compliance with the credit policy and credit indiscipline are communicated to all staﬀ and are implemented. 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. b. c. 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; Financials 123 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 d. e. The size of the facility in case default occurs; and Estimated Rate of Recovery, which is a measure of the portion of the debt that can be recovered through realisation of assets and collateral should default occur. 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 Unrated 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) Individually insigniﬁcant (unrated) (b) Other debt instruments With respect to other debt instruments, the Group takes the following into consideration in the management of the associated credit risk: (i) (ii) Internal and external research and market intelligence reports; and Regulatory agencies reports In addition to the above, we have put in place limits structure which is monitored from time to time in order to limit our risk exposures on these securities. 124 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. b. c. d. e. f. g. Credit assessment of the borrower’s industry, and 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. 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. The framework for credit risk assessment at Zenith is well-deﬁned and institutionally predicated on: a. b. c. d. e. f. g. h. i. 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 in line with key performance indicators and periodic stress testing; Continuous assessment of concentrations and mitigation strategies; Continuous validation and modiﬁcation of early warning system to ensure proper functioning for risk identiﬁcation; Systematic and objective credit risk rating methodologies that are based on quantitative, qualitative and expert judgment; Systematic credit limits management which enables the Bank to monitor its credit exposure on daily basis at country, borrower, industry, credit risk rating and credit facility type levels; Solid documentation and collateral management process with proper coverage and top-up triggers and follow-ups; and Financials 125 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 j. Annual and interim individual credit reviews to ensure detection of weakness signs or warning signals and considering proper remedies. 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. 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 Board Credit Committee Management Global Credit Committee Approval limit (% of Shareholders’ Fund) 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. 126 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. b. c. d. e. f. g. Real estate, plant and equipment collateral (usually all asset or mortgage debenture or charge), which have to be registered and enforceable under Nigerian law; Collateral consisting of inventory, accounts receivable, machinery equipment, patents, trademarks, 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. 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. Financials 127 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 Details of collateral pledged by customers against the carrying amount of loans and advances as at December 31, 2020 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 December 31, 2020 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 Group Bank Total exposure Value of collateral Total exposure Value of collateral 293,904 4,587 1,296,252 1,324,599 2,919,342 (140,315) 2,779,027 242,928 3,241 1,291,922 - 1,538,091 - 1,538,091 231,672 4,587 1,224,165 1,312,239 2,772,663 (132,866) 2,639,797 171,661 3,241 1,193,685 - 1,368,587 - 1,368,587 Term loan Overdrafts On lending Total 185,659 1,301 881,735 1,068,695 2,142,728 109,575 35,781 1,940 78,869 116,590 248,003 26,283 21,488 - 331,318 352,806 528,611 4,457 242,928 3,241 1,291,922 1,538,091 2,919,342 140,315 2,033,153 221,720 524,154 2,779,027 Grand total: Amount of (undercollaterization)/overcollaterization (964,458) (105,130) (171,348) (1,240,936) December 31, 2020 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 Term loan Overdrafts On lending Total 88,121 1,301 457,498 546,920 14,310 110 70,011 84,431 18,462 - 330,419 348,881 120,893 1,411 857,928 980,232 1,475,417 154,570 523,592 2,153,579 16,421 2,571 4,408 23,400 1,458,996 151,999 519,184 2,130,179 Grand total: Amount of (undercollaterization)/overcollaterization (912,076) (67,568) (170,303) (1,149,947) 128 December 31, 2020 Term loan Overdrafts On lending Total Against lifetime ECL not credit-impaired loans and advances Property/Real estate Cash Collateral, lien over ﬁxed and ﬂoating assets Fair value of collateral Gross loans ECL Allowance Net amount 95,577 397,381 492,958 539,960 7,217 532,743 10,848 1,342 12,190 34,377 1,448 32,929 Grand total: Amount of (undercollaterization)/overcollaterization (39,785) (20,739) 2,999 - 2,999 4,200 38 4,162 (1,163) 109,424 398,723 508,147 578,537 8,703 569,834 (61,687) December 31, 2020 Term loan Overdrafts On lending 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 1,962 - 26,856 28,818 127,351 85,937 41,414 10,623 1,830 7,516 19,969 59,056 22,264 36,792 Grand total: Amount of (undercollaterization)/overcollaterization (12,596) (16,823) 26 - 899 925 819 11 808 117 12,611 1,830 35,271 49,712 187,226 108,212 79,014 (29,302) Bank December 31, 2020 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 Total 121,271 1,301 792,203 914,775 2,013,764 103,512 28,902 1,940 70,164 101,006 230,288 24,897 21,488 171,661 - 3,241 331,318 1,193,685 352,806 1,368,587 528,611 2,772,663 4,457 132,866 1,910,252 205,391 524,154 2,639,797 Grand total: Amount of (undercollaterization)/overcollaterization (995,477) (104,385) (171,348) 1,271,210 Financials 129 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 December 31, 2020 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 Grand total: Amount of (undercollaterization)/overcollaterization Term loan Overdrafts On lending Total 25,241 1,301 367,966 394,508 1,347,431 10,393 1,337,038 (942,530) 11,149 110 62,197 73,456 140,977 2,130 138,847 (65,391) 18,462 - 330,419 348,881 54,852 1,411 760,582 816,845 523,592 2,012,000 4,408 16,931 519,184 1,995,069 (170,303) (1,178,224) December 31, 2020 Term loan Overdrafts On lending Total Against lifetime ECL not credit-impaired loans and advances Property/Real estate Cash Collateral, lien over ﬁxed and ﬂoating assets Fair value of collateral Gross loans ECL Allowance Net amount Grand total: Amount of (undercollaterization)/overcollaterization 95,577 397,381 492,958 539,977 7,217 532,760 (39,802) 10,832 1,342 12,174 34,304 1,447 32,857 (20,683) 2,999 109,408 - 2,999 4,200 38 4,162 (1,163) 398,723 508,131 578,481 8,702 569,779 (61,648) December 31, 2020 Term loan Overdrafts On lending 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 454 - 26,856 27,310 126,356 85,902 40,454 6,921 1,830 6,625 15,376 55,007 21,320 33,687 Grand total: Amount of (undercollaterization)/overcollaterization (13,144) (18,311) 26 - 899 925 819 11 808 117 7,401 1,830 34,380 43,611 182,182 107,233 74,949 (31,338) 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. 130 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, 2019 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 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 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 Term loan Overdrafts On lending Finance lease Total 173,073 150 732,119 905,342 1,760,501 119,912 1,640,589 (735,247) 35,815 3,968 41,677 81,460 212,548 34,328 178,220 12,574 - 296,640 309,214 483,024 2,435 480,589 1,186 - 165 1,351 6,286 119 6,167 222,648 4,118 1,070,601 1,297,367 2,462,359 156,794 2,305,565 (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 Grand total: Net amount Amount of (undercollaterization) 119,237 150 673,805 793,192 1,499,536 25,961 1,473,575 (680,383) 20,257 1,503 37,039 58,799 132,221 2,762 12,541 - 296,640 309,181 475,591 1,603 129,459 473,988 1,186 - 165 1,351 6,240 103 6,137 153,221 1,653 1,007,649 1,162,523 2,113,588 30,429 2,083,159 (70,660) (164,807) (4,786) (920,636) Financials 131 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 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 Amount of (undercollaterization) (28,093) (22,388) (6,529) - - - - 31 3 28 (28) 54,738 834 52,339 107,911 180,754 15,805 164,949 (57,038) 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) 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 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 26,934 168,018 110,559 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 12,574 - 296,640 309,214 483,024 2,435 480,589 1,186 105,637 - 4,118 165 1,062,453 1,351 6,281 119 1,172,208 2,390,651 151,179 6,162 2,239,472 Grand total: Amount of (undercollaterization (792,812) (98,267) (171,375) (4,811) (1,067,264) 132 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 12,541 - 296,640 309,181 475,591 1,603 473,988 1,186 - 165 1,351 6,235 103 45,435 1,653 998,208 1,045,295 2,052,918 27,143 6,132 2,025,776 Amount of (undercollaterization) (739,773) (71,120) (164,807) (4,781) (980,481) 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 51,480 - 50,181 101,661 138,680 11,534 127,146 2,579 834 2,009 5,422 30,080 2,005 28,075 - - - - 7,263 734 6,529 - - - - 31 3 28 54,059 834 52,190 107,083 176,054 14,276 161,778 Amount of (undercollaterization) (25,485) (22,653) (6,529) (28) (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 Fair value of collateral Gross loans ECL Allowance Net amount Amount of (undercollaterization) 476 - 8,113 8,589 117,095 80,953 36,142 (27,553) 5,634 1,631 2,443 9,709 44,399 28,697 15,702 (5,993) 33 - - 33 171 97 74 (41) - - - - 14 13 1 (1) 6,143 1,631 10,556 18,331 161,679 109,760 51,919 (33,589) Financials 133 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 (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. In accordance with the Group’s credit policies, banks and creditworthy companies and individuals with high net worth are accepted as guarantors, subject to credit risk assessment. Furthermore, Zenith Bank Plc. only recognises unconditional irrevocable guarantees or standby letters of credit provided they are not related to the underlying obligor. 3.2.7 (b) Maximum Exposure to Credit Risk Before Collateral Held or Credit Enhancements The Group’s maximum exposure to credit risk at December 31, 2020 and December 31, 2019 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 39 Contingent liabilities and commitments). Maximum exposure to credit risk - Financial instruments not subject to impairment The following table contains an analysis of the maximum credit risk exposure from ﬁnancial assets not subject to impairment as at December 31, 2020. December 31, 2020 Group Bank In millions of Naira Maximum exposure to credit risk Maximum exposure to credit risk Trading assets - Treasury bills - Investment in securities - Derivatives - Assets pledged as collateral 698,493 49,277 44,496 71,602 698,199 44,933 41,729 71,602 Maximum exposure to credit risk - Financial instruments subject to impairment The following table contains an analysis of the maximum credit risk exposure from ﬁnancial assets subject to impairment as at December 31, 2020 Financial assets measured at amortised cost - Balances with central bank - Treasury bills - Investment in securities - Assets pledged as collateral - Loans and advances to customers - Due from banks - Other ﬁnancial assets Financial assets measured through other comprehensive income - Investment in securities Off balance sheet exposures 134 1,487,224 879,382 475,514 226,928 2,779,027 810,494 149,568 392,150 599,927 1,436,411 695,222 208,218 226,928 2,639,797 532,377 143,301 - 459,001 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, 2020 and December 31, 2019 respectively is set out below: (a) Geographical sectors The following table breaks down the Group’s main credit exposure at their carrying amounts, as categorised by geographical region at December 31, 2020 and December 31, 2019 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, 2020 Group Bank Nigeria Rest of Africa Outside Africa Nigeria Rest of Africa Outside Africa Cash and balances with central bank 1,487,224 - Treasury bills 1,409,564 168,311 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 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 298,530 3,000 492,967 41,220 142,251 - 55,224 45,517 2,917 7,154 - - - 752,270 378,457 359 163 1,436,411 1,393,421 298,530 3,000 253,151 41,220 143,301 3,874,756 279,123 1,131,249 3,569,034 49,569 84,183 325,249 459,001 881,023 824,119 431,728 8,134 203,857 92,722 62,496 - 39,301 33,677 72,978 - 167,274 - 78,025 101,996 - 960 1,201 49,421 17,326 67,948 - - - 620,944 285,244 - 308 49,569 84,183 325,249 459,001 840,032 822,449 431,728 - 189,358 92,722 61,253 2,504,079 348,255 906,496 2,437,542 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 - - - - - 150 - 150 - - - - - - - - - - - - - - - - - - - 529,377 - 359 - 529,736 - - - - - - - 482,070 - - - 482,070 - - - - Financials 135 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 Gross loans and advances to customers and the impairment allowance per geographical region as at December 31, 2020 *Carrying amounts presented in the table below is determined as gross loans less impairment allowances. In millions of Naira Group Bank Loans and advances to customers Loans and advances to customers Gross loans Impairment Allowance Carrying amount Gross loans Impairment Allowance Carrying amount South South Nigeria South West Nigeria South East Nigeria North Central Nigeria North West Nigeria North East Nigeria Rest of Africa Outside Africa 268,738 2,166,507 104,223 103,101 54,352 114,769 78,056 29,596 7,657 121,783 261,081 266,283 2,044,724 2,129,935 918 2,737 283 300 5,399 1,238 103,305 100,364 54,069 114,469 72,657 28,358 104,223 103,101 54,352 114,769 - - 2,772,663 7,571 121,056 918 2,737 283 301 - - 132,866 258,712 2,008,879 103,305 100,364 54,069 114,468 - - 2,639,797 2,919,342 140,315 2,779,027 Gross loans and advances to customers per industry sector as at December 31, 2019 In millions of Naira Group Bank Loans and advances to customers Loans and advances to customers Gross loans Impairment Allowance Carrying amount Gross loans Impairment Allowance Carrying amount South South Nigeria South West Nigeria South East Nigeria North Central Nigeria North West Nigeria North East Nigeria Rest of Africa Outside Africa 201,543 1,828,217 138,681 95,005 26,271 101,065 47,299 24,278 3,488 140,839 198,055 201,543 1,687,379 1,828,086 3,556 2,837 177 282 2,153 3,462 135,125 92,168 26,094 100,783 45,146 20,816 138,681 95,005 26,271 101,065 - - 2,390,651 3,488 140,839 3,556 2,837 177 282 - - 151,179 198,055 1,687,248 135,125 92,168 26,094 100,783 - - 2,239,472 2,462,359 156,794 2,305,565 136 (b) Industry sectors Gross loans and advances to customers and the impairment allowance per geographical region as at December 31, 2020 *Carrying amounts presented in the table below is determined as gross loans less impairment allowances. In millions of Naira Group Bank Loans and advances to customers Loans and advances to customers Gross loans Impairment Allowance Carrying amount Gross loans 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 182,127 731,517 123,593 620,311 126,580 10,708 432,765 72,633 169,301 120,095 11,252 318,460 3,193 50,834 11,930 3,947 4,837 1,766 2,932 28,271 5,600 19,322 926 6,757 178,934 680,683 111,663 616,364 121,743 8,942 429,833 44,362 163,701 100,773 10,326 311,703 182,103 720,496 121,022 593,266 113,408 4,887 416,648 72,633 168,340 112,619 11,253 255,988 3,194 50,445 11,842 3,008 4,783 204 72 28,271 5,566 19,301 926 5,254 178,909 670,051 109,180 590,258 108,625 4,683 416,576 44,362 162,774 93,318 10,327 250,734 2,919,342 140,315 2,779,027 2,772,663 132,866 2,639,797 Gross loans and advances to customers per industry sector as at December 31, 2019 In millions of Naira Group Bank Loans and advances to customers Loans and advances to customers Gross loans Impairment Allowance Carrying amount Gross loans 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 65,385 111,344 8,854 291,736 454 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 30,870 362,433 48,912 65,073 96,618 7,833 282,451 161,636 617,978 153,416 474,411 76,195 14,798 361,667 81,630 63,533 107,153 8,802 269,434 454 53,713 19,515 8,199 11,520 944 292 32,872 119 14,722 1,020 7,809 161,182 564,265 133,901 466,211 64,675 13,853 361,375 48,757 63,414 92,431 7,782 261,625 2,462,359 156,794 2,305,565 2,390,651 151,179 2,239,472 Financials 137 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 Group Financial assets excluding loans and advances per industry sector as at December 31, 2020 December 31, 2020 In millions of naira Balances with central bank Treasury bills Assets pledged as collateral Due from other banks Investment securities Derivative instruments Government Manufacturing Finance and Insurance 1,487,224 1,579,450 298,885 - - - - - - - - 810,552 987,929 9,760 - 39,875 1,079 3,542 Other financial assets - - 151,709 Gross amount 1,487,224 1,579,450 298,885 810,552 997,689 44,496 151,709 Impairment allowance - (1,575) (355) (58) (773) - (2,141) Carrying amount 1,487,224 1,577,875 298,530 810,494 996,916 44,496 149,568 Financial assets excluding loans and advances per industry sector as at December 31, 2019 December 31, 2020 In millions of naira Balances with central bank Treasury bills Assets pledged as collateral Due from other banks Investment securities Derivative instruments Government 881,023 991,956 431,797 - 591,648 Finance and Insurance - - - Gross amount 881,023 991,956 431,797 Impairment allowance - (563) (69) 707,245 707,245 (142) - 591,648 (551) 92,722 - 92,722 - Carrying amount 881,023 991,393 431,728 707,103 591,097 92,722 Financial assets excluding loans and advances per industry sector as at December 31, 2020 December 31, 2020 In millions of naira Balances with central bank Treasury bills Assets pledged as collateral Due from other banks Investment securities Derivative instruments Government Manufacturing Finance and Insurance 1,436,411 1,394,097 298,885 - - - - - - - - 532,435 333,881 - - 39,875 1,079 775 Other financial assets - 64,541 64,541 (777) 63,764 Other financial assets - - 145,347 Gross amount 1,436,411 1,394,097 298,885 532,435 333,881 41,729 145,347 Impairment allowance - (676) (355) (58) (755) - (2,046) Carrying amount 1,436,411 1,393,421 298,530 532,377 333,126 41,729 143,301 Financial assets excluding loans and advances per industry sector as at December 31, 2019 138 December 31, 2019 In millions of naira Balances with central bank Treasury bills Assets pledged as collateral Due from other banks Investment securities Derivative instruments Government 840,032 822,466 431,797 - 189,896 Finance and Insurance - - - Gross amount 840,032 822,466 431,797 Impairment allowance - (17) (69) 482,212 482,212 (142) - 189,896 (538) 92,722 - 92,722 - Carrying amount 840,032 822,449 431,728 482,070 189,358 92,722 3.2.9 Credit quality analysis All other ﬁnancial assets are subject to 12 months ECL. Group December 31, 2020 In millions of naira Balances with central bank Treasury bills Assets pledged as collateral Due from other banks Investment securities Derivative instruments Credit rating - 12 month ECL: All financial assets excluding loans and advances AAA to A BBB to BB Unrated Gross amount ECL - impairment 1,487,224 1,579,450 298,885 810,552 - - - - - - - - 888,934 28,780 - 44,496 - - 1,487,224 1,579,450 298,885 810,552 917,714 44,496 - (1,575) (355) (58) (773) - Carrying amount 1,487,224 1,577,875 298,530 810,494 916,941 44,496 Other financial assets - 61,973 61,973 (720) 61,253 Other financial assets - - 151,709 151,709 (2,141) 149,568 December 31, 2019 12 months ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Gross loans and advances Less allowance 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 Term loan Overdrafts On lending Total 1,475,417 154,570 523,592 2,153,579 539,960 127,351 34,377 59,056 4,200 819 578,537 187,226 2,142,728 248,003 528,611 2,919,342 16,421 7,217 85,937 109,575 2,033,153 2,571 1,448 22,264 26,283 221,720 4,408 38 11 4,457 23,400 8,703 108,212 140,315 524,154 2,779,027 Financials 139 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 December 31, 2019 Term loan Overdrafts On lending Loans and Advances A AA BB BBB UNRATED Gross amount ECL-Impairment Carrying amount Bank December 31, 2019 553,775 257,072 73 536,511 127,986 1,475,417 (16,421) 1,458,996 64,103 31,287 12 45,593 13,575 154,570 (2,571) 151,999 97,980 63,897 - 361,715 - 523,592 (4,408) 519,184 Credit rating - 12 month ECL: All ﬁnancial assets excluding loans and advances In millions of naira Balances with central bank Treasury bills Assets pledged as collateral Due from other banks Investment securities Derivative instruments AAA to A BBB to BB Unrated Gross amount ECL - impairment Carrying amount 1,436,411 1,394,097 298,885 532,435 - - - - - - - - 242,091 11,815 - 41,729 - - 1,436,411 1,394,097 298,885 532,435 253,906 41,729 (145,347) - (676) (355) (58) (755) - (2,046) 1,436,411 1,393,421 298,530 532,377 253,151 41,729 (147,393) December 31, 2019 12 months ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Gross loans and advances Less allowance for impairment 12 - months ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total allowances for impairment Net loans and advances 140 Loans and Advances Term loan 1,347,431 539,977 126,356 2,013,764 10,393 7,217 85,902 103,512 1,910,252 140,977 34,304 55,007 230,288 2,130 1,447 21,320 24,897 205,391 Overdrafts On lending 523,592 4,200 819 Total 2,012,000 578,481 182,182 528,611 2,772,663 4,408 38 11 4,457 524,154 16,931 8,702 107,233 132,866 2,639,797 Total 715,858 352,256 85 943,819 - 2,153,579 (23,400) 2,130,179 Other financial assets - - (145,347) December 31, 2019 Term loan Overdrafts On lending Loans and Advances A AA BB BBB Gross amount ECL-Impairment Carrying amount Group December 31, 2019 553,775 257,072 73 536,511 1,347,431 (10,393) 1,337,038 64,085 31,287 12 45,593 140,977 (2,130) 138,847 97,980 63,897 - 361,715 523,592 (4,408) 519,184 Credit rating - 12 month ECL: All ﬁnancial assets excluding loans and advances In millions of naira Balances with central bank Treasury bills Assets pledged as collateral Due from other banks Investment securities Derivative instruments AAA to A BBB to BB Unrated Gross amount ECL - impairment Carrying amount 881,023 991,956 431,797 707,245 - - - - - - - - 527,968 63,680 - 92,722 - - 881,023 991,956 431,797 707,245 591,648 92,722 - (563) (69) (142) (551) - 881,023 991,393 431,728 707,103 591,097 92,722 Overdrafts On lending December 31, 2019 12 months ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Gross loans and advances Less allowance 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 Term loan 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 Total 715,840 352,256 85 943,819 2,012,000 (16,931) 1,995,069 Other financial assets - - 61,973 61,973 (720) 61,253 Total 2,113,588 180,754 168,017 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 Financials 141 