More annual reports from Zenith Bank Plc:
2023 ReportZENITH BANK PLC RC: 150224 HEAD OFFICE Heights, � Zenith @;I) P. 0. Box 75315, \. Tel: (01) 2787000, ZEIBNGLA (@ www.zenithbank.com Plot 84/87 Ajose Adeogun Island, Lagos. Victoria 4647000 2927000, I SWIFT: Street, z ZENITH Zenith Bani< Plc Annual Report -31 December 2023 THE BOARD: Chairman: Jim Ovia, CFR. I Group Managing Mr. Gabriel Non-Executives: Ukpeh I Engr. Mustafa Peter Olatunde Bamkole Executive Director/CEO: Directors: Dr. Ebenezer Henry Oroh I Adobi Nwapa I Akindele Bello I Dr. AI-Mujtaba Abubakar I Deputy Managing MFR. I Omobola Onyeagwu Ogunranti {Ph.D) I Mr. Chuks Emma Okoh I Dr. Juliet Ehimuan lbidapo-Obe Ogunfowora {Ph.D) Director: Dame (Dr.) OON. Adaora Umeoji, ZENITH BANK PLC DIRECTORS, OFFICERS AND PROFESSIONAL ADVISERS DIRECTORS Jim Ovia, CFR Mr. Chuks Emma Okoh Engr. Mustafa Bello Dr. Juliet Ehimuan** Mr. Gabriel Ukpeh Chairman Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director/Independent Dr. Omobola Ibidapo-Obe Ogunfowora Non-Executive Director/Independent Dr. Peter Olatunde Bamkole Non-Executive Director/Independent Dr. Al-Mujtaba Abubakar, MFR Non-Executive Director/Independent Dr. Ebenezer Onyeagwu Dr. Adaora Umeoji, OON* Dr. Temitope Fasoranti*** Mr. Henry Oroh Mrs Adobi Nwapa Mr. Akindele Ogunranti Group Managing Director/CEO Deputy Managing Director Executive Director Executive Director Executive Director Executive Director *Dr. Adaora Umeoji, OON exited from the Board effective 24 February, 2023. She was also re-appointed to the Board on 2 August 2023 following approval by the CBN. **Dr. Juliet Ehimuan was appointed to the Board effective 29 August, 2023. ***Dr. Temitope Fasoranti retired from the Board effective 29 December, 2023. COMPANY SECRETARY REGISTERED OFFICE AUDITOR Michael Osilama Otu Esq. Zenith Bank Plc Zenith Heights Plot 84/87, Ajose Adeogun Street Victoria Island, Lagos. PricewaterhouseCoopers (PwC) Chartered Accountants Landmark Towers, 5B Water Corporation Road Victoria Island Lagos. REGISTRAR AND TRANSFER OFFICE Veritas Registrars Limited (formerly Zenith Registrars Limited) Plot 89 A, Ajose Adeogun Street Victoria Island Lagos. 1 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Index Note Directors' Report Statement of Corporate Responsibility in Relation to the Financial Statements Corporate Governance Report Page Note 3 8 9 7 Interest and similar expense 8 Impairment charge on financial and non-financial instruments 9 Net income on fee and commission Statement of Directors' Responsibilities in Relation to the Financial Statements 23 10 Trading gains Report of the Audit Committee Management's Annual Assessment of, and Report on, Zenith Bank Plc's Internal Control over Financial Reporting Chief Finance Officer's Certification of management’s assessment on internal control over financial reporting Chief Executive Officer's Certification of management’s assessment on internal control over financial reporting Independent Practitioner’s Report Independent Auditor's Report Consolidated and Separate Statements of Profit or Loss and Other Comprehensive Income Consolidated and Separate Statements of Financial Position Consolidated and Separate Statements of Changes in Equity Consolidated and Separate Statements of Cash Flows Notes to the Consolidated and Separate Financial Statements 1 General information 2.0a Changes in accounting policies 2.0b Material accounting policies 2.1 Basis of preparation 2.2 Basis of Consolidation 2.3 Translation of foreign currencies 2.4 Cash and cash equivalents 2.5 Financial instruments 2.6 Derivative instruments 2.7 Impairment 2 Reclassification of financial instruments 2.9 Restructuring of financial instruments 2.10 Collateral 2.11 Property and equipment 2.12 Intangible assets 2.13 Impairment of non-financial assets 2.14 Leases 2.15 Provisions 2.16 Employee benefits 2.17 Share capital and reserves 2.18 Recognition of interest income and expense 2.19 Fees, commission and other income 2.20 Net trading gains 2.21 Operating expenses 2.22 Current and deferred income tax 2.23 Earnings per share 2.24 Segment reporting 2.26 Fiduciary activities 2.26 Deposit for investment in AGSMEIS 2.27 Hyperinflationary accounting 3 Risk management 4 Critical accounting estimate and judgements 5 Segment Analysis 6 Interest and similar income 11 Other operating income 12 Operating expenses 13 Taxation 14 Earnings per share (EPS) 15 Cash and balances with central banks 16 Treasury bills 17 Assets pledged as collateral 18 Due From Other Banks 19 Derivative assets 20 Loans and advances 21 Investment Securities 22a Investment in subsidiaries 22b Condensed results of consolidated entities 23 Investments in associates 24 Deferred tax balances 25 Other assets 26 Property and equipment 27 Intangible assets 28 Customers' deposits 29 Other liabilities 30 On lending facilities 31 Borrowings 32 Debt Securities issued 33 Derivative liabilities 34 Share capital 35 Share premium, retained earnings and other reserves 36 Pension contribution 37 Personnel expenses 38 Group subsidiaries and related party transactions 39 Contingent liabilities and commitments 40 Dividend payable 41 Cash and cash equivalents 42 Compliance with Banking Regulations 43 Prudential Adjustments 44 Statement of cash flow workings 45 Comparatives Other National Disclosures Value Added Statement Five Year Financial Summary 24 25 26 28 30 32 39 40 41 43 45 45 45 47 47 47 48 49 49 53 54 56 56 56 57 57 58 58 59 59 60 61 62 62 62 62 63 64 64 64 64 65 155 157 162 Page 162 162 163 163 164 165 166 167 168 168 168 169 169 170 172 173 174 178 179 180 182 189 190 190 191 194 196 196 196 197 198 199 199 202 203 203 203 204 205 210 211 212 214 2 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Directors' Report for the Year Ended 31 December 2023 The directors present their report on the affairs of ZENITH BANK PLC ("the Bank"), together with the financial statements and the independendt auditor's report for the year ended 31 December 2023. 1. Legal form The Bank was incorporated in Nigeria under the Companies and Allied Matters Act as a private limited liability company on 30 May,1990. It was granted a banking licence in June 1990, to carry on the business of commercial banking and commenced business on June 16, 1990. The Bank was converted into a Public Limited Liability Company on 20 May 2004. The Bank’s shares were listed on the floor of the Nigerian Stock Exchange on 21 October 2004. In August 2015, the Bank was admitted into the premium Board of the Nigerian Stock Exchange. 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. 2. Principal activities and business review The principal activity of the Bank is the provision of banking and other financial services to corporate and individual customers. Such services include obtaining deposits from the public, granting of loans and advances, corporate finance and money market activities. The Bank has six subsidiary companies namely; Zenith Bank (Ghana) Limited, Zenith Pensions Custodian Limited, Zenith Bank (UK) Limited, Zenith Bank (Sierra Leone) Limited, Zenith Bank (The Gambia) Limited and Zenith Nominees Limited. During the year, the Bank did not open any new branch and no branch was closed. As at 31 December 2023 the Group had 447 branches, 166 cash centers; 2,102 ATM terminals; 414,192 POS terminals and 25,653,330 cards issued to its customers. (31 December 2022: 446 branches, 166 cash centers, 2,108 ATM terminals, 233,024 POS terminals and 21,832,175 cards issued). 3. Operating results Gross earnings of the Group increased by 125.4% and profit before tax increased by 179.6% . 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 credit risk reserve Transfer from retained earnings and other reserves Basic and diluted earnings per share (Naira) 4. Dividends 31 December 2023 N' Million 31 December 2022 N' Million 2,131,750 945,554 795,962 (119,053) 676,909 340 676,569 97,693 (1,322) 580,198 676,569 21.55 284,650 (60,739) 223,911 (139) 224,050 35,419 73,458 115,173 224,050 7.14 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 N3.50 per share which in addition to the N0.50 per share as interim dividend amounts to N4.00 per share (2022: Interim dividend of N0.30 per share, final dividend of N2.90 and a total dividend per share of N3.20) from the retained earnings accounts as at 31 December 2023. This will be presented for ratification by the shareholders at the next Annual General Meeting. Payment of dividends is subject to witholding tax 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: 3 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Directors' Report for the Year Ended 31 December 2023 Interests in shares Director Jim Ovia, CFR. Mr. Chuks Emma Okoh Mr.Gabriel Ukpeh Dr Juliet Ehimuan** Engr. Mustafa Bello Dr. Al-Mujtaba Abubakar,MFR Dr. Omobola Ibidapo-Obe Ogunfowora Dr. Peter Olatunde Bamkole Dr. Ebenezer Onyeagwu Dr. Adaora Umeoji,OON.* Dr. Temitope Fasoranti*** Mr. Henry Oroh Mrs Adobi Nwapa Mr. Akindele Ogunranti Designation Chairman / Non-Executive Director Non-Executive Director 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 Deputy Managing Director Executive Director Executive Director Executive Director Executive Director Number of Shareholding 31 December 2023 31 December 2022 Direct 3,552,949,395 203,412 32,660 128,906 - - - - 90,176,078 90,000,000 15,075,000 14,813,703 15,008,206 6,885,601 Indirect 1,529,851,344 - - - - - - - - 1,710,123 - - - - Direct 3,546,199,395 102,697 32,660 128,906 - - - - 82,176,078 68,873,169 13,075,000 9,964,127 11,008,206 2,764,005 Indirect 1,528,304,916 - - - - - - - - 1,710,123 - - - - *Dr. Adaora Umeoji, OON exited from the Board effective 24 February, 2023. She was re-appointed to the Board on 2 August, 2023 following approval by the CBN. ** Dr. Juliet Ehimuan was appointed to the Board on 29 August, 2023. *** Dr. Temitope Fasoranti retired from the Board on 29 December, 2023. The indirect holdings relate to the holdings of the director in the underlisted companies: Jim Ovia: (Institutional investors Ltd, Lurot Burca Ltd, Jovis Nigeria Ltd, Veritas Registars Ltd, and Quantum Zenith Securities Ltd). Adaora Umeoji: (Palais Vendome Limited). 6. Directors' Remuneration Type of package Fixed Description Basic Salary - Part of gross salary package for Executive Directors only. Reflects the banking industry's competitive salary package and the extent to which the Bank’s objectives have been met for the financial year. - Part of gross salary package for Executive Directors only. Reflects the banking industry's competitive salary package and the extent to which the Bank’s objectives have been met for 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 on the day of the Annual General Meeting (‘AGM’) to Non-Executive Directors only. - Allowances paid to Non-Executive Directors only, for attending Board and Board Committee Meetings. Other allowances Productivity bonus Director fees Sitting allowances Timing Paid monthly during the financial year. Paid at periodic intervals during the financial year. Paid annually in arears. Paid annually on the day of the AGM. Paid after each Meeting. 7. Changes on the Board Dr. Adaora Umeoji, OON exited from the board effective 24 February 2023 in compliance with CBN regulations on Directors' tenor. She was also re-appionted to the Board effective 2 August, 2023 following subsequent approval by the CBN. Dr. Juliet Ehimuan was appointed to the Board effective 29 August, 2023. Dr. Temitope Fasoranti retired from the Board effective 29 December, 2023. 4 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Directors' Report for the Year Ended 31 December 2023 8. Directors' interests in contracts 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. 9. Acquisition of own shares The shares of the Bank are held in accordance with the Articles of Association of the Bank. The Bank has no beneficial interest in any of its shares. 10. Property and equipment Information relating to changes in property and equipment is given in Note 26 to the financial statments. 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 2023 is as stated below: 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 No. of Shareholders Percentage of Shareholders 542,071 79,281 22,650 1,265 151 151 65 3 645,637 83.9600 12.2800 3.5100 0.2000 0.0200 0.0200 0.0100 0.0000 % % % % % % % % %100 The shareholding pattern of the Bank as at 31 December 2022 is as stated below 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 12. Substantial interest in shares No. of Shareholders Percentage of Shareholders 540,735 79,892 23,183 1,341 174 170 65 2 645,562 83.7619 12.3756 3.5911 0.2077 0.0270 0.0263 0.0101 0.0003 % % % % % % % % %100 Number of holdings 1,591,364,537 1,637,601,326 3,854,576,850 2,612,484,842 1,087,361,826 3,085,943,442 11,633,370,085 5,893,790,879 31,396,493,787 Number of holdings 1,594,624,498 1,652,248,795 3,968,693,955 2,745,286,982 1,227,788,415 3,688,327,472 11,691,005,260 4,828,518,410 31,396,493,787 Percentage Holdings (%) 5.07 5.22 12.28 8.32 3.46 9.83 37.05 18.77 % % % % % % % % %100 Percentage Holdings (%) 5.08 5.26 12.64 8.74 3.91 11.75 37.24 15.38 % % % % % % % % %100 According to the register of members as at 31 December 2023, the following shareholders held more than 5% of the share capital of the Bank. Jim Ovia, CFR Number of Shares Held 3,552,949,395 Number of Shares Held % 11.32 According to the register of members as at 31 December 2022, the following shareholders held more that 5% of the issued share capital of the Bank. Jim Ovia, CFR Number of Shares Held 3,546,199,395 Number of Shares Held % 11.29 5 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Directors' Report for the Year Ended 31 December 2023 13. Donation and charitable gifts The Bank made contributions to charitable and non-political organisations amounting to N5,673 million during the year ended 31 December 2023 (31 December 2022: N1,671 million). The beneficiaries are as follows: Educational institutions Charitable organisations State government infrastructure/security trust funds Religious organisations Conference and seminars Health/medical initiatives Sport organisations 2023 Microsoft office secured productive enterprise Professional associations Other donations individually below N5million 14. Events after the reporting period 31 December 2023 N' Million 1,403 1,195 1,227 456 412 106 75 23 27 749 5,673 There were no signifcant events after the reporting date that could affect the reported amount of assets and liabilities as of the reporting date. 15. Disclosure of customer complaints in financial statements for the year ended 31 December 2023 Description In millions of Naira Number 31 December 2023 31 December 2022 Amount claimed 31 December 2023 N.'m 31 December 2022 N.'m Amount refunded 31 December 2023 31 December 2022 N.'m N.'m Pending complaints brought forward Received Complaints Resolved Complaints Unresolved Complaints 16. Human resources (i) Employment of disabled persons 169,797 355,210 423,360 166,314 475,499 472,016 31,839 16,915 32,508 57,515 17,577 43,253 13 3,694 15,486 13 1,982 22,373 101,647 169,797 16,246 31,839 - - 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. (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 has retained Hospitals used by 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. 6 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Statement of Corporate Responsibility in Relation to the Financial Statements for the Year Ended 31 December 2023 In line with the provision S. 405 of CAMA 2020 we have reviewed the audited financial statements of the Bank for the year ended 31 December 2023 and based on our knowledge confirm as follows: (i) The audited financial statements do not contain any untrue statement of material fact or omit to state a material fact which could make the statements misleading. (ii)The audited financial statements and all other financial information included in the financial statmements fairly present, in all material respects the financial condition and results of operation of the Bank as of and for the year ended 31 December 2023. (iii) The Bank's internal controls has beeen 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 2023. (v) That we have disclosed to the Bank's Auditors and the Audit Committee the following information: (a) there are no material weaknesses in the design or operation of the Bank's internal controls which could adversely affect the Bank's ability to record process and summarise and report financial data, and have discussed with the auditors any weakness 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. 31 January 2024 Mukhtar Adam, PhD Chief Financial Officer FRC/2013/MULTI/00000003196 Dr. Ebenezer Onyeagwu Group Managing Director / CEO FRC/2013/ICAN/00000003788 8 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Corporate Governance Report for the Year Ended 31 December 2023 1. Introduction Zenith Bank conducts its business in line with the highest level of Corporate Governance and best practice. The Group’s governance practices which is replicated across its subsidiary companies are constantly reviewed to ensure that we keep pace with global standards as well as changes occasioned by the dynamics in the business environment. 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 together with the Guidelines issued in pursuant to the code. 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 relevant disclosure requirements in other jurisdictions where it operates. 3. Shareholders 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 for 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 disciplines 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 Company and relevant stakeholders during the year under review. The Board has a Charter which regulates its operations. The Charter, recently reviewed, has been approved by 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, seven (7) Non-Executive Directors and five (5) Executive Directors including the GMD/CEO. Four(4) of the Non-Executive Directors are Independent Directors, appointed in compliance with the Central Bank of Nigeria (CBN) circular on Appointment of Independent Directors by Banks. The Group Managing Director/Chief Executive is responsible for the day to day running of the Bank and oversees the Group structure, assisted by the Executive Committee (EXCO). EXCO comprises the Executive Directors, Deputy Managing Director as well as the Group Managing Director/Chief Executive as its Chairman. 