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 December 31, 2019 Term loan Overdrafts On lending Loans and Advances A AA AAA B BB BBB D UNRATED Gross amount ECL-Impairment Carrying amount December 31, 2019 438,779 698,710 376,835 19,735 284,193 74,389 - 82,935 1,975,576 (27,564) 1,948,012 67,448 16,089 8,643 - - 21,717 42 17,832 131,771 (2,761) 129,010 3,870 1,991 - - - 349 - 31 6,241 (104) 6,137 Total 510,097 716,790 385,478 19,735 284,193 96,455 42 100,798 2,113,588 (30,429) 2,083,159 Bank Credit rating - 12 month ECL: All ﬁnancial assets excluding loans and advances In millions of naira 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 Gross amount ECL - impairment 840,032 822,466 431,797 482,212 - - - - 126,216 63,680 92,722 - 840,032 822,466 431,797 482,212 189,896 92,722 - (17) (69) (142) (538) - Carrying amount 840,032 822,449 431,728 482,070 189,358 92,722 Loans and Advances Overdrafts On lending December 31, 2019 12 months ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Gross loans and advances Less allowance for impairment 12 - months ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total allowances for impairment Net loans and advances 142 Term loan 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 61,973 - 61,973 (720) 61,253 Total 2,052,918 176,054 161,679 6,235 31 15 6,281 2,390,651 100 3 15 118 27,140 14,277 109,762 151,179 6,163 2,239,472 December 31, 2019 Term loan Overdrafts On lending Loans and Advances A AA AAA B BB BBB D UNRATED Gross amount ECL-Impairment Carrying amount 438,779 698,623 376,835 284,193 72,119 - 56,593 82,935 1,927,142 (24,668) 1,902,474 67,448 16,089 8,644 - 20,676 48 6,636 17,832 119,541 (2,372) 117,169 3,871 1,991 349 - - - 24 31 6,235 (103) 6,132 Total 510,098 716,703 385,828 284,193 92,795 48 63,253 100,798 2,052,918 (27,143) 2,025,775 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. audited – Internally collected – Payment record – this includes ﬁnancial statements, management accounts, budgets and projections. data on customer Examples of areas of particular focus are: gross proﬁt margins, ﬁnancial leverage behaviour – e.g. ratios, debt service coverage, compliance with covenants, quality of utilisation of credit card management, senior management changes facilities – – – Data from credit reference agencies, press articles, changes in external – Aﬀordability metrics credit ratings – External data from Quoted bond and credit default swap (CDS) prices for the borrower credit reference agencies, where available including industry- Actual and expected signiﬁcant changes in the political, regulatory and standard credit scores overdue status as well as a range of variables about payment ratios – Utilisation of the granted limit – Requests for and granting of forbearance – Existing and forecast changes in business, ﬁnancial and economic conditions technological environment of the borrower or in its business activities The Group allocates each exposure to a credit risk grade based on a variety of data that is determined to be predictive of the risk of default and applying experienced credit judgement. Credit risk grades are deﬁned using qualitative and quantitative factors that are indicative of risk of default. These factors vary depending on the nature of the exposure and the type of borrower. Credit risk grades are deﬁned and calibrated such that the risk of default occurring increases exponentially as the credit risk deteriorates so, for example, the diﬀerence in risk of default between credit risk grades 1 and 2 is smaller than the diﬀerence between credit risk grades 2 and 3. Each exposure is allocated to a credit risk grade at initial recognition based on available information about the borrower. Exposures Financials 143 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 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 quarterly. 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, where the receivables are grouped based on the nature of the transactions, aging of the balances and diﬀerent historical loss patterns, to determine the lifetime ECLs. Receivables relate to amounts due for the povision of services to the Banks’ customers. The provision matrix estimates ECLs on the basis of historical default rates, adjusted for current and future economic conditions (expected changes in default rates) without undue cost and eﬀort. 3.2.13 Significant increase in credit risk At each reporting date, the Group assesses whether there has been a signiﬁcant increase in credit risk for exposures since initial recognition by comparing the risk of default occurring over the remaining expected life from the reporting date and the date of initial recognition. The criteria for determining whether credit risk has increased signiﬁcantly depends on quantitative, qualitative as well as backstop indicators. 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 credit rating is determined to have deteriorated since initial recognition by more than a predetermined range. This inturn increases the probability of default of these facilities as a lifetime ECL is now used in estimating ECL. Using its expert credit judgement and, where possible, relevant historical experience, the Group may determine that an exposure has experienced 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. 144 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. The Group monitors the eﬀectiveness of the criteria used to identify signiﬁcant increases in credit risk by regular reviews (quarterly) 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). 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. 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 Financials 145 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 behaviour over a period of time before the exposure is no longer considered to be credit-impaired/in default or the PD is considered to have decreased such that the loss allowance reverts to being measured at an amount equal to 12- month ECL. 3.2.15 Definition of default The Group considers a ﬁnancial asset to be in default when; • • • • • the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as realising security (if any is held); or the borrower is past due more than 90 days on any material credit obligation to the Group.Overdrafts are considered as being past due once the customer has breached an advised limit or been advised of a limit smaller than the current amount outstanding. In assessing whether a borrower is in default, the Group considers indicators that are: qualitative - e.g. breaches of covenant; quantitative - e.g. overdue status and non-payment on another obligation of the same issuer to the Group; and based on data developed internally and obtained from external sources. Inputs into the assessment of whether a ﬁnancial instrument is in default and their signiﬁcance may vary over time to reﬂect changes in circumstances. The deﬁnition of default largely aligns with that applied by the Group for regulatory purposes (see note 3.2.8), except where there is regulatory waiver on speciﬁcally identiﬁed loans and advances. 3.2.16 Incorporation of forward-looking information The Group incorporates forward-looking information into both its assessment of whether the credit risk of an instrument 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. 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 sectorial historical loan performance. Some of the macroeconomic variables considered include Crude Oil price, Foreign Exchange rate, GDP growth rate, Inﬂation rate, Monetary policy rate and Crude production. However from the statistical analysis of the various macroeconomic variables, the result infers that the key drivers vary across the diﬀerent sectors. The macro economic variables used across the diﬀerent sectors are as follows: Oil and gas portfolio- Inﬂation rate, Crude Oil price and Monetary Policy Rate Public sector Portfolio - Crude Oil price and Government expenditure Manufacturing sector Portfolio - Inﬂation and Crude Oil price Consumer Credit sector portfolio - GDP growth rate and Inﬂation • • • • 146 • • Agriculture sector portfolio- GDP growth rate and Prime lending rate Others - Unemployment rate, GDP growth rate and Inﬂation. The economic scenarios used as at December 31, 2020 included the following key indicators for Nigeria for the years ending 31 December 2021 to 2025. 2021 GDP growth rate Base 1.7% Inﬂation rate Base 12.69% 2022 Base 2.52% Base 11.15% 2023 Base 2.51% Base 11% 2024 Base 2.52% Base 10.85% 2025 Base 2.51% Base 10.64% forecast Oil prices Base 51 USD Base 53 USD Base 55 USD Base 58 USD Base 58 USD Predicted relationships between the historical loan performance of the Bank’s portfolio and the macroeconomic variables has been developed by analysing historical data over the past 5 years. The result of this analysis in addition to a 5 year forecast was used to determine the scalars used in adjusting ECL. 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. These parameters are generally derived from internally developed statistical models and other historical data and they are adjusted to reﬂect forward-looking information as described above. PD is an estimate of the likelihood of default over a given time horizon, which are calculated based on statistical rating models, and assessed using rating tools tailored to the various categories of counterparties and exposures. These statistical models are based on internally compiled data comprising both quantitative and qualitative factors. Where it is available, market data may also be used to derive the PD for large corporate counterparties. If a counterparty or exposure migrates between rating classes, then this will lead to a change in the estimate of the associated PD. 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 the Financials 147 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 ﬁnancial guarantee becomes payable. For some ﬁnancial assets, EAD is determined by modelling the range of possible exposure outcomes at various points in time using scenario and statistical techniques. As described above, and subject to using a maximum of a 12-month PD for ﬁnancial assets for which credit risk has not signiﬁcantly increased, the Group measures ECL considering the risk of default over the maximum contractual period (including any borrower’s extension options) over which it is exposed to credit risk, even if, for risk management purposes, the Group considers a longer period. The maximum contractual period extends to the date at which the Group has the right to require repayment of an advance or terminate a loan commitment or guarantee. 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 Impairment Charge/(writeback) (see note 8) Foreign exchange and other movements Closing balance Gross amount 148 December 31, 2020 December 31, 2019316,276 316,276 12-month ECL 563 972 40 1,575 880,957 12-month ECL 72 (35) 526 563 283,845 In millions of Naira Off balance sheet exposure Balance at 1 January Impairment/(writeback) (see note 8) Closing balance Gross amount In millions of Naira Assets pledged as collateral at ammortised cost Balance at 1 January Impairment Charge/(writeback) (see note 8) Closing balance Gross amount 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 Impairment Charge (see note 8) Write-oﬀ Foreign exchange and other movements Closing balance Gross amount December 31, 2020 12-month ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired December 31, 2019 Total 12-month ECL 5,538 (3,947) 1,591 150,452 - 20 20 432,478 - 3,221 3,221 16,997 5,538 (706) 4,832 599,927 December 31, 2020 December 31, 2019 12-month ECL 69 286 355 227,283 December 31, 2020 12-month ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total 12-month ECL December 31, 2019 Lifetime ECL not credit- impaired Lifetime ECL credit- impaired 8,011 (2,473) 5,538 988,414 12-month ECL 126 (57) 69 316,276 Total 111,089 156,794 141,403 193,408 29,621 1,091 16,083 (250) (8,503) 8,949 (841) (446) 15,965 5,235 36,040 (4,855) (7,486) 7,564 (380) (78) 152 3,847 (3,999) (2,078) (36,022) 38,100 - - - - - - 1,039 (19,926) 56,326 37,439 17,985 13,356 (3,587) 27,754 - - - - (53,808) (53,808) (110) (110) - - - - (60,971) (60,971) (3,398) (3,398) 23,400 8,703 108,211 140,315 29,621 16,083 111,089 156,794 2,153,579 578,537 187,226 2,919,342 2,113,588 180,754 168,017 2,462,359 Financials 149 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 December 31, 2020 December 31, 2019 12-month ECL 551 217 5 773 Total 551 217 5 773 476,287 476,287 12-month ECL 2,572 (27) (1,994) 551 234,857 December 31, 2020 December 31, 2019 Lifetime ECL 142 (83) (1) 58 810,552 Lifetime ECL 1,969 (789) (1,038) 142 707,245 December 31, 2020 December 31, 2019 12-month ECL 17 659 676 695,898 12-month ECL1 72 (55) 17 114,352 December 31, 2020 December 31, 2019 12-month ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired 12-month ECL 5,538 (3,947) - 1,591 459,001 - 20 - 20 432,478 - 3,221 - 3,221 16,997 8,011 (2,473) 5,538 754,469 In millions of Naira Investment securities at amortised cost Balance at 1 January Impairment Charge/(writeback) (see note 8) Foreign exchange and other movements Closing balance Gross amount In millions of Naira Due from other banks Balance at 1 January Impairment/(writeback) (see note 8) Foreign exchange and other movements Closing balance Gross amount Bank In millions of Naira Treasury bills at ammortised cost Balance at 1 January Impairment Charge/(writeback) (see note 8) Closing balance Gross amount In millions of Naira Off balance sheet exposure Balance at 1 January Impairment/(writeback) (see note 8) Closing balance Gross amount 150 In millions of Naira Assets pledged as collateral at ammortised cost Balance at 1 January Impairment Charge/(writeback) (see note 8) December 31, 2020 December 31, 2019 12-month ECL 69 286 355 227,283 12-month ECL 126 (57) 69 316,276 Closing balance Gross amount 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 note 8) Impairment Charge (see note 8) Write-oﬀs Foreign exchange and other movements Closing balance Gross amount In millions of Naira Due from other Banks Balance at 1 January Impairment/(writeback) (see note 8) Closing balance Gross amount December 31, 2020 12-month ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total 12-month ECL December 31, 2019 Lifetime ECL not credit- impaired Lifetime ECL credit- impaired Total 14,276 109,760 151,179 136,673 184,998 27,143 1,091 (8,503) (250) 8,949 (841) (446) 14,092 5,236 (7,486) 34,233 (4,856) 7,564 (380 (78) 152 3,847 (3,999) (2,078) (36,021) 38,100 - - - - - - (2,952) (18,120) 56,566 35,494 4,774 12,658 (4,455) 12,977 - - - - - - - - 12,605 698 868 14,171 (53,807) (53,807) - - (60,967) (60,967) - - 16,931 8,702 107,233 132,866 27,143 14,276 109,760 151,179 2,012,000 578,481 182,182 2,772,663 2,052,919 176,053 161,679 2,390,651 December 31, 2020 12-month ECL December 31, 2019 12-month ECL 142 (83) 59 532,435 931 789 142 482,212 Financials 151 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 December 31, 2020 December 31, 2019 In millions of Naira Investment securities at amortised cost Balance at 1 January Impairment Charge/(writeback)(see note 8) Closing balance Gross amount 12-month ECL 538 217 755 208,973 12-month ECL 565 (27) 538 113,959 Signiﬁcant changes in the gross carrying amount of ﬁnancial assets that contributed to changes in the loss allowance were as follows: Group In millions of Naira Treasury bills at amortised cost Gross carrying amount at 1 January Transfers: Financial assets derecognised during the period other than write-oﬀs New ﬁnancial assets originated or purchased Foreign exchange and other movements Closing gross carrying amount December 31, 2020 December 31, 2019 Stage 1 12-month ECL 283,845 - 597,112 - 880,957 Stage 2 12-month ECL 490,319 (205,855) - 381 284,845 Summary of loss allowance by class of ﬁnancial instruments also showing ECL coverage ratio as at December 31, 2019. December 31, 2020 December 31, 2019 In millions of Naira Off balance sheet exposure Gross carrying amount at 1 January Transfer: Financial assets derecognised during the period other than write-oﬀs New ﬁnancial assets originated or purchased Foreign exchange and other movements Closing gross carrying amount Stage 1 12-month ECL 754,469 (482,096) 327,554 - 599,927 Stage 2 12-month ECL 775,355 (21,104) - 218 754,469 152 In millions of Naira Assets pledged as collateral at amortised cost Gross carrying amount at 1 January Transfers: Financial assets derecognised during the period other than write-oﬀs Closing gross carrying amount December 31, 2020 December 31, 2019 Stage 1 12-month ECL 316,276 (88,993) 227,283 Stage 2 12-month ECL 393,164 (76,888) 316,276 December 31, 2020 December 31, 2019 Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 In millions of Naira 12-month ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total 12-month ECL Lifetime ECL not credit- impaired Lifetime ECL credit- impaired Total Loans and advances to customers at amortised cost Gross carrying amount at 1 January Transfers: 2,113,588 180,754 168,017 2,462,359 1,451,450 383,300 181,770 2,016,520 Transfer from stage 1 to stage 2 (359,012) 359,012 Transfer from stage 1 to stage 3 (7, 026) Transfer from stage 2 to stage 3 Transfer from stage 2 to stage 1 Transfer from stage 3 to stage 1 Transfer from stage 3 to stage 2 - 5,927 1,454 - - (28,108) (5,927) - 710 - 7,026 28,108 - (1,454) (710) - - - - - - - (44,483) - - - (5,987) 196,559 (196,559) - - New ﬁnancial assets originated or purchased Write-oﬀs Foreign exchange and other movements Closing gross carrying amount 406,060 64,305 (55,024) 415,341 510,062 - - - - (53,807) (53,807) 95,449 95,449 - - 2,160,991 570,746 187,605 2,919,342 2,113,588 180,754 168,017 2,462,359 - 44,483 5,987 - - - - - - - - - - 510,062 (60,971) (60,971) (3,252) (3,252) - - - - - In millions of Naira Investment securities at amortised cost Gross carrying amount at 1 January Transfers: Financial assets derecognised during the period other than write-oﬀs New ﬁnancial assets originated or purchased Foreign exchange and other movements Closing gross carrying amount December 31, 2020 December 31, 201976 Stage 1 12-month ECL 234,857 - 212,941 28,489 476,287 Stage 2 12-month ECL 307,401 (72,670) - 126 234,857 Financials 153 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 December 31, 2020 December 31, 2019 Stage 1 12-month ECL 64,541 81,295 5,873 151,709 Stage 2 12-month ECL 62,080 2,378 83 64,541 December 31, 2020 December 31, 2019 Stage 1 12-month ECL 707,245 49,776 53,531 810,552 Stage 2 12-month ECL 676,243 30,916 86 707,245 December 31, 2020 December 31, 2019 Stage 1 12-month ECL 114,352 - 581,546 695,898 Stage 2 12-month ECL 306,802 (192,450) - 114,352 December 31, 2020 December 31, 2019 Stage 1 12-month ECL 754,469 (482,096) 186,628 459,001 Stage 2 12-month ECL 775,355 (20,886) - 754,469 In millions of Naira Other financial assets Gross carrying amount at 1 January Transfers: New ﬁnancial assets originated or purchased Foreign exchange and other movements Closing gross carrying amount In millions of Naira Due from other banks Gross carrying amount at 1 January Transfers: Financial assets derecognised during the periodother than write-oﬀs New ﬁnancial assets originated or purchased Closing gross carrying amount Bank In millions of Naira Treasury bills at amortised cost Gross carrying amount at 1 January Transfers: Financial assets derecognised during the periodother than write-oﬀs New ﬁnancial assets originated or purchased Closing gross carrying amount In millions of Naira Off balance sheet exposure Gross carrying amount at 1 January Transfers: Financial assets derecognised during the periodother than write-oﬀs New ﬁnancial assets originated or purchased Closing gross carrying amount 154 In millions of Naira Assets pledged as collateral at amortised cost Gross carrying amount at 1 January Transfers: Financial assets derecognised during the periodother than write-oﬀs Closing gross carrying amount December 31, 2020 December 31, 2019 Stage 1 12-month ECL 316,276 (88,993) 227,283 Stage 2 12-month ECL 393,164 (76,888) 316,276 December 31, 2020 December 31, 2019 Stage 1 Stage 2 Stage 3 Stage 1 Stage 2 Stage 3 In millions of Naira 12-month ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total 12-month ECL Lifetime ECL not credit- impaired Lifetime ECL credit- impaired Total Loans and advances to customers at amortised cost Gross carrying amount at 1 January Transfers: 2,052,919 176,053 161,679 2,390,651 1,387,174 352,119 181,770 1,921,063 Transfer from stage 1 to stage 2 (359,012) 359,012 Transfer from stage 1 to stage 3 (7,026) Transfer from stage 2 to stage 3 Transfer from stage 3 to stage 2 Transfer from stage 2 to stage 1 Transfer from stage 3 to stage 1 - - 5,927 1,454 - (28,108) 710 (5,927) - - 7,026 28,108 (710) - (1,454) 41,340 - - - - - - - (40,876) - - - - - - 176,066 (176,066) - - 40,876 - - - - - - - - - - - 530,555 (60,967) (60,967) - - - - - - New ﬁnancial assets originated or purchased Write-oﬀs Foreign exchange and other movements Closing gross carrying amount 317,738 23,541 382,619 530,555 - - - (53,807) (53,807) 53,200 - 53,200 - - 2,012,000 578,481 182,182 2,772,663 2,052,919 176,053 161,679 2,390,651 December 31, 2020 December 31, 2019 In millions of Naira Investment securities at amortised cost Gross carrying amount at 1 January Transfers: New ﬁnancial assets originated or purchased Foreign exchange and other movements Closing gross carrying amount Stage 1 12-month ECL 113,959 94,546 468 208,973 Stage 2 12-month ECL 102,508 11,451 - 113,959 Financials 155 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 In millions of Naira Other financial assets Gross carrying amount at 1 January Transfers: New ﬁnancial assets originated or purchased Closing gross carrying amount Due from other banks Gross carrying amount at 1 January Transfers: New ﬁnancial assets originated or purchased Foreign exchange and other movements Closing gross carrying amount December 31, 2020 December 31, 2019 Stage 1 12-month ECL 61,973 83,374 145,347 482,212 3,198 47,025 532,435 Stage 2 12-month ECL 59,104 2,869 61,973 394,397 87,815 - 482,212 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 collateral Treasury bills 227,283 880,957 - - - - 227,283 880,957 355 1,575 - - - - 355 1,575 Loans and advances to customers at amortised cost Debt investment securities at amortised cost Other ﬁnancial assets measured at amortised cost Due from other Banks 2,153,579 578,537 187,226 2,919,342 23,400 8,703 108,211 140,314 476,287 151,709 810,552 - - - - - - 476,287 773 151,709 2,141 810,552 58 - - - - - - 773 2,141 58 Subtotal 4,700,367 578,537 187,226 5,466,130 28,302 8,703 108,211 145,216 Off-balance sheet items Loans and other credit related commitments Letters of credit Usance Financial guarantee and similar contracts Performance bonds and guarantees 167,960 47,859 2,738 1,612 2,207 1,299 172,905 50,770 357,584 12,647 6,021 376,252 412 241 10 Undrawn overdraft balance 145,202 1,326 2,077 718,605 18,323 11,604 148,605 748,532 928 1,591 12 8 - - 1,985 1,169 21 46 20 3,221 2,409 1,418 31 974 4,832 5,418,972 596,860 198,830 6,214,662 29,893 8,723 111,432 150,048 Subtotal Total 156 0.16 0.18 1.09 0.16 1.41 0.01 0.60 0.25 0.50 - 0.64 0.22 0.55 - - - - 1.50 57.80 - - - - - - 1.50 57.80 0.16 0.18 4.81 0.16 1.41 0.01 2.66 - 0.50 - - 0.11 1.46 - - 1.39 2.79 . - 0.01 - 27.76 0.66 0.65 56.04 2.41 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 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 % % % % 227,283 695,898 - - - - 227,283 695,898 355 676 - - - - 355 676 2,012,000 578,481 182,182 2,772,663 16,931 8,702 107,233 132,866 0.16 0.10 0.84 - - - - 1.50 58.86 208,973 145,347 - - - - - - 208,973 755 145,347 2,046 532,435 58 - - - - - - 755 0.36 2,046 1.41 58 0.01 0.54 - - - - - - 1.50 58.86 Due from other Banks 532,435 Subtotal 3,821,936 578,481 182,182 4,582,599 20,821 8,702 107,233 136,756 Off-balance sheet items Loans and other credit related commitments Letters of credit Usance Financial guarantee and similar contracts Performance bonds and guarantees 79,238 46,658 2,738 1,612 2,207 1,299 84,183 49,569 306,581 12,647 6,021 325,249 Undrawn overdraft balance 145,202 1,326 2,077 148,605 607,606 Subtotal Total 577,679 18,323 11,604 20 3,221 4,399,615 596,804 193,786 5,190,205 22,412 8,722 110,454 141,588 12 8 - - 412 241 10 928 1,591 1,985 1,169 2,409 1,418 0.52 0.52 - 0.50 21 46 31 - 974 4,832 0.64 0.28 0.51 - - 0.11 1.46 27.76 57.00 - - - - 0.16 0.10 4.79 0.36 1.41 0.01 2.98 2.86 2.86 0.01 0.66 0.80 2.73 Financials 157 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 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 % % % % 0.02 0.20 1.44 0.23 1.20 0.02 0.87 0.65 0.85 0.25 0.42 0.51 0.79 - - - - 8.90 66.12 - - - - - - 8.90 66.12 - - - - - - - - DIV/0 DIV/0 0.02 0.20 6.40 0.23 1.20 0.02 3.92 0.65 0.85 0.25 0.42 0.51 8.90 66.12 3.21 Assets pledged as collateral Treasury bills 316,276 283,845 - - - - 316,276 283,845 69 563 - - - - 69 563 2,113,588 180,754 168,017 2,462,359 30,429 16,083 11,089 157,601 Loans and advances to customers at amortised cost Debt investment securities at amortised cost Other ﬁnancial assets measured at amortised cost 234,857 64,541 Due from other Banks 707,245 - - - - - - 234,857 64,541 707,245 551 777 142 - - - - - - 551 777 142 Subtotal 3,720,352 180,754 168,017 4,069,123 32,531 16,083 111,089 159,703 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 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 - - - - - - - - - - 3,528 677 923 410 5,538 4,805,677 180,754 168,017 5,154,448 38,069 16,083 111,089 165,241 158 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 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 % % % % 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 3,141,691 176,054 161,679 3,479,424 28,629 14,276 109,760 152,665 0.02 0.01 1.32 0.47 1.16 0.03 0.91 - - - - 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 16,997 96,315 3,528 677 - - 261,495 923 96,911 16,997 868,377 410 5,538 - - - - - - - - - - 3,528 677 0.85 0.85 923 0.35 410 5,538 0.42 0.65 0.86 - - - - - - - - - - 8.11 61.43 3,993,071 176,054 178,676 4,347,801 34,167 14,276 109,760 158,203 0.02 0.01 6.32 0.47 1.16 0.03 4.39 0.85 0.70 0.35 0.42 0.64 3.64 3.2.19 Restructuring Policy Loans with renegotiated terms are loans that have been restructured because the Group has made concessions by agreeing to terms and conditions that are more favorable for the customer than these provided by the Group initially. The Group implements restructuring policy in order to maximize collections opportunities and minimize the risk of default. The Group’s credit committee may, from time to time, grant approval for restructuring of certain facilities due to the following reasons: a. b. c. d. e. 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; Where there is temporary downturn in the customer’s business environment; Financials 159 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 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 market risk taking activities across the Group. The Group enhances its Market Risk Management Framework on a continuous basis. The operations of the unit is guided by the mission of “inculcating enduring market risk management values and culture, with a view to reducing the risk of losses associated with market risk-taking activities, and optimizing risk-reward trade-oﬀ.” The Group’s market risk objectives, policies and processes are aimed at instituting a model that objectively identiﬁes, measures and manages market risks in the Group and ensure that: a. b. c. d. e. The individuals who take or manage risk clearly understand it; 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 Suﬃcient capital, as a buﬀer, is available to take risk. The Group proactively manages its market risk exposures in both the trading and non-trading books within the acceptable levels. The Group’s market 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-taking in foreign exchange and ﬁxed income 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. 160 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, 2020 At December 31, 2019 Note Carrying Amount Trading Non- trading Carrying Amount Trading Non- trading 15 16 17 18 19 20 21 25 28 33 29 30 31 32 1,591,768 - 1,591,768 936,278 - 936,278 1,577,875 698,493 879,382 991,393 708,114 283,279 298,530 71,602 226,928 431,728 115,520 316,208 810,494 - 810,494 707,103 - 707,103 44,496 44,496 - 92,722 92,722 - 2,779,027 - 2,779,027 2,305,565 - 2,305,565 996,916 49,277 947,639 591,097 12,257 578,840 149,568 5,339,911 - - 149,568 63,764 5,339,911 4,262,289 - - 63,764 4,262,289 11,076 11,076 - 14,762 14,762 - 542,866 384,573 870,080 43,177 - - - - 542,866 330,552 384,573 392,871 870,080 322,479 43,177 39,092 - - - - 330,552 392,871 322,479 39,092 At December 31, 2020 At December 31, 2019 Note Carrying Amount Trading Non- trading Carrying Amount Trading Non- trading 15 16 17 18 19 20 21 25 28 33 29 30 31 32 1,503,245 - 1,503,245 879,449 - 879,449 1,393,421 698,199 695,222 822,449 708,114 114,335 298,530 71,602 226,928 431,728 115,520 316,208 532,377 - 532,377 482,070 - 482,070 41,729 41,729 - 92,722 92,722 - 2,639,797 - 2,639,797 2,239,472 - 2,239,472 333,126 44,933 288,193 189,358 12,257 177,101 143,301 4,298,258 - - 143,301 61,253 4,298,258 3,486,887 - - 61,253 3,486,887 11,076 11,076 - 14,762 14,762 - 515,916 384,573 874,090 43,177 - - - - 515,916 380,798 384,573 392,871 874,090 329,778 43,177 39,092 - - - - 380,798 392,871 329,778 39,092 161 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 3.3.2 Measurement of Market Risk The Group adopts Non-VAR (Value-at-risk) approach for quantitative measurement and control of market risks in both trading and non-trading books. The Non -VAR (Value at risk) measurements includes: Duration; Factor Sensitivities (Pv01), Stress Testing, Aggregate Open Position etc. The measured risks are therefore monitored against the pre-set limits on a daily basis. All exceptions are investigated and reported in line with internal policies and guidelines. Limits are sets to reﬂect the risk appetite that is approved by the Board of Directors. These limits are reviewed, at least, annually or at a more frequent interval. Some of the limits include; Net Open Position (NOP- for foreign exchange); Aggregate Control Limits (for Securities); Management Action Trigger (MAT); Duration; Factor Sensitivities (Pv01); Permitted Instrument and Tenor Limits; Holding Period and Oﬀ Market Rate Tolerance limit. Stress testing is an important risk management tool that is used by the Group as part of its enterprise-wide risk management. It is the evaluation of the Group’s ﬁnancial position under severe but plausible scenarios to assist in decision- making. Stress testing provides the Group with the opportunity to spot emerging risks, uncover weak spots and take preventive action. It also alerts management to adverse unexpected outcomes related to a variety of risks and provides an indication of how much capital might be needed to absorb losses should large shocks occur. The Group adopts both single factor and multifactor stress testing approaches (sensitivity and scenario based) in conducting stress testing within the risk areas of liquidity, foreign exchange, interest rate, market and credit risks. Stress testing is conducted both on a regular and ad-hoc basis in response to changing ﬁnancial, regulatory and economic environment/circumstances. 3.3.3 Foreign exchange risk Fluctuations in the prevailing foreign currency exchange rates can aﬀect the Group’s ﬁnancial position and cash ﬂows - ‘on’ and ‘oﬀ’ balance sheet. The Group manages part of the foreign exchange risks through basic derivative products and hedges (such as forwards and swaps). The risk is also managed by ensuring that all risks taken by the Group are within approved limits. In addition to adherence to regulatory limits, Zenith Group established various internal limits (such as non- VAR models, overall Overnight and Intra-day positions), dealer limits, as well as individual currency limits among others limits which are monitored by the Market Risk Department on a regular basis. These limits are set with the aim of minimizing the Group’s risk exposures to exchange rates volatilities to an acceptable level. The Group’s transactions are carried out majorly in four (4) foreign currencies with a signiﬁcant percentage of transactions involving US Dollars. The Group uses the average interbank exchange rate for each foreign currency to value assets and liabilities denominated in foreign currencies. Group The table below summarizes the Group’s exposure to foreign currency exchange rate risk at December 31, 2020 and December 31, 2019. Included in the table are the Group’s ﬁnancial instruments at carrying amounts, categorised by currency. In millions of Naira At December 31, 2020 Assets Naira Dollar GBP Euro Others Total Cash and balances with central bank 1,477,436 72,065 5,762 7,023 29,482 1,591,768 Treasury bills Assets pledged as collateral Due from other banks Derivative assets Loans and advances to customers Investment securities Other ﬁnancial assets Swap contracts** 162 - - - - 60,268 60,792 60,990 1,507,915 298,530 - - 3,000 9,862 625,444 33,774 1,477,562 1,185,037 480,093 482,626 21,270 126,353 17,014 (440,363) 440,363 - - 261 6,686 531 35,070 12,927 - - 69,960 1,577,875 - 68 298,530 810,494 44,496 74,672 2,779,027 - 6,201 - 996,916 149,568 - 4,940,388 2,856,323 94,247 116,343 241,373 8,248,674 At December 31, 2020 Naira Dollar GBP Euro Others Total Liabilities Customer deposits Derivative liabilities Other ﬁnancial liabilities On-lending facilities Borrowings Debt securities issued 4,940,388 440,363 94,247 3,483,784 1,174,302 352,353 46,468 283,004 5,339,911 9,514 430,266 384,573 - - 1,497 33,779 - 870,080 43,177 - 197 - - - 5 60 11,076 13,126 65,498 - - - - - - 542,866 384,573 870,080 43,177 4,308,137 2,122,835 352,550 59,599 348,562 7,191,683 Net-exposure 632,251 733,488 (258,303) 56,744 (107,189) 1,056,991 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 (gross) 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 - - - 14,626 11,223 - 43,784 118,829 - - 936,279 991,393 431,728 707,103 92,723 40,244 2,305,565 - - 591,099 64,541 39,344 37,038 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 Net Exposure 56,518 667,292 6,800 24,508 14,126 769,212 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 9% (December 31, 2019: 6% and 9%, with all other variables held constant. Financials 163 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 US Dollar eﬀect of 9% (31 December 2019: 6%) 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 2019: 9%) 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 2019: 6%) up or (down) movement on OCI and statement of ﬁnancial position size (in millions of Naira) US Dollar eﬀect of 9% (31 December 2019: 9%) up or (down) movement on OCI and statement of ﬁnancial position size (in millions of Naira) 31-Dec-20 31-Dec-19 57,148 57,148 2,651 5,303 31-Dec-20 31-Dec-19 1,193 1,193 26 39 Bank The table below summarizes the Bank’s exposure to foreign currency exchange rate risk at December 31, 2020 and December 31, 2019. Included in the table are the Bank’s ﬁnancial instruments at carrying amounts, categorised by currency. In millions of Naira At December 31, 2020 Assets Naira Dollar GBP Euro Others Total Cash and balances with central bank 1,477,072 25,038 858 277 1,393,421 298,530 - - 3,000 9,862 479,636 31,007 1,477,448 1,141,271 251,790 126,450 81,336 16,851 (440,363) 440,363 - - - - 7,396 40,528 261 56 - - - 531 21,021 - - - - - - 1,817 68 - - - - 1,503,245 1,393,421 298,530 532,377 41,729 2,639,796 333,126 143,301 - 4,597,210 2,215,502 8,571 62,357 1,885 6,885,525 3,483,784 769,957 13,863 29,502 1,152 4,298,258 9,514 430,266 384,573 - - 1,497 69,418 - 874,090 43,177 - 345 - - - 5 60 11,076 13,126 2,760 - - - - - - 515,916 384,573 874,090 43,177 4,308,137 1,758,139 14,208 289,073 457,363 (5,637) 42,633 19,724 3,972 6,127,090 (2,087) 758,435 Treasury bills Assets pledged as collateral Due from other banks Derivative assets Loans and advances to customers Investment securities Other ﬁnancial assets Swap contracts** Liabilities Customer deposits Derivative liabilities Other ﬁnancial liabilities On-lending facilities Borrowings Debt securities issued Net Exposure 164 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 (gross) Investment securities Other ﬁnancial assets Liabilities Customer deposits Derivative liabilities Other ﬁnancial liabilities On-lending facilities Borrowings Debt securities issued Net Exposure 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 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, 2020 was 400.33 and 384.64 respectively. **The Bank entered into currency swap (USD/NGN) transactions with various counterparties. The nominal cash exchange of these transactions are not captured in the derivative assets recognised on the balance sheet. Amounts captured on balance sheet represent the fair value of these contracts. 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 9% (December 31, 2019: 6% and 9%), with all other variables held constant. In millions of Naira US Dollar eﬀect of 9% (31 December 2019: 6%) up or (down) movement on proﬁt before tax and balance sheet size US Dollar eﬀect of 9% (31 December 2019: 9%) 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 2019: 6%) up or (down) movement on OCI and statement of ﬁnancial position size (in millions of Naira) US Dollar eﬀect of 9% (31 December 2019: 9%) up or (down) movement on OCI and statement of ﬁnancial position size (in millions of Naira) 31-Dec-20 31-Dec-19 34,208 34,208 2,541 5,082 31-Dec-20 31-Dec-19 1,193 1,193 20 30 Financials 165 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 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. Group The table below summarizes the Group’s interest rate gap position: In millions of Naira At December 31, 2020 Assets Cash and balances with central banks Treasury and other eligible bills (Amortized cost) Assets pledged as collateral Due from other banks Derivative assets Loans and advances to customers (Gross) Investment securities (Amortized cost and Fair value through OCI) Other ﬁnancial assets Liabilities Customer deposits Derivative liabilities Other ﬁnancial liabilities On-lending facilities Borrowings Debt securities issued Note Carrying Amount Rate sensitive Non rate sensitive 15 16 17 18 19 21 25 28 33 29 30 31 32 1,591,768 879,382 226,928 810,494 44,496 - - - 167,855 - 2,779,027 2,771,883 947,639 149,568 - - 1,591,768 879,382 226,928 642,639 44,496 7,144 947,639 149,568 7,429,302 2,939,738 4,489,564 5,339,911 11,076 542,866 384,573 870,080 43,177 4,507,005 11,076 - - 290,964 - 832,906 - 542,866 384,573 579,116 43,177 7,191,683 4,809,045 2,382,638 Total interest repricing gap 237,619 (1,869,307) The table shows the maturity proﬁle of ﬁnancial instruments that are rate sensitive. At December 31, 2020 In millions of Naira Assets Due from other banks Loans and advances to customers Liabilities Customer deposits Derivative liabilities Borrowings Up to 1 month 1 - 3 months 3 - 6 months 6 - 12 months Over 1 year Total rate sensitive - 337,128 337,128 1,401,728 2,931 - 167,855 154,416 322,271 79,696 5,709 - 127,457 127,457 - - 452,958 1,699,924 452,958 1,699,924 167,855 2,771,883 2,939,738 448,060 82,036 2,495,485 4,507,005 716 - 229,350 1,720 61,614 - - 11,076 290,964 Total interest repricing gap (1,067,531) 236,866 (550,669) 307,588 (795,561) (1,869,307) 1,404,659 85,405 678,126 145,370 2,495,485 4,809,044 166 At December 31, 2019 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 liabilties Financial liabilities On-lending facilities Borrowings Debt securities issued Total interest repricing gap In millions of Naira At December 31, 2019 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 25 28 33 29 30 31 32 936,278 283,279 316,207 707,103 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 5,362,045 78,507 3,674,292 14,762 - 392,871 322,479 39,092 4,443,496 (64,667) 587,997 - 330,552 - - - 918,549 - 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 4,443,495 Total interest repricing gap (536,633) 266,388 276,770 192,190 (263,380) (64,665) Financials 167 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 Interest rate sensitivity showing fair value interest rate risk In millions of Naira Financial assets at FVPL Treasury bills Government bonds Total Impact on income statement: Favourable change at 2% reduction in interest rate Unfavourable change at 2% increase in interest rate FVOCI investment securities Government bonds Impact on other comprehensive income statement: Favourable change at 2% reduction in interest rate Unfavourable change at 2% increase in interest rate 31-Dec-20 31-Dec-19 698,493 49,277 747,770 14,955 (14,955) 392,150 7,843 (7,843) 708,111 12,257 720,368 14,407 (14,407) 280,854 5,617 (5,617) 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 200 basis points, with all other variables held constant. In millions of Naira Eﬀect of 200 basis points (December 2019: 300basis points) movement on proﬁt before tax 31-Dec-20 31-Dec-19 5,117 4,101 * Holding all other variables constant 168 Bank The table below summarizes the Bank’s interest rate gap position: At December 31, 2020 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 Investment securities (Amortized cost and Fair value through OCI) Other ﬁnancial assets Liabilities Customer deposits Derivative liabilities Other ﬁnancial liabilities On-lending facilities Borrowings Debt securities issued Note Carrying Amount Rate sensitive Non rate sensitive 15 16 17 18 19 21 19 28 33 29 30 31 32 1,503,245 695,222 226,928 532,377 41,729 - - - 167,855 - 2,639,797 2,632,652 288,193 143,301 - - 1,503,245 695,222 226,928 364,522 41,729 7,144 288,193 143,301 6,070,792 2,800,507 3,270,284 4,298,258 11,076 515,916 384,573 874,090 43,177 3,465,351 11,076 - - 290,964 - 832,907 - 515,916 384,573 583,126 43,177 6,127,090 3,767,391 2,359,699 Total interest repricing gap (56,298) (966,884) 910,585 The table shows the maturity proﬁle of ﬁnancial instruments that are rate sensitive. At December 31, 2020 In millions of Naira Assets Due from other banks Up to 1 month 1 - 3 months 3 - 6 months 6 - 12 months Over 1 year Total rate sensitive - 167,855 - - - 167,855 Loans and advances to customers 293,913 146,030 124,629 449,447 1,618,633 2,632,652 Investment securities (Amortized cost and Fair value through OCI) - 40,462 - 39,886 127,870 208,218 293,913 354,347 124,629 489,333 1,746,503 3,008,725 Liabilities Customer deposits Derivative liabilities Borrowings 1,034,313 2,931 - 34,864 5,709 54 716 - 229,350 528 2,395,592 3,465,351 1,720 61,614 - - 11,076 290,964 1,037,244 40,573 230,120 63,862 2,395,592 3,767,391 Total interest repricing gap (743,331) 313,774 (105,491) 425,471 (649,089) (758,666) Financials 169 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 At December 31, 2019 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 Derivative liabilities Financial liabilities On-lending facilities Borrowings Debt securities issued Total interest repricing gap 15 16 17 18 19 21 25 28 29 13 33 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 - 4,513,787 3,511,405 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) 877,449 - - - - - 63,680 61,253 1,002,382 587,997 - 380,798 - - - 968,795 33,587 The table shows the maturity proﬁle of ﬁnancial instruments that are rate sensitive. At December 31, 2019 In millions of Naira Assets Cash and balances with central bank Treasury bills Assets pledged as collateral Derivative assets Loans and advances to customers Investment securities (Amortized cost and fair value through OCI) 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 9,414 411,816 - - 34,058 79,758 47,686 22,800 88,653 4,668 - 23,201 3,406 122,386 - 55,833 15,715 32,770 16,742 43,766 - - 205,690 - - 2,000 114,334 316,208 482,071 92,722 105,346 179,293 1,605,543 2,390,651 235 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 3,675,394 170 Interest rate sensitivity showing fair value interest rate risk In millions of Naira Financial assets at FVPL Treasury bills Government bonds Total Impact on income statement: Favourable change at 2% reduction in interest rate Unfavourable change at 2% increase in interest rate FVOCI investment securities Government bonds Impact on other comprehensive income statement: Favourable change at 2% reduction in interest rate Unfavourable change at 2% increase in interest rate 31-Dec-20 31-Dec-19 698,199 44,933 743,132 14,863 (14,863) 392,150 7,843 (7,843) 708,114 12,257 720,371 14,407 (14,407) 280,854 5,617 (5,617) The management of interest risk against interest rate gap limits is supplemented by the monitoring of the sensitivity of the Group’s ﬁnancial assets and liabilities to various scenarios. Interest rate movement aﬀects reported income by causing an increase or decrease in net interest income and fair value changes. 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 500 basis points, with all other variables held constant. In millions of Naira Eﬀect of 500 basis points (December 2019: 300 basis points) movement on proﬁt before tax 31-Dec-20 31-Dec-19 12,793 2,166 The eﬀect of 500 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. * Holding all other variables constant 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) 8.64% equity holding in African Finance Corporation (AFC) valued at N76.06 billion and cost N40 billion. (ii) 3.6% equity holding in Nigerian Interbank Settlement Scheme (NIBBS) valued at N2.11 billion and cost N50 million. (iii) 2.31% equity holding in FMDQ holdings plc valued at N1.65 billion. (iv) 0.88% equity holding in Uniﬁed Payment Services (UPS) valued at N96.66 million. The AFC is a private sector-led investment bank and development ﬁnance institution which has the Central Bank of Nigeria (CBN) as the single major shareholder (42.39%) 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). Financials 171 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 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. 