6. Responsibilities of the Board The Board is responsible for the following amongst others: a) b) c) reviewing and approving the Bank’s strategic plans for implementation by management; reviewing and approving the Bank’s financial statements; reviewing and approving the Bank’s financial objectives, business plans and budgets, including capital allocations and expenditures; d) monitoring corporate performance against the strategic plans and business, operating and capital budgets; e) f) implementing the Bank’s succession planning; approving acquisitions and divestitures of business operations, strategic investments and alliances and major business development initiatives; 9 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Corporate Governance Report for the Year Ended 31 December 2023 g) h) approving delegation of authority for any unbudgeted expenditure; setting the tone for and supervising the Corporate Governance Structure of the Bank, including corporate structure of the Bank and the Board and any changes to the 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: Board of Directors Name Jim Ovia, CFR. - (Chairman) Mr.Gabriel Ukpeh - (Ind.NED) Engr. Mustafa Bello - (NED) Date of Appointment April 2, 2014 February 24, 2016 December 29, 2017 Dr. Al-Mujtaba Abubakar, MFR - (Ind.NED) August 1, 2019 Dr. Omobola Ibidapo-Obe Ogunfowora - (Ind.NED) June 30, 2021 Mr Chuks Emma Okoh - (NED) Dr. Peter Olatunde Bamkole - (Ind. NED) Dr. Ebenezer Onyeagwu- GMD/CEO Dr. Adaora Umeoji,OON - (DMD)* Dr. Temitope Fasoranti - (ED)*** Mr. Henry Oroh - (ED) Mrs Adobi Nwapa - (ED) Mr. Akindele Ogunranti - (ED) Dr. Juliet Ehimuan** April 12, 2022 April 12, 2022 April 24, 2013 October 9, 2012 and 2 August 2023 December 29,2017 August 1, 2019 April 12, 2022 April 12, 2022 August 29, 2023 *Dr. Adaora Umeoji, OON exited from the Board effective 24 February, 2023. She was reappointed to the Board on 2 August, 2023 following CBN approval. **Dr. Juliet Ehimuan was appointed to the Board on 29 August, 2023 ***Dr. Temitope Fasoranti retired from the Board on 29 December 2023. The Board meets at least once every quarter but may hold extra-ordinary sessions to address urgent matters that require the attention of the Board. 7. Roles of Chairman and Chief Executive The roles of the Chairman and Chief Executive are separate and no one individual combines the two positions. The Chairman’s main responsibility is to lead and manage the Board to ensure that it operates effectively and fully discharges its legal and regulatory responsibilities. The Chairman is responsible for ensuring that Directors receive accurate, timely and clear information to enable the Board take informed decisions and provide advice to promote the success of the Bank. The Chairman also facilitates the contribution of Directors and promotes effective relationships and open communications between Executive and Non-Executive Directors, both inside and outside the Boardroom. The Board has delegated the responsibility for the day-to-day management of the Bank to the 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. The 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 to 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. 10 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Corporate Governance Report for the Year Ended 31 December 2023 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 facilitated 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. The following are the current standing Committees of the Board: 10.1. Board credit committee The Committee is currently made up of six (6) members comprising three (3) 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: - Chairman Mr. Gabriel Ukpeh Dr. Al- Mujtaba Abubakar Mr.Chuks Emma Okoh Dr. Ebenezer Onyeagwu Dr. Adaora Umeoji Dr. Temitope Fasoranti* *Dr. Temitope Fasoranti retired from the Board effective 29 December, 2023. 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; 11 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Corporate Governance Report for the Year Ended 31 December 2023 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 Seven (7) members: three (3) Non-Executive Directors and four (4) Executive Directors. It is chaired by a non-executive Director. The Committee considers large scale procurement by the Bank, as well as matters relating to staff welfare, discipline, staff remuneration and promotion. The membership of the Committee during the year is as follows: – Chairman Mr. Chuks Emma Okoh Mr. Gabriel Ukpeh Dr. Peter Olatunde Bamkole Dr. Ebenezer Onyeagwu Dr. Adaora Umeoji Mr. Henry Oroh Mrs. Adobi Stella Nwapa 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; Oversight responsibility with respect to the Bank and its subsidiary companies relating to material and strategic financial matters, including those related to investment policies and strategies, merger and acquisition transactions, financings, and structure including debts and equity securities, and credit agreements; Consider the Group’s financial risk management and major insurance program. Overall tax planning activities and related developments; Consider the ratings from Credit rating agencies. Consideration of the dividend policy of the Bank 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 , the chief information security 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: 12 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Corporate Governance Report for the Year Ended 31 December 2023 – Chairman Engr. Mustapha Bello Dr. Peter Olatunde Bamkole Dr.Omobola Ibidapo-Obe Ogunfowora Dr. Juliet Ehimuan Dr. Ebenezer Onyeagwu Mr. Akindele Ogunranti Mr. Henry Oroh 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 progress and periodically review and report to the Board of Directors: (a) the magnitude of all material business risks; (b) the processes, procedures and controls in place to manage material risks; and (c) the overall effectiveness of the risk management process; Ensure the implementation of the approved cyber security policies, standards and delineation of cybersecurity responsibilities. Ensure that cybersecurity processes are conducted in line with the business requirements, applicable laws and regulation. 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; Provide oversight for the Bank's IT governance and Cybersecurity programme, including value delivery, strategic alignment, framework for performance management, resource management and policies; Review, approve and provide oversight for the bank's sustainability policy and banking principles and practices to ensure compliance with globally accepted standards. 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 comprises Non-Executive Directors only and is chaired by - Dr. Al-Mujtaba Abubakar, 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. The Committee’s membership comprises the following: Dr. Al-Mujtaba Abubakar, MFR – Chairman Mr. Gabriel Ukpeh Engr. Mustafa Bello Dr. Omobola Ibidapo-Obe Ogunfowora Dr. Juliet Ehimuan 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; 13 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Corporate Governance Report for the Year Ended 31 December 2023 Review the scope and planning of audit requirements including the review of the external audit plan; Review the findings on management matters (Management Letter) in conjunction with the external auditors and Management’s responses thereon; Review the effectiveness of the Bank’s system of accounting and internal control; Make recommendations to the Board regarding the appointment, removal and remuneration of the external auditors of the Bank Authorize the internal audit function to carry out investigations into any activities of the Bank which may be of interest or concern to the Committee; Assist in the oversight of compliance with legal and other regulatory requirements, assessment of qualifications and independence of the external auditors and performance of the Bank’s internal audit function as well as that of the external auditors; Ensure that the internal audit function is firmly established and that there are other reliable means of obtaining sufficient assurance of regular review or appraisal of the system of internal control in the Bank; Oversee management’s processes for the identification of significant fraud risks across the Bank and ensure that adequate prevention, detection and reporting mechanisms are in place On a quarterly basis, obtain and review reports by the internal auditor on the strength and quality of internal controls, including any issues or recommendations for improvement, raised during the most recent control review of the Bank; Discuss and review the Bank’s unaudited quarterly 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 recommend the appointment of internal auditor of the Bank to the Board and review his/her performance 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 with the Internal auditor and ensure that the internal audit function is adequately resourced and has appropriate standing within the Bank Undertake quarterly review of Internal Audit progress against Plan for the year as well as outstanding agreed actions including following up Develop a comprehensive internal control framework for the Bank and obtain assurances on the operating effectiveness of the Bank’s internal control framework; 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; Liaise 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; Review the report of the Chief Compliance Officer as it relates to Anti-Money Laundering policies of the Bank and other law enforcement issues. The Chief Inspector and the Chief Compliance Officer makes quarterly presentation to the Committee, in addition to reporting to the Group Managing Director. The Chief Inspector and the Chief Compliance Officer also have unrestricted access to the Chairman of the Committee;. Review and discuss external suspicious activity/transaction reports (SARs) submitted by the Chief Compliance officer with a view to making recommendations to the Board. Review and discuss recommendations from the Compliance Group on ways to enhance the company's compliance with statutes, rules and directives of the relevant regulatory agencies, most especially the Nigerian Financial Intelligence Unit (NFIU). 14 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Corporate Governance Report for the Year Ended 31 December 2023 Ensure the generation and submission, in due time, of external suspicion activity/transaction reports (SARs) and submit same to the Nigerian Financial Intelligence Unit (NFIU) and other relevant Regulatory Authorities in accordance with the AML/CFT/CPF rules or any other relevant legislation in force at the time. Perform such other duties and responsibilities as the Board of Directors may assign from time to time. 10.5. Board Governance, Nomination and Remuneration Committee The Committee is made up of six (6) Non-Executive Directors and is chaired by an Independent Non-Executive Director. The membership of the Committee is as follows: – (Chairman) Dr.Omobola Ibidapo-Obe Ogunfowora Engr. Mustafa Bello Dr. Al-Mujtaba Abubakar, MFR Dr. Peter Olatunde Bamkole Mr. Chuks Emma Okoh Dr. Juliet Ehimuan Committee's terms of reference Determine a fair, reasonable and competitive compensation practices for Executive officers and other key employees of the Bank which are consistent with the Bank’s objectives; Determine the quantum and structure of compensation and benefits for Non-Executive Directors, Executive Directors and senior management of the Group; Ensure the existence of an appropriate remuneration policy and philosophy for Executive Directors, Non-Executive Directors and staff of the Group; Review and recommend for the Board's ratification, all terminal compensation arrangements for Directors and senior management; Recommend appropriate compensation for Non-Executive Directors for Consideration by the Board and at the Annual General Meeting; Review and approve 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 continuously assess the size and composition of the Board and Board Committees, and recommend the appropriate Board structure, size, age, skills, competencies, composition, knowledge, experience and background in line with needs of the Group and diversity required to fully discharge the Board’s duties; Recommendation of membership criteria for the Group Board, Board Committees and subsidiary companies Boards. Identification at the request of the Board of specific individuals for nomination to the Group and subsidiary companies Boards and to make recommendations on the appointment and election of New Directors (including the Group MD) to the Board, in line with the Group’s approved Director Selection criteria Review of the effectiveness of the process for the selection and removal of Directors and to make recommendations where appropriate; Ensuring that there is an approved training policy for Directors, and monitoring 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; Monitor compliance by Directors and staff of the Group's code of ethics and business conduct; Review the Group’s organization structure and to make recommendations to the Board for approval; Review and agree at the beginning of the year, of the key performance indicators for the Group MD and Executive Directors; Ensure that the Group has a succession policy and plan in place for the Chairman of the Board, the MD/CEO and all other EDs, NEDs, and Senior Management positions to ensure leadership continuity in the Group. Review and make recommendations on the recruitment, promotions and disciplinary actions for Executive Management level personnel. 15 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Corporate Governance Report for the Year Ended 31 December 2023 Ensure that board evaluation reports of subsidiaries are formally discussed and documented as a way of radiating sound governance practices across the Group. 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 etc;. 10.6. 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 two (2) 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 Committe is as follows: Shareholders' representative Mrs. Adebimpe Balogun Prof (Prince) L.F.O Obika Mr. Michael Olusoji Ajayi – (Chairman) Non-Executive Directors / Director's Representatives Dr. Al-Mujtaba Abubakar 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; 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: 16 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Corporate Governance Report for the Year Ended 31 December 2023 a) Management Committee (MANCO) b) Assets and Liabilities Committee (ALCO) c) Management Global Credit Committee(MGCC) d) Sustainability Steering Committee (SSC) e) Information Security Steering Committee 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. 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 at such other times, 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) Sustainability Steering Committee (SSC) This Committee is responsible for regular analysis and review of sustainable Banking policies and practices within the Bank to ensure compliance with globally acceptable economic, environmental and social norms. The Bank, recognizing that every institution is as strong as the strength of its relationship and that the ability to nurture existing relationships and develop new ones will invariably play a significant role in the financial stability of the organization. Therefore, the Bank believes that an organization must forge a closer relationship with its stakeholders, including customers, employees, local communities, suppliers, among others, to ensure triple bottom line profit. The Committee present quarterly reports to the Board Risk 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. e) Information Security Steering Committee The information security steering committee is responsible for the governance of the cybersecurity programme. The Committee is also responsible for providing oversight and ensure alignment between information security strategy and company objectives. Assessing the adequacy of resources and funding to sustain and advance successful security programs and practices for identifying, assessing, and mitigating cybersecurity risks across all business functions. The Committee review company policies pertaining to information security and cyberthreats, taking into account the potential for external threats, internal threats, and threats arising from transactions with trusted third parties and vendors. Review of privacy and information security policies and standards and review the ramifications of updates to policies and standards as well as establish standards and procedures for escalating significant security incidents to the ISSC, Board, other steering committees, government agencies, and law enforcement agencies, as appropriate. Membership of the Committee The Information Security Steering Committee shall be comprised of: 1. Group Managing Director / CEO 17 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Corporate Governance Report for the Year Ended 31 December 2023 2. Executive Directors 3. Chief Information Officer 4. Chief Inspector 5. Chief Risk Officer(CRO) 6. Chief Financial Officer(CFO) 7. Head of InfoTech - Software 8. Head of InfoTech – Engineering 9. Group Head Retail 10. Chief Information Security Officer(CISO) 11. Head of IT Audit 12. Information Security Officer 13. Head of Risk Management 14. Head of Card Services 15. Representatives of Marketing Group 11. Policy on trade in the Bank's securities The Bank has a policy on trading on the Bank’s Securities by Directors and other key personnel of the Bank. This is to guide against situations where such personnel in possession of confidential and price sensitive information deal with Bank’s securities in a manner that amounts to insider trading. 12 Relationship with shareholders Zenith Bank maintains an effective communication with its shareholders, which enables them understand our business, financial condition, operating performance and trends. Apart from the Bank's annual report and accounts, proxy statements and formal shareholders' meetings, the Bank maintains 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 produced in line with the disclosure requirements of the Nigerian 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, in addition to other programmes, all Directors attended the CFT/AML training programme to keep them abreast of recent trends in CFT and money laundering. Executive Directors 18 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Corporate Governance Report for the Year Ended 31 December 2023 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. MONITORING COMPLIANCE WITH CORPORATE GOVERNANCE Chief Compliance Officer The Chief Compliance Officer monitors compliance with money laundering requirements and the implementation of the Code of Corporate Governance of the Bank. He reports to the Board through the the Executive compliance officer(ECO). The Chief Compliance Officer and the Company Secretary forward regular returns to the Central Bank of Nigeria and other regulatory bodies on all whistle-blowing reports and also on corporate governance compliance. Whistle Blowing Procedures The Bank has a whistle-blowing procedure that ensures anonymity for whistle-blowers. The Bank has a direct link on the Bank’s website, provided for the purpose of whistle-blowing. Internally, the Bank has a direct 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 breache. Codes of Coduct The Bank has a Code of Professional Conduct for Employees, which all members of staff subscribe to upon assumption of duties with the Bank. The Bank also has a Code of Conduct for Directors. 14. Foreign Subsidiaries Governance Structure The Bank as at 31 December 2023 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 through the Group Governance Framework 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 respective 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 Committee To ensure that the activities of the subsidiaries reflects the same values, ethics, controls and processes, Zenith Bank Plc is represented by at least one (1) non-executive director in the local board and board committee of each foreign subsidiary. These directors provide effective oversight function over each subsidiary and ensure that there is consistency with the strategic direction of the Bank. They also act as 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. 