3.4.1 Liquidity risk management process The Group has a comprehensive liquidity risk management framework that ensures that adequate liquidity, including a cushion of unencumbered and high quality liquid assets is maintained at all times, to enable the Group withstand a range of stress events, including those that might involve loss or impairment of funding sources. The Group’s liquidity risk exposure is monitored and managed by the Asset and Liability Management Committee (ALCO) on a regular basis. This process includes: a. Projecting cash ﬂows and considering the level of liquid assets necessary in relation thereto; b. c. d. e. f. 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 ensure a satisfactory overall funding mix; Maintaining up-to-date liquidity and funding 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; g. Regular conduct of stress testing, coupled with testing of contingency funding plans from time to time. The Maximum Cumulative Outﬂow has remained positive all through the short tenor maturity buckets. Assessments are carried out on contractual basis. These reveal very sound and robust liquidity position of the Group. The Group maintains liquid assets and marketable securities adequate, within regulatory limits, to manage liquidity stress situation. 3.4.2 Stress testing and contingency funding Stress testing The Group considers diﬀerent liquidity risk mitigation tools, including a system of limits and liquidity buﬀers in order to be able to withstand a range of diﬀerent stress events and adequately diversify funding structure and access to funding sources. Those events are regularly reviewed and monitored by the Asset and Liability Committee (ALCO). Alternative scenarios on liquidity positions and on risk mitigants are considered. In line with standard risk management practice and global best practice, the Group: 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: (i) (ii) (iii) Cash ﬂows; Liquidity position; and Proﬁtability. (a). (b). 172 The Board and the Asset and Liability Committee (ALCO) regularly review the stresses and scenarios tested to ensure that their nature and severity remain appropriate and relevant to the Bank. These reviews take into the account the following; a. Changes in market condition; b. c. 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. The Group considers the potential impact of idiosyncratic Institution-Speciﬁc, market-wide and combined alternative scenarios while carrying out the test to ensure that all areas are appropriately covered. In addition, the Group also considers the impact of severe stress scenarios. Contingency Funding Plan The Group maintains a contingency funding plan which sets out strategies for addressing liquidity. The Plan: a. outlines strategies, policies and plans to manage a range of stresses; b. c. d. e. f. g. h. 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 robust to withstand simultaneous disruptions in a range of payment and settlement; outlines how the Group will manage both internal communications and those with its external stakeholders; and As part of the contingency funding plan process, the Group maintains committed credit lines that can be drawn in case of liquidity crises. These lines are renewed as at when due. 3.4.3 Funding approach Our sources of liquidity are regularly reviewed by both the ALCO and the Treasury Group in order to avoid undue reliance on large individual depositors and to ensure that a satisfactory overall funding mix is maintained at all times. The funding strategy is geared toward ensuring eﬀective diversiﬁcation in the sources and tenor of funding. The Group however places greater emphasis on demand 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. Financials 173 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 At year end Average for the period/year Maximum for the period/year Minimum for the period/year 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 66.23% 59.69% 71.80% 48.42% 57.25% 68.90% 85.47% 37.52% 62.45% 48.49% 62.45% 35.99% 57.18% 68.05% 80.41% 36.00% Liquidity reserve (b) The table sets out the component of the Group’s liquidity reserve. These are liquid instruments the Group uses to settle short term or current obligations. Group In millions of Naira Cash and balances with central banks Treasury bills Balances with other banks Investment securities Assets pledged as collaterals Total Bank In millions of Naira Cash and balances with central banks Treasury bills Balances with other banks Investment securities Assets pledged as collaterals Total 31-Dec-20 31-Dec-19 Carrying value Carrying value 1,591,768 1,577,575 810,494 916,941 298,530 5,195,308 936,278 991,393 707,103 527,417 431,728 3,593,919 31-Dec-20 31-Dec-19 Carrying value Carrying value 1,503,245 1,393,421 532,377 253,151 298,530 3,980,724 879,449 822,449 482,070 125,678 431,728 2,741,374 Total 936,278 991,956 431,728 707,245 175,328 991,956 - 707,245 2,462,359 2,462,359 591,650 591,650 64,541 64,541 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-20 31-Dec-19 Note Encum- bered Unenc- umbered Total Encum- bered Unenc- umbered 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 25 1,370,619 221,149 1,591,768 760,950 - 1,577,875 1,577,875 - 298,530 - 298,530 431,728 - - - - 810,494 810,494 2,779,027 2,779,027 996,916 996,916 149,568 149,568 - - - - 174 Bank In millions of Naira 31-Dec-20 31-Dec-19 Note Encum- bered Unenc- umbered Total Encum- bered Unenc- umbered 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 25 1,370,619 132,626 1,503,245 760,950 - 1,393,421 1,393,421 - 298,530 - 298,530 431,728 - - - - 532,377 532,377 2,639,797 2,639,797 333,126 333,126 143,301 143,301 - - - - Total 879,449 822,466 431,728 482,212 118,499 822,466 - 482,212 2,390,651 2,390,651 189,358 189,358 61,253 61,253 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, 2020 and December 31, 2019 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. Financials 175 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 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 25 19 28 29 30 31 32 33 221,149 109,117 47,845 642,639 396,242 29,865 118,461 - 473,951 33,409 171,795 154,998 101,658 - 332 - 129,824 110,864 111 - 1,370,619 97,616 1,014,333 - - 71,316 461,220 - - 1,591,768 1,591,768 1,695,017 1,577,675 614,122 814,434 298,530 810,494 490,704 1,716,087 2,887,855 2,779,027 175,504 - 707,261 30,996 1,125,152 149,568 996,916 149,568 1,565,318 935,811 338,747 3,122,476 2,915,564 8,877,916 8,203,978 - 98,191 2,377 - 21,463 5,145 - - 16,589 363,850 591 1,749 100,568 26,608 17,180 365,599 - - - - - 500,093 9,862 - 34,634 9,862 509,955 44,496 2,605,785 104,554 525,323 1,777 1,616 330 92,135 1,350 - 2,542 244 49,250 374,899 160,259 197,615 - - 1,594 1,621 82,035 2,495,502 5,380,011 5,339,911 38,029 491,853 102,773 44,591 568,860 494,204 884,796 47,806 542,866 384,573 870,080 43,177 3,182,135 481,399 255,338 284,057 3,172,748 7,375,677 7,180,607 3,182,135 - 13,579 2,331 - 21,469 5,051 - 16,526 820 - - 1,312 15,910 26,520 17,346 1,312 - - - - - 14,762 51,574 9,514 1,562 9,514 61,088 11,076 Group At December 31, 2020 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: Gross settled Net settled Liabilities Non-derivative liabilities Customer deposits Financial liabilities On-lending facilities Borrowings Debt securities issued Derivative assets Trading: Gross settled Net settled 176 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 Liabilities Non-derivative liabilities Customer's deposits Financial liabilities On-lending facilities Borrowings Debt securities issued Derivative liabilities Trading: Inﬂow 15 16 17 18 20 21 25 19 27 28 29 30 32 254,132 - - - 682,106 130,190 337,192 203,413 519,163 102,545 32,781 - 588,738 - 19,717 122,438 104,368 98,530 47,702 88,633 16,222 29,124 504,182 406,030 51,753 38,109 173,291 1,533,243 2,305,565 2,305,565 2,686 11,394 742,106 824,161 591,097 - - 3,067 22,588 63,764 63,764 936,238 1,189,958 838,654 707,103 936,278 991,393 431,728 707,103 1,413,519 588,279 452,622 842,241 3,568,781 6,865,442 6,026,928 - 9,414 9,414 - - 22,800 16,742 22,800 16,742 - 43,766 43,766 - - - - 92,722 92,722 92,722 92,722 92,722 4,241,370 15,851 4,302 31 4,262,289 4,262,289 125,315 6,717 2,574 - 735 - 862 - - - 205,237 2,691 382,600 44,669 - 30,671 1,460 237,869 1,477 24,606 43,552 330,552 392,871 340,389 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 3,242 - 5,249 5,249 - 3,953 3,953 - 2,318 2,318 - - - - 14,762 14,762 14,762 14,762 29,524 Financials 177 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 Bank At December 31, 2020 Note Up to 1 month 1 - 3 months 3 - 6 months 6 - 12 months Over 1 year Gross nominal inflow/ (outflow) Carrying amount 132,626 100,588 47,845 364,522 353,027 4,608 111,474 - 450,496 33,409 171,795 146,612 46,568 - - 1,370,619 51,227 332 - 771,723 71,316 - - - 461,220 - 1,503,245 1,374,034 614,122 536,317 1,503,245 1,393,421 298,530 532,377 126,997 487,193 1,662,148 2,775,977 2,639,797 4,168 111 45,414 370,944 - 31,716 471,702 143,301 333,126 143,301 1,114,690 848,880 182,835 2,746,265 2,526,028 7,418,698 6,843,797 - - 16,589 363,850 591 1,749 17,180 365,599 - - - - - 500,093 9,862 509,955 - 34,634 9,862 44,496 54 1,350 - 1,439 244 374,899 164,506 197,615 - 1,594 1,621 536 2,395,593 4,298,287 4,298,258 27,246 491,853 102,773 44,591 536,416 494,204 889,043 47,806 515,916 384,573 874,090 43,177 2,423,476 411,265 167,504 201,455 3,062,056 6,265,756 6,116,014 2,423,476 - 13,579 2,331 - 16,526 820 21,469 5,051 15,910 26,520 17,346 - - 1,313 1,313 - - - - - 51,574 9,515 - 1,562 9,514 61,089 11,076 - 21,463 5,145 26,608 34,878 1,158 330 - 98,191 2,377 100,568 1,867,226 505,223 1,777 49,250 - 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: Gross settled Net settled Liabilities Non-derivative liabilities Customer deposits Financial liabilities On-lending facilities Borrowings Debt securities issued Derivative liabilities Trading: Gross settled Net settled 15 16 17 18 20 21 25 19 28 29 30 31 32 33 178 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 Liabilities Non-derivative liabilities Customer deposits Financial liabilities On-lending facilities Borrowings Debt securities issued Derivative assets Trading: Outﬂow 15 16 17 18 20 21 25 19 28 29 30 31 32 33 - - - 682,106 402,759 102,545 32,781 - 588,738 - 231,496 150,096 19,717 122,438 104,368 98,530 47,702 88,633 6,675 173,291 1,485,678 2,239,472 2,239,472 2,686 11,394 297,147 320,687 189,358 879,449 881,092 838,654 482,222 879,449 822,449 431,728 482,070 197,343 96,741 29,124 279,301 387,502 2,785 38,109 - - 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 9,414 - 22,800 22,800 - 16,742 16,742 - 43,766 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 - 2,711 237,869 1,477 23 255,483 382,774 24,606 43,552 3,486,887 3,486,887 380,798 393,121 340,389 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 2,850,662 - 3,242 3,242 5,249 5,249 - 3,953 3,953 - 2,318 2,318 - - - - 14,762 14,762 14,762 - 14,762 The amounts in the table above have been compiled as follows. Type of financial instrument Basis on which amounts compiled Non-derivative ﬁnancial liabilities and ﬁnancial assets Undiscounted cash ﬂows, which include estimated interest payments. Issued ﬁnancial guarantee contracts Derivative ﬁnancial liabilities and ﬁnancial assets 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. Financials 179 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 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. Carrying amount Less than 3 months 3 -6 months 6 - 12 months 1 to 5 Years More than 5 years Group At December 31, 2020 In millions of Naira Financial guarantees Usance Letters of Credit Performance bonds and Guarantees Total 599,927 209,832 74,971 149,996 103,682 50,770 172,905 376,252 41,657 93,389 74,786 114 10,986 63,871 8,999 56,710 84,287 - 11,819 91,863 - - 91,863 91,863 At December 31, 2019 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 79,318 545,174 363,922 988,414 62,972 16,346 394,651 135,665 77,040 19,528 - 12,747 44,128 534,663 171,539 56,875 - 2,111 108,959 111,070 - - 114,267 114,267 180 At December 31, 2020 In millions of Naira Financial guarantees Usance Letters of Credit Performance bonds and Guarantees Total 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 299,445 55,357 49,569 84,183 325,249 459,001 Carrying amount 299,445 55,357 79,318 413,656 261,495 754,469 102,937 9,672 1,602 - 14,032 31,708 78,292 82,106 40,456 68,705 74,291 114 194 63,562 8,999 15,284 39,004 183,452 63,870 63,287 - - 86,948 86,948 - - 61,444 61,444 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 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. Financials 181 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 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, 2020 At December 31, 2019 Carrying Value Fair value Fair value hierarchy Carrying Value Fair value Fair value hierarchy 698,493 698,493 1&2 708,114 708,114 1&2 49,277 49,277 44,496 71,602 44,496 71,602 1 2 12,257 12,257 92,722 92,722 1 2 1&2 115,520 115,520 1&2 79,975 392,150 79,975 392,150 1,591,768 1,591,768 879,382 893,721 226,928 304,946 810,494 810,494 2,779,027 2,191,000 2&3 63,680 63,680 2 - 1&2 1&2 - - 280,854 280,854 936,278 936,278 283,282 285,282 316,207 355,950 707,103 707,103 2,305,565 2,305,565 3 2 - 1&2 1&2 - - 475,514 511,798 1&2 234,305 301,370 1,2&3 149,568 149,568 11,076 11,076 5,339,911 5,339,911 542,866 542,866 384,573 384,573 870,080 870,080 43,177 49,410 - 2 - - - - - 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 - - - - - 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 25 33 28 29 30 31 32 182 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, 2020 At December 31, 2019 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 25 698,199 698,199 1&2 708,114 708,114 1&2 44,933 41,729 71,602 44,933 41,729 71,602 1 2 12,257 92,722 12,257 92,722 1 2 1 & 2 115,520 115,520 1 & 2 79,975 79,975 2&3 63,680 63,680 1,503,245 1,503,245 695,222 709,561 226,928 304,946 532,377 532,377 2,639,797 2,051,770 208,218 247,178 143,301 143,301 - 1&2 1&2 - - - - 879,449 114,335 879,449 114,995 316,207 355,950 482,070 482,070 2,239,472 2,239,472 113,421 125,141 1,2&3 61,253 61,253 323 11,076 11,076 2 14,762 14,762 28 29 30 31 32 4,298,258 4,298,258 515,916 515,916 384,573 384,573 874,090 874,090 43,177 49,410 - - - - - 3,486,887 3,486,887 380,798 380,798 392,871 392,871 329,778 329,778 39,092 39,092 3 - 1&2 1&2 - - - 2 - - 3 3 3 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. Financials 183 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 Financial instruments measured at fair value Group and Bank Reconciliation of Level 3 items In millions of Naira At 1 January 2019 Addition Gain recognised through other comprehensive income At December 31, 2019 Reconciliation of Level 3 items At 1 January 2020 Addition Gain recognised through other comprehensive income of equity investments Transfer to level 2 due to availability of observable data At December 31, 2020 49,760 50 13,870 63,680 63,680 - 16,295 (76,063) 3,912 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, 2020 Valuation technique Significant unobservable input Range of estimates (average) for unobservable inputs Fair value measurement sensitivity to unobservable inputs N3.91 billion Unquoted equity investment Equity DCF model. adjusted with recent similar transactions. -Discount rate. -Estimate cash ﬂow. Risk premium of 13.32% above risk- free interest rate (0.82%) (31 Dec. 2019:10.63% above risk free rate (1.92%)) 5-year Compound Annual Growth Rate (CAGR) of cash ﬂow of 1.0%-14.6% (December 2019: 6.5%)) 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, 2020 At December 31, 2019 Decrease of 20 basis point in risk premium Increase of 20 basis point in risk premium Decrease of 20 basis point in risk premium Increase of 20 basis point in risk premium Unquoted investment securities 55 (53) 1,770 (1,662) 184 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, 2020 included a risk premium of 13.32% and an above the risk-free interest rate of 0.82% (December 31, 2019: 10.63% respectively above risk free rate of 1.92%). 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) (i) (ii) (iii) (iv) (v) (vi) Fair valuation methods and assumptions Cash and balances with central banks Cash and balances with Central banks represent cash held (including mandatory cash reserve requirements of December 31, 2020: N1,411 billion, December 31, 2019: N761 billion) with Central banks of the various jurisdictions in which the Group operates. The fair value of these balances is their carrying amounts. 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. Treasury bills and investment securities Treasury bills represent short term instruments issued by the Central banks of the jurisdiction where the Group has operations. The fair value of treasury bills and bonds are determined with reference to quoted prices (unadjusted) in active markets for identical assets. 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 is determined on the basis of the discounted cashﬂow methodology which takes into account the discounted stream of estimated future income and free cashﬂows of the investment. Subsequently, the percentage holding of the Bank is then applied on the derived company value. Where available the fair value of unquoted equity is determined using recent market observable data. 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 Other ﬁnancial assets/ﬁnancial liabilities represent monetary assets, which usually have a short recycle period and as such, whose fair values approximate their carrying amount. Customer deposits and borrowings The estimated fair value of deposits with no stated maturity, which includes non-interest-bearing deposits, is the amount repayable on demand. The estimated fair values of ﬁxed interest-bearing deposits and borrowings are determined using a discounted cash ﬂow model based on a current yield curve appropriate for the remaining term to maturity. (vii) Derivatives The Group uses widely recognised valuation models for determining the fair value of common and simple ﬁnancial instruments, such as interest rate and currency swaps that use only observable market data and require little management judgement and estimation. Observable prices or model inputs are usually available in the market for listed debt and equity securities, exchange-traded derivatives and simple OTC derivatives such as interest rate swaps. Availability of observable market prices and model inputs reduces the need for management judgement and estimation Financials 185 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 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 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. 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. b. Issue of Shares: The Group has successfully assessed the capital market to raise equity and with such experiences, the Group is conﬁdent that it can access the capital market when the need arises. 186 c. Bank Loans (long term/short term): In 2014 ﬁnancial year, Zenith Bank commenced capital computations in accordance with Basel II standard under the guidelines issued by the Central Bank of Nigeria. The guidelines require capital adequacy computations based on the Standardized Measurement Approach for Credit Risk and Market Risk while Basic Indicator Measurement Approach was advised for Operational Risk. The capital requirement for the Bank has been set at 15% and an addition of 1% as a Systemically Important Bank (SIB) in accordance with the guidelines. The table below shows the computation of the Group’s capital adequacy ratio for the period ended December 31, 2020 as well as the December 31, 2019 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. In millions of Naira 31-Dec-20 Group 31-Dec- 19 Adjusted impact of IFRS 9 transition on 31-Dec-20 Tier 1 capital Share capital Share premium Statutory reserves SMEIES reserve Retained earnings IFRS 9 Transitional Adjustment Basel II 15,698 255,047 231,307 3,729 521,293 - Basel II 15,698 Basel II 15,698 255,047 255,047 231,307 170,695 3,729 521,293 21,634 3,729 439,510 - Total qualifying Tier 1 capital 1,027,074 1,048,708 884,679 (5,786) (5,786) (11,885) (16,243) (16,243) (16,497) - - - Adjusted impact of IFRS 9 transition on 31-Dec-19 Basel II 15,698 255,047 170,695 3,729 439,510 43,268 927,947 (11,885) (16,497) - 31-Dec-20 Basel II 15,698 255,047 208,443 3,729 382,292 - 865,209 (4,733) (14,699) (17,313) Bank Adjusted impact of IFRS 9 transition on 31-Dec-20 Basel II 15,698 255,047 208,443 3,729 382,292 20,710 885,919 (4,733) (14,699) (17,313) 31-Dec-19 Basel II 15,698 255,047 152,065 3,729 328,590 - 755,129 (11,223) (15,109) (10,896) Adjusted impact of IFRS 9 transition on 31-Dec-19 Base II 15,698 255,047 152,065 3,729 328,590 41,420 796,549 (11,223) (15,109) (10,896) 1,005,045 1,026,679 856,297 899,565 828,464 849,174 717,901 759,321 87,159 87,159 54,257 54,257 40,023 40,023 (23,729) (23,729) Total qualifying Tier 2 capital 87,159 87,159 54,257 54,257 - - - - 40,023 (17,313) 40,023 (17,313) 22,710 871,884 (23,729) (23,729) - - - - 717,901 759,321 Total regulatory capital 1,092,204 1,113,838 910,554 953,822 851,174 87,159 87,159 54,257 54,257 22,710 Risk-weighted assets Credit risk Market risk Operational risk 3,734,222 3,734,222 3,134,029 3,134,029 3,250,187 3,250,187 2,806,711 2,806,711 175,625 921,168 175,625 170,392 921,168 891,735 170,392 891,735 89,635 813,499 89,635 813,499 52,423 810,268 52,423 810,268 Total risk-weighted assets 4,831,015 4,831,015 4,196,156 4,196,156 4,153,321 4,153,321 3,669,402 3,669,402 Risk-weighted Capital Adequacy Ratio (CAR) 23 % 23 % 22 % 23 % 20 % 21 % 20 % 21 % Financials 187 Deferred tax assets Intangible assets Investment in capital of ﬁnancial subsidiaries Adjusted Total qualifying Tier 1 capital Tier 2 capital Other comprehensive income (OCI) Investment in capital and ﬁnancial subsidiaries Net Tier 2 Capital Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 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% -% Operational risk 3.7 Operational Risk is the risk of loss resulting from inadequate and /or failed internal processes, people and systems or from external events, including legal risk and any other risks that is deemed ﬁt on an ongoing basis but exclude reputation and strategic risks. Operational risk exists in all products and business activities. The Group has a broad Operational Risk management framework which deﬁnes the set of activities designed to proactively identify, assess and manage all operational risk components by aligning the people, technology and processes with best risk management practices towards enhancing stake holders’ value and sustaining industry leadership. Operational risk objectives include the following: a. b. c. To provide clear and consistent direction in all operations of the group; To provide a standardised framework and appropriate guidelines for creating and managing all operational risk exposures; and To enable the group identify and analyse events (both internal and external) that impact on its business. The Operational Risk unit constantly conducts reviews to identify and assess the operational risk inherent in all material products, activities, processes and systems. It also ensures that all business units within the Bank monitor their operational risks using set standards and indicators. Signiﬁcant issues and exceptions are reported to Risk Management and are also identiﬁed by the independent risk function for discussion at the risk management committee. Disaster recovery procedures, business continuity planning, self-compliance assurance and internal audit also form an integral part of our operational risk management process. The Bank uses the following tools and methodologies in the implementation of its Operational risk Management. Risk and Control Self-Assessment (RCSA) - This is the process whereby risks that are inherent in Business Units strategies, objectives and activities are identiﬁed and the eﬀectiveness of the controls over those risks evaluated and monitored bank wide. The Risk and Control Self-Assessment process address risks and controls comprehensively. It incorporates the process for evaluating and managing all aspects of risk that is inherent in how and where the business is done. Key Risk Indicators (KRI) - Key Risk Indicator is measures which indicate the risk proﬁle of the bank and any change thereof. KRIs act as early warning indicators and are used to monitor and predict potential operational loss events. KRIs are used in conjunction with system of thresholds. When the threshold or tolerance level for any KRI is breached, it triggers review, escalation or management action. Risk indicators help keep the operational risk management dynamic and risk proﬁle current. Loss Incident Reporting – Loss incidents are reported by all business units using the Loss incident reporting template. The discipline of collecting loss data is not only needed to understand the dimensions of risk the Bank faces but also used to motivate staﬀ to consider and more actively control key elements of risk. The Bank-wide data collection promotes a dialogue within the Bank about determining the major operational risk exposures and reinforces more qualitative eﬀorts to manage operational risk within each of the business lines. 188 Operational Risk Capital Computation – The bank, based on Central Bank of Nigeria guideline, adopted basic indicator approach (BIA) in the calculation of its Operational Risk Capital adequacy. The estimated operational Risk Capital Charge is reported to the Board and management for capital planning and decision making. Business Continuity Management (BCM) In line with ISO 22301 Standards, the bank has a robust documented Business Continuity Plan. The primary objective of this plan is to protect the bank in the event of an undesired event in the form of ﬁre outbreak, ﬂood, theft or robbery, thunderstorm, unexpected breakdown of systems, networks, equipment, etc or any other form of disaster. This plan ensures that the bank recover from disasters resulting in the partial or total loss of IT infrastructure and applications to normal business operations, in a timely, eﬀective and eﬃcient manner. The business continuity test is conducted at least once in a year. The process is driven at a committee level but ably championed by the Risk Management Group. Operational Risk Reporting Periodic Operational Risk report highlighting key Operational risk identiﬁed are rendered to the Board, Management and other relevant stakeholders for awareness and prompt implementation of mitigation plans. Strategic risk 3.8 Strategic risk is a possible source of loss that might arise from the pursuit of an unsuccessful business plan. Strategic risk examines the impact of design and implementation of business models and decisions on earnings and capital as well as the organisation’s responsiveness to industry changes. Processes and procedures have been established to ensure that the right models are employed and appropriately communicated to all decision makers in the Group on issues relating to strategic risk management. This has essentially driven the Group’s sound banking culture and performance record to date. Legal risk 3.9 Legal risk is deﬁned as the risk of loss due to defective contractual arrangements, legal liability (both criminal and civil) incurred during operations by the inability of the organisation to enforce its rights, or by failure to address identiﬁed concerns to the appropriate authorities where changes in the law are proposed. The Group manages this risk by monitoring new legislation, creating awareness of legislation among employees, identifying signiﬁcant legal risks as well as assessing the potential impact of these. Legal risks management in the Group is also being enhanced by appropriate product risk review and management of contractual obligations via well documented Service Level Agreements and other contractual documents. 3.10 Reputational risk Reputational risk is deﬁned as the risk of indirect losses arising from a decline in the bank’s reputation among one or multiple bank stakeholders. The risk can expose the Group to litigation, ﬁnancial loss or damage to its reputation. The Group’s reputation risk management philosophy involves anticipating, acknowledging and responding to changing values and behaviours on the part of a range of stakeholders. Accordingly, the following are the roles and responsibilities: a. b. c. Board and senior management oversee the proper set-up and eﬀective functioning of the reputational risk management framework; Enterprise Risk Management Policy/Strategy (ERSP) is responsible for supporting the Board and senior management in overseeing the implementation of reputational risk management framework; and Corporate Communications is responsible for managing both the internal and external communications that may impact the reputation of the Bank. Financials 189 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 The process of reputation risk management within the Bank encompasses the following steps: a. b. c. d. e. f. Identiﬁcation: Recognizing potential reputational risk as a primary and consequential risk; Assessment: Conducting qualitative assessment of reputational risk based on the potential events that have been identiﬁed as reputational risk; Monitoring: Undertaking frequent monitoring of the reputational risk drivers; Mitigation and Control: Establishing preventive measures and controls for management of reputational risk and tracking mitigation actions; Independent review: Subjecting the reputational risk measures and mitigation techniques to regular independent review by internal auditors and/or external auditors; and Reporting: Generating regular, action-oriented reports for management review. 3.11 Taxation risk Taxation risk refers to the risk that new taxation laws will adversely aﬀect the Group and/or the loss as a result of non- compliance with tax laws. The taxation risk is managed by monitoring applicable tax laws, maintaining operational policies that enable the Group to comply with taxation laws and, where required, seeking the advice of tax specialists. 3.12 Regulatory risk The Group manages the regulatory risk to which it is potentially exposed by monitoring new regulatory rules and applicable laws, and identifying signiﬁcant regulatory risks. The Group strives to maintain appropriate procedures, processes and policies that enable it to comply with applicable regulation. The Group maintains zero tolerance posture for any regulatory breach in all its area of operations. 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: Input assumptions applied in estimating probability of default, loss given default and exposure at default; • Determining whether credit risk has increased signiﬁcantly; • Incorporation of forward-looking information; • 190 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. ECL inputs sensitivity analysis In millions of Naira Upturn Baseline Downturn 126,133 130,805 139,465 Probability weighted 132,866 Determining fair values 4.2 The determination of fair value for ﬁnancial assets and liabilities for which there is no observable market prices requires the use of valuation techniques as described in note 3.3.5(a). For ﬁnancial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgment depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks aﬀecting the speciﬁc instrument. The Group measures fair values using the following fair value hierarchy that reﬂects the signiﬁcance of the inputs used in making the measurements. i) ii) 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 unobservable inputs. This category includes all 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. iii) Deferred Tax Assets and Liabilities 4.3 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 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 24 for details on deferred tax. Financials 191 Zenith Bank Plc Annual Report December 31, 2020 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 provisions 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: (a) (i) (ii) (b) Expenses for loan losses recognised in the proﬁt and loss account should be determined based on the relevant IFRS. However, the provisions 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: Where Prudential Provisions is greater than IFRS provisions, the resulting diﬀerence should be transferred from the general reserve account to a non-distributable regulatory credit risk reserve. Where Prudential Provisions is less than IFRS provisions, the 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. 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, 2020. 192 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 20 31-Dec 19 71,560 1,685 4,567 11,952 41,089 - 130,853 16,931 8,702 107,233 132,866 - 58 676 355 755 2,046 226 4,832 141,814 (10,961) - 57,477 17,831 986 10,605 40,620 1,514 122,920 14,092 34,233 136,673 184,998 - - - - 763 1,628 560 8,011 195,960 (73,040) - Financials 193 Zenith Bank Plc Annual Report December 31, 2020 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, is used to measure performance because management believes that this information is the most relevant in evaluating the results of the respective segments relative to other entities that operate within the same industries.Inter-segment pricing is determined on arm’s length basis. No single external cutomer accounts for 10% or more of the Group’s revenue. The measurement policies the Group uses for segment reporting are the same as those used in its ﬁnancial statements. There have been no changes from prior periods in the measurement methods used to determine reported segment proﬁt or loss. 194 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 . l 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 3 1 8 0 2 4 , 4 2 2 3 0 1 , 5 3 7 0 5 , 8 7 6 1 2 1 , 0 5 4 6 9 6 , - 0 5 4 6 9 6 , 0 5 4 6 9 6 , ) 1 3 1 1 2 1 ( , ) 4 3 5 9 3 ( , ) 5 2 1 5 2 ( , ) 7 3 5 3 ( , ) 2 6 2 1 5 2 ( , 1 6 8 5 5 2 , ) 6 9 2 5 2 ( , 5 6 5 0 3 2 , d e t a d i l o s n o C s n o i t a n m i i l E l e b a t r o p e r l a t o T e p o r u E a c i r f A 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 s t n e m g e s s e c i v r e s n a i d o t s u c i a i r e g N e d i s t u O a i r e g N i ) 9 9 1 7 ( , 9 4 6 3 0 7 , 4 3 0 3 2 , 5 7 6 4 7 , - ) 9 9 5 3 ( , - ) 0 0 6 3 ( , 2 1 4 4 2 4 , 4 2 2 3 0 1 , 5 3 3 4 5 , 8 7 6 1 2 1 , 8 5 0 3 , ) 5 5 5 ( 9 0 0 3 , 6 4 4 8 , 4 3 4 4 , 8 6 2 2 5 7 1 , 7 2 7 1 6 , 3 6 1 5 4 3 , - ) 9 9 1 7 ( , ) 9 9 1 7 ( , 9 9 5 3 , - - - - ) 0 0 4 ( 0 0 0 4 , 0 0 0 4 , 9 9 1 7 , 0 5 4 6 9 6 , 9 4 6 3 0 7 , ) 0 3 7 4 2 1 ( , ) 4 3 5 9 3 ( , ) 5 2 1 5 2 ( , ) 7 3 5 3 ( , ) 2 6 8 0 5 2 ( , 1 6 8 9 5 2 , ) 6 9 2 5 2 ( , 5 6 5 4 3 2 , - 4 3 0 3 2 , 4 3 0 3 2 , ) 7 2 7 3 ( , ) 3 2 5 1 ( , ) 2 3 4 ( ) 8 8 3 ( ) 7 5 3 9 ( , 7 0 6 7 , ) 3 1 5 1 ( , 4 9 0 6 , 2 1 8 1 7 , 3 6 8 2 , 5 7 6 4 7 , ) 2 9 8 8 1 ( , ) 1 1 1 2 0 1 ( , ) 4 3 7 ( ) 6 7 8 1 ( , ) 1 3 2 ( ) 6 8 9 8 1 ( , 6 5 9 3 3 , ) 9 7 3 9 ( , 7 7 5 4 2 , ) 7 7 2 7 3 ( , ) 7 1 8 2 2 ( , ) 8 1 9 2 ( , ) 9 1 5 2 2 2 ( , 8 9 2 8 1 2 , ) 4 0 4 4 1 ( , 4 9 8 3 0 2 , 0 2 7 1 9 , 6 5 4 0 5 , 1 0 6 8 1 1 , 0 4 9 5 0 6 , 6 3 3 4 , 4 0 6 1 0 6 , 0 4 9 5 0 6 , n o i s s i m m o c d n a e e f n o e m o c n i l a t o T e m o c n i g n i t a r e p o r e h t O e m o c n i r a l i m i s d n a t s e r e t n I a r i a N f o s n o i l l i m n I 0 2 0 2 , 1 3 r e b m e c e D i s n a g g n d a r T 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 e u n e v e r l a t o T : e u n e v e R * 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 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 g r a h c n o i t a c e r p e D i e g r a h c n o i t a s i t r o m A 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 195 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 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 9 4 2 2 3 , - 9 4 2 2 3 , 1 0 4 1 8 3 2 , 7 6 4 9 2 , s t e s s a t n e r r u c - n o n n o e r u t i d n e p x E 0 2 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 0 2 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 196 , 2 7 2 1 8 4 8 , , 7 2 0 9 7 7 2 , , 5 7 8 7 7 5 1 , 6 1 9 6 9 9 , , 9 9 7 3 6 3 7 , , 1 1 9 9 3 3 5 , ) 7 0 6 8 9 1 ( , - - - - ) 7 7 9 3 6 1 ( , , 9 7 8 9 7 6 8 , , 7 2 0 9 7 7 2 , - - , 6 7 7 7 2 3 7 , , 1 1 9 9 3 3 5 , 2 2 5 0 2 9 , 9 7 8 5 0 6 , 2 9 0 3 6 , 8 3 0 6 7 , - 9 9 3 4 8 1 , , 8 7 4 3 5 1 7 , , 7 9 8 9 3 6 2 , , 6 7 4 3 9 3 1 , 5 5 4 5 6 4 , 7 2 3 2 7 1 , 4 3 1 9 5 3 , 3 3 2 0 1 8 , 3 4 9 4 9 4 , 9 7 7 4 4 6 , 4 7 8 6 9 3 , , 0 0 6 2 2 2 6 , , 8 5 2 8 9 2 4 , 0 8 0 0 7 8 , ) 0 1 0 4 ( , 0 9 0 4 7 8 , - - 0 9 0 4 7 8 , 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 r e m o t s u c o t s e c n a v d a d n a s n a o L : s t e s s a f o s e r u s a e m r e h t O s t e s s a l a t o T s e i t i l i b a i l f o s e r u s a e m r e h t O s t i s o p e d r e m o t s u C i s g n w o r r o B s e i t i r u c e s t n e m t s e v n I s e i t i l i b a i l l a t o T s l l i b y r u s a e r T a r i a N f o s n o i l l i m n I 0 2 0 2 , 1 3 r e b m e c e D In millions of Naira December 31, 2019 Revenue: Derived from external customers 568,999 68,125 25,127 662,251 Derived from other business 6,079 107 - 6,186 - (6,186) 662,251 - segments Total revenue* 575,078 68,232 25,127 668,437 (6,186) 662,251 Interest expense (126,237) (20,739) (4,142) (151,118) 2,586 (148,532) Impairment loss on ﬁnancial assets Depreciation charge Amortisation charge Admin and operating expenses Proﬁt before tax Tax expense Profit after tax In millions of Naira December 31, 2019 (23,406) (19,066) (2,929) (739) (1,691) (149) 113 (679) - (24,032) (21,436) (3,078) (195,291) (19,421) (6,767) (221,479) 208,149 (24,459) 183,690 25,493 (7,753) 17,740 13,652 (2,239) 11,413 247,294 (34,451) 212,843 - - - (400) (4,000) - (4,000) (24,032) (21,436) (3,078) (221,879) 243,294 (34,451) 208,843 Nigeria Outside Nigeria Corporate retail and pensions custodian services Africa Europe Total reportable segments Eliminations Consolidated Expenditure on non-current assets 52,440 3,337 1,334 57,111 - 57,111 In millions of Naira December 31, 2019 Total assets Other measures of assets: Current assets Loans and advances to customers Treasury bills Investment securities Total liabilities Other measures of liabilities Customer deposits Borrowings 5,461,929 471,819 616,825 6,550,573 (203,694) 6,346,879 2,467,692 2,239,603 824,119 203,857 333,226 45,147 167,274 101,996 4,659,475 375,101 142,811 20,816 - 285,244 523,610 2,943,729 2,305,566 - - - (1) - - 2,943,729 2,305,565 991,393 591,097 5,558,186 (153,193) 5,404,993 3,486,887 329,778 353,149 422,253 - - 4,262,289 329,778 - 4,262,289 (7,299) 322,479 Financials 197 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 In millions of Naira 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 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 250,812 232,946 236,064 26,398 53,797 7,742 553 81,511 26,897 81,108 5,748 367 68,497 25,205 31,147 7,742 553 41,781 220,210 18,911 52,127 5,748 367 41,947 420,813 415,563 342,492 339,310 Interest income accrued on impaired ﬁnancial assets amount to N6,016 million and N3,644 million for Group and Bank respectively. Included in interest income is modiﬁcation loss of N1.3 billion for Group and Bank. It represents the changes in gross carrying amounts of the ﬁnancial assets from immediately before, to immediately after modiﬁcation. The modiﬁcations were not as a result of credit detorioration. 7. Interest and similar expense Current Savings accounts Time deposits Borrowed funds and lease 29,657 22,130 29,274 40,070 11,624 21,625 47,334 67,949 26,997 21,888 10,806 42,420 10,387 21,394 35,041 59,415 121,131 148,532 102,111 126,237 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 N3,412 million and N2,804 million for Group and Bank (December 31, 2019: N3,494 million and N3,079 million) 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) 198 37,439 217 972 1,366 (83) 286 40,197 (706) 43 39,534 27,754 35,495 (27) (35) 36 (789) (57) 217 659 1,326 (83) 286 26,882 37,900 (2,473) (377) 24,032 706) 43 37,237 27,148 (27) (55) 23 (789) (57) 26,243 (2,473) (377) 23,393 In millions of Naira 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 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 13,913 2,491 21,988 6,802 27,078 2,135 7,612 524 148 8,061 12,472 103,224 (23,892) 79,332 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 9,110 - 21,988 6,300 25,559 1,685 - 524 92 8,061 11,059 84,378 (22,961) 61,417 20,046 - 19,623 2,921 41,162 1,233 - 2,381 278 6,021 3,102 96,767 (13,126) 83,641 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. Total fee and commission income recognised at a point in time amount to N70,556 million and N52,446 million for Group and Bank (December 31, 2019: N80,204 million and N64,374 million) respecvtively while an amount of N32,669 million and N31,932 million (December 31, 2019: N34,470 million and N32,393 million) was recognised over the period. 10. Other operating income In millions of Naira 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 Group Bank Dividend income from equity investments (see note a below) Gain on disposal of property and equipment (see note 43(vii)) Income on cash handling Recoveries Gain on disposal of equity investment Foreign currency revaluation gain (See note b below) 1,707 347 306 4,043 891 43,441 50,735 1,932 147 597 - - 11,540 14,216 5,307 348 193 4,043 891 39,668 50,450 5,532 152 400 - - 4,754 10,838 (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. Financials 199 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 11. Trading gains Loss on trading books Treasury bills trading income Bonds trading income Interest income on trading bonds (18,735) 123,097 14,448 2,868 (7,427) 114,320 6,558 4,347 (18,735) 123,029 11,439 2,868 (7,427) 114,294 6,558 4,347 121,678 117,798 118,601 117,772 Included in the loss on trading books is derivatives gain of N30.65 billion for Group and Bank (December 31, 2019: N19.15 billion). In millions of Naira Group Bank 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 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 1,674 786 14,405 4,338 1,191 20,440 664 7,656 11,500 6,635 17,778 1,865 6,496 1,883 2,580 3,980 360 11 3,414 30,948 3,866 4,179 1,463 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 1,213 380 14,405 3,747 1,057 19,572 13 7,411 11,500 6,259 14,555 1,702 5,815 1,102 1,872 3,545 360 11 3,285 30,948 3,435 4,077 364 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 An amount of N664 million and N13 million for Group and Bank (December 31, 2019: N1,313 million and N859 million) respectively represent the amount of straight line amortisation on short term lease in which the Group/Bank has applied the recognition exception. 148,112 129,453 136,628 118,191 200 The external auditors of Zenith Bank Plc, PWC Nigeria rendered the following services during the year: Services Transfer pricing compliance for 2018 ﬁnancial year Due diligence engagement for 2019 ﬁnancial year Sustainability assurance for 2019 ﬁnancial year Financial risk and regulatory services for 2019 ﬁnancial year Analytics project Training Board evaluation for 2019 ﬁnancial year 13. Taxation (a) Major components of the tax expense In millions of Naira 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: (Reversal)/origination of temporary diﬀerences Income tax expense Total tax expense Amount Paid in N’m 3 35 4 45 15 2 22 128 Group Bank 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 13,557 1,479 2,103 - 2,072 11 19,222 6,074 25,296 25,296 12,770 - 1,980 22,105 - 10 36,865 (2,414) 34,451 34,451 - 1,479 2,103 - 2,072 11 5,665 6,490 12,155 12,155 - - 1,980 22,053 - 10 24,043 (2,026) 14,290 22,017 Financials 201 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 (b) Reconciliation of eﬀective tax rate In millions of Naira Proﬁt before income tax Group Bank 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 255,861 243,294 210,007 200,020 Tax calculated at the weighted average Group rate of 30% (2019: 30%) 76,758 72,988 63,002 60,006 Tax effect of adjustments on taxable income Non-deductable expenses Tax exempt income Balancing charge Tax loss Minimum tax Information technology levy Unrecognised deferred tax asset Dividend tax paid Capital allowance utilised Tertiary education tax Derecognition of previously recognised deductible temporary diﬀerences Police trust fund levy Total tax expense In millions of Naira 52,286 (85,396) 143 (9,506) 1,479 2,103 - - (20,728) 2,072 6,074 1,834 (78,806) - - - 2,409 13,963 22,053 - - - 50,402 (83,313) 143 (9,506) 1,479 2,103 - - (20,728) 2,072 6,490 1,828 (77,823) - - - 1,980 13,963 22,053 - - - 11 10 11 10 25,296 34,451 12,155 22,017 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 (c) The movement in the current income tax payable balance is as follows: At start of the year Tax paid Current income tax charge (see note 13a) At end of the year 9,711 9,154 (17,243) (36,308) 19,222 11,690 36,865 9,711 6,627 (3,175) 5,665 9,117 5,954 (23,370) 24,043 6,627 202 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. In millions of Naira 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 Proﬁt attributable to shareholders of the Bank (N'million) 230,374 208,693 197,852 178,003 Number of shares in issue at end of the year (millions) Weighted average number of ordinary shares in issue (millions) Basic and diluted earnings per share (Koba) 31,396 31,396 7.34 31,396 31,396 6.65 31,396 31,396 6.30 31,396 31,396 5.67 Group Bank 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) Special Cash Reserve Requirement Current Non current 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 104,544 75,802 1,330,733 80,689 55,255 120,073 680,261 80,689 66,834 65,792 1,289,930 80,689 39,417 79,082 680,261 80,689 1,591,768 936,278 1,503,245 879,449 221,149 1,370,619 254,171 682,107 132,626 1,370,619 197,342 682,107 1,591,768 936,278 1,503,245 879,449 698,493 880,957 (1,575) 708,111 283,845 (563) 698,199 695,898 (676) 708,114 114,352 (17) 1,577,875 991,393 1,393,421 822,449 1,577,875 1,577,875 991,393 991,393 1,393,421 1,393,421 822,449 822,449 Financials 203 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 Treasury bills measured at fair value through proﬁt and loss are mandatorily designated as such. In millions of Naira 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 Group Bank 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). 