19 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Corporate Governance Report for the Year Ended 31 December 2023 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 renumeration 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 Group Compliance Function Zenith Bank Plc is committed to complying with regulatory requirements in all locations where it operate. To this end, The Bank’s Compliance Group monitors ongoing developments in the regulatory environment of each location where it operates and ensuring compliance with same. This include conducting periodic compliance checks on each subsidiary annually to ascertain compliance with local banking laws and regulations. Report of External Auditors In line with global best practices and regulatory guidelines, the Bank undertakes the 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. 20 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Corporate Governance Report for the Year Ended 31 December 2023 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 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, CFR Mr.Gabriel Ukpeh Engr.Mustafa Bello Dr. Al-Mujtaba Abubakar, MFR Dr. O. Ibidapo-Obe Ogunfowora Mr Peter Bamkole Mr Chuks Emma Okoh Dr. Juliet Ehimuan** Dr.Ebenezer Onyeagwu Dr.Adaora Umeoji, OON* Dr. Temitope Fasoranti*** Mr. Henry Oroh Mrs Adobi Nwapa Mr. Akindele Ogunranti Note: 10 10 10 10 10 10 10 10 2 10 4 10 10 10 10 6 N/A 6 5 6 N/A N/A 6 N/A 6 4 6 N/A N/A N/A 4 N/A 4 N/A N/A 4 4 4 N/A 4 2 N/A 4 4 N/A 4 N/A 3 4 4 4 4 4 1 N/A N/A N/A N/A N/A N/A 4 N/A N/A 4 3 4 4 N/A 1 4 N/A N/A 4 N/A 4 4 N/A 4 4 4 4 3 N/A 1 N/A N/A N/A N/A N/A N/A * Dr. Adaora Umeoji, OON exited from the Board effective 24 February, 2023. She was reappointed to the Board on 2 August, 2023 following CBN approval. ** Dr. Juliet Ehimuan was appointed to the Board effective 29 August, 2023 *** Dr. Temitope Fasoranti retired from the Board effective 29 December, 2023 N/A - Not Applicable (Not a Committee member) Dates for Board and Board Committee meetings held within the year to 31 December 2023 Board meetings 26-Jan-23 02-Mar-23 28-Apr-23 02-May-23 16-Jun-23 12-Jul-23 20-Jul-23 05-Oct-23 25-Oct-23 20-Dec-23 Board credit committee meeting Finance and general purpose committee Board Risk Management committee Meeting Board Audit and Compliance Committee Meeting 25-Jan-23 24-Jan-23 24-Jan-23 25-Jan-23 Board Governance, Nomination and Remuneration Committee 24-Jan-23 Audit committee meeting of the bank 25-Jan-23 26-Apr-23 26-Apr-23 26-Apr-23 25-Apr-23 25-Apr-23 25-Apr-23 15-Jun-23 19-Jul-23 04-Oct-23 24-Oct-23 18-Jul-23 18-Jul-23 19-Jul-23 18-Jul-23 19-Jul-23 24-Oct-23 24-Oct-23 23-Oct-23 23-Oct-23 23-Oct-23 21 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Corporate Governance Report for the Year Ended 31 December 2023 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 held during the year: Members Number of Meetings attended Mrs. Adebimpe Balogun (SR) Prof. (Prince) L.F.O Obika (SR) Mr. Michael Olusoji Ajayi (SR) Engr. Mustafa Bello (INED)* Dr.Al-mujtaba Abubakar (INED)* SR - Shareholders representative INED- Independent Non-Executive Director * Changes arising from AGM Resolution 4 4 4 4 4 22 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC RC: 150224 HEAD OFFICE CV Zenith Heights, Lagos. @;I] P. 0. Box 75315, \. Tel: (01) 2787000, 4647000 @I www.zenithbank.com 2927000, I SWIFT: Plot 84/87 Ajose Adeogun Street, Victoria ZEIBNGLA Island, z ZENITH Annual Report and Financial 31 December 2023 Statements for the year ended Certification of management's assessment on internal control over financial reporting To comply with the provisions 60-63 of Investments Sections statements the Internal regarding 2023. December of Section 1.1 and Securities of SEC Guidance Act 2007, I hereby make the following on Implementation of Controls of ZENITH BANK Pie for the year ended 31 I, Dr. Ebenezer Onyeagwu, certify that: a)I have reviewed reporting of ZENITH BANK Pie; this management assessment on internal control over financial b)Based on my knowledge, material light of the circumstances with respect fact or omit to state a material this report to the period covered by this report; does not contain fact necessary of a any untrue statement made, in to make the statements under which such statements were made, not misleading c)Based on my knowledge, included in this report, results of operations in this report; fairly the financial present in all material statements, and other financial the financial as of, and for, the periods information condition, presented respects and cash flows of the entity and proc�dures relating d)The entity's 1)are responsible 2)have designed controls information by others within being prepared; 3)have designed to be designed reliability purposes 4)have evaluated of a date within of financial in accordance and I: other certifying officer for establishing controls such internal to be designed internal and procedures, under our supervision, or caused such internal to .ensure and maintaining controls; that material to the entity, those entities, and its consolidated is made known to us during the period in which this report subsidiaries, is particularly such internal under our supervision, control system, to provide and the preparation accepted of the entity's reporting with generally the effectiveness 90 days prior to the report accounting internal and presented controls in this report principles; and procedures as our conclusions or caused such internal assurance reasonable control system the regarding for external of financial statements Chairman: Jim Ovia, CFR. \ Group Managing Director: Dame (Dr.) Adaora Umeoji, OON. Mr. Gabriel Non-Executives: lbidapo-Obe Ogunfowora (Ph.D) Executive Director/CEO: Directors: Dr. Ebenezer Onyeagwu I Henry Oroh I Adobi Nwapa I Akindele Bello \ Dr. AI-Mujtaba Ukpeh I Engr. Mustafa Peter Olatunde Bamkole Abubakar I Mr. Chuks Emma Okoh I Dr. Juliet Deputy Managing MFR.\ Omobola (Ph.D) Ogunranti Ehimuan THE BOARD: z ZENITH as of the end of the controls of the internal and procedures, by this report based on such evaluation. other certifying control and I have disclosed, to the entity's system, of internal (or persons performing board of directors weaknesses and material auditors officer deficiencies system which are reasonably about the effectiveness period covered e)The entity's evaluation the entity's 1)All significant internal control to record, 2)Any fraud, who have a significant summarize process, whether and report or not material, role in the entity's likely financial that involves internal affect to adversely information; and management system. control based on our most recent and the audit committee of the equivalent functions): in the design or operation the entity's of the ability or other employees f)The entity's not there were significant significantly affect any corrective other certifying changes controls internal actions officer(s) and I have identified, in the report whether or or other facts that coL_ild in internal subsequent controls to the date of their evaluation deficiencies and material weaknesses. including with regard to significant Name: Dr. Ebenezer Onyeagwu FRC No: FRC/2013/ICAN/00000003788 ZENITH BANK PLC Consolidated and Separate Statements of Profit or Loss and Other Comprehensive Income for the Year Ended 31 December 2023 6 7 8 9 10 11 26 27 37 12 13a In millions of Naira Interest and similar income Interest and similar expense Net interest income Impairment charge 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/(loss): Items that will never be reclassified to profit or loss Fair value movements on equity instruments at FVOCI Impact of adopting IAS 29 on 1 January 2023 Total items that will not be reclassified to profit or loss Items that are or may be reclassified to profit or loss: Foreign currency translation differences for foreign operations Fair value movement on debt securities at FVOCI Income tax effect relating to fair value movement on debt securities at FVOCI Other comprehensive income/(loss) for the year net of taxation Group Bank Note(s) 31 December 2023 31 December 2022 31 December 2023 31 December 2022 1,144,674 (408,492) 736,182 (409,616) 540,166 (173,539) 366,627 (123,252) 926,232 (355,228) 571,004 (398,412) 448,174 (153,019) 295,155 (61,896) 326,566 243,375 172,592 233,259 109,307 566,973 242,588 (29,857) (3,469) (124,415) (291,731) 795,962 (119,053) 676,909 122,252 81,408 203,660 162,942 10,280 (2,603) 374,279 132,795 212,678 35,494 (26,630) (3,678) (86,412) (222,972) 284,650 (60,739) 223,911 71,080 538,286 264,063 (26,090) (2,447) (88,083) (261,686) 667,715 (72,114) 595,601 8,109 - 8,109 122,252 - 122,252 (28,768) (6,602) - (27,261) - - - 110,098 201,645 49,790 (24,519) (3,045) (68,475) (204,703) 294,050 (59,457) 234,593 8,109 - 8,109 - - - 122,252 717,853 8,109 242,702 Total comprehensive income for the year 1,051,188 196,650 Profit/(loss) attributable to: Equity holders of the parent Non-controlling interest Total comprehensive income/(loss) attributable to: Equity holders of the parent Non-controlling interest 676,569 340 676,909 1,050,373 815 1,051,188 224,050 (139) 223,911 196,981 (331) 196,650 595,601 - 595,601 717,853 - 717,853 234,593 - 234,593 242,702 - 242,702 Earnings per share Basic and diluted (Naira) 14 21.55 7.14 18.97 7.47 The accompanying notes are an integral part of these consolidated and separate financial statements. 39 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Consolidated and Separate Statements of Financial Position as at 31 December 2023 In millions of Naira 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 Deferred tax asset Current tax receivable 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 Total liabilities 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 Group Bank Note(s) 31 December 2023 31 December 2022 31 December 2023 31 December 2022 15 16 17 18 19 20 21 22 24 13 25 26 27 28 33 13 24 29 30 31 34 35 35 35 35 4,253,374 2,736,273 308,638 1,834,314 534,739 6,556,470 3,290,895 - 17,251 18,975 474,976 295,532 47,018 2,201,744 2,246,538 254,663 1,302,811 49,874 4,013,705 1,728,334 - 18,343 - 213,523 230,843 25,251 3,965,386 2,529,966 255,061 1,691,722 507,942 5,928,796 1,205,724 34,625 - - 417,419 230,267 44,185 2,102,394 2,206,668 254,565 1,132,796 48,851 3,735,676 622,781 34,625 - - 193,792 214,572 23,958 20,368,455 12,285,629 16,811,093 10,570,678 15,167,740 70,486 33,877 59,310 1,039,712 263,065 1,410,885 8,975,653 6,325 64,856 16,654 568,559 311,192 963,450 12,154,824 45,514 28,080 59,233 1,003,947 263,065 1,450,182 7,434,806 6,040 61,655 15,911 546,347 311,192 999,580 18,045,075 10,906,689 15,004,845 9,375,531 15,698 255,047 1,179,390 871,617 2,321,752 1,628 15,698 255,047 625,005 482,377 15,698 255,047 893,938 641,565 15,698 255,047 494,429 429,973 1,378,127 813 1,806,248 - 1,195,147 - 2,323,380 1,378,940 1,806,248 1,195,147 20,368,455 12,285,629 16,811,093 10,570,678 The accompanying notes are an integral part of these consolidated and seperate financial statements. The financial statements were approved and authorised for issue by the Board of Directors on 31st January 2024 and signed on its behalf by: Jim Ovia, CFR. Chairman FRC/2013/CIBN/00000002406 Dr. Ebenezer Onyeagwu Group Managing Director/CEO FRC/2013/ICAN/00000003788 Mukhtar Adam, PhD Chief Financial Officer FRC/2013/MULTl/00000003196 40 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Consolidated and Separate Statements of Changes in Equity for the Year Ended 31 December 2023 In millions of Naira Note(s) Share capital Share premium Foreign currency translation reserve Fair value reserve Statutory reserve SMIEIS reserve Credit risk reserve Retained earnings Total Non-controlling interest Total equity Group 1 January 2023 Impact of adopting IAS 29 at 1 January 2023 Restated balance at 1 January 2023 Profit for the year Other comprehensive income: Foreign currency translation differences Fair value movements on equity instruments Fair value movements on debt securities Income tax effect relating to fair value movement on debt securities at FVOCI Transfer between reserves Transactions with owners of the Parent Dividends Balance at 31 December 2023 1 January 2022 Profit for the year Other Comprehensive income: Foreign currency translation differences Fair value movements on equity instruments Fair value movements on debt securities Total comprehensive income for the year Transfer between reserves Transactions with owners of the Parent Dividends 35 40 35 40 15,698 - 15,698 - - - - - - - - - 255,047 - 255,047 - - - - - - - - - 24,953 - 24,953 - - 162,939 - - - 46,980 - 46,980 - - - 122,252 10,280 (2,603) 311,411 - 311,411 - - - - - - 162,939 - 129,929 - - 97,693 - - - 15,698 15,698 255,047 255,047 187,892 176,909 409,104 53,529 45,473 275,993 - - - - - - - - - - - - - - - - (28,576) - - (28,576) - - 8,109 (6,602) 1,507 - - - - - - 35,419 - - - 3,729 - 3,729 - - - - - - - - - 3,729 3,729 - - - - - - - 95,304 - 95,304 - - - - - - 625,005 80,936 705,941 676,569 - - - - - 1,378,127 80,936 1,459,063 676,569 - 162,939 122,252 10,280 (2,603) - (1,322) 676,569 (96,371) 969,437 - - (106,748) (106,748) 93,982 1,179,390 2,321,751 21,846 607,203 1,278,518 224,050 224,050 - - - (28,576) 8,109 (6,602) 196,981 - - 73,458 224,050 (108,876) - - - - - (97,371) (97,371) Balance at 31 December 2022 15,698 255,047 24,953 46,980 311,411 3,729 95,304 625,005 1,378,127 813 472 1,285 340 - 3 - - - 343 - - 1,628 1,144 (139) (192) - - (331) - - 813 1,378,940 81,408 1,460,348 676,909 - 162,942 122,252 10,280 (2,603) 969,780 - (106,748) 2,323,380 1,279,662 223,911 (28,768) 8,109 (6,602) 196,650 - (97,371) 1,378,940 41 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Consolidated and Separate Statements of Changes in Equity for the Year Ended 31 December 2023 In Millions of Naira Bank Balance at 1 January 2023 Profit for the year Other comprehensive income Fair value movements on equity instruments Total comprehensive income for the period Transfer between reserves Dividends Balance at 31 December 2023 Balance at 1 January 2022 Profit for the year Other comprehensive income: Fair value movements on equity instruments Total comprehensive income for the period Transfer between reserves Dividends Balance at 31 December 2022 Note(s) Share capital Share premium Fair value reserve Statutory reserve SMIEIS reserve Credit risk reserve Retained earnings Total equity 15,698 255,047 53,731 278,602 3,729 93,911 - - - - - - - - - - - 122,252 122,252 - - - - - 89,340 - - - - - - - - - - - 15,698 15,698 255,047 255,047 175,983 367,942 45,622 243,414 3,729 3,729 93,911 20,016 - - - - - - - - - - - 8,109 8,109 - - - - - 35,189 - - - - - - 15,698 255,047 53,731 278,602 3,729 - - - 73,895 - 93,911 494,429 595,601 - 595,601 (89,340) (106,748) 893,938 466,250 234,593 - 234,593 (109,084) (97,330) 1,195,147 595,601 122,252 717,853 - (106,748) 1,806,248 1,049,776 234,593 8,109 242,702 - (97,330) 494,429 1,195,147 35 40 35 40 The accompanying notes are an integral part of these consolidated and separate financial statements. 42 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Consolidated and Separate Statements of Cash Flows for the Year Ended 31 December 2023 In millions of Naira Cash flows from operating activities Group Bank Note(s) 31 December 2023 31 December 2022 31 December 2023 31 December 2022 Profit before tax for the year 795,962 284,650 667,715 294,050 Adjustments for: Net impairment loss on financial and non-financial instruments Unrealised fair value change in trading bond, bills and derivatives Depreciation of property and equipment Amortisation of intangible assets Dividend income Foreign exchange revaluation gain Interest income Interest expense Gain on sale of property and equipment (Gain)/loss on lease derecognition Net monetary loss arising from hyperinflationary economy Changes in operating assets and liabilities: Net increase in loans and advances Net increase in other assets Net decrease/(increase) in treasury bills (FVTPL) including bills pledged Net (increase)/decrease in investment securities including bonds pledged (FVTPL and FVOCI) Net increase in restricted balances (cash reserves) Net decrease/ (increase) in due from banks with maturity greater than three months Net increase in customer deposits Net increase in Other liabilities Interest received from operating activities Interest paid Tax paid Net cash flows generated from operations Cash flows from investing activities Purchase of property and equipment Proceeds from Sale of property and equipment Purchase of intangible assets Additions to treasury bills Disposal of treasury bills Interest received from treasury bills and investment securities Acquisition of Right of Use Asset Additions to other Investment securities Disposal of other Investment securities Dividends received 8 44(xii) 26 27 11 44(xx) 6 7 44(vi) 44(xviii) 11 44(iii) 44(viii) 44(iib) 44(i) 44(x) 44(vii) 44(iv) 44(v) 44(xiiia) 44(xi) 13 44(xivb) 44(vi) 27 44(iia) 44(iia) 44(xiiib) 44(xiva) 44(XV) 44(i) 11 409,616 (149,278) 29,857 3,469 (5,661) (111,748) (1,144,674) 408,492 (189) (14) 13,225 123,252 90,046 26,630 3,679 (2,223) (25,201) (540,166) 173,539 (2,563) (2,028) - 398,412 (148,190) 26,090 2,447 (19,777) (164,655) (926,232) 355,228 (186) 2 - 61,896 (88,394) 24,520 3,045 (17,148) (25,320) (448,174) 153,019 (2,451) (2,025) - 249,057 (50,477) 190,854 (46,983) (3,001,963) (258,868) 597,411 (701,432) (2,233,798) 36,532 6,369,684 467,486 1,524,109 804,259 (413,961) (127,862) (543,005) (59,586) (76,101) (254,630) (2,623,642) (222,544) 597,411 (8,872) (418,711) (15,661) (2,144,031) 105,440 2,362,290 48,387 992,506 354,722 (143,859) (24,247) 4,713,058 454,569 1,062,243 711,684 (347,349) (62,367) (502,442) (55,735) (78,553) 138 (419,705) (21,065) 2,153,832 84,880 1,113,967 302,324 (128,805) (7,728) 1,786,545 1,179,122 1,364,211 1,279,758 (50,281) 1,382 (24,035) (4,547,984) 3,543,236 374,763 (859) (820,166) 122,846 5,661 (67,245) 3,207 (4,130) (3,060,163) 2,833,003 88,416 (2,281) (559,328) 403,066 2,223 (40,581) 1,341 (22,674) (2,824,475) 2,031,575 288,634 (810) (539,842) 82,885 19,777 (64,357) 2,671 (3,461) (2,968,565) 2,679,567 71,700 (2,031) (206,285) 65,448 17,148 Net cash from investing activities (1,395,437) (363,232) (1,004,170) (408,165) 43 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Consolidated and Separate Statements of Cash Flows for the Year Ended 31 December 2023 In millions of Naira Note(s) 2023 2022 2023 2022 Group Bank Cash flows from financing activities Repayment of debt securities Issued Cash inflow from long term borrowings Repayment of long term borrowings Repayment of onlending facility Repayment of principal for lease liability Unclaimed dividend received Dividends paid to shareholders Net cash used in financing activities 32 31 31 30(b) 44(v) 44(xvii) 40 - 1,148,702 (1,569,493) (48,080) (1,543) 352 (106,748) (46,071) 1,243,614 (1,135,414) (59,470) (4,011) 1,117 (97,371) - 1,197,352 (1,569,493) (48,080) (979) 352 (106,748) (46,071) 1,279,743 (1,154,340) (59,470) (2,927) 1,117 (97,330) (576,810) (97,606) (527,596) (79,278) Net increase/(decrease) in cash and cash equivalents (185,702) 718,284 (167,555) 792,315 Analysis of changes in cash and cash equivalents: Cash and cash equivalent at the beginning of the year Net increase/(decrease) in cash and cash equivalents Effect of exchange rate movement on cash balances 1,940,758 (185,702) 549,455 1,134,519 718,284 87,956 1,657,186 (167,555) 528,771 776,574 792,314 88,298 Cash and cash equivalents at the end of the year 41 2,304,511 1,940,758 2,018,402 1,657,186 The accompanying notes are an integral part of these consolidated and separate financial statements. 44 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 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 registered office adress of the company is Plot 84/87 Ajose Adeogun street, Victoria Island, Lagos. 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 and separate financial statements for the year ended 31 December 2023 comprise the Bank and its subsidiaries (together referred to as "the Group" and individually as "Group entities") and the separate financial statements comprise the Bank. The consolidated and separate financial statements for the year ended 31 December 2023 were approved and authorised for issue by the Board of Directors on 31 January 2024. The directors have the power to amend and re-issue the financial statements. 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 years presented in these consolidated and separate financial statements. The Group has adopted the following new standards and amendments including any consequential amendments to other standards with initial date of application of January 1, 2023: (i) Disclosure of Accounting Policies – Amendments to IAS 1 and IFRS Practice Statement 2 The IASB amended IAS 1 to require entities to disclose their material rather than their significant accounting policies. The amendments define what is ‘material accounting policy information’ and explain how to identify when accounting policy information is material. They further clarify that immaterial accounting policy information does not need to be disclosed. If it is disclosed, it should not obscure material accounting information. To support this amendment, the IASB also amended IFRS Practice Statement 2 Making Materiality Judgements to provide guidance on how to apply the concept of materiality to accounting policy disclosures. The effective date is 1 January 2023. This amendment did not have a significant impact on the accounting policies disclosed in the financial statement. ii) Definition of Accounting Estimates – Amendments to IAS 8 The amendment to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors clarifies how companies should distinguish changes in accounting policies from changes in accounting estimates. The distinction is important, because changes in accounting estimates are applied prospectively to future transactions and other future events, but changes in accounting policies are generally applied retrospectively to past transactions and other past events as well as the current year. The effective date is 1 January 2023. This amendment did not have an impact on the Group financial statements. iii) Deferred Tax related to Assets and Liabilities arising from a Single Transaction – Amendments to IAS 12 The amendments to IAS 12 Income Taxes require companies to recognise deferred tax on transactions that, on initial recognition, give rise to equal amounts of taxable and deductible temporary differences. They will typically apply to transactions such as leases of lessees and decommissioning obligations and will require the recognition of additional deferred tax assets and liabilities. The amendment should be applied to transactions that occur on or after the beginning of the earliest comparative year presented. In addition, entities should recognise deferred tax assets (to the extent that it is probable that they can be utilised) and deferred tax liabilities at the beginning of the earliest comparative year for all deductible and taxable temporary differences associated with right-of-use assets and lease liabilities, and decommissioning, restoration and similar liabilities, and the corresponding amounts recognised as part of the cost of the related assets. 45 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 The cumulative effect of recognising these adjustments is recognised in retained earnings, or another component of equity, as appropriate. The effective date is 1 January 2023. This amendment did not have a significant impact on the Group financial statements. There are no other new standards or amendments applicable to the Group with an effective date of 1 January 2023. (b) Standards issued but not yet effective The following standard had been issued but was not mandatory for year ended on 31 December 2023. The Group has not early adopted the underlisted standard in preparing the financial statements as it plans to adopt it at the effective date, if applicable. i. Classification of Liabilities as Current or Non-current - Amendments to IAS 1 Non-current Liabilities with Covenants - Amendments to IAS 1 Amendments made to IAS 1 Presentation of Financial Statements in 2020 and 2022 clarified that liabilities are classified as either current or noncurrent, depending on the rights that exist at the end of the reporting year. Classification is unaffected by the entity's expectations or events after the reporting date (e.g. the receipt of a waiver or a breach of covenant). Covenants of loan arrangements will not affect classification of a liability as current or non- current at the reporting date if the entity must only comply with the covenants after the reporting date. However, if the entity must comply with a covenant either before or at the reporting date, this will affect the classification as current or non-current even if the covenant is only tested for compliance after the reporting date. The amendments require disclosures if an entity classifies a liability as noncurrent and that liability is subject to covenants that the entity must comply with within 12 months of the reporting date. The disclosures include: the carrying amount of the liability, information about the covenants, and facts and circumstances, if any, that indicate that the entity may have difficulty complying with the covenants. The amendments also clarify what IAS 1 means when it refers to the 'settlement' of a liability. Terms of a liability that could, at the option of the counterparty, result in its settlement by the transfer of the entity's own equity instrument can only be ignored for the purpose of classifying the liability as current or non-current if the entity classifies the option as an equity instrument. However, conversion options that are classified as a liability must be considered when determining the current/non-current classification of a convertible note. The amendments must be applied retrospectively in accordance with the normal requirements in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. Special transitional rules apply if an entity had early adopted the 2020 amendments regarding the classification of liabilities as current or non-current. The effective date is 1 January 2024. The impact of this amendment on the Group's financial statement is currently under assessment. There are no other new standards or amendments issued but not yet effective that are applicable to the Group. 46 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 (c) Material 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. 2.1 Basis of preparation (a). Statement of compliance The financial statements are prepared in accordance with International Financial Reporting Standard (IFRS) and in the manner required by the Companies and Allied Matters Act of Nigeria, the Financial Reporting Council of Nigeria (Amendment) Act 2023, the Banks and other Financial Institutions Act of Nigeria, and relevant Central Bank of Nigeria circulars. The financial statements comply with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). (b) Basis of measurement The financial statements have been prepared under the historical cost convention with the exception of the following: 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 other comprehensive income which are measured at fair value. (c) Use of estimates and judgements The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated and separate financial statements are disclosed in Note 4. 2.2 Basis of Consolidation (a) 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 less accumulated impairment. (b) Loss of Control On loss of control, the Group derecognises the assets and liabilities of the subsidiary, any related non-controlling interests and the other components of equity relating to a subsidiary. Any surplus or deficit arising on the loss of control is recognised in profit or loss. If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently, that retained interest is accounted for as an equity-accounted investee or as a financial asset depending on the level of influence retained. (c) Associates Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost. The Group's investment in associates includes goodwill identified on acquisition, net of any accumulated impairment loss. 47 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 2.2 Basis of Consolidation (continued) 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. 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 Except for those subsidiaries operating in a hyper-inflationary economy (as shown in note 2.27), the results and financial position of all the Group entities 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 year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. Non-monetary assets and liabilities denominated in foreign currencies that are measured at historical cost are translated to the functional currency using the exchange rate at the transaction date, and those measured at fair value are translated to the functional currency at the exchange rate at the date that the fair value was determined and are recognised in the profit or loss. When a gain or loss on non-monetary item is recognised in other comprehensive income, any exchange component of that gain or loss shall be recognised in other comprehensive income. Conversely, when a gain or loss on a non-monetary item is recognised in profit or loss, any exchange of that gain or loss shall be recognised in profit or loss. Translation differences on equities measured at fair value through other comprehensive income are included in other comprehensive income and transferred to the fair value reserve in equity. 48 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 2.3 Translation of foreign currencies (continued) Foreign currency gains and losses on intra-group loans are recognised in profit or loss unless settlement of the loan is neither planned nor likely to occur in the foreseeable future, in which case the foreign currency gains and losses are initially recognised in the foreign currency translation reserve in the consolidated financial statements. Those gains and losses are recognised in profit or loss at the earlier of settling the loan or at the time at which the foreign operation is disposed. 2.4 Cash and cash equivalents For the purposes of the statement of cash flow, cash and cash equivalents comprise balances with original maturities of three (3) months or less than three months from the date of acquisition that are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments. They include cash and non-restricted balances with central banks, treasury bills and other eligible bills, amounts due from other banks and short-term government securities. 2.5 Financial instruments (a) Initial recognition and measurement Financial instruments are recognised initially when the Group becomes a party to the contractual provisions of the instruments. Financial instruments carried at fair value through profit or loss are initially recognised at fair value with transaction costs, which are directly attributable to the acquisition or issue of the financial instruments, being recognised immediately through profit or loss. Financial instruments that are not carried at fair value through profit or loss are initially measured at fair value plus transaction costs that are directly attributable to the acquisition or issue of the financial instruments. Financial instruments are recognised or de-recognised on the date the Group settles the purchase or sale of the instruments (settlement date accounting). (b) Subsequent measurement Subsequent to initial measurement, financial instruments are measured either at amortised cost or fair value depending on their classification category. (c) Classification (i) Financial assets Subsequent to initial recognition, all financial assets within the Group are measured at: Amortised cost; Fair value through other comprehensive income (FVOCI); or Fair value through profit or loss (FVTPL) The Group's financial assets are subsequently measured at amortised cost if they meet both of the following criteria and are not designated as at FVTPL: 'Hold to collect' business model test - The asset is held within a business model whose objective is to hold the financial asset in other to collect contractual cash flows; and 'SPPI' contractual cash flow characteristics test - The contractual terms of the financial asset give rise to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding on a specified date. Interest in this context is the consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time. Debt instruments are measured at amortised cost by the Group if they meet both of the following criteria and are not designated as at FVTPL: 'Hold to collect and sell' business model test: The asset is held within a business model whose objective is achieved by both holding the financial asset in order to collect contractual cash flows and selling the financial asset; and 'SPPI' contractual cash flow characteristics test: The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. 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: 49 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 2.5 Financial instruments (continued) A debt instrument that does not qualify to be measured at amortised cost or FVOCI; An equity investment which the Group has not irrevocably elected to classify as at FVOCI and present subsequent changes in fair value in OCI; A financial asset where the Group has elected to measure the asset at FVTPL under the fair value option. (ii) Financial liabilities Financial liabilities are either classified by the Group as: Financial liabilities at amortised cost; or Financial liabilities as at fair value through profit or loss (FVTPL). Financial liabilities are measured at amortised cost by the Group unless either: The financial liability is held for trading and is therefore required to be measured at FVTPL, or The Group elects to measure the financial liability at FVTPL (using the fair value option). (iii) Financial guarantees contracts and loan commitments A financial guarantee contract is a contract that requires the Group (issuer) to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. Loan commitments are firm commitments to provide credit under pre-specified terms and conditions. Financial guarantees issued or commitments to provide a loan at a below-market interest rate are initially measured at fair value. Subsequently, they are measured 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 higher than their nominal amounts. Contingent liabilities and commitments are initially recognized at fair value which is also generally equal to the fees received and amortized over the life of the commitment. The carrying amount of contingent liabilities are subsequently measured at the higher of the present value of any expected payment when a payment under the contingent liability has become probable and the unamortised fee. 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; 50 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 2.5 Financial instruments (continued) – 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; – terms that limit the Group’s claim to cash flows from specified assets (e.g. non-recourse loans); and features that modify consideration of the time value of money (e.g. periodical reset of Interest rate). The Group holds a portfolio of long-term fixed-rate loans for which the Group has the option to propose to revise the interest rate at periodic reset dates. These reset rights are limited to the market rate at the time of revision. The borrowers have an option to either accept the revised rate or redeem the loan at par without penalty. The Group has determined that the contractual cash flows of these loans are SPPI because the option varies the interest rate in a way that is consideration for the time value of money, credit risk, other basic lending risks and costs associated with the principal amount outstanding. Reclassifications Financial assets are not reclassified subsequent to their initial recognition, except in the year after the Group changes its business model for managing financial assets. (d) Derecognition (i) Financial assets The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire (see also (e)), or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset. On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset derecognised) and the sum of (i) the consideration received (including any new asset obtained less any new liability assumed) and (ii) any cumulative gain or loss that had been recognised in OCI is recognised in profit or loss. Any cumulative gain/loss recognised in OCI in respect of equity investment securities designated as at FVOCI is not recognised in profit or loss on derecognition of such securities. Any interest in transferred financial assets that qualify for derecognition that is created or retained by the Group is recognised as a separate asset or liability. The Group sometimes enters into transactions whereby it transfers assets recognised on its statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets or a portion of them. In such cases, the transferred assets are not derecognised. Examples of such transactions are securities lending and sale-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. 