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 396,924 396,924 11,697 11,697 396,924 396,924 11,697 11,697 1,962 117,290 122,870 56,763 (355) - 1,962 - 105,135 117,290 198,611 122,870 128,051 (69) 56,763 (355) 105,135 198,611 128,051 (69) 298,530 431,728 298,530 431,728 Included in assets pledged as collateral for Group/Bank are treasury bills and bonds at amortised cost of N53,231 million and N174,052 million (December 31, 2019: N98,755 million and N217,521 million) respectively. All other assets pledged as collateral for Group/Bank are treasury bills 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) N3.62 billion (December 31, 2019: N27.84 billion), Federal Inland Revenue Services N8.14 billion (December 31, 2019: N8.08 billion), V-Pay N45.24 million (December 31, 2019: N44.87 million), Interswitch Limited N2.17 billion (December 31, 2019: N2.15 billion), the Bank of Industry (Nigeria) N35.20 billion (December 31, 2019: N39.53 billion), E- Tranzact N45.22 million (December 31, 2019: N44.87 million), CBN Real Sector Support Fund (RSSF) N39.74 billion (December 31, 2019: N24.77 billion), System Specs/REMITA N2.68 billion (December 31, 2019: N2.68 billion) and Financial Market dealers Quotation (FMDQ) N27.61 billion (December 31, 2019: Nil). Assets exchanged under repurchase agreement as at December 31, 2020 are with the following counterparties (note 31): Counterparties MASHREQ (see note 31) ABSA (see note 31) Standard Bank London (see note 31) Carrying value Carrying value Carrying value Carrying value of asset of liability of asset of liability 37,051 110,497 32,085 179,633 28,113 100,457 20,159 148,729 37,051 110,497 32,085 179,633 28,113 100,457 20,159 148,729 204 Assets exchanged under repurchase agreement as at December 31, 2019 are with the following counterparties (note 31): Counterparties JP Morgan ABSA Standard Bank Mashreq Bank Societe Generale Bank Goldman Sachs Classified as: Current Non-current Carrying value Carrying value Carrying value Carrying value of asset of liability of asset of liability 49,617 103,271 22,385 24,813 75,768 50,808 326,662 129,299 169,231 298,530 36,534 82,352 27,635 18,320 55,433 36,950 257,224 210,373 221,355 431,728 49,617 103,271 22,385 24,813 75,768 50,808 326,662 129,299 169,231 298,530 36,534 82,352 27,635 18,320 55,433 36,950 257,224 210,373 221,355 431,728 In millions of Naira 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 Group Bank 18. Due from other banks Current balances with banks within Nigeria Current balances with banks outside Nigeria Placements with banks ECL Allowance Classified as: Current Non-current - 8,155 - - 333,466 477,086 171,410 527,680 305,872 226,563 154,654 327,558 (58) (142) (58) (142) 810,494 707,103 532,377 482,070 810,494 - 529,771 177,332 532,377 - 304,738 177,332 810,494 707,103 532,377 482,070 Included in balances with banks outside Nigeria is the amount of N50.28 billion and N86.27 billion for the Group and Bank respectively (December 31, 2019: N22.32 billion and N46.35 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 29). Financials 205 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 In millions of Naira 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 Due from banks with maturity greater than 3 months: 179,244 223,413 179,244 223,413 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 34,634 9,862 44,496 481,886 222,730 91,204 1,518 92,722 729,726 319,968 704,616 1,049,694 31,867 9,862 41,729 481,886 222,730 704,616 91,204 1,518 92,722 729,726 319,968 1,049,694 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 gain of N18.7 billion December 31, 2019 net gain of N7.4 billion, which were recognized in the statement of proﬁt or loss and other comprehensive income. All derivative assets are current. In millions of Naira 20. Loans and advances Overdrafts Term loans On-lending facilities Gross loans and advances to customers Less: ECL Allowance (see note 3.2.18) Group Bank 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 248,003 2,142,727 528,612 2,919,342 (140,315) 212,548 1,766,787 483,024 2,462,359 (156,794) 230,288 2,013,763 528,612 2,772,663 (132,866) 194,020 1,713,607 483,024 2,390,651 (151,179) 2,779,027 2,305,565 2,639,797 2,239,472 Management adjustments to impairment models are applied in order to factor in certain conditions that are not fully incorporated into the impairment model, or to reﬂect additional facts and circumstances at period end. Management adjustments are reversed and incorporated into the future model developments, where applicable. As at 31 December 2020, management adjustment to impairment allowance was N4.63 billion and the proportion of total impairment allowance was 3.49%. 206 In millions of Naira Net Loans classified as: Current Non-current Group Bank 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 1,066,675 1,712,352 751,614 1,553,951 1,013,234 1,626,563 734,547 1,504,925 2,779,027 2,305,565 2,639,797 2,239,472 Movement in ECL Allowance as at December 31, 2020 is presented in Note 3.2.18. In millions of Naira 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 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 476,287 392,150 (773) 867,664 49,277 916,941 234,857 280,854 (551) 515,160 12,257 527,417 208,973 113,959 - (755) 208,218 44,933 253,151 - (538) 113,421 12,257 125,678 At fair value through other comprehensive income (see note (i) below) 79,975 63,680 79,975 63,680 996,916 591,097 333,126 189,358 Movement in impairment allowance on investment securities is presented in Note 3.2.18 Classified as: Current Non-current 718,818 278,098 996,916 8,592 582,505 591,097 80,444 252,682 333,126 8,592 180,766 189,358 (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 and Bank debt securities measured at FVTPL comprise FGN bonds (December 31, 2020: N49.3 billion and N44.9 billion respectively; December 31, 2019; N12.26 billion). Financials 207 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 (iii) The Group’s debt securities measured at amortised cost can be analysed as follows: In millions of Naira Sovereign (Federal) Sub-sovereign (State) Corporate bonds Promissory note Commercial papers Group Bank 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 378,026 177,364 110,712 22,154 13,371 52,976 9,760 19,768 8,073 29,652 22,154 13,371 52,976 9,760 56,466 19,768 8,073 29,652 - 476,287 234,857 208,973 113,959 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 Ownership interest% Ownership interest% Carrying amount 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 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 99.42% 100.00% 99.99% 99.96% 99.00% 99.00% All investments in subsidiaries are non-current 99.42% 100.00% 99.99% 99.96% 99.00% 99.00% 7,066 21,482 2,059 1,038 1,980 1,000 7,066 21,482 2,059 1,038 1,980 1,000 34,625 34,625 208 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 - 2 7 3 ) 9 7 ( 3 9 2 ) 0 7 ( 3 2 2 5 3 ) 2 ( - - - 3 - ) 1 ( 0 5 6 1 9 3 1 8 7 1 , ) 0 4 ( 7 4 6 9 , ) 9 0 6 1 ( , 8 9 9 7 , ) 9 7 1 2 ( , 9 1 8 5 , - - - 7 0 1 7 5 7 9 7 2 2 4 2 , - - 9 4 1 8 5 3 5 7 5 1 , ) 7 2 ( 3 1 2 2 , ) 7 4 3 1 ( , 9 3 8 ) 3 5 2 ( 6 8 5 3 2 9 2 , 3 0 4 1 1 , - 2 5 2 5 , - 3 8 9 1 8 1 1 , - 5 6 5 5 3 1 7 1 8 ) 5 5 ( 0 2 0 4 , ) 0 6 4 2 ( , 5 0 5 1 , ) 8 9 3 ( 7 0 1 1 , 1 8 7 2 , 5 1 1 6 1 , - 4 0 2 5 , - 0 7 3 2 , - - 2 4 2 1 4 3 8 9 7 2 1 4 3 0 3 2 , ) 4 0 9 3 1 ( , ) 3 2 5 1 ( , 7 0 6 7 , ) 3 1 5 1 ( , 4 9 0 6 , - - 5 1 6 3 8 9 4 3 , 7 6 7 2 , 2 9 0 3 6 , 5 5 4 5 6 4 , - 1 2 4 6 7 5 6 3 , 3 3 5 7 2 8 1 , ) 2 5 6 ( 2 4 4 8 6 , ) 8 7 1 6 3 ( , 2 1 6 1 3 , ) 8 2 7 8 ( , 4 8 8 2 2 , 2 6 6 2 8 , 1 8 8 6 5 1 , - 8 6 7 4 4 , - 7 8 4 2 7 , 4 4 3 1 7 1 , - 6 8 5 2 1 2 8 , 6 0 4 2 0 4 7 1 , 2 2 9 1 , 0 7 5 6 2 , 7 9 0 3 2 , 4 3 0 8 2 , 2 2 5 0 2 9 , 8 4 7 4 5 5 , 1 2 9 5 9 5 , ) 7 7 6 8 4 3 ( , ) 7 3 2 7 3 ( , 7 0 0 0 1 2 , ) 5 5 1 2 1 ( , - 9 9 1 3 , ) 9 9 1 7 ( , - ) 0 0 0 4 ( , 0 5 4 6 9 6 , ) 5 5 0 1 0 4 ( , ) 4 3 5 9 3 ( , 1 6 8 5 5 2 , ) 6 9 2 5 2 ( , 2 5 8 7 9 1 , ) 0 0 0 4 ( , 5 6 5 0 3 2 , , 5 4 2 3 0 5 1 , , 1 2 4 3 9 3 1 , 0 3 5 8 9 2 , 7 7 3 2 3 5 , 9 2 7 1 4 , , 7 9 7 9 3 6 2 , 6 2 1 3 3 3 , 5 2 6 4 3 , 3 3 7 4 , 5 2 6 9 5 1 , 0 8 0 9 6 1 , 9 9 6 4 1 , , 7 8 9 4 2 1 7 , - - - - - - ) 3 4 9 6 2 1 ( , , 8 6 7 1 9 5 1 , , 5 7 8 7 7 5 1 , 0 3 5 8 9 2 , 4 9 4 0 1 8 , 6 9 4 4 4 , , 7 2 0 9 7 7 2 , 6 1 9 6 9 9 , 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 ( t n e r r u c - n o n e r a s e i r a d i s b u s n i i s t n e m t s e v n i l l A 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 0 2 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 n o i t a x a T r a e y e h t r o f t fi o r P s t e s s a l i a c n a n ﬁ ) 5 2 6 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 - - - ) 9 3 0 7 3 ( , ) 7 0 6 8 9 1 ( , 6 8 7 5 , 7 6 9 9 6 1 , 0 7 1 0 9 1 , 3 4 2 6 1 , , 2 7 2 1 8 4 8 , 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 209 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 - - 0 7 1 2 8 - - - - - - 1 3 5 2 6 1 2 , - - - 9 4 9 5 1 , 5 9 9 1 2 , 9 7 7 4 4 6 , 0 3 9 8 5 3 , - - 2 3 2 8 8 2 1 , - - - - - 1 9 3 0 5 - - - - - 2 0 1 - - ) 4 8 ( 2 5 3 5 6 1 , 9 3 0 6 9 , - - - - - - 9 6 7 1 , 2 2 9 1 , 7 7 8 3 2 , 0 7 5 6 2 , 8 2 6 5 , 7 9 0 3 2 , 5 4 4 5 , 4 3 0 8 2 , 9 8 2 0 1 1 , 2 2 5 0 2 9 , 3 6 8 9 9 , 8 4 7 4 5 5 , , 8 5 2 8 9 2 4 , - 6 7 0 1 1 , 7 1 1 9 , 4 6 4 9 9 5 , 3 7 5 4 8 3 , 0 9 0 4 7 8 , 7 7 1 3 4 , 2 3 2 5 0 9 , , 7 8 9 4 2 1 7 , - 5 8 ) 9 0 3 1 ( , ) 4 2 2 1 ( , - 4 5 1 8 7 3 1 , ) 4 2 2 1 ( , 4 8 0 2 , ) 0 0 0 4 ( , 0 7 3 2 , 4 5 4 - 9 4 8 3 0 3 1 , 4 5 4 ) 4 9 ( 6 0 3 3 , ) 9 6 4 1 ( , 3 4 7 1 , 2 4 1 5 7 1 3 , 0 6 0 5 , 3 4 7 1 , ) 2 ( - 1 ) 1 ( 9 8 7 6 5 4 4 8 ) 1 ( - 5 6 7 2 4 , ) 8 9 6 4 2 ( , 7 6 0 8 1 , 0 0 3 7 2 , 3 0 9 2 , 0 7 2 8 4 , 7 6 0 8 1 , 8 6 8 5 3 , ) 3 1 6 2 4 ( , ) 6 0 9 8 ( , 0 2 9 5 6 , 2 0 9 8 1 4 , ) 8 8 4 0 2 ( , ) 1 5 6 5 1 ( , 4 3 3 4 6 4 , 9 1 0 6 1 , 3 6 9 1 3 3 1 , ) 1 5 6 5 1 ( , - 3 5 8 8 8 3 , 7 8 1 3 5 8 , 4 3 3 4 6 4 , - - - - - - ) 0 1 0 4 ( , ) 7 6 9 9 5 1 ( , ) 0 3 6 4 3 ( , ) 7 0 6 8 9 1 ( , ) 0 3 1 4 4 ( , 2 5 6 0 5 , 4 4 2 7 2 , 6 6 7 3 3 , 3 5 0 0 1 5 , 9 2 0 1 3 , 8 4 8 4 7 5 , 6 6 7 3 3 , , 1 1 9 9 3 3 5 , - 6 7 0 1 1 , 0 9 6 1 1 , 2 9 2 3 0 7 , 3 7 5 4 8 3 , 0 8 0 0 7 8 , 7 7 1 3 4 , , 3 7 4 7 1 1 1 , , 2 7 2 1 8 4 8 , 1 1 8 5 0 1 , 7 4 8 2 2 4 , ) 6 4 9 5 2 ( , 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 2 1 7 2 0 5 , 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 3 0 7 4 9 , 3 9 0 5 3 , , 3 4 8 4 8 4 1 , 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 2 1 7 2 0 5 , 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 0 2 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 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 0 2 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 210 0 2 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 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 7 7 7 9 , ) 7 4 1 2 ( , ) 3 1 ( 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 2 0 9 3 , ) 3 6 9 2 ( , ) 6 3 ( 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 , 7 2 1 5 2 , ) 8 8 5 1 1 ( , 3 1 1 2 5 6 3 1 , ) 9 3 2 2 ( , 3 1 4 1 1 , - - 9 1 6 1 8 9 3 2 , 7 6 7 2 , 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 , 4 1 6 2 6 , ) 1 1 1 8 3 ( , ) 3 0 7 ( 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 , - 1 4 1 3 7 , - 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 , 2 9 5 9 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 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 9 1 0 2 , 1 3 r e b m e c e D 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 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 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 211 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 - - 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 - - 8 2 5 1 , - - ) 5 7 0 1 ( , 1 6 0 2 , 9 2 8 9 9 , 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 , 2 6 7 4 1 , 5 2 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 , 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 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 - - - - - - - - 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 7 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 , ) 7 8 1 0 8 ( , ) 5 9 1 0 6 5 ( , ) 0 6 9 1 5 ( , 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 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 0 2 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 212 0 2 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. Zenith Bank (Ghana) Limited provides Corporate and Retail Banking services. It was incorporated on April 15, 2005 and commenced operations on September 16, 2005. Zenith Pensions Custodian Limited provides pension funds custodial services to Licensed Pension Fund Administrators (PFAs) and Closed Pension Funds Administrators under the Pension (Reform) Act, 2004. It was incorporated on March 1, 2005. The name was changed from "Zenith Pensions Limited" to "Zenith Pensions Custodian Limited" on September 20, 2005. It was licensed by the National Pension Commission as a custodian of pension funds and assets on December 7, 2005 and commenced operations in December 2005. Zenith Bank (UK) Limited provides wholesale and investment banking services in the United Kingdom. It was incorporated on February 17, 2006 and commenced operations on March 30, 2007. Zenith Bank (Sierra Leone) Limited provides corporate and retail banking services. It was incorporated in Sierra Leone on September 17, 2007 and granted an operating license by the Bank of Sierra Leone on September 10, 2008. It commenced banking operations on September 15, 2008. Zenith Bank (Gambia) Limited provides corporate and retail banking services. It was incorporated in The Gambia on October 24, 2008 and granted an operating licence by the Central Bank of Gambia on December 30, 2009. It commenced banking operations on January 18, 2010. Zenith Nominees Limited which is incorporated in Nigeria provides nominees, trustees, administrators and executorship services for non-pension assets. It was incorporated in Nigeria on April 6, 2006. 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. 23. 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 Diminution in investment Balance at end of the year Group Bank 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 92 (92) - 103 (103) - 92 (92) - 103 (103) - Financials 213 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 24. Deferred tax balances (i) Deferred tax asset In millions of Naira Unutilised capital allowances ECL allowance on not-credit impaired ﬁnancial Instruments Tax loss carry forward Other assets Fair value reserves Foreign exchange diﬀerences Total deferred tax asset Group Bank 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 11,756 4,301 4,692 91 410 - 21,250 5,810 2,735 6,063 591 - (8) 15,191 (3,331) 11,756 3,066 5,810 2,718 4,692 6,063 - - - - - - 19,514 (14,781) 14,591 (3,368) Set-oﬀ of deferred tax liabilities pursuant to set-oﬀ (15,464) provisions (see (ii) below) Net deferred tax asset Group December 31, 2020 5,786 11,860 4,733 11,223 Movements in temporary differences during the year 01-Jan-20 Recognised in profit or loss 31-Dec-20 Asset Other assets Fair value reserves Unutilized capital allowances ECL Allowance on not-credit impaired ﬁnancial instruments Tax loss carry forward Foreign exchange diﬀerences 536 55 5,810 2,735 6,063 (8) 15,191 (445) 355 5,946 1,566 (1,371) 8 91 410 11,756 4,301 4,692 - 6,059 21,250 December 31, 2019 Movements in temporary differences during the year 01-Jan-19 Recognised in profit or loss 31-Dec-19 Asset Other assets Fair value reserves ECL Allowance on not-credit impaired ﬁnancial instruments Unutilized capital allowances Tax loss carry forward Foreign exchange diﬀerences (9) 7 14,682 4,832 1,926 108 21,546 545 48 (8,872) (2,097) 4,137 (116) 536 55 5,810 2,735 6,063 (8) (6,355) 15,191 214 Bank December 31, 2020 Movements in temporary differences during the year 01-Jan-20 Recognised in profit or loss 31-Dec-20 Asset ECL Allowance on not-credit impaired ﬁnancial instruments Unutilized capital allowances Tax loss carried forward December 31, 2019 2,718 5,810 6,063 14,591 348 5,946 (1,371) 4,923 3,066 11,756 4,692 19,514 Movements in temporary differences during the year 01-Jan-19 Recognised in profit or loss 31-Dec-19 Asset ECL Allowance on not-credit impaired ﬁnancial instruments Unutilized capital allowances Tax loss carried forward (ii) Deferred tax liability In millions of Naira Property and equipment ECL Allowance on ﬁnancial instruments not-credit impaired instruments Right of use asset Foreign exchange diﬀerences Balance at end of the year Group December 31, 2020 4,912 14,683 1,926 21,521 (2,194) (8,873) 4,137 (6,930) 2,718 5,810 6,063 14,591 Group Bank 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 603 - 2,087 12,694 15,384 3,315 16 - - 3,331 - - 2,087 12,694 14,781 3,368 - - - 3,368 Movements in temporary differences during the year 01-Jan-20 Recognised in profit or loss 31-Dec-20 Liabilities Property and equipment Other assets Right of use asset Foreign exchange differences 3,368 16 - - 3,384 (2,685) (16) 2,087 12,694 12,080 683 - 2,087 12,694 15,464 Financials 215 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 December 31, 2019 Movements in temporary differences during the year 01-Jan-19 Recognised in profit or loss 31-Dec-19 Liabilities Property and equipment Impairment allowance on not-credit instruments impaired ﬁnancial 12,084 16 12,100 (8.769) - 3,315 16 (8,769) 3,331 Bank December 31, 2020 Movements in temporary differences during the year 01-Jan-20 Recognised in profit or loss 31-Dec-20 Liabilities Property and equipment Right of use asset Foreign exchange diﬀerences December 31, 2019 3,368 - - 3,368 (3,368) 2,087 12,694 11,413 - 2,087 12,694 14,781 Movements in temporary differences during the year 01-Jan-19 Recognised in profit or loss 31-Dec-19 Liabilities Property and equipment 12,324 (8,956) 3,368 The Group and Bank deferred tax assets and deferred tax liabilities have been oﬀset in the consolidated and separate ﬁnancial statements. The Bank’s deferred tax asset which principally arise from allowable loss, un-utilized capital allowance, foreign exchange diﬀerences and ECL allowance on not credit-impaired ﬁnancial instruments is N12.2 billion as at December 31, 2020. (December 31, 2019: N60.2 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 not recognised all of its deferred tax asset as at December 31, 2020. The amount of unrecognised deferred tax is N7.4 billion. (December 31, 2019: N49 billion). 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 Capital allowance Unrelieved losses Balance at end of the year 31-Dec-20 31-Dec-19 Gross Amount Tax Impact Gross Amount Tax Impact - 22,890 - 2,086 24,976 - 6,867 - 626 7,493 (49,025) 39,566 84,567 88,257 163,365 (14,708) 11,870 25,370 26,477 49,009 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. 216 25. Other assets In millions of Naira 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) Group Bank 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 20,289 336 20,625 (226) 20,399 115,161 - 30,996 5,552 - 151,709 (2,141) 149,568 13,457 357 13,814 (183) 13,631 42,019 - 22,096 426 - 64,541 (777) 63,764 16,214 336 16,550 (226) 16,324 107,848 329 30,996 5,454 720 145,347 (2,046) 143,301 9,983 359 10,342 (183) 10,159 38,555 210 22,096 392 720 61,973 (720) 61,253 169,967 77,395 159,625 71,412 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 35(e)). Other Non-ﬁnancial assets comprises of balances on settlement accounts such as: Witholding tax, revenue collection,, sundry receivables. These assets are short tenured and are quickly settled. Classified as: Current Non-current 138,971 30,996 169,967 53,071 24,324 77,395 128,629 30,996 159,625 46,368 25,044 71,412 See note 3.2.18 for movement in impairment allowance for other ﬁnancial assets as at December 31, 2020. (i) Movement in impairment allowance for non ﬁnancial assets Financials 217 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 In millions of Naira At start of the year Charge for the year (see note 8) At end of the year Group Bank 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 183 43 226 560 (377) 183 183 43 226 560 (377) 183 (ii) Provision matrix Loss allowance for the Bank as at December 31, 2020 and December 31, 2019 was determined as follows for other ﬁnancial assets. December 31, 2020 Receivables Expected loss rate ECL December 31, 2019 Receivables Expected loss rate ECL 0-30 days 31-60 days 61-90 days 91-180 days 113,189 1.70 % 1,924 - - 113 10.95 % 24.35 % 100.00 % - - 113 0-30 days 31-60 days 61-90 days 91-180 days 48,000 1.50 % 720 - - 113 10.95 % 24.35 % 100.00 % - - - Total 113,302 - 2,037 Total 48,000 - 720 218 8 9 0 7 3 , ) 0 4 ( 0 5 3 1 , ) 5 0 0 2 ( , 7 8 1 0 9 5 6 3 , 3 5 2 9 2 , ) 8 3 ( 9 4 8 3 , 6 3 1 ) 5 0 0 2 ( , l a t o T 4 4 1 3 2 3 , 6 7 7 9 2 , - ) 1 6 5 7 ( , 9 1 9 1 , 8 2 9 7 3 1 , 5 2 1 5 2 , - 0 5 8 ) 5 9 7 6 ( , , 8 0 1 7 5 1 0 7 1 0 9 1 , 8 7 2 7 4 3 , 9 3 9 3 2 , 0 8 2 4 2 , 4 6 4 4 2 , 0 0 6 2 1 , 1 0 2 7 1 , 7 3 2 9 , ) 0 6 3 2 ( , ) 9 6 1 ( - - 8 3 1 8 1 , 6 2 8 5 , 0 3 6 1 3 5 4 7 8 3 3 2 , 6 1 5 2 , ) 2 2 6 1 ( , 8 3 1 - - - - 0 0 6 2 1 , 6 9 2 4 9 , 6 5 7 0 1 8 5 , ) 7 9 9 2 ( , 8 3 2 6 1 0 5 2 , 3 5 1 1 , 3 2 5 ) 1 6 7 ( 5 3 4 0 4 7 0 6 , 6 9 4 2 , 5 4 0 1 , ) 7 ( 5 7 5 - - 1 3 8 6 6 4 3 , 8 8 3 1 , 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 0 2 0 2 , y r a u n a J 1 t A s n o i t i d d A t s o C 3 0 1 8 9 , 6 6 3 6 2 , 9 4 8 4 6 , 7 8 0 6 3 , 0 2 0 2 , 1 3 r e b m e c e D t A n i k r o W s s e r g o r p f o t h g R i s g n d i l i u b - t e s s a e s u r o t o M s e l c i h e V e s u f o t h g R i t f a r c r i A - t s e s s a r e t u p m o C t n e m p u q e i , e r u t i n r u F d n a s g n i t t fi t n e m p u q e i l d o h e s a e L s t n e m e v o r p m i g n d i l i u B d n a L 0 2 0 2 , 1 3 r e b m e c e D p u o r G t n e m e v o m i t n e m p u q e d n a y t r e p o r P ) a ( i t n e m p u q e d n a y t r e p o r P . 