51 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 2.5 Financial instruments (continued) In transactions in which the Group neither retains nor transfers substantially all of the risks and rewards of ownership of a financial asset and it retains control over the asset, the Group continues to recognise the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes in the value of the transferred asset. In certain transactions, the Group retains the obligation to service the transferred financial asset for a fee. The transferred asset is derecognised if it meets the derecognition criteria. An asset or liability is recognised for the servicing contract if the servicing fee is more than adequate (asset) or is less than adequate (liability) for performing the servicing. (ii) Financial liabilities The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire. (e) Modifications of financial assets and financial liabilities Financial assets If the terms of a financial asset are modified, then the Group evaluates whether the cash flows of the modified asset are substantially different. If the cash flows are substantially different, then the contractual rights to cash flows from the original financial asset are deemed to have expired. In this case, the original financial asset is derecognized (see (d)) and a new financial asset is recognised at fair value plus any eligible transaction costs. Any fees received as part of the modification are accounted for as follows: - fees that are considered in determining the fair value of the new asset and fees that represent reimbursement of eligible transaction costs are included in the initial measurement of the asset; and - other fees are included in profit or loss as part of the gain or loss on derecognition. If cash flows are modified when the borrower is in financial difficulties, then the objective of the modification is usually to maximize recovery of the original contractual terms rather than to originate a new asset with substantially different terms. If the Group plans to modify a financial asset in a way that would result in forgiveness of cash flows, then it first considers whether a portion of the asset should be written off before the modification takes place (see below for write off policy). This approach impacts the result of the quantitative evaluation and means that the derecognition criteria are not usually met in such cases. If the modification of a financial asset measured at amortised cost or FVOCI does not result in derecognition of the financial asset, then the Group first recalculates the gross carrying amount of the financial asset using the original effective interest rate of the asset and recognises the resulting adjustment as a modification gain or loss in profit or loss. For floating-rate financial assets, the original effective interest rate used to calculate the modification gain or loss is adjusted to reflect current market terms at the time of the modification. Any costs or fees incurred and fees received as part of the modification adjust the gross carrying amount of the modified financial asset and are amortised over the remaining term of the modified financial asset. If such a modification is carried out because of financial difficulties of the borrower (see (2.9)), 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. (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. 52 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 2.5 Financial instruments (continued) (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 year during which the change has occurred. Subsequent to initial recognition, the fair value of a financial instrument is based on quoted market prices or dealer price quotation for financial instruments. If a market for a financial instrument is not active, then the Group establishes fair value using a valuation technique. Valuation techniques include using recent arm's length transactions between knowledgeable, willing parties (if available), reference to the current fair value of other instruments that are substantially the same, discounted cash flow analyses and option pricing models. The chosen valuation technique makes maximum use of market inputs, relies as little as possible on estimates specific to the Group, incorporates all factors that market participants would consider in setting a price, and is consistent with accepted economic methodologies for pricing financial instruments. Inputs into valuation techniques reasonably represent market expectations and measures of the risk-return factors inherent in the financial instrument. See note 3.5 on fair valuation methods and assumptions. (i) 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. Derivative instruments 2.6 Derivatives are initially recognized at fair value on the date on which the derivative contract is entered into and are subsequently remeasured at fair value. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative. The method of recognizing the resulting fair value gain or loss depends on whether the derivative is designated and qualifies as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as Hedges of the fair value of recognized assets or liabilities or firm commitments (fair value hedges). The Group documents, at the inception of the hedge, the relationship between hedged items and hedging instruments, as well as its risk management 53 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. (a) Fair Value Hedge Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the statement of profit or loss, together with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The Bank discontinues hedge accounting in any of the following circumstances: • • • • • The hedging instrument is not, or has ceased to be, highly effective as a hedge The hedging instrument has expired, is sold, terminated, or exercised The hedged item matures, is sold, or repaid The forecast transaction is no longer deemed highly probable The Bank elects to discontinue hedge accounting voluntarily Derivatives that do not qualify for Hedge Accounting Certain derivatives do not qualify for hedge accounting. Changes in the fair value of any derivative not designated in a hedging relationship are recognized immediately in profit or loss and are included in Trading gains/(losses). 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. 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’. 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; 54 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 2.7 Impairment (continued) • 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 year. Also, significant assumptions made during the year can be seen in note 4.2. 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 year 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; 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. 55 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 2.7 Impairment (continued) • The international support mechanisms in place to provide the necessary support as ‘lender of last resort’ to that country, as well as the intention, reflected in public statements, of governments and agencies to use those mechanisms. This includes an assessment of the depth of those mechanisms and, irrespective of the political intent, whether there is the capacity to fulfil the required criteria. 2.7.3 Presentation of allowance for ECL in the statement of financial position Loss allowances for ECL are presented in the statement of financial position as follows: • Financial assets measured at amortised cost: as a deduction from the gross carrying amount of the assets; • Loan commitments and financial guarantee contracts: generally, as a provision; • Where a financial instrument includes both a drawn and an undrawn component, and the Group cannot identify the ECL on the loan commitment component separately from those on the drawn component: the Group presents a combined loss allowance for both components. The combined amount is presented as a deduction from the gross carrying amount of the drawn component. Any excess of the loss allowance over the gross amount of the drawn component is presented as a provision and; • Debt instruments measured at FVOCI, no loss allowance is recognised in the statement of financial position because the carrying amount of the asset is their fair value. However, the loss allowance is disclosed and recognised in the fair value reserve. 2.7.4 Write-off policy The Group writes off a loan balance when the Group’s credit department determines that the loan is uncollectable and had been declared delinquent and subsequently classified as lost. This determination is made after considering information such as the continuous deterioration in the customer’s financial 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 2023 was N13.4 billion (31 December 2022: N74.1 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 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. 2.9 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. 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) 56 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 In certain cirumstances, property may be repossessed following the foreclosure on loans that are in default. These repossessd collateral are sold as soon as practicable. 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 Aircraft Right of use assets Depreciation is included in profit or loss. Not depreciated 4 years 5 years 5 years 3 years 50 years Over the remaining lease period 25 years 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 Costs Borrowing costs that are directly attributable to the acquisition or construction of a qualifying asset is capitalized as part of the cost of the asset. Other costs relating to borrowings which the group undertakes in the normal course of business are expensed in the year 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) it is technically feasible to complete the software product so that it will be available for use; 57 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 ii) iii) iv) v) vi) 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 year-end and adjusted if appropriate. Intangible assets are derecognized on disposal or when no future economic benefits are expected from their use or disposal. 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 A. 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. The major lease transaction wherein the Group/Bank is lessee relates to the lease of Bank's branches To assess whether a contract conveys the right to control the use of an identified asset for a period of time, the Bank assesses whether, throughout the period of use, it has both of the following: (a) the right to obtain substantially all of the economic benefits from use of the identified asset, and (b) 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. Payments associated with short term leases are recognised on a straight line basis as an expense in profit or loss. Short term leases are leases with a lease term of 12 months or less without a purchase option. 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. 58 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 2.14 Leases (continued) The Group recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, and subsequently at cost less any accumulated depreciation and impairment losses, and adjusted for certain remeasurements of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate. The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payment made. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in the estimate of the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised. The Group has applied judgement to determine the lease term for some lease contracts in which it is a lessee that include renewal options. The assessment of whether the Group is reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of lease liabilities and right-of-use assets recognized. C. 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 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. 2.16 Employee benefits (a) Post-employment benefits The Group operates a defined contribution plan. 59 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 2.16 Employee benefits (continued) 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) Share issue costs Incremental costs directly attributable to the issue of new shares or options or to the acquisition of a business are shown in equity as a deduction, net of tax, from the proceeds. (b) Dividends on ordinary shares Dividends on ordinary shares are recognised in equity in the year in which they are approved by the Bank’s shareholders. Dividends for the year that are declared after the end of the reporting year are dealt with in the subsequent events note. (c) Share premium Premiums from the issue of shares are reported in share premium. (d) Statutory reserve Nigerian banking regulations require the Bank to make an annual appropriation to a statutory reserve. As stipulated by The Banks and Other Financial Institutions Act (BOFIA) 2020, an appropriation of 30% of profit after tax is made if the statutory reserve is less than the paid-up share capital and 15% of profit after tax if the statutory reserve is greater than the paid-up share capital. (e) SMIEIS reserve The SMIEIS reserve is maintained to comply with the Central Bank of Nigeria (CBN) requirement that all licensed banks set aside a portion of the profit after tax in a fund to be used to finance equity investments in qualifying small and medium scale enterprises. Under the terms of the guideline (amended by CBN letter dated 11 July 2006), the contributions will be 10% of profit after tax and shall continue after the first 5 years but banks’ contributions shall thereafter reduce to 5% of profit after tax. The small and medium scale industries equity investment scheme reserves are nondistributable. Transfer to this reserve is no longer mandatory. (f) Statutory reserve for credit risk The Nigerian banking regulator requires the Bank to create a reserve for the difference between impairment 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. 60 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 2.17 Share capital and reserves (continued) (g) Retained earnings Retained earnings comprise the undistributed profits from previous periods which have not been reclassified to any specified reserves. (h) Fair value reserve Comprises fair value movements on equity instruments carried at FVOCI. (i) Foreign currency translation reserve Comprises exchange differences resulting from the translation to Naira of the results and financial position of Group companies that have a functional currency other than Naira. 2.18 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 credit adjusted effective interest rate is calculated using estimated future cash flows including ECL. The calculation of the effective interest rate includes transaction costs and fees and points paid or received that are an integral part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or financial liability. Amortised cost and gross carrying amount The ‘amortised cost’ of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured on initial recognition minus the principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount and, for financial assets, adjusted for any expected credit loss allowance. 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. 61 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 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). Other fee and commission income – including account servicing fees, fees on electronic products, sales commission, foreign withdrawal charges, commission on letters of credit, foreign currency transaction fees, 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 ex dividend 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. Fees and commission income are recognised at point in time and over time. Fees recognised over time relate to credit related fees (concerning participation fee and invoice discounting), guarantee fees, corporate finance fees, account maintanace fees and fees on electronic products charged monthly. Fees recognised at a point in time include credit related fees other than those recognised over time, auction fees, commission on agency and collection services, fees on electronic products (recognised at point in time), foreign currency transaction fees, foreign withdrawal charges and commission on letters of credit. 2.20 Net Trading gains Net trading gain comprises gains less losses relating to trading assets and liabilities and includes all fair value changes, interest, dividends and foreign exchange differences. 2.21 Operating expense Expenses are decreases in economic benefits during the accounting year 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 year is recognized as an expense. Expenses that are not related to the income earned during the reporting year, but expected to generate future economic benefits, are recorded in the financial statement as assets. The portion of assets which is intended for earning income in the future periods shall be recognized as an expense when the associated income is earned. Expenses are recognized in the same reporting year when they are incurred in cases when it is not probable to directly relate them to particular income earned during the current reporting year and when they are not expected to generate any income during the coming years. 2.22 Current and deferred income tax Income tax expense comprises current tax (company income tax, tertiary education tax national information technology development agency levy and Nigeria Police Trust Fund levy) and deferred tax. It is recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income. The Bank had determined that interest and penalties relating to income taxes do not meet the definition of income taxes, and therefore are accounted for under IAS 37 Provisions, Contingent Liabilities and Contingent Assets. 62 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and considers whether it is probable that a taxation authority will accept an uncertain tax treatment. The Bank measures its tax balances either based on the most likely amount or the expected value, depending on which method provides a better prediction of the resolution of the uncertainty. (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). -National Agency for Science and Engineering Infrastructure is computed on profit before tax. (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 applied. 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 deferred tax liabilities are offset if there is a legally enforceable right to offset the current tax liabilities against the current tax assets and they relate to taxes levied by the same tax authority on the same taxable entity or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously. 2.23 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 year. 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 shares that could potentially dilute the total issued shares. 63 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 2.24 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 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 line/structure to management. 2.25 Fiduciary activities The Group acts as trustees and in other fiduciary capacities through its subsidiaries, Zenith Pensions Custodian Limited and Zenith Nominees Limited that results in the holding or placing of assets on behalf of individuals, trusts, retirement benefit plans and other institutions. These assets and income arising thereon are excluded from these financial statements, as they are not assets of the Group. The fees earned on these activities are recognised as assets based fees. 2.26 Deposit for Investment in AGSMEIS The Agri-Business/Small and Medium Enterprises Investment Scheme is an initiative of Banker's committee of Nigeria. The contributed funds is meant for supporting the Federal Government's effort at promoting agricultural businesses as well as Small and Medium Enterprises. In line with this initiative, the Bank will contribute 5% of Profit After Tax yearly to the fund. 2.27 Hyperinflationary accounting Hyperinflationary accounting is applied to those subsidiary operations in countries where the three-year cumulative inflation rate is approaching or exceeding 100%. In 2023, this affected the Group's operations in Ghana and Sierra Leone. The Group applies IAS 29 Financial Reporting in Hyperinflationary Economies to the underlying financial information of relevant subsidiaries to restate their local currency results and financial position so as to be stated in terms of the measuring unit current at the end of the reporting period. Those restated results are translated into the Group's presentation currency (the Nigerian Naira) for consolidation at the closing rate at the balance sheet date. Group comparatives are not restated for the effect of hyperinflation and consequential adjustments to the opening balance sheet in relation to the hyperinflationary subsidiaries are presented in Other comprehensive income and reported in retained earnings. The hyperinflationary gain or loss in respect of the net monetary position of the relevant subsidiary is included in profit or loss and separately disclosed within other operating income. When applying hyperinflationary accounting for the first time, the underlying information is restated in terms of the measuring unit current at the end of the reporting period as if the relevant economy had always been hyperinflationary. Group comparatives are not restated for such historical adjustments. The restatement procedures applied for transactions and balances for the Ghana subsidiary are as follows: • Corresponding figures as of, and for, the prior year ended for the subsidiary only, were restated by applying the change in the index from the end of the prior year to the end of the current year. • Monetary assets and liabilities for the current year, were not restated as they already stated in terms of the measuring unit current at statement of financial position date; • Non-monetary assets and liabilities, and components of shareholders equity/funds, were restated by applying the change in index from date/month of transaction • Property, plant and equipment and intangible assets were restated by applying the change in the index from the date of transaction, to the statement of financial position date. Depreciation and amortisation amounts are based on the restated amounts; • Profit or loss statement items/transactions, were restated by applying the change in index during the period to statement of financial position date. 64 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 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 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 defined, agreed upon by the business/support units and subject to annual reviews. 3.1.3 Risk Management Approach The Group addresses the challenge of risks comprehensively through an enterprise-wide risk management framework and a risk governance policy by applying leading practices that are supported by a robust governance structure consisting of Board-level and executive management committees. The Board drives the risk governance and compliance process through its committees. The audit committee provides oversight on the systems of internal control, financial reporting and compliance. The Board credit committee reviews the credit policies and approves all loans above the defined limits for Executive Management. The Board Risk Management 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) 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; 65 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) (e) (f) 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" policy 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. 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) The strategic importance of the activity and sector; The contribution of the activity/sector to the total assets of the Bank; 66 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) (c) (d) 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 The financial industry in Nigeria is a dynamic and ever-evolving landscape. It encompasses banks, insurance companies, capital markets, and other financial institutions that facilitate economic transactions. The sector contributes significantly to the national GDP and acts as a catalyst for economic growth and development. However, due to its complexity and inherent risks, effective risk management strategies are essential to ensure the stability and sustainability of the industry. Emerging risks and challenges pose new threats, while trends and patterns in risk management offer valuable insights into effective strategies. It is crucial for financial institutions to stay informed and adapt their risk management strategies and practices accordingly. Zenith Bank emphasizes the importance of risk management as part of good governance and sound business practices by identifying, assessing, and managing its risks effectively. Trends and patterns in risk management provide valuable guidance for financial institutions. With advancements in data analytics and predictive modelling, institutions can now gain deeper insights into potential risks and develop more effective risk mitigation strategies. These trends also emphasize the importance of collaboration and information sharing among industry players to stay ahead of emerging risks. Emerging risks and challenges in Nigeria banking sector can be diverse and often interconnected. Factors such as economic volatility, regulatory changes, technological advancements, cybersecurity threats, and geopolitical uncertainties all contribute to the complexity of the risk landscape. The bank is prepared to address these risks and adapt its risk management strategies to mitigate potential negative impacts. 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; 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 67 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) 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) (d) (e) Adherence to the strict credit selection criteria, which includes defined target market, credit history, the capacity and character of customers; Credit rating of obligor; The likelihood of failure to pay over the period stipulated in the contract; The size of the facility in case default occurs; and Estimated Rate of Recovery, which is a measure of the portion of the debt that can be 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 AAA AA A BBB BB B CCC CC C D Unrated (b) Other debt instruments Description of the grade 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) 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. 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 68 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) 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 reviews 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. 69 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) 3.2.4 Group Credit Risk Management Zenith's approach to 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) (j) 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 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) N3.5 billion and above (Not exceeding 20% of total shareholders' fund) Below N3.5billion 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. 70 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) 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 of activities. Credit risk is monitored on an ongoing basis with formal weekly, monthly and quarterly reporting to keep senior management aware of shifts in credit quality and portfolio performance along with changing external factors such as economic and business cycles. The capabilities of the credit review team is continuously enhanced in order to improve the facility monitoring activity and assure good quality Risk Assets Portfolio across the Group. A specialised and focused loan recovery and workout team handles the management and collection of problematic credit facilities. 3.2.7 (a) Credit Risk Mitigation, Collateral, and other Credit Enhancements The Group’s approach to controlling various risks begins with optimizing the diversification of its exposures. Zenith uses a variety of techniques to manage the credit risk arising from its lending activities. These techniques are set out in the Group's internal policies and procedures. They are mainly reflected in the application of various exposure limits: credit concentration limits by 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 must 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 the Group's comfort is on the issuer’s credit rating, i.e. Federal Government of Nigeria (FGN) and other sovereigns. As part of its Credit risk management strategy, the Group emphasizes on the robustness of its credit analysis and diagonsis prior to disbursment of loans and advances to its customers. 71 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) The bank closely monitors the performance of its loans and advances. Once a loan shows sign of credit deterioration, the bank works closely with the customer to salvage the situation and ensure recoverability of its loans. Fore closure of collateral is usually the last measure adopted by the bank in the realization of its funds. The Group takes physical possession of properties or other assets held as collateral and uses external agents to realise the value as soon as practicable to settle indebtedness. Any surplus funds realised from such disposal are returned to the borrower or are otherwise dealt with in accordance with appropriate regulations. The assets in such cases are not carried on the Group's balance sheet. Details of collateral pledged by customers against the carrying amount of loans and advances as at 31 December 2023 are as follows: In millions of Naira Group Bank Secured against real estate Secured by shares of quoted companies Cash Collateral, lien over fixed and floating assets Unsecured Total Gross amount ECL Allowance Net carrying amount Group 31 December 2023 Disclosure by Collateral Total exposure 449,911 13,967 Fair value of collateral 3,214,994 9,198 Total exposure 319,439 13,967 Fair value of collateral 126,676 9,199 2,533,204 2,270,506 2,203,420 1,928,631 4,058,365 7,055,447 (498,977) 6,556,470 - 5,494,698 - 5,494,698 3,876,153 6,412,979 (484,183) 5,928,796 - 2,064,506 - 2,064,506 Term loan Overdrafts Onlending Total 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 overcollaterization/(undercollaterization) 3,118,408 1,788 1,692,916 4,813,112 5,291,536 (336,420) 4,955,115 (142,003) 81,402 4,788 202,472 288,662 1,098,703 (125,258) 973,445 (684,783) 15,184 2,622 375,117 392,923 665,208 (37,299) 627,909 3,214,994 9,199 2,270,505 5,494,698 7,055,447 (498,977) 6,556,469 (234,986) (1,061,772) 72 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) 31 December 2023 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 Onlending Total 232,635 930 1,202,510 1,436,076 3,522,061 (36,667) 3,485,393 73,121 1,365 99,070 173,555 348,802 (4,825) 343,977 14,286 794 195,590 210,670 443,580 (5,854) 437,726 320,042 3,089 1,497,170 1,820,301 4,314,443 (47,346) 4,267,096 Grand total: Amount of overcollaterization/(undercollaterization) (2,049,317) (170,422) (227,056) (2,446,795) 31 December 2023 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 Grand total: Amount of overcollaterization/(undercollaterization) Term loan Overdrafts Onlending Total 2,832,953 858 441,123 3,274,934 1,556,619 (98,041) 1,458,577 1,816,357 3,117 235 88,005 91,357 658,239 (46,347) 611,892 (520,535) 843 1,828 174,007 176,678 215,799 (27,160) 188,640 (11,962) 2,836,913 2,921 703,136 3,542,969 2,430,657 (171,548) 2,259,109 1,283,860 31 December 2023 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 Grand total: Amount of overcollaterization/(undercollaterization) Term loan Overdrafts Onlending Total 52,820 - 48,292 101,112 212,856 (201,712) 11,145 89,967 5,164 3,189 16,388 24,741 91,663 (74,086) 17,577 7,164 55 - 5,520 5,575 5,827 (4,285) 1,543 4,032 58,039 3,189 70,200 131,428 310,347 (280,083) 30,265 101,163 73 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) Bank 31 December 2023 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 overcollaterization/(undercollaterization) 31 December 2023 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 Onlending Total 83,454 1,788 1,372,755 1,457,997 4,714,937 (326,300) 4,388,637 (2,930,640) 28,038 4,789 180,759 213,586 1,032,834 (120,584) 912,250 (698,664) 15,184 2,622 375,117 392,923 665,208 (37,299) 627,909 126,676 9,199 1,928,631 2,064,506 6,412,979 (484,183) 5,928,796 (234,986) (3,864,290) Term loan Overdrafts Onlending Total 23,378 930 882,349 906,657 2,952,899 (26,960) 2,925,939 21,076 1,365 77,584 100,025 284,365 (1,924) 282,441 14,286 794 195,590 210,670 443,582 (5,854) 437,728 58,740 3,089 1,155,523 1,217,352 3,680,846 (34,738) 3,646,108 Grand total: Amount of overcollaterization/(undercollaterization) (2,019,282) (182,416) (227,058) (2,428,756) 31 December 2023 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 Term loan Overdrafts Onlending Total 7,488 858 441,123 449,469 1,549,326 (97,678) 1,451,648 3,117 235 87,862 91,214 658,189 (45,872) 612,317 843 1,828 174,008 176,679 215,799 (27,160) 188,639 11,448 2,921 702,993 717,362 2,423,314 (170,710) 2,252,604 Grand total: Amount of overcollaterization/(undercollaterization) (1,002,179) (521,103) (11,960) (1,535,242) 31 December 2023 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 Grand total: Amount of overcollaterization/(undercollaterization) Term loan Overdrafts Onlending Total 52,588 - 48,292 100,880 212,712 (201,662) 11,050 89,830 3,845 3,189 16,303 23,337 90,279 (72,789) 17,490 5,847 55 - 5,520 5,575 5,828 (4,284) 1,544 4,031 56,488 3,189 70,115 129,792 308,819 (278,735) 30,084 99,708 74 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) Details of collateral pledged by customers against carrying amount of loans and advances as at 31 December 2022 are as follows: In millions of Naira Group Bank Secured against real estate Secured by shares of quoted companies Cash collateral, lien over fixed and floating assets Unsecured Total Gross amount ECL Allowance Net carrying amount Group 31 December 2022 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 Total exposure 319,203 54,851 2,318,640 1,431,271 4,123,966 (110,261) 4,013,705 Fair Value of collateral 312,265 26,620 1,856,751 - 2,195,636 - 2,195,636 Total exposure 270,935 54,851 2,162,646 1,350,373 3,838,805 (103,129) Value of collateral 208,068 26,620 1,678,280 - 1,912,968 - 3,735,676 1,912,968 Term loan Overdrafts Onlending Total 243,975 18,656 1,266,931 1,529,562 2,982,808 (62,315) 2,920,493 47,653 7,964 152,207 207,824 450,649 (39,864) 410,785 20,637 - 437,613 458,250 690,509 (8,082) 682,427 312,264 26,620 1,856,751 2,195,636 4,123,966 (110,261) 4,013,705 Grand total: Amount of overcollaterization/(undercollaterization) (1,390,931) (202,961) (224,177) (1,818,069) 31 December 2022 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 Onlending Total 129,049 18,233 732,826 880,108 2,078,669 (15,224) 2,063,445 33,870 3,484 137,584 174,938 373,017 (6,238) 366,778 18,912 - 436,790 455,701 687,421 (8,039) 679,382 181,831 21,717 1,307,200 1,510,747 3,139,107 (29,501) 3,109,606 Grand total: Amount of overcollaterization/(undercollaterization) (1,183,337) (191,840) (223,681) (1,598,858) 75 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) 31 December 2022 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 Grand total: Amount of overcollaterization/(undercollaterization) Term loan Overdrafts Onlending Total 107,255 423 529,067 636,745 876,633 (34,523) 842,110 (205,365) 6,127 2,270 8,713 17,110 26,786 (830) 25,955 (8,845) 1,652 - - 1,652 1,975 (17) 1,958 (306) 115,034 2,693 537,779 655,507 905,393 (35,370) 870,023 (214,516) 31 December 2022 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 Grand total: Amount of (undercollaterization)/overcollaterization Term loan Overdrafts Onlending Total 7,671 - 5,038 12,709 27,507 (12,569) 14,938 (2,229) 7,656 2,210 5,911 15,776 50,845 (32,796) 18,049 (2,273) 73 - 823 896 1,113 (25) 1,088 (192) 15,400 2,210 11,772 29,381 79,465 (45,390) 34,075 (4,694) Bank 31 December 2022 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 Onlending Total 154,805 18,656 1,097,502 1,270,963 2,720,843 (57,904) 2,662,939 32,625 7,964 143,165 183,754 427,453 (37,143) 390,310 20,637 - 437,613 458,250 690,509 (8,082) 682,427 208,067 26,620 1,678,280 1,912,967 3,838,805 (103,129) 3,735,676 Grand total: Amount of overcollaterization/(undercollaterization) (1,391,976) (206,556) (224,177) (1,822,709) 76 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) 31 December 2022 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 Onlending Total 39,976 18,233 563,397 621,606 1,822,213 (11,812) 1,810,401 22,321 3,484 128,600 154,405 352,845 (5,418) 347,427 18,912 - 436,790 455,702 687,421 (8,039) 679,382 81,209 21,717 1,128,787 1,231,713 2,862,479 (25,269) 2,837,210 Grand total: Amount of overcollaterization/(undercollaterization) (1,188,795) (193,022) (223,680) (1,605,497) 31 December 2022 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 Grand total: Amount of overcollaterization/(undercollaterization) 31 December 2022 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 Grand total: Amount of overcollaterization/(undercollaterization) (ii) Balance Sheet Netting Arrangements Term loan Overdrafts Onlending Total 107,158 423 529,067 636,648 871,125 (33,524) 837,601 (200,953) 6,104 2,270 8,713 17,087 26,645 (800) 25,845 (8,758) 1,652 - - 1,652 1,975 (17) 1,958 (306) 114,914 2,693 537,780 655,387 899,745 (34,341) 865,404 (210,017) Term loan Overdrafts Onlending Total 7,671 - 5,038 12,709 27,505 (12,568) 14,937 (2,228) 4,199 2,210 5,852 12,261 47,962 (30,926) 17,036 (4,775) 73 - 823 896 1,113 (25) 1,088 (192) 11,943 2,210 11,713 25,866 76,580 (43,519) 33,061 (7,195) 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. 77 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) 3.2.7 (b) Maximum Exposure to Credit Risk Before Collateral Held or Credit Enhancements The Group's maximum exposure to credit risk at 31 December 2023 and 31 December 2022 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 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 31 December 2023. In millions of Naira Trading assets - Treasury bills - Investment in securities - Derivatives Asset -Hedging Instrument - Derivatives Asset-Non Hedging Instrument - Assets pledged as collateral Group Bank Maximum exposure to credit risk Maximum exposure to credit risk 749,606 24,293 462,376 72,363 - 749,606 19,433 462,376 45,566 - 78 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) The following table contains an analysis of the maximum credit risk exposure from financial assets not subject to impairment as at 31 December 2022. In millions of Naira Trading assets - Treasury bills - Investment in securities - Derivatives Asset -Hedging Instrument -Derivatives Asset - Non Hedging Instrument - Assets pledged as collateral Group Bank Maximum exposure to credit risk Maximum exposure to credit risk 1,243,038 12,442 20,052 29,822 26,287 1,243,038 10,560 20,052 28,799 26,189 79 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) 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 31 December 2023 In millions of Naira 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 Maximum exposure to credit risk Group Maximum exposure to credit risk Bank 4,107,110 1,986,667 1,521,682 308,638 6,556,470 1,834,314 445,597 1,528,786 1,832,325 3,860,124 1,780,360 970,157 255,061 5,928,796 1,691,722 358,753 - 1,840,885 The following table contains an analysis of the maximum credit risk exposure from financial assets subject to impairment as at 31 December 2022 In millions of Naira 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 Maximum exposure to credit risk Group Maximum exposure to credit risk Bank 2,116,307 1,003,500 788,133 228,375 4,013,705 1,302,811 193,465 833,849 1,113,967 2,036,327 963,630 518,338 228,375 3,735,676 1,132,796 176,289 - 995,763 80 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) 3.2.8 Concentration of Risks of Financial Assets with Credit Risk Exposure The Group monitors concentrations of credit risk by geographical location and by industry sector. An analysis of concentrations of credit risk at 31 December 2023 and 31 December 2022 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 31 December 2023 and 31 December 2022 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 31 December 2023 Group Rest of Africa Outside Africa Nigeria Balances with central bank Treasury bills Assets pledged as collateral Due from other banks Investment securities Derivative Asset - Hedging Instrument Derivative Asset-Non Hedging Instrument Other financial assets 3,860,124 2,529,966 308,638 127,067 1,054,597 462,376 246,986 206,307 - 35,581 483,190 - - - - 1,671,666 1,536,974 - 45,564 - 26,799 389,071 50,309 6,217 Bank Outside Africa Rest of Africa Nigeria 3,965,386 2,529,966 255,061 126,766 956,400 462,376 45,565 389,137 - - - 1,076 33,190 - - 651 - - - 1,563,880 - - 1 4,752 Total 8,777,404 1,022,373 3,241,656 8,730,657 34,917 1,568,633 Financial Guarantees Usance Letters of credit Performance bond and guarantees Undrawn Overdraft Balance Total 433,926 424,890 718,207 - - 18,574 101,323 - 1,577,023 119,897 - 123,342 12,063 - 135,405 433,926 424,903 770,347 211,709 1,840,885 - - - - - - - - - - In millions of Naira 31 December 2022 Group Rest of Africa Outside Africa Nigeria Balances with central bank Treasury bills Assets pledged as collateral Due from other banks Investment securities Derivative Asset - Hedging Instrument Derivative Asset- Non Hedging instrument Other financial assets 2,036,327 2,227,845 254,564 6,435 584,599 20,052 79,980 18,695 98 20,393 229,474 - - - - 1,275,983 820,373 - Bank Outside Africa Rest of Africa Nigeria 2,036,327 2,206,669 254,564 14,565 514,092 20,052 - - - 3,057 14,804 - - - - 1,115,174 - - 28,786 13 1,023 28,785 13 1 105,249 17,884 70,331 104,867 1,262 70,159 Total 5,263,857 366,537 2,167,710 5,179,921 19,136 1,185,334 Financial Guarantees Usance Letters of credit Performance bond and guarantees Undrawn overdraft Total 276,481 341,290 329,167 89,749 1,036,687 - 22,065 55,215 - 77,280 - - - - - 276,481 279,791 323,824 89,749 969,845 - - 1,042 - 1,042 - - 24,876 - 24,876 81 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 Risk management (continued) 3. Gross loans and advances to customers and the impairment allowance per geographical region as at 31 December 2023 Carrying amounts presented in the table below is determined as gross loans less impairment allowances. 31 December 2023 South South Nigeria South West Nigeria South East Nigeria North Central Nigeria North West Nigeria North East Nigeria Rest of Africa Outside Africa 31 December 2022 South South Nigeria South West Nigeria South East Nigeria North Central Nigeria North West Nigeria North East Nigeria Rest of Africa Outside Africa Group Loans and advances to customers Bank Loans and advances to customers Gross loans 531,653 5,404,929 209,958 210,427 68,967 167,680 309,739 152,094 Impairment Allowance (14,615) (435,348) (12,804) (11,918) (4,311) (7,356) (9,790) (2,836) Carrying amount 517,038 4,969,581 197,154 198,509 64,656 160,324 299,949 149,258 Gross loans 531,653 5,224,294 209,958 210,427 68,967 167,680 - - Impairment Allowance (14,615) (433,179) (12,804) (11,918) (4,311) (7,356) - - Carrying amount 517,038 4,791,115 197,154 198,509 64,656 160,324 - - 7,055,447 (498,977) 6,556,470 6,412,979 (484,183) 5,928,796 Group Bank Loans and advances to customers Loans and advances to customers Gross loans 277,548 3,136,204 158,058 148,610 53,605 110,809 133,599 105,534 Impairment Allowance (5,380) (92,036) (1,822) (3,738) (671) (394) (5,122) (1,098) Carrying amount 272,168 3,044,168 156,236 144,872 52,934 110,415 128,476 104,435 Gross loans 277,548 3,090,175 158,058 148,610 53,605 110,809 - - Impairment Allowance (5,380) (91,124) (1,822) (3,738) (671) (394) - - Carrying amount 272,168 2,999,051 156,236 144,872 52,934 110,415 - - 4,123,966 (110,261) 4,013,705 3,838,805 (103,129) 3,735,676 82 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 Risk management (continued) 3. (b) Industry sectors Gross loans and advances to customers per industry sector as at 31 December 2023 Carrying amounts presented in the table below are determined as gross loans less impairment allowances. 31 December 2023 In millions of Naira Agriculture Oil and gas Consumer Credit Manufacturing Real estate and construction Finance and insurance Government Power Transportation Communication Education General Commerce 31 December 2022 In millions of Naira Agriculture Oil and gas Consumer Credit Manufacturing Real estate and construction Finance and Insurance Government Power Transportation Communication Education General Commerce Group Loans and advances to customers Bank Loans and advances to customers Gross loans 337,124 2,111,589 148,642 1,598,503 258,090 153,750 875,619 124,580 150,809 108,612 31,547 1,156,582 Impairment allowance (6,566) (175,455) (28,439) (157,354) (14,077) (2,608) (30,322) (9,389) (18,448) (461) (521) (55,337) Carrying amount 330,558 1,936,134 120,203 1,441,149 244,013 151,142 845,297 115,191 132,361 108,151 31,026 1,101,245 Gross loans Impairment allowance Carrying amount 328,984 2,109,033 126,491 1,520,684 198,922 43,032 785,577 124,580 129,314 100,876 26,455 919,031 (6,243) (27,604) 322,741 (175,343) 1,933,690 98,887 (154,544) 1,366,140 186,749 42,693 756,042 115,191 111,697 100,658 26,139 868,169 (12,173) (339) (29,535) (9,389) (17,617) (218) (316) (50,862) 7,055,447 (498,977) 6,556,470 6,412,979 (484,183) 5,928,796 Group Loans and advances to customers Bank Loans and advances to customers Gross loans Impairment allowance. 265,213 931,045 120,345 1,254,050 136,403 72,959 529,942 67,143 116,856 26,218 15,146 588,646 (5,853) (59,309) (14,382) (10,774) (2,784) (667) (1,679) (566) (3,286) (317) (257) (10,386) Carrying amount 259,359 871,737 105,963 1,243,276 133,619 72,292 528,263 66,577 113,570 25,900 14,889 578,268 Gross loans 251,306 912,505 94,448 1,190,640 134,017 37,181 488,286 67,016 98,529 21,790 14,501 528,586 Impairment allowance (5,722) (58,641) (13,183) Carrying amount 245,584 853,864 81,265 (8,039) 1,182,601 131,317 (2,700) 36,901 (280) 487,747 (539) 66,451 (565) 95,371 (3,158) 21,648 (142) 14,272 (229) 518,655 (9,931) 4,123,966 (110,261) 4,013,705 3,838,805 (103,129) 3,735,676 83 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) Group Financial assets excluding loans and advances per industry sector as at 31 December 2023. 31 December 2023 In millions of naira Government Manufacturing Finance and Insurance Communication Gross amount Impairment allowance Balances with central bank Treasury bills Assets pledged as collateral Due from other banks Investment securities 4,107,110 - - - 4,107,110 - 2,736,344 - - - 2,736,344 (71) 308,667 - - - 308,667 (29) - - 1,835,249 - 1,862,577 156,646 992,817 105,033 1,835,249 (935) 3,117,073 (42,312) Carrying amount 4,107,110 2,736,273 308,638 1,834,314 3,074,761 Financial assets excluding loans and advances per industry sector as at 31 December 2022 Derivatives Hedging Instrument 462,376 - - - 462,376 - 462,376 Derivatives Non Hedging Instrument 45,565 - 26,798 - 72,363 - 72,363 Other financial assets - 0 476,740 - 476,740 (31,143) 445,597 31 December 2022 In millions of naira Balances with central bank Treasury bills Assets pledged as collateral Due from other banks Investment securities Government Manufacturing Finance and Insurance Communication Gross amount Impairment allowance 2,116,307 - - - 2,116,307 - 2,246,947 - - - 2,246,947 (408) 254,583 - 98 - 254,681 (19) - - 1,302,886 - 1,623,788 8,279 42,454 22,163 1,302,886 (75) 1,696,684 (62,233) Carrying amount 2,116,307 2,246,539 254,662 1,302,811 1,634,451 Derivatives Hedging Instrument 20,052 - - - Derivatives Non Hedging Instrument 27,579 1,206 1,037 - 20,052 - 20,052 29,822 - 29,822 Other financial assets - - 222,439 - 222,439 (28,973) 193,466 Bank Financial assets excluding loans and advances per industry sector as at 31 December 2023 31 December 2023 In millions of naira Balances with central bank Treasury bills Assets pledged as collateral Due from other banks Investment securities Government Manufacturing Finance and Insurance Communication Gross amount Impairment allowance 3,965,386 - - - 3,965,386 - 2,530,037 - - - 2,530,037 (71) 255,090 - - - 255,090 (29) - - 1,692,657 - 1,692,657 (935) 660,464 143,500 86,605 104,472 995,041 (5,451) Carrying amount 3,965,386 2,529,966 255,061 1,691,722 989,590 Derivatives Hedging Instrument 462,376 - - - 462,376 - 462,376 Derivative Non Hedging Instrument 45,565 - 1 - 45,566 - 45,566 Other financial assets - - 425,601 - 425,601 (31,061) 394,540 84 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) Financial assets excluding loans and advances per industry sector as at 31 December 2022. Balances with central bank Treasury bills Assets pledged as collateral Due from other banks Investment securities 2,036,327 - - - 2,036,327 - 2,206,707 - - - 2,206,707 (39) 254,583 - - - 254,583 (19) - - 1,132,871 - 1,132,871 (75) 463,676 6,238 39,601 21,966 531,481 (2,583) 2,036,327 2,206,668 254,564 1,132,796 528,898 Derivatives Hedging Instrument 20,052 - - - Derivatives Non Hedging Instrument 27,563 1,222 14 - 20,052 - 20,052 28,799 - 28,799 Other financial assets - - 205,157 - 205,157 (28,868) 176,289 31 December 2022 In millions of naira Government Manufacturing Finance and Insurance Communication Gross amount Impairment allowance Carrying amount 3.2.9 Credit quality analysis Group 31 December 2023 Credit rating - 12 month ECL: All financial assets excluding loans and advances In millions of naira AAA to A BBB to BB CCC to C Unrated Gross amount ECL - impairment Carrying amount Balances with central bank Treasury bills Assets pledged as collateral Due from other banks Investment securities Derivative Asset - Hedging Instrument 3,867,620 - 239,490 - 4,107,110 - 2,562,050 - 174,294 - 2,736,344 (71) 308,667 - - - 308,667 (29) 1,509,797 133,317 48,829 143,306 2,055,135 710,549 346,662 4,727 1,835,249 (935) 3,117,073 (42,312) 4,107,110 2,736,273 308,638 1,834,314 3,074,761 - 462,376 - - 462,376 - 462,376 Derivative Asset -Non Hedging Instrument 1,733 70,109 - 521 72,363 - 72,363 Other financial assets 70,821 291,938 62,064 51,917 476,740 (31,143) 445,597 Term loans Overdraft Onlending Loans and Advances 12 months ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired 3,522,061 1,556,619 212,856 348,801 658,239 91,663 Gross loans and advances 5,291,536 1,098,703 Less allowances for impairment 12 - months ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total allowances for impairment Net loans and advances 36,667 98,041 201,712 336,420 4,955,116 4,825 45,879 74,554 125,258 973,445 443,581 215,799 5,827 665,208 5,855 27,160 4,285 37,299 Total 4,314,443 2,430,657 310,347 7,055,447 47,347 171,080 280,550 498,977 - - 627,909 6,556,470 85 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) Credit rating for loans and advances with 12 month ECL Term loans Overdraft Onlending Loans and advances A AA B BB BBB CC CCC Below C Unrated Gross amount ECL-Impairment Carrying amount Bank 31 December 2023 945,918 599,565 291,783 124,801 1,541,093 - 1,413 - 17,489 3,522,061 (36,667) 3,485,394 117,111 122,750 2,382 829 105,663 - - - 67 348,802 (4,825) 343,977 181,281 48,754 - 642 212,904 - - - - Total 1,244,310 771,069 294,165 126,272 1,859,660 - 1,413 - 17,556 443,581 (5,855) 4,314,444 (47,347) 437,726 4,267,097 Credit rating - 12 month ECL: All financial assets excluding loans and advances In millions of naira AAA to A BBB to BB CCC to C Unrated Gross amount ECL - impairment Carrying amount Balances with central bank Treasury bills Assets pledged as collateral Due from other banks Investment securities Derivative Asset - Hedging Instrument Derivative Asset -Non Hedging Instrument Other financial assets 3,965,386 - - - 3,965,386 - 2,530,037 - - - 2,530,037 (71) 255,090 - - - 255,090 (29) 1,346,978 126,350 211,466 7,863 1,692,657 (935) 618,736 370,491 5,814 - 995,041 (5,451) 3,965,386 2,529,966 255,061 1,691,722 989,590 - 462,376 - - 462,376 - 462,376 - 45,566 - - 45,566 - 45,566 70,228 293,308 - 62,065 425,601 (31,061) 394,540 Term loans Overdraft Onlending Loans and Advances 12 months ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired 2,952,899 1,549,326 212,712 284,365 658,190 90,279 Gross loans and advances 4,714,937 1,032,834 Less allowances for impairment 12 - months ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total allowances for impairment Net loans and advances (26,960) (97,680) (201,660) (326,300) 4,388,637 (1,924) (45,871) (72,789) (120,584) 912,250 443,582 215,799 5,827 665,208 (5,855) (27,159) (4,285) (37,299) Total 3,680,846 2,423,315 308,818 6,412,979 (34,739) (170,710) (278,734) (484,183) - - 627,909 5,928,796 Loans and advances 86 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) Term loan Overdraft Onlending A AA BB BBB C CC CCC Below C UNRATED Gross amount ECL-Impairment Carrying amount Group 31 December 2022 813,952 597,064 927 1,540,956 - - - - - 2,952,899 (26,960) 2,925,939 55,501 122,746 669 105,449 - - - - - 284,365 (1,924) 282,441 181,281 48,754 642 212,904 - - - - - Total 1,050,734 768,564 2,238 1,859,309 - - - - - 443,581 (5,855) 3,680,845 (34,739) 437,726 3,646,106 Credit rating: All financial assets with credit exposure excluding loans and advances In millions of naira AAA to A BBB to BB Below B Unrated Gross amount ECL - impairment Carrying amount Balances with central bank Treasury bills Assets pledged as collateral Due from other banks Investment securities Derivative Asset - Hedging Instrument Derivative Asset -Non Hedging Instrument Other financial assets 2,036,327 2,994 - 76,986 2,116,307 - 2,206,975 37,723 - 2,249 2,246,947 (408) 254,583 - - 98 254,681 (19) 1,128,219 89,328 3,057 82,283 1,283,859 197,408 10,354 205,060 1,302,887 (75) 1,696,680 (62,233) 2,116,307 2,246,539 254,662 1,302,812 1,634,447 - 20,052 - - 20,052 - 20,052 312 27,266 - 2,245 29,823 - 29,823 133,177 25,152 45,498 18,612 222,439 (28,973) 193,466 In millions of Naira 12 months ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Gross loans and advances Less allowances for impairment 12 - months ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total allowances for impairment Term loans Overdraft Onlending Loans and Advances 2,078,669 876,633 27,507 2,982,808 (15,224) (34,523) (12,569) (62,315) 373,017 26,786 50,845 450,648 (6,238) (830) (32,796) (39,865) 687,421 1,975 1,113 690,509 (8,039) (17) (25) (8,081) Total 3,139,107 905,393 79,465 4,123,965 (29,501) (35,370) (45,390) (110,261) Net loans and advances 2,920,493 410,783 682,428 4,013,704 - - 87 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) Credit rating for loans and advances with 12 month ECL Term loan Overdraft Onlending Loans and advances A AA B BB BBB C CC CCC Below C Unrated Gross amount ECL-Impairment Carrying amount Bank 31 December 2022 692,565 357,588 69,895 735,922 10,658 - 46 - - 211,996 2,078,669 (15,239) 2,063,430 99,827 147,369 1,299 104,682 - - - - - 19,840 373,017 (6,251) 366,766 263,526 20,559 - 403,336 - - - - - - Total 1,055,918 525,516 71,194 1,243,940 10,658 - 46 - - 231,836 687,421 (8,039) 3,139,107 (29,530) 679,382 3,109,578 Credit rating - 12 month ECL: All financial assets excluding loans and advances In millions of naira AAA to A BBB to BB CCC to C Unrated Gross amount ECL - impairment Carrying amount Balances with central bank Treasury bills Assets pledged as collateral Due from other banks Investment securities 2,036,327 - - - 2,036,327 - 2,206,707 - - - 2,206,707 (39) 254,583 - - - 254,583 (18) 957,055 170,984 3,057 1,775 1,132,871 (75) 480,352 51,129 - - 531,481 (2,583) 2,036,327 2,206,668 254,565 1,132,796 528,898 Derivative Hedging Instruments - 20,052 - - 20,052 - 20,052 Derivative Non Hedging Instruments 312 27,265 - 1,222 28,799 - 28,799 Other financial assets 133,162 26,478 45,493 24 205,157 (28,868) 176,289 In millions of Naira 12 months ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Gross loans and advances Less allowances for impairment 12 - months ECL Lifetime ECL not credit impaired Lifetime ECL credit impaired Total allowances for impairment Term loans Overdraft Onlending Loans and Advances 1,822,213 871,125 27,505 2,720,843 (11,812) (33,524) (12,568) (57,904) 352,845 26,645 47,962 427,452 (5,418) (800) (30,926) (37,144) 687,421 1,975 1,113 690,509 (8,039) (17) (25) (8,081) Total 2,862,479 899,745 76,580 3,838,804 (25,269) (34,341) (43,519) (103,129) Net loans and advances 2,662,939 390,308 682,428 3,735,675 - - 88 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) Term loan Ovrdraft On-lending Loans and advances A AA B BB BBB C CC CCC Below C Unrated Gross amount ECL-Impairment Carrying amount 692,565 357,588 9 772,051 - - - - - - 1,822,213 (11,812) 1,810,401 99,827 147,369 968 104,682 - - - - - - 352,846 (5,418) 347,428 263,526 20,559 - 403,336 - - - - - - Total 1,055,918 525,516 977 1,280,069 - - - - - - 687,421 (8,039) 2,862,480 (25,269) 679,382 2,837,211 Credit rating for loans and advances with 12 month ECL 3.2.10 Amounts Arising from ECL For inputs, assumptions and techniques used for estimating impairment see accounting policy in note 2.7 Retail exposures – Internally collected data on customer behaviour – e.g. utilisation of credit card facilities – Affordability metrics – External data from credit reference agencies, including industry-standard credit scores All exposures – Payment record – this includes 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 3.2.11 Amounts arising from ECL Corporate exposures – Information obtained during periodic review of customer files – e.g. audited financial statements, management accounts, budgets and projections. Examples of areas of particular focus are: gross profit margins, financial leverage ratios, debt service coverage, compliance with covenants, quality of management, senior management changes – Data from credit reference agencies, press articles, changes in external credit ratings – Quoted bond and credit default swap (CDS) prices for the borrower where available – Actual and expected significant changes in the political, regulatory and technological environment of the borrower or in its business activities The Group allocates each exposure to a credit risk grade based on a variety of data that is determined to be predictive of the risk of default and applying experienced credit judgement. Credit risk grades are defined using qualitative and quantitative factors that are indicative of risk of default. These factors vary depending on the nature of the exposure and the type of borrower. Credit risk grades are defined and calibrated such that the risk of default occurring increases exponentially as the credit risk deteriorates so, for example, the difference in risk of default between credit risk grades 1 and 2 is smaller than the difference between credit risk grades 2 and 3. Each exposure is allocated to a credit risk grade at initial recognition based on available information about the borrower. Exposures are subject to ongoing monitoring, which may result in an exposure being moved to a different credit risk grade. 