6 2 - - - - - - - - 9 4 4 1 , 6 3 8 1 , 1 7 1 6 5 4 3 , - 2 1 2 7 1 , 7 6 1 3 , 5 9 ) 2 1 5 1 ( , - - - 0 3 7 2 , 0 6 2 1 , 8 9 8 9 8 0 6 , 8 9 2 1 1 , 0 5 1 ) 6 1 5 2 ( , 0 4 7 8 1 , 6 7 4 2 , ) 4 6 1 ( ) 5 5 7 ( 6 6 2 6 4 6 7 , 9 3 2 1 , 4 0 1 ) 7 ( 2 3 4 1 0 9 , - - - - - - 2 6 9 8 1 , 0 9 9 3 , 5 9 1 1 3 , 8 2 9 9 6 , 3 6 5 0 2 , 9 3 9 3 2 , 4 2 8 0 2 , 2 0 5 5 , 0 1 6 8 , 5 9 3 5 , 5 7 1 8 2 , 3 0 8 5 , 5 3 8 5 5 , 7 8 0 6 3 , n o i t a i c e r p e D d e t a l u m u c c A 0 2 0 2 y r a u n a J 1 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 i e c n e r e ﬀ d e g n a h c x E 0 2 0 2 , 1 3 r e b m e c e D t A 0 2 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 . e s n e p x e e s a e l s a 2 1 e t o n n i n e e s e b n a c s t e s s a e s a e l l e u a v w o l d n a e s a e l m r e t t r o h s o t g n i t a e r l s e s n e p x E ) l i N : 9 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 219 l a t o T , 3 3 6 8 6 2 3 3 3 2 6 , - ) 3 6 1 5 ( , ) 9 5 6 2 ( , 6 9 4 9 1 1 , 6 3 4 1 2 , - ) 0 7 6 ( ) 4 3 3 2 ( , , 8 2 9 7 3 1 6 1 2 5 8 1 , 4 4 1 3 2 3 , 1 0 2 7 1 , 8 3 1 8 1 , 9 8 5 1 2 , 0 0 5 7 , ) 0 2 6 0 1 ( , ) 1 8 0 1 ( , ) 7 8 1 ( - - - - 8 3 1 8 1 , - - - - - - - - - - 9 4 4 1 , 9 4 4 1 , 2 1 2 7 1 , 0 3 7 2 , 3 5 2 9 2 , 8 9 8 0 6 , 0 4 7 8 1 , 1 0 2 7 1 , 9 8 6 6 1 , 5 7 1 6 , 0 7 8 9 , 5 4 8 7 , 8 9 3 3 3 , 6 7 2 6 , 4 9 0 3 5 , 8 6 6 4 3 , 5 2 9 0 2 , 4 4 7 3 , 6 7 ) 0 3 1 1 ( , ) 8 2 2 ( 7 8 3 3 2 , 4 0 3 5 1 , 6 8 7 2 , ) 6 ( ) 5 3 7 ( ) 7 3 1 ( - - - - 0 0 6 2 1 , 0 6 7 9 2 , 2 0 2 8 , 0 7 ) 1 3 6 ( ) 3 0 3 ( 0 0 6 2 1 , 8 9 0 7 3 , - - - 0 7 4 1 , 0 6 2 1 , 0 2 4 7 2 , 8 0 2 2 , ) 2 ( ) 3 5 1 ( ) 0 2 2 ( 9 8 3 9 7 , 8 5 2 3 1 , 2 1 4 3 , ) 8 1 4 1 ( , ) 5 4 3 ( 6 9 2 4 9 , 4 0 9 1 5 , 1 8 0 0 1 , 5 1 ) 0 4 9 ( ) 2 6 1 ( 4 3 3 1 2 , 3 0 5 3 , 4 7 8 ) 3 0 5 ( ) 2 9 1 ( 6 1 0 5 2 , 1 7 8 6 1 , 2 0 3 2 , ) 5 6 ( ) 0 6 2 ( ) 8 0 1 ( 1 8 9 3 5 , 2 2 7 4 , 1 4 8 3 , ) 0 0 4 ( ) 4 0 4 1 ( , 0 4 7 0 6 , 7 2 5 6 , 0 5 3 1 , 8 5 ) 6 4 2 ( ) 3 4 ( 6 4 6 7 , - - - - - - - - 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 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 0 2 0 2 , y r a u n a J 1 t A s n o i t i d d A t s o C 8 6 6 4 3 , 0 2 0 2 , 1 3 r e b m e c e D t A n o i t a i c e r p e D d e t a l u m u c c A 0 2 0 2 y r a u n a J 1 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 i e c n e r e ﬀ d e g n a h c x E 9 1 0 2 , 1 3 r e b m e c e D t A 9 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 n i k r o W s s e r g o r p f o t h g R i s g n d i l i u b - t e s s a e s u r o t o M s e l c i h e V e s u f o t h g R i t f a r c r i A - t s e s s a r e t u p m o C t n e m p u q e i , e r u t i n r u F d n a s g n i t t fi t n e m p u q e i l d o h e s a e L s t n e m e v o r p m i g n d i l i u B d n a L 9 1 0 2 , 1 3 r e b m e c e D p u o r G i 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 . t s o c t e s s a f o t r a p s a d e z i l a t i p a c n e e b . . 4 1 2 e t o n e e s e s u f o t h g i r n o s t n e m e g d u j d n a y c i l o p g n i t n u o c c a r o F . e c n e m m o c o t t e y e r a t a h t s e s a e l o n s a h p u o r G e h T . ) l i N : 9 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 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 0 2 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 220 0 2 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 a t o T I ) P W ( n i k r o W s s e r g o r p f o t h g R i s g n d i l i u b - t e s s a e s u r o t o M s e l c i h e V e s u f o t h g R i t f a r c r i A - t s e s s a r e t u p m o C t n e m p u q e i , e r u t i n r u F d n a s g n i t t fi t n e m p u q e i l d o h e s a e L s t n e m e v o r p m i g n d i l i u B d n a L 0 2 0 2 , 1 3 r e b m e c e D k n a B ) 6 3 4 2 ( , - - 9 0 3 3 9 2 , 5 5 5 6 2 , 1 9 6 6 1 , 7 6 7 8 , ) 1 6 3 2 ( , - - 0 5 6 1 1 , 2 0 7 4 , 1 9 1 1 2 , 3 0 3 2 , 6 4 ) 1 9 7 ( - - - 3 6 5 ) 0 4 ( ) 0 3 ( 0 0 6 2 1 , 0 1 4 4 3 , 9 9 3 0 9 , 6 5 7 5 9 5 5 , ) 9 9 5 1 ( , 1 4 7 3 2 5 ) 9 ( 3 3 0 0 2 , 7 6 6 1 5 , 6 9 4 2 , 5 4 0 1 , ) 7 ( - 1 3 8 6 6 4 3 , 8 8 3 1 , 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 l a s o p s i D 0 2 0 2 y r a u n a J 1 t A s n o i t i d d A t s o C 8 2 4 7 1 3 , 7 9 0 3 2 , 2 5 3 6 1 , 9 4 7 2 2 , 0 0 6 2 1 , 3 0 9 4 3 , 1 5 1 5 9 , 8 8 2 1 2 , 1 0 2 5 5 , 7 8 0 6 3 , 0 2 0 2 , 1 3 r e b m e c e D t A - 3 5 8 7 2 1 , 6 8 6 2 2 , ) 1 9 1 2 ( , , 8 4 3 8 4 1 0 8 0 9 6 1 , - - - - - - - 8 8 1 1 , 9 0 4 1 , 7 9 5 2 , - 2 0 8 5 1 , 1 7 7 2 , ) 4 2 6 ( 9 4 9 7 1 , - - 0 3 7 2 , 0 6 2 1 , 0 9 9 3 , 7 0 9 6 2 , 7 3 1 3 , ) 8 3 ( ) 1 3 ( 5 7 9 9 2 , 8 9 8 2 1 8 5 , 2 1 2 1 1 , ) 7 2 5 1 ( , 1 1 9 7 6 , 1 1 9 5 1 , 8 4 8 1 , ) 4 6 1 ( ) 2 ( 3 9 5 7 1 , 7 8 1 7 , 9 4 0 1 , 4 0 1 ) 7 ( 3 3 3 8 , - - - - - 7 9 0 3 2 , 5 5 7 3 1 , 0 0 8 4 , 0 1 6 8 , 8 2 9 4 , 0 4 2 7 2 , 5 9 6 3 , 8 6 8 6 4 , 7 8 0 6 3 , n o i t a i c e r p e D d e t a l u m u c c A 0 2 0 2 y r a u n a J 1 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 9 1 0 2 , 1 3 r e b m e c e D t A 0 2 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 . e s n e p x e e s a e l s a 2 1 e t o n n i n e e s e b n a c s t e s s a e s a e l l e u a v w o l d n a e s a e l m r e t t r o h s o t g n i t a e r l s e s n e p x E ) l i N : 9 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 221 t e s s a f o t r a p s a d e z i l a t i p a c i 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 . t s o c . . 4 1 2 e t o n e e s e s u f o t h g i r n o s t n e m e g d u j d n a y c i l o p g n i t n u o c c a r o F . ) l i : N 9 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 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 0 2 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 222 0 2 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 a t o T 2 0 4 4 4 2 , 1 0 9 0 5 , - ) 4 3 ( ) 0 6 9 1 ( , I ) P W ( n i k r o W s s e r g o r p f o t h g R i s g n d i l i u b - t e s s a e s u r o t o M s e l c i h e V e s u f o t h g R i t f a r c r i A - t s e s s a r e t u p m o C t n e m p u q e i , e r u t i n r u F d n a s g n i t t fi t n e m p u q e i l d o h e s a e L s t n e m e v o r p m i g n d i l i u B d n a L 9 1 0 2 , 1 3 r e b m e c e D k n a B . e c n e m m o c o t t e y e r a t a h t s e s a e l o n s a h k n a B e h T 3 6 1 0 2 , 2 8 1 7 , ) 0 2 6 0 1 ( , - ) 4 3 ( - - - - 0 5 6 1 1 , 8 4 8 8 1 , 9 6 1 3 , 6 7 ) 2 0 9 ( - - - - - 0 0 6 2 1 , 3 8 8 6 2 , 7 0 4 7 , 0 9 1 ) 0 7 ( - 4 3 4 5 7 , 8 0 8 2 1 , - 2 0 1 3 , ) 5 4 9 ( 8 1 9 7 1 , 9 2 6 1 , 8 0 5 ) 2 2 ( - 1 0 5 3 4 , 0 9 7 3 , - ) 1 2 ( 7 9 3 4 , - - 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 l a s o p s i D 9 1 0 2 , y r a u n a J 1 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 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 , 9 9 3 0 9 , 3 3 0 0 2 , 7 6 6 1 5 , 8 6 6 4 3 , 0 2 0 2 , 1 3 r e b m e c e D t A - , 8 4 5 0 1 1 7 8 8 8 1 , ) 2 8 5 1 ( , 3 5 8 7 2 1 , 6 5 4 5 6 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 , 9 2 3 5 2 , 8 4 6 1 , ) 2 ( ) 8 6 ( 8 5 2 9 4 , 9 8 6 9 , 5 1 ) 4 3 8 ( 5 5 3 4 1 , 1 4 6 1 , ) 5 6 ( ) 0 2 ( 8 8 1 1 , 2 0 8 5 1 , 0 3 7 2 , 7 0 9 6 2 , 8 2 1 8 5 , 1 1 9 5 1 , 6 2 9 7 0 2 6 , 8 5 ) 4 ( 7 8 1 7 , - - - - - 1 9 6 6 1 , 2 6 4 0 1 , 9 8 3 5 , 0 7 8 9 , 3 0 5 7 , 1 7 2 2 3 , 2 2 1 4 , 0 8 4 4 4 , 8 6 6 4 3 , n o i t a i c e r p e D d e t a l u m u c c A 9 1 0 2 y r a u n a J 1 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 9 1 0 2 , 1 3 r e b m e c e D t A 9 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 (b) Right of use amounts recognised in the statement of financial postion In millions of Naira 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 Right-of-use assets Aircraft (see note 26) Buildings (see note 26) 8,610 20,824 29,434 9,870 16,689 26,559 8,610 13,755 22,365 9,870 10,462 20,332 In millions of Naira 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 Lease liabilities Current (see note 29) Non-current (see note 29) (c) Amounts recognised in the income statement 6,275 18,181 24,456 6,534 15,660 22,194 4,158 13,363 17,521 4,539 11,758 16,297 In millions of Naira 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 Depreciation charge of right-of-use asset Aircraft (see note 26) Buildings (see note 26) Interest expense (included in ﬁnance cost) 1,260 1,836 3,096 3,230 1,260 1,449 2,709 3,494 1,260 1,409 2,669 2,804 1,260 1,188 2,448 3,079 The total cash outﬂow of leases for Group and bank as at December 31, 2020 was N3,427 million and N3,212 million respectively (December 31, 2019: N2,196 million and N2,196 million respectively) Financials 223 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 In millions of Naira 27. Intangible assets Computer software Cost At start of the year Exchange diﬀerence Additions At end of the year Accumulated amortization At start of the year Exchange diﬀerence Charge for the year At end of the year Carrying amount at end of the year Group Bank 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 32,472 664 2,473 35,609 15,975 (146) 3,537 19,366 16,243 28,905 867 2,700 32,472 12,227 670 3,078 15,975 16,497 27,381 - 2,366 29,747 12,272 - 2,776 15,048 14,699 24,876 - 2,505 27,381 9,477 - 2,795 12,272 15,109 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. 28. Customers’ deposits Demand Savingss Term Domiciliary Classified as: 2,986,724 1,155,026 323,149 875,012 1,985,020 614,297 495,714 1,167,258 2,181,524 1,112,914 188,480 815,340 1,422,508 588,454 379,627 1,096,298 5,339,911 4,262,289 4,298,258 3,486,887 Carrying amount at end of the year 5,339,911 4,262,289 4,298,258 3,486,887 224 In millions of Naira 29. 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-20 31-Dec-19 31-Dec-20 31-Dec-19 50,276 55,981 19,318 - 1,234 22,315 99,225 13,777 20,259 4,626 86,266 56,060 18,728 - 1,234 46,354 99,269 13,095 63,309 4,513 269,709 80,243 269,711 80,243 28,035 24,457 5,725 16,015 67,284 4,832 25,588 22,194 7,634 13,065 16,088 5,538 28,035 17,522 5,725 15,789 12,014 4,832 25,588 16,297 7,634 12,951 6,007 5,538 Total other financial liabilities 542,866 330,552 515,916 380,798 Non financial liabilities Tax collections Other payables Total other non ﬁnancial liabilities Total other liabilities See note 44 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 2,317 158,109 160,426 703,292 685,111 18,181 703,292 3,424 886 522 4,832 2,018 31,194 33,212 2,136 81,412 83,548 1,832 3,431 5,263 363,764 599,464 386,061 340,557 23,207 363,764 586,101 13,363 363,990 22,071 599,464 386,061 923 410 4,205 5,538 3,424 886 522 4,832 923 410 4,205 5,538 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 Financials 225 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 In millions of Naira 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 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, 2020. (December 31, 2019: 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 At end of the year 5,803 27,867 10,162 43,832 7,394 20,592 16,126 44,112 4,158 21,112 6,113 31,383 The table below shows the movement in lease liability during the year. As at 1 January Additions Principal repayment Interest expense Interest paid At end of the year 22,194 2,582 (742) 3,107 (2,685) 24,456 11,568 10,561 (645) 3,494 (2,784) 22,194 16,297 1,632 (684) 2,804 (2,528) 17,521 5,072 15,807 11,996 32,875 11,568 4,901 (598) 3,079 (2,653) 16,297 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. 226 In millions of Naira 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 Group Bank 30. 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 49,469 35,171 7,070 965 134,115 81,933 41,902 23,325 - 256 - 10,367 40,666 39,827 14,590 1,353 135,869 83,302 43,689 21,139 2,500 74 4,006 5,856 49,469 35,171 7,070 965 134,115 81,933 41,902 23,325 - 256 - 10,367 40,666 39,827 14,590 1,353 135,869 83,302 43,689 21,139 2,500 74 4,006 5,856 384,573 392,871 384,573 392,871 8,312 376,261 384,573 15,752 377,119 392,871 8,312 376,261 384,573 15,752 377,119 392,871 In millions of Naira 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 At beginning of the period/year Principal addition during the period/year Principal repayment during the period/year Interest expense during the period Interst paid during the period At end of the period/year 392,871 32,264 (39,758) 5,528 (2,638) 393,295 130,153 (132,840) 5,528 (3,265) 392,871 32,264 (39,758) 1,834 (2,638) 393,295 130,153 (132,840) 5,528 (3,265) 384,573 392,871 384,573 392,871 (i) The fund received under the Central Bank of Nigeria (CBN) Commercial Agriculture Credit Scheme represents a credit line granted to the Bank for the purpose of providing concessionary funding to the agricultural sector. The facility has a tenor of 16 years with eﬀect from 2009 and will expire in September 2025. The facility attracts an interest rate of 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. Financials 227 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 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 fund is disbursed to the bank at 2% interest rate. The Real Sector Support Facility (RSSF): The Central Bank of Nigeria, as part of the eﬀorts to unlock the potential of the real sector to engender output growth, productivity and job creation has established a N300 billion Real Sector Support Facility (RSSF). The facility is disbursed to large enterprises and startups with ﬁnancing needs of N500 million up to a maximum of N10.0 billion. The activities targeted by the Facility are manufacturing, agricultural value chain and selected service subsectors. The funds are received from the CBN at 2%, 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 2% which are then disbursed to qualifying customers at the rate of 9% per annum. 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. 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. (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) 228 Due to the COVID 19 pandemic, all intervention funds disbursed to the bank are now priced at 1% per annum eﬀective March 01, 2020 until February 28, 2021. The Bank on-lends to customers at 5% p.a. Included in On-lending is a modiﬁcation gain of N2.3 billion for the bank. It represents changes in gross carrying amount of the ﬁnancial liabilities from immediately before, to immediately after modiﬁcation. In Millions of Naira 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 Group Bank 31. Borrowings Long term borrowing comprise: Due to ADB (i) Due to KEXIM (ii) Due to Afrexim (iii) Due to PROPARCO (iv) Societe Generale Bank Due to ABSA Bank (v) Due to J P Morgan Chase Bank Due to Standard Bank London (vi) Due to Standard Bank South Africa Due to Mashreq Bank (vii) Due to Goldman Sachs Due to IFC (viii) Due to Zenith Bank Ghana (ix) Due to banks for clean letters of credit (x) 5,841 670 80,293 1,830 - 100,457 - 20,159 - 28,113 - 53,630 - 579,087 870,080 17,681 22,877 - 5,884 55,433 82,352 36,534 - 27,635 18,320 36,950 18,813 - - 322,479 5,841 670 80,293 1,830 - 100,457 - 20,159 - 28,113 - 53,630 4,010 579,087 874,090 17,681 22,877 - 5,884 55,433 82,352 36,534 - 27,635 18,813 - - 36,950 18,320 329,778 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 period (December 31, 2019: nil). The assets exchanged under repurchase agreements with counterparties are disclosed in note 17. Classified as: Current Non-current Movement in borrowings At beginning of the year Addition during the year Interest expense Interest paid Repayments (principal) Foreign exchange diﬀerence At end of the year 783,520 86,560 870,080 322,479 872,332 30,706 (29,843) (353,338) 27,744 870,080 280,934 41,545 322,479 437,260 223,779 46,505 (16,005) (369,060) - 322,479 787,530 86,560 874,090 329,778 872,332 33,510 (34,104) (357,341) 29,915 874,090 280,934 48,844 329,778 458,463 223,779 28,585 (19,288) (361,761) - 329,778 Financials 229 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 (i) (ii) Due to ADB This balance relates to term loan facility to the tune of US $125 million granted by ADB on September 2014. The facility is repayable over 6.5 years. Interest is payable half-yearly at the rate of 6 months LIBOR + 3.6% per annum. The outstanding balance of N6.3 billion (US $15.6 million) will mature in February 2021. Due to KEXIM The amount relates to facility of US $2.51million granted by The Export-Import Bank of Korea (KEXIM) in August 2020. Interest is payable monthly at 3 month LIBOR+1.6% for all running obligations. Final repayments on these facilities are due in August 2021. (iii) Due to Afrexim The amount due to Afrexim of N80 billion (US $200 million) represents the amount payable by the Bank from 3year term loan, with a one year moratorium. The facilities are priced at 3 months Libor+3.34% per annum for $150m and Libor+4.34% per annum for the balance $50m ,and will mature in August 2023. Interest on the facility is payable quarterly (iv) Due to Proparco The amount due to Proparco of N1.83 billion (US $4.5 million) represents the outstanding from a dollar term loan facility to the tune of $50m granted by Promotion et Participation pour la Coopération économique (PROPARCO) in December 2013. The facilities are priced at 6 months Libor+3.71% per annum and will mature in April 2021. Interest on the facility is payable semi-annually. The outstanding balance for this facility is N1.82 billion (US $4.5 million). (v) Due to ABSA The amount of N100.048 billion (US $250 million) represents the amount payable by the Bank on dollar repurchase facilities of US$100 million and US$150 million, granted by ABSA in June 2020 and September 2020 respectively. Interest is payable quarterly and are priced at 3 months Libor+3.1 & 3.2% per annum each. The facilities will mature in June 2021 and Sept 2021 respectively. (vi) Due to ICBC (STANDARD BANK LONDON) The amount of N20.16 billion (US $50 million) represents the amount payable by the Bank on dollar repurchase facility of US$50 million granted by ICBC in October. Interest is payable quarterly and are priced at 6 months Libor+3.% per annum. The facilities will mature in April 2021. (vii) Due to Mashreq Bank The amount of N28.1 billion (US $70 million) represents the amount payable by the Bank on dollar repurchase facilities of US$50 million and US$20 million, granted by MASHREQ in July 2020 and November 2020 respectively. Interest is payable at maturity and are priced at 6 months Libor+3.1% per annum each. The facilities will mature in January 2021 and June 2021 respectively. (viii) Due to IFC The amount of N53.63 billion (US $133.33 million) represents the amount payable by the Bank from a term loan facility of US$100million, with a 1.5 year moratorium, and another USD 100m loan granted by International Finance Corporation (IFC) in June 2015 and July 2020 respectively. Interest is payable semi annually at 6 months LIBOR plus 4.5% and 3% per annum and the facility will mature in September 2022 and July 2020 respectively. (ix) Due to Zenith Bank Ghana The amount of N4.01 billion ($10 million) represents the outstanding balance on a dollar short-term facility of US $30million granted to Zenith Bank Ghana in 2018. The facility is priced at 6.75% per annum and is due to mature in December 2021. The facility has been eliminated on consolidation.. (x) The amount represents clean line obtained from various international banks for letters of credit and trade loans from international banks 230 32. Debt securities issued in Millions of Naira Due to Euro bond holders Group Bank 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 43,177 43,177 39,092 39,092 43,177 43,177 39,092 39,092 The amount of N43.2 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. 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 year Revaluation loss for the year Interest expense Interest paid Repurchase during the year Contractual repayment Accrued interest during the year At end of the year Classified as: Current Non-current 33. Derivative liabilities Instrument types (Fair value): Forward and Swap Contracts Futures contracts 39,092 2,928 4,271 (3,114) - - - 43,177 3,289 39,888 43,177 1,562 9,514 11,076 361,177 5,949 - - (142,151) (198,207) 12,324 39,092 - 39,092 39,092 13,622 1,140 14,762 39,092 2,928 4,271 (3,114) - - - 43,177 3,289 39,888 43,177 1,562 9,514 11,076 361,177 5,949 - - (142,151) (198,207) 12,324 39,092 - 39,092 39,092 13,622 1,140 14,762 Instrument types (Notional Amount): Forward and Swap Contracts Futures contracts 51,574 222,730 274,304 208,263 277,716 485,979 51,574 222,730 274,304 208,263 277,716 485,979 Financials 231 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 in Millions of Naira Classified as: Current Non-current Group Bank 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 11,076 14,762 11,076 14,762 - - - - 11,076 14,762 11,076 14,762 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 gain of N(18.74) billion (December 31, 2019 net gain of N(7.43) 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 N41.73 and N11.08 billion respectively (December 31, 2019 N92.72 and N14.76 billion respectively). 34. Share capital Authorised 40,000,000,000 ordinary shares of 50k each (31 Dec 2019: 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 2019: 31,396,493,786) 15,698 15,698 15,698 15,698 Issued Ordinary 15,698 15,698 15,698 15,698 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. 35. 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 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 Share premium The nature and purpose of the reserves in equity are as follows: 255,047 255,047 255,047 255,047 Group Bank (b) Share premium: Premiums from the issue of shares are reported in share premium. (c) Retained earnings: Retained earnings represent undistributed proﬁts, net of statutory appropriations attributable to the ordinary shareholders. 232 (d) Statutory reserve: This reserve represents the cumulative appropriation from general reserves/earnings in line with Nigerian banking regulations that require the Bank to make an annual appropriation in reference to speciﬁc rules. Section 16(1) of the Bank and Other Financial Institutions Act of 1991 (amended), stipulates that an appropriation of 30% of proﬁt after tax be made if the statutory reserve is less than the paid-up share capital and 15% of proﬁt after tax if the statutory reserve is greater than the paid-up share capital. In the current year, a total of N29.68 billion (December 31, 2019: N27.05 billion) representing 15% of Zenith Bank’s proﬁt after tax was appropriated. (e) SMIEIS/AGSMIES reserves: This reserve represents the aggregate amount of appropriations from proﬁt after tax to ﬁnance equity investments in compliance with the directives issued by the Central Bank of Nigeria (CBN) through its circulars dated July 11, 2006 (amended) and April 7, 2017 respectively. The SMIEIS reserve was maintained in compliance with the Central Bank of Nigeria’s requirement that all licensed banks set aside a portion of the proﬁt after tax in a fund to be used to ﬁnance equity investments in qualifying small and medium scale enterprises. Under the terms of the guideline issued in July 2006, the contributions were 10% of proﬁt after tax and were expected to continue after the ﬁrst 5 years after which banks’ contributions were to reduce to 5% of proﬁt after tax. The small and medium scale industries equity investment scheme reserves are non-distributable. (f ) (g) (h) (i) Fair value reserve: Comprises fair value movements on equity instruments that are carried at fair value through other comprehensive income. 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. Regulatory reserve for credit risk: This reserve represents the cummulative diﬀerence between the loan loss provision determined per the Prudential Guidelines and the allowance/reserve for loan losses as determined in line with the principles of IFRS 9. 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 parent of the subsidiary. See note 22(i) for the changes in non-controlling interest during the period. 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 end of year 36. Pension contribution 31-Dec-20 31-Dec-19 754 191 29 - 974 1,538 150 (60) (874) 754 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). Financials 233 Zenith Bank Plc Annual Report December 31, 2020 In millions of Naira 37. Personnel expenses Compensation for the staﬀ are as follows: Salaries and wages Other staﬀ costs Pension contribution Group 2020 2019 Bank 2020 2019 67,558 7,922 3,778 79,258 65,831 8,103 3,924 77,858 52,485 6,354 2,676 61,515 51,966 7,128 2,944 62,038 (a) The average number of persons employed during the year by category: Executive directors Management Non-management Number Number Number Number 15 410 7,119 7,544 12 433 6,960 7,405 6 349 5,982 6,337 6 358 5,618 5,982 The table below shows the number of employees, whose earnings during the year, fell within the ranges shown below: N300,001 - N2,000,000 N2,000,001 - N2,800,000 N2,800,001 - N4,000,000 N4,000,001 - N6,000,000 N6,000,001 - - N8,000,000 N8,000,001 - N9,000,000 N9,000,001 - and above (b) Directors’ emoluments Number 1,747 124 426 927 1,302 18 3,000 7,544 Number 1,467 75 475 1,083 1,382 31 2,892 7,405 Number 1,593 15 323 728 1,132 18 2,528 6,337 Number 1,069 - 414 929 1,189 24 2,357 5,982 The remuneration paid to directors are as follows: Number Number Number Number Executive compensation Fees and sitting allowances Retirement Beneﬁt costs 1,252 409 13 1,674 1,140 405 903 2,448 Fees and other emoluments disclosed above include amounts paid to: The Chairman The highest paid director 992 210 11 1,213 28 230 525 84 903 1,512 13 221 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 234 Number 46 Number 38 Number 13 Number 13 38. Group subsidiaries and related party transactions Parent: Zenith Bank Plc (incorporated in Nigeria) is the ultimate parent company of the Group Subsidiaries: The amount of N5,643 billion (December 31, 2019: N5,175 billion) represents the total assets under custody held by the Bank’s subsidiary, Zenith Pensions Custodian Limited under the latter’s custodial business. Included in the amount above is N105.7 billion which represents the amount of the Group’s guarantee for the assets held by the subsidiary 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. 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, 2020 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, 2020 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 114,939 2 256 791 - 35,900 4,010 - - - 130 - - - 3,600 - 2,805 - - - Transactions and balances with subsidiaries In millions of Naira Receivable from Payable to Income received from Expense paid to 31 December 2019 31 December 2019 Zenith Bank (UK) Limited Zenith Bank (Ghana) Limited Zenith Bank (Sierra leone) Limited Zenith Bank (Gambia) Limited Zenith Pensions Custodian Limited 83,570 - 159 53 - 67,194 7,301 - - - 540 - - - 3,600 - - - - - Financials 235 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 Significant restrictions The Group does not have signiﬁcant restrictions on its ability to access or use its assets and settle its liabilities other than those resulting from the supervisory frameworks within which banking subsidiaries operate. The supervisory frameworks require banking subsidiaries to keep certain levels of regulatory capital and liquid assets, limit their exposure to other parts of the Group and comply with other ratios. See notes 3.4, 3.6 and 4.4b for disclosures on liquidity, capital adequacy, and credit risk reserve requirements respectively. The carrying amounts of banking subsidiaries’ assets and liabilities are N1,526 billion and N1,305 billion respectively (December 31, 2019: N1,089 billion and N914 billion respectively). Non controlling interest in subsidiaries The Group does not have any subsidiary that has material non controlling interest. Key management personnel Key management personnel is deﬁned as the Group’s executive, non-executive directors and chief oﬃcers,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-20 31-Dec-19 31-Dec-20 31-Dec-19 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 1,576 23 409 2,008 1,764 366 (333) 1,797 69 1,226 919 405 2,550 1,180 1,010 (426) 1,764 60 1,194 11 210 1,415 1,642 - (166) 1,476 63 724 906 84 1,714 1,022 1,010 (390) 1,642 60 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. Directors’ related party transactions: December 31, 2020 Name of company Cyberspace Network Quantum Fund Management Relationship/Name Loans Deposits 1,634 1,634 1,709 1,709 Interest received Interest paid 61 61 38 38 236 Relationship/Name Loans Deposits Interest received Interest paid Insider related transactions: December 31, 2020 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 Zenith Trustees Ltd Oviation limited Sirius Lumina Ltd Common directorship /Jim Ovia Former Director Director / Prof. Sam Enwemeka - - - - - - - 61 189 1,544 1 844 1 2,640 - - - - - - - - - - - - - - 31 December 2019 31 December 2019 Name of company Relationship/Name Loans Deposits 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 - Director / Prof. Sam Enwemeka - - - 796 - 796 2 85 1,146 1,598 1,578 1 4,410 Interest received Inter- est paid - - - 48 - 48 - - - 35 - 35 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 life time impairment has been recognised in respect of loans granted to related parties (31 December, 2019: Nil). During the year, Zenith Bank Plc paid N1.90 billion as insurance premium to Zenith General Insurance Limited (December 31, 2019: N1.78 billion). These expenses were reported as operating expenses. 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 Bank paid N2.58 billion (31 December, 2019 N5.71 billion) to Cyberspace Network for various Information technology services rendered during the year. 39. Contingent liabilities and commitments Legal proceedings (a) The Group is presently involved in several litigation suits in the ordinary course of business. The total amount claimed in the cases against the Group is estimated at N78.8 billion (December 31, 2019: N27 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. Financials 237 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 Capital commitments (b) At the reporting date, the Group had capital commitments amounting to N4.9 billion (December 31, 2019: N5.5 billion) in respect of authorized and contracted capital projects. Break down of capital commitments Motor vehicles, Furniture and equipments Information tecnology Property Group 31-Dec-20 31-Dec-19 50 3,756 1,135 4,941 285 4,080 1,128 5,493 Conﬁrmed credits and other obligations on behalf of customers (c) 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: Performance bonds and guarantees (see note i below) Usance (see note ii below) Letters of credit (see note ii below) Group Bank 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 376,252 363,922 325,249 261,495 50,770 172,905 599,927 79,318 545,174 988,414 49,569 84,183 459,001 79,318 413,656 754,469 Pension Funds (See Note iii below) 5,642,718 5,174,795 5,642,718 5,174,795 (i) (ii) 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, 2020, performance bonds and guarantees worth N73 billion (December 31, 2019: N84 billion) are secured by cash while others are otherwise secured. 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. Usance and letters of credit are secured by diﬀerent types of collaterals similar to those accepted for actual credit facilities. The amount of N5,643 billion (December 31, 2019: N5,175 billion) represents the total assets under custody held by (iii) the Bank’s subsidiary, Zenith Pensions Custodian Limited under the latter’s custodial business. Included in the amount above is N105.7 billion which represents the amount of the Group’s guarantee for the assets held by the subsidiary 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. 238 40. Dividend per share In millions of Naira Dividend proposed Number of shares in issue and ranking for dividend Proposed dividend per share (Naira) Interim dividend per share paid (Naira) Final dividend per share proposed Final dividend paid during the year Interim dividend paid during the year Total dividend paid during the year Group Bank 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 94,188 31,396 3.00 0.30 2.70 78,491 9,419 87,910 87,910 31,396 2.80 0.30 2.50 78,491 9,419 87,910 94,188 31,396 3.00 0.30 2.70 78,491 9,419 87,910 87,910 31,396 2.8 0.30 2.50 78,491 9,419 87,910 The Board of Directors, pursuant to the powers vested in it by the provisions of Section 426 of the Companies and Allied Matters Act of Nigeria, CAMA 2020, paid an interim dividend of N0.30 per share and propose a ﬁnal dividend of N2.70 per share (December 31, 2019: interim; N0.30, ﬁnal; N2.50) from the retained earnings account as at December 31, 2020. 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, 2020 and December 31, 2019 respectively. Dividends are paid to shareholders net of withholding tax at the rate of 10% in compliance with extant tax laws. 41. 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. Cash and cash balances with central bank (less mandatory reserve deposits) Treasury bills (maturing within 3 months) (see note 16) Due from other banks Group Bank 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 180,346 175,328 132,626 118,499 396,924 11,697 396,924 11,697 631,250 1,208,520 483,690 670,715 353,133 882,683 258,657 388,853 42. Compliance with banking regulations During the year, the Bank paid a penalty to CBN of N11.4 million relating to customer domiciliary account operations. Financials 239 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 In millions of Naira 43. Statement of cash ﬂow workings (i) Debt securities (see note 21) Group Bank 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 December 31, 2020 At 1 January 2019 Gains from changes in fair value recognised in proﬁt or loss (see note 21) Gains from changes in fair value recognised in OCI Impairment Charge Interest income Interest received Interest accrued Foreign exchange diﬀerence Balance as at 31 December 2020 Movement for cash ﬂow statement Recognised in cash ﬂow statement December 31, 2019 At 1 January 2019 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 (including pledged instruments) at fair value through profit or loss Debt securities (including pledged instruments) at amortised cost and FVTOCI Debt securities (including pledged instruments) at fair value through profit or loss Debt securities (including pledged instruments) at amortised cost and FVTOCI 27,922 9,486 - - - - - - 49,277 11,869 - 796,306 - 17,921 (503) 89,806 (42,990) - 28,489 1,121,353 232,324 (244,193) 27,922 9,486 - - - - - - 44,935 7,527 - 394,567 - 16,295 (503) 50,076 (42,990) - 468 461,907 43,994 (51,521) Debt securities at fair value through profit or loss Debt securities at fair value through profit or loss Debt securities at fair value through profit or loss Debt securities at fair value through profit or loss 4,970 10,905 11,592 (15,210) - (12,257) (3,618) - 513,154 - 132,685 (138,370) 7,790 516,772 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) 240 In millions of Naira 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 Group Bank (ii) Treasury bills (Amortised cost) (see note 16) December 31, 2020 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 Treasury bills (including pledged instruments) at amortised cost as at 1 January Change in ECL allowance Interest income Interest received Balance as at 31 December 2020 370,326 (972) 53,797 (52,115) 535,673 Recognised in cashflow statement (164,637) 692,429 201,379 332,497 35 81,108 (208,894) 370,326 194,352 (659) 31,147 (29,465) 351,511 (149,109) 55 52,127 - 201,379 183,300 (iii) Treasury bills (FVTPL) (see note 16) December 31, 2020 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 Treasury bills fair value through proﬁt or loss as at 1 January 708,111 510,313 708,114 510,313 Treasury bills pledged FVTPL Unrealised fair value gain Balance as at 31 December 2020 Recognised in cashflow 99,856 43,337 770,094 81,210 - - 708,111 (197,798) 99,856 41,491 769,800 79,661 - - 708,114 (197,801) (iv) Loans and advances (see note 20) December 31, 2020 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 Loans and advances at 1 January 2,305,565 1,823,111 2,239,472 1,736,066 Changes in ECL allowance Interest income Interest received Foreign exchange diﬀerence Balance as at 31 December 2020 (37,439) 250,812 (221,011) 95,449 2,779,027 (385,651) (27,754) 232,946 (215,455) - 2,305,565 (492,717) (35,495) 236,064 (206,263) 53,200 2,639,797 (352,819) (27,148) 220,210 (203,038) - 2,239,472 (513,382) Financials 241 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 Group Bank 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 4,262,289 3,690,295 3,486,887 2,821,066 81,060 (63,028) 99,452 5,339,911 960,138 80,583 (72,724) - 4,262,289 564,135 59,691 (42,550) 32,446 4,298,258 761,784 66,822 (65,556) - 3,486,887 664,555 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 363,764 231,716 386,061 223,463 (706) - 2,582 3,260 (2,838) (742) 703,292 337,972 2,473 2,307 - - (5,510) (2,196) 363,764 134,974 (706) - 1,632 2,805 (2,528) (684) 599,464 212,884 2,473 2,307 - - (5,510) (2,196) 386,061 165,524 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 7,561 (6,795) 766 (1,113) 347 5,163 (2,334) 2,829 (2,976) 147 2,436 (2,191) 245 (593) 348 1,960 (1,582) 378 (530) 152 In millions of Naira (v) Customer deposits December 31, 2020 As at 1 January Interest expense Interest paid Foreign exchange diﬀerences Balance as at year end (vi) Other liabilities (see note 29) December 31, 2020 As at 1 January Changes in ECL allowance Additional VAT payable Lease liability additions Interest expense on lease liability Interest paid Principal repayment on lease liability Balance as at 31 December 2020 Net cash movement December 31, 2020 Cost (see note 25) Accummulated depreciation (see note 25) Net book value Sales proceed Profit on Disposal (see note 10) 242 In millions of Naira Group Bank (vii) Due from Banks (greater than 90 days) December 31, 2020 As at 1 January Changes in ECL allowance Interest Income Interest received Foreign exchange diﬀerence Balance as at 31 December 2020 Recognised in cash flow statement (viii) Other assets December 31, 2020 As at 1 January Changes in ECL allowance Withholding tax receivable utilised Foreign exchange diﬀerence Balance as at 31 December 2020 Recognised in cash flow statement (ix) Derivative Asset December 31, 2020 At 1 January Balance as at 31 December 2020 Recognised in cashflow (as unrealised fair value gain/loss) 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 223,413 83 26,398 (24,526) 21,794 179,244 67,918 - - - - - 223,413 (223,413) 223,413 83 25,205 (24,526) 21,794 179,244 66,725 - - - - - 223,413 (223,413) 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 77,395 (1,409) (497) 5,873 169,967 (88,605) 80,948 341 - (31) 77,395 3,863 71,412 (1,369) (497) - 159,625 (90,079) 75,910 354 - - 71,412 (4,853) 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 92,722 44,496 48,226 88,826 92,722 (3,896) 92,722 41,729 50,993 88,826 92,722 (3,896) Financials 243 Zenith Bank Plc Annual Report December 31, 2020 Notes to the Consolidated and Separate Financial Statements for the Year Ended December 31, 2020 In millions of Naira Group Bank (x) Restricted balances (Cash Reserve) December 31, 2020 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 Mandatory reserve deposit with central bank Special Cash Reserve Recognised in cashflow 1,330,733 80,689 1,411,422 (650,472) 680,261 80,689 760,950 - 1,289,930 80,689 1,370,619 (609,669) 680,261 80,689 760,950 - December 31, 2019 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 Mandatory reserve deposit with central bank Special Cash Reserve Recognised in cashflow (xi) Derivative liabilities 680,261 80,689 760,950 (55,479) 624,782 80,689 705,471 - 680,261 80,689 760,950 (55,479) 624,782 80,689 705,471 - December 31, 2020 31-Dec-20 31-Dec-19 31-Dec-20 31-Dec-19 As at 1 January Balance as at 31 December 2020 14,762 11,076 16,995 14,762 14,762 11,076 16,995 14,762 Recognised in cashflow as fair unrealised fair value gain/loss (3,686) (2,233) (3,686) (2,233) 244 Other National Disclosures 04Zenith Bank Plc Annual Report December 31, 2020 Value Added Statement In millions of Naira Group Gross income Interest expense - Local - Foreign Impairment loss on ﬁnancial and non-ﬁnancial instruments Bought-in materials and services - Local - Foreign Value added Distribution Employees Salaries and beneﬁts Government Income tax Retained in the Group Replacement of property and equipment/ intangible assets To pay proposed dividend Proﬁt for the year (including statutory reserves, small scale industry, and non- controling interest) 31-Dec-20 31-Dec-20 % 31-Dec-19 31-Dec-19 % 696,450 (98,512) (22,619) 575,319 (39,534) 535,785 (131, 934) (40,070) 363,781 662,251 (123,651) (24,881) 513,719 (24,032) 489,687 (76,072) (67,949) 100 345,666 100 79,258 22 77,858 23 25,296 7 34,451 10 28,662 84,769 145,796 8 23 35 24,514 9,420 199,423 7 3 58 Total Value Added 363,781 100 345,666 100 Value added represents the additional wealth which the Group has been able to create by its own and employees eﬀorts. 248 In millions of Naira Bank Gross income Interest expense - Local - Foreign Impairment loss on ﬁnancial and non-ﬁnancial instruments Bought-in materials and services - Local - Foreign Value added Distribution Employees Salaries and beneﬁts Government Income tax Retained in the Bank 31-Dec-20 31-Dec-20 % 31-Dec-19 31-Dec-19 % 595,921 (62,041) (40,070) 493,810 (37,237) 456,573 (156,502) (3,087) 564,687 (58,288) (67,949) 438,450 (23,393) 415,057 (128,230) (3,087) 296,984 100 283,740 100 61,515 21 62,038 22 22,017 4 22,017 8 Replacement of property and equipment/ intangible assets To pay proposed dividend Proﬁt for the year (including statutory reserves, and small scale industry) 25,462 84,769 113,083 9 33 38 21,682 9,420 168,583 5 69 (15) Total Value Added 296,984 100 283,740 100 Value added represents the additional wealth which the Bank has been able to create by its own and employees eﬀorts. Other National Disclosures 249 Zenith Bank Plc Annual Report December 31, 2020 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 43 250 31-Dec-20 31-Dec-19 31-Dec-18 31-Dec-17 31-Dec-16 1,591,768 1,577,875 298,530 810,494 44,496 936,278 991,393 954,416 1,000,560 957,663 936,817 669,058 557,359 431,728 592,935 468,010 328,343 707,103 92,722 674,274 88,826 495,803 57,219 459,457 82,860 2,779,027 2,305,565 1,823,111 2,100,362 2,289,365 996,916 591,097 565,312 330,951 199,478 - 5,786 169,967 190,170 16,243 - 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 8,481,272 6,346,879 5,955,710 5,595,253 4,739,825 5,339,911 4,262,289 3,690,295 3,437,915 2,983,621 11,076 11,690 - 703,292 384,573 870,080 43,177 7,363,799 1,117,473 15,698 255,047 521,293 324,461 1,116,499 974 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 20,805 8,915 18 243,023 383,034 66,834 8,953 45 214,080 350,657 437,260 361,177 5,139,959 815,751 356,496 332,931 4,783,137 812,116 263,106 153,464 4,040,760 699,065 15,698 255,047 322,237 221,231 814,213 1,538 15,698 15,698 255,047 356,837 183,217 810,799 1,317 255,047 261,608 165,729 698,082 983 1,117,473 941,886 815,751 812,116 699,065 In millions of Naira 31-Dec-20 31-Dec-19 31-Dec-18 31-Dec-17 31-Dec-16 Statement Of Profit Or Loss And Other Comprehensive Income Gross earnings Share of proﬁt / (loss) of associates Interest expense Operating and direct expenses Impairment charge for ﬁnancial and non-ﬁnancial assets Profit before taxation Income tax Profit after tax 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 696,450 - (121,131) 662,251 - (148,532) 630,344 - (144,458) 745,189 507,997 - (216,637) - (144,378) (279,924) (246,393) (235,829) (231,006) (179,921) (39,534) 255,861 (25,296) 230,565 16,295 - 1,981 (355) 17,921 248,486 (24,032) 243,294 (34,451) 208,843 13,870 - 518 (66) 14,322 223,165 (18,372) 231,685 (38,261) 193,424 (98,227) (32,350) 199,319 151,348 (25,528) (27,096) 173,791 124,252 1,459 (2,551) 6,636 - - - 6,287 199,711 - - - - - 2,682 176,473 - 36,974 161,226 214,667 199,711 734 K 665 K 615 K 553 K 395 K Other National Disclosures 251 Zenith Bank Plc Annual Report December 31, 2020 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 Total shareholders' equity 252 31-Dec-20 31-Dec-19 31-Dec-18 31-Dec-17 31-Dec-16 1,503,245 1,393,421 298,530 532,377 41,729 879,449 822,449 431,728 482,070 92,722 902,073 817,043 907,265 799,992 627,385 463,787 592,935 468,010 325,575 393,466 88,826 273,331 57,219 354,405 82,860 2,639,797 2,239,472 1,736,066 1,980,464 2,138,132 333,126 34,625 - 4,733 159,625 - 169,080 14,699 189,358 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 7,124,987 5,435,073 4,955,445 4,833,658 4,283,736 4,298,258 3,486,887 2,821,066 2,744,525 2,552,963 11,076 9,117 - 599,464 384,573 874,090 43,177 14,762 6,627 - 386,061 392,871 329,778 39,092 16,995 5,954 - 223,463 393,295 458,463 361,177 20,805 6,069 - 229,332 383,034 418,979 332,931 66,834 6,927 - 249,136 350,657 292,802 153,464 6,219,755 905,232 4,656,078 778,995 4,280,413 675,032 4,135,675 697,983 3,672,783 610,953 15,698 15,698 15,698 15,698 15,698 255,047 382,292 252,195 905,232 255,047 302,028 206,222 778,995 255,047 238,635 165,652 675,032 255,047 287,867 139,371 697,983 255,047 213,107 127,101 610,953 905,232 778,995 675,032 697,983 610,953 In millions of Naira 31-Dec-20 31-Dec-19 31-Dec-18 31-Dec-17 31-Dec-16 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 595,921 (102,111) (246,566) (37,237) 210,007 (12,155) 197,852 16,295 - 16,295 564,687 (126,237) (215,037) (23,393) 200,020 (19,688) 180,332 - 13,870 - 13,870 538,004 (124,156) (206,428) (15,313) 192,107 (26,627) 673,636 (200,672) (208,299) (95,244) 169,421 (16,418) 165,480 155,003 - 1,459 - 1,459 - (2,551) - (2,551) 454,808 (131,910) (162,076) (26,295) 134,527 (20,642) 113,885 - 6,636) - 6,636 Total comprehensive income 214,147 194,202 166,939 150,452 120,521 Earning per share: Basic and diluted 630 K 574 K 527 K 487 K 362 K Other National Disclosures 253 Zenith Bank Plc Annual Report December 31, 2020 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 3 0 - J u n - 9 5 3 0 - J u n - 9 6 3 0 - J u n - 9 7 3 0 - J u n - 9 8 3 0 - J u n - 9 9 3 0 - J u n - 0 0 3 0 - J u n - 0 1 3 0 - J u n - 0 2 3 0 - J u n - 0 3 3 0 - J u n - 0 4 3 0 - J u n - 0 5 3 0 - J u n - 0 6 3 0 - J u n - 0 7 2 4 , 8 3 9 , 0 0 0 . 0 0 5 4 , 4 0 7 , 0 0 0 . 0 0 5 7 , 8 9 7 , 3 5 2 . 0 0 9 0 , 0 6 2 , 0 0 0 . 0 0 24,839,000.00 54,407,000.00 57,897,352.00 90,062,000.00 1 7 8 , 7 4 4 , 0 0 0 . 0 0 178,744,000.00 2 4 2 , 8 3 0 , 0 0 0 . 0 0 242,830,000.00 2 4 4 , 0 5 4 , 0 0 0 . 0 0 244,054,000.00 5 1 2 , 5 1 3 , 0 0 0 . 0 0 512,513,000.00 5 1 2 , 5 1 3 , 0 0 0 . 0 0 512,513,000.00 5 1 3 , 3 2 9 , 0 0 0 . 0 0 513,329,000.00 1 , 0 2 6 , 6 5 8 , 0 0 0 . 0 0 1,026,658,000.00 1 , 0 2 6 , 6 5 8 , 0 0 0 . 0 0 1,026,658,000.00 1 , 5 4 8 , 5 5 5 , 0 0 0 . 0 0 1,548,555,000.00 1 , 5 4 8 , 5 5 5 , 0 0 0 . 0 0 3,097,110,000.00 3 , 0 0 0 , 0 0 0 , 0 0 0 . 0 0 6,000,000,000.00 4 , 5 8 6 , 7 4 4 , 4 5 0 . 0 0 9,173,488,900.00 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 3 1 - D e c - 2 0 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 0 . 5 254 (cid:55)(cid:43) (cid:61)(cid:40)(cid:49)(cid:44)(cid:55)(cid:43)(cid:3)(cid:37)(cid:36)(cid:49)(cid:46)(cid:3)(cid:51)(cid:47)(cid:38) (cid:51)(cid:53)(cid:50)(cid:59)(cid:60)(cid:3)(cid:41)(cid:50)(cid:53)(cid:48)(cid:3)(cid:41)(cid:50)(cid:53)(cid:3)(cid:55)(cid:43)(cid:40)(cid:3)(cid:22)(cid:19) 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