89 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) 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 generates 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 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. 90 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) 3.2.13 Significant increase in credit risk 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 in turn 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. 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 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 financial asset 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 or issuer. An existing loan or financial asset whose terms have been modified may be derecognised and the renegotiated financial asset recognised as a new financial asset at fair value in accordance with the accounting policy set out below. 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 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. 91 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) 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 has 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 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 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, Crude production and crude prices Public sector Portfolio - Inflation, prime lending and crude production Manufacturing sector Portfolio - Inflation, prime lending and crude prodction Consumer Credit sector portfolio - Inflation, prime lending and crude production Agriculture sector portfolio- Crude production Others - Crude production The economic scenarios used as at 31 December 2023 included the following key indicators for Nigeria for the years ending 31 December 2024 to 2028. 92 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) GDP growth rate (%) Inflation rate forecast (%) Prime lending rate (%) Crude Oil Production (Million Barrels per day-mbpd) Crude Oil Price ($ Per Barrels) 2024 Base 2.90 Upturn 3.40 Downturn 2.40 Base 28.75 Upturn 27.48 Downturn 30.03 Base 17.61 Upturn 17.42 Downturn 17.80 Base 1.62 Upturn 1.64 Downturn 1.60 Base 85 Upturn 86.7 Downturn 83.3 2025 Base 3.80 Upturn Downturn Base 25 Upturn 23.73 Downturn 26.28 Base 17.42 Upturn 17.23 Downturn 17.61 Base 1.65 Upturn 1.67 Downturn 1.63 Base 84 Upturn 85.7 Downturn 82.3 2026 Base 3.20 Upturn Downturn Base 25 Upturn 23.73 Downturn 26.28 Base 17.42 Upturn 17.23 Downturn 17.61 Base 1.59 Upturn 1.62 Downturn 1.57 Base 81 Upturn 82.7 Downturn 79.3 2027 Base 4.10 Upturn Downturn Base 25 Upturn 23.73 Downturn 26.28 Base 17.42 Upturn 17.23 Downturn 17.61 Base 1.59 Upturn 1.61 Downturn 1.57 Base 81 Upturn 82.7 Downturn 79.3 2028 Base 4.40 Upturn Downturn Base 25 Upturn 23.73 Downturn 26.28 Base 17.42 Upturn 17.23 Downturn 17.61 Base 1.59 Upturn 1.61 Downturn 1.57 Base 81 Upturn 82.7 Downturn 79.3 Predicted relationships between the historical loan performance of the Bank's portfolio and the macroeconomic variables have been developed by analysing historical data over the past five years. The result of this analysis in addition to a 5-year forecast was used to determine the scalars used in adjusting ECL. The weightings assigned to each economic scenario as at 31 December 2023 were as follows: Loans and advances and off-balance sheet exposures Investment securities and placements Base 35% 33% Upturn Downturn 28% 31% 37% 36% 3.2.17 Measurement of ECL The key inputs into the measurement of ECL of financial assets (treasury bills, assets pledged as collateral, due from other banks, loans and advances and investment securities) 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 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. 93 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) 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 by 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. 94 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) 3.2.18(a) 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 2022 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 31 December 2023 31 December 2022 12-month ECL 12-month ECL 408 (337) - 71 815 (400) (8) 407 1,986,738 1,003,908 In millions of naira 12-month ECL 31 December 2023 Lifetime ECL not credit- impaired Lifetime ECL credit- impaired Total 12-month ECL 31 December 2022 Lifetime ECL not credit- impaired Lifetime ECL credit- impaired Total Off balance sheet exposure (Financial Guarantees) Balance at 1 January Impairment/(writeback) (see note 8) Effect of Hyperinflation Foreign exchange and other movements 5,811 (640) 947 872 65 2,925 738 (651) - - 6,614 1,634 947 872 2,375 3,436 - 20 45 - 3,221 (2,483) 5,616 998 - - Closing balance Gross amount 6,990 2,990 87 10,067 5,811 1,887,760 120,383 35,891 2,044,034 1,089,149 65 8,952 738 6,614 15,866 1,113,967 In millions of naira Assets pledged as collateral at amortised cost Balance at 1 January Impairment Charge/(writeback) (see note 8) Closing Balance Gross amount 31 December 2023 31 December 2022 12-month ECL 12-month ECL 18 10 29 308,667 198 (181) 17 228,492 95 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) In millions of naira 12-month ECL 31 December 2023 Lifetime ECL not credit- impaired Lifetime ECL credit- impaired Total 12-month ECL 31 December 2022 Lifetime ECL not credit- impaired Lifetime ECL credit- impaired Total Loans and advances to customers at amortised cost Balance at 1 January - Transfer to 12-month ECL - Transfer to lifetime ECL not credit-impaired - Transfer to lifetime ECL credit- impaired Impairment charge/(write back) (see note 8) Derecognized assets other than write off Write off Effect of Hyperinflation Foreign exchange and other movements 29,501 2,542 (6,495) 35,370 (1,109) 6,728 45,390 (1,433) (233) 110,261 - - 25,672 1,650 (314) 26,032 (689) 1,675 94,445 (961) (1,361) 146,149 - - (279) (3,338) 3,617 - (613) 327 286 - 19,308 132,836 248,506 400,650 4,154 7,671 26,518 38,343 - (0) (1,215) 3,766 - - - 325 - - - (13,386) - (1,420) (13,386) (1,215) 2,671 - - (1,049) - - - 354 - - (74,077) - 540 (74,077) - (155) Closing balance Gross amount 47,128 170,812 281,041 498,981 29,500 35,370 4,314,443 2,430,657 310,347 7,055,447 3,139,107 905,393 45,390 79,465 110,260 4,123,965 In millions of naira 12-month ECL 31 December 2023 Lifetime ECL not credit- impaired Lifetime ECL credit- impaired Total 12-month ECL 31 December 2022 Lifetime ECL not credit- impaired Lifetime ECL credit- impaired Total Investment securities at amortised cost and fair value through OCI Balance at 1 January Impairment Charge/(writeback) (see note 8) Modification of contractual cash flows Foreign exchange and other movements (3,323) (1,992) (9,907) 9,310 (655) (49,008) (9,310) (5,256) (62,238) (7,903) 3,766 (371) - - 10,649 - - 52,464 3,766 62,742 - - 42,533 42,533 - - (2,426) (683) (11,595) (14,704) (72) (742) (3,456) (4,270) Closing balance Gross amount (7,741) (1,935) (32,636) (42,312) 3,323 964,805 257,571 341,617 1,563,993 1,400,136 9,907 90,253 50,756 62,238 195,605 1,685,994 96 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) In millions of naira Other financial assets Balance at 1 January Impairment Charge/(writeback) (see note 8) Foreign exchange and other movements Closing balance Gross amount subject to simplified ECL 31 December 2023 12-month ECL Lifetime ECL not credit- impaired 31 December 2022 12-month ECL Lifetime ECL not credit- impaired (28,973) (2,170) - - (31,143) 411,264 - - - - - 9,925 19,037 11 28,973 168,692 - - - - - 97 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) 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 31 December 2023 31 December 2022 12-month ECL 12-month ECL 75 860 - 935 724 (649) - 75 1,835,249 1,302,886 98 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) 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 31 December 2023 31 December 2022 12-month ECL 12-month ECL 39 32 71 1,780,431 395 (356) 39 963,669 12-month ECL 31 December 2023 Lifetime ECL not credit- impaired Lifetime ECL credit- impaired Total 12-month ECL 31 December 2022 Lifetime ECL not credit- impaired Lifetime ECL credit- impaired Total 4,487 (988) 65 2,925 739 (651) 5,291 1,286 2,375 2,112 3,499 2,990 88 6,577 4,487 20 45 65 3,221 (2,482) 5,616 (325) 739 5,291 1,684,611 120,383 35,891 1,840,885 972,357 8,263 15,143 995,763 99 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) 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 31 December 2023 31 December 2022 12-month ECL 12-month ECL 19 10 29 255,090 198 (179) 19 228,394 100 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) In millions of naira 12-month ECL 31 December 2023 Lifetime ECL not credit- impaired Lifetime ECL credit- impaired Total 12-month ECL 31 December 2022 Lifetime ECL not credit- impaired Lifetime ECL credit- impaired Total 25,269 2,542 (5,909) 34,341 (1,109) 6,142 43,519 (1,433) (233) 103,129 - - 17,578 1,399 (310) 26,628 (438) 1,671 94,315 (961) (1,361) 138,521 - - (264) (1,500) 1,764 - (613) (107) 720 - 13,100 - - 132,835 - - 248,505 (13,386) - 394,440 (13,386) - 7,215 - - 6,587 - - 24,627 (73,820) - 38,429 (73,820) - - - - - - - - - - - - - - - - - - - - - 34,738 170,709 278,736 484,183 25,269 34,341 43,520 103,130 3,680,845 2,423,315 308,819 6,412,979 2,862,479 899,746 76,580 3,838,805 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-offs New financial assets originated or purchased Derecognised asset other than write off Effects of changes in EAD, LGD and PD Foreign exchange and other movements Closing balance Gross amount In millions of naira Other financial assets Balance at 1 January Impairment Charge (see note 8) Closing balance Gross amount subject to simplified approach ECL 31 December 2023 Lifetime ECL not credit-impaired - 31 December 2022 Lifetime ECL not credit-impaired - 28,868 2,193 31,061 358,753 9,835 19,033 28,868 150,690 101 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) In millions of naira Due from other Banks Balance at 1 January Impairment/(writeback) (see note 8) Closing balance Gross amount In millions of naira 12-month ECL Investment securities at amortised cost and fair value through OCI Balance at 1 January 1,277 Impairment Charge/(writeback)(see note 8) 901 31 December 2023 31 December 2022 12-month ECL 12-month ECL 75 860 935 58 17 75 1,692,657 1,132,871 31 December 2023 Lifetime ECL not credit- impaired - Lifetime ECL credit- impaired - Total 12-month ECL 31 December 2022 Lifetime ECL not credit- impaired Lifetime ECL credit- impaired Total 2,584 666 2,867 611 - - - - 538 - - - - 1,307 - - - 1,428 - - - - - - - - - 666 1,306 1,917 1,306 2,703 2,583 520,920 Closing balance Gross amount 2,178 538 720,663 249,308 2,735 5,636 5,451 1,277 975,608 518,217 102 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) 3.2.18 (b) Significant changes in gross carrying amount 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 Stage 1 12-month ECL 31 December 2023 Stage 2 Lifetime ECL not credit- impaired Stage 3 Lifetime ECL credit- impaired Total Stage 1 12-month ECL 31 December 2022 Stage 2 Lifetime ECL not credit- impaired Stage 3 Lifetime ECL credit- impaired Treasury bills at amortised cost Gross carrying amount at 1 January Financial assets derecognised during the period other than write-offs Changes in amortised cost value New financial assets originated or purchased Foreign exchange and other movements 1,003,732 (3,284,100) 38,186 4,197,072 177 (306) - - 31,849 129 Closing gross carrying amount 1,986,739 - - - - - - - 1,003,909 941,538 (3,284,406) (2,741,441) 38,186 4,197,072 (190,521) 2,994,157 31,978 - 1,986,739 1,003,732 - - - 177 - 177 - - - - - - Total 941,538 (2,741,441) (190,521) 2,994,333 - 1,003,909 103 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) In millions of naira Off balance sheet exposure Gross carrying amount at 1 January Transfers: Transfer to 12 month ECL Transfer to lifetime ECL not credit- impaired Transfer to lifetime ECL credit- impaired Financial assets derecognised during the period New financial assets originated or purchased Foreign exchange and other movements Stage 1 12-month ECL 31 December 2023 Stage 2 Lifetime ECL not credit- impaired Stage 3 Lifetime ECL credit- impaired Total Stage 1 12-month ECL 31 December 2022 Stage 2 Lifetime ECL not credit- impaired Stage 3 Lifetime ECL credit- impaired Total 1,010,968 1,056 12,194 1,024,218 1,093,246 14,591 6,635 1,114,472 3,574 (44,363) (18,901) (1,788) 44,910 (1,786) (547) - 18,901 - - - (1,315) (1,960) 1,315 - - 1,960 - - (388,847) (15,528) (1,834) (406,208) (411,890) (5,266) (12,330) (429,486) 388,025 8,574 9,105 405,704 875,878 70,183 14,367 960,428 472,050 12,265 4,559 488,874 - - - - - - - - Closing gross carrying amount 1,887,316 121,360 35,358 2,044,034 1,089,150 8,952 15,866 1,113,968 104 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) 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 Changes in amortised cost value New financial assets originated or purchased Transfers from investment securities Closing gross carrying amount 31 December 2023 31 December 2022 Stage 1 12-month ECL Stage 1 12-month ECL 228,395 (156,160) (1,001) 53,577 183,856 308,667 158,105 (127,558) 907 196,941 - 228,395 In millions of naira Stage 1 12-month ECL 31 December 2023 Stage 2 Lifetime ECL not credit- impaired Stage 3 Lifetime ECL credit- impaired Total Stage 1 12-month ECL 31 December 2022 Stage 2 Lifetime ECL not credit- impaired Stage 3 Lifetime ECL credit- impaired Total Loans and advances to customers at amortised cost Gross carrying amount at 1 January Transfers: Transfer from stage 1 to stage 2 Transfer from stage 1 to stage 3 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 Financial assets derecognised during the period other than write-offs Changes in interests accrued and other movements New financial assets originated or purchased Write-offs Foreign exchange and other movements 3,139,107 905,393 79,466 4,123,966 2,600,349 754,708 146,821 3,501,878 (593,133) - (21,914) - - 133,119 (918,671) 470,115 - (4,179) - - (130,079) (129,405) 123,018 - 26,093 - - (3,040) (24,323) - - - - - - (1,072,399) (89,454) (14,268) - - 43,018 1,644 (1,078,237) 89,454 - (2,682) 2,550 (43,018) - (20,231) - 14,268 2,682 (2,550) - (1,644) (19,307) - - - - - - (1,117,775) 277,621 448,011 14,498 740,130 - - - - 2,513,310 852,633 82,036 3,447,979 1,676,055 124,612 13,016 1,813,683 - 62,078 - 466,734 (13,386) 40,475 (13,386) 569,287 - - - - (73,820) - (73,820) - Closing gross carrying amount 4,591,517 2,879,223 324,837 7,795,577 3,139,107 905,393 79,465 4,123,966 105 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) In millions of naira Stage 1 12-month ECL 31 December 2023 Stage 2 Lifetime ECL not credit- impaired Stage 3 Lifetime ECL credit- impaired Total Stage 1 12-month ECL 31 December 2022 Stage 2 Lifetime ECL not credit- impaired Stage 3 Lifetime ECL credit- impaired Total Investment securities at amortised cost and fair value through OCI Gross carrying amount at 1 January Transfers: Transfer from stage 1 to stage 2 Transfer from stage 1 to stage 3 Transfer from stage 2 to stage 3 Transfer to pledged Financial assets derecognised during the period other than write-offs Changes in amortised cost value New financial assets originated or purchased Foreign exchange and other movements 1,400,136 90,253 195,605 1,685,994 1,199,579 - - - 1,199,579 - - - (45,607) 45,607 (53,680) 53,680 - - - - - (77,900) 77,900 - - - (148,204) - 148,204 - (4,024) 4,024 (92,337) (168,771) - (9,432) - (250,775) (92,337) (428,978) - (69,857) - (4,402) - - - (74,259) 56,201 365,743 7,069 196,632 26,339 217,574 89,609 779,949 (10,942) 483,240 - 45,000 - 43,377 (10,942) 571,617 367,912 458,720 231,911 1,058,543 - - - - Closing gross carrying amount 1,883,277 710,949 498,554 3,092,780 1,400,136 90,254 195,605 1,685,995 106 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) In millions of naira Other financial assets Gross carrying amount at 1 January Transfers: New financial assets originated or purchased Financial assets derecognised during the year other than write offs Foreign exchange and other movements Closing gross carrying amount of assets subject to simplified approach In millions of naira Due from other banks 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 Bank 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 Changes in amortised cost value New financial assets originated or purchased 31 December 2023 31 December 2022 12-month ECL Lifetime ECL not credit- impaired 12-month ECL Lifetime ECL not credit- impaired 168,692 229,490 (448) 13,530 411,264 - - - - - 117,857 50,835 - - 168,692 - - - - - 31 December 2023 31 December 2022 Stage 1 12-month ECL 1,302,886 (1,075,935) 556,381 1,051,917 1,835,249 Stage 1 12-month ECL 691,968 (91,034) 701,952 - 1,302,886 31 December 2023 Stage 1 12-month ECL Total 31 December 2022 Stage 1 12-month ECL Total 963,669 963,669 754,151 754,151 (3,020,911) (3,020,911) (2,554,055) (2,554,055) 193,146 3,644,527 193,146 3,644,527 (190,521) 2,954,094 (190,520) 2,954,094 Closing gross carrying amount 1,780,431 1,780,431 963,669 963,670 107 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) In millions of naira Stage 1 12-month ECL 31 December 2023 Stage 2 Lifetime ECL not credit- impaired Stage 3 Lifetime ECL credit- impaired Total Stage 1 12-month ECL 31 December 2022 Stage 2 Lifetime ECL not credit- impaired Stage 3 Lifetime ECL credit- impaired Total Off balance sheet exposure Gross carrying amount at 1 January Transfers: Transfer from stage 1 to stage 2 Transfer from stage 1 to stage 3 Transfer from stage 3 to stage 2 Transfer from stage 2 to stage 3 Transfer from stage 2 to stage 1 Transfer from stage 3 to stage 1 Financial assets derecognised during the period other than write-offs New financial assets originated or purchased Foreign exchange and other movements 972,357 8,263 15,143 995,763 908,566 14,591 6,635 929,792 (44,320) 44,320 - (18,894) - 18,894 - - 1,456 1,786 547 (634) (1,456) (547) 634 - - (1,786) - - - - - - (1,304) 1,304 (1,957) - - - - - - - - - - 1,957 - - - - - - - - - - (381,858) (4,911) (12,330) (399,099) (310,594) (15,528) (1,834) (327,956) 891,932 70,183 14,321 976,436 377,646 7,896 8,385 393,927 262,152 4,071 1,562 267,785 - - - - Closing gross carrying amount 1,684,611 120,383 35,891 1,840,885 972,357 8,263 15,143 995,763 108 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) 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 Changes in amortised cost value New financial assets originated or purchased Closing gross carrying amount 31 December 2023 31 December 2022 Stage 1 12-month ECL Stage 1 12-month ECL 228,397 (156,160) (1,001) 183,854 255,090 158,105 (127,558) 907 196,939 228,393 Total In millions of naira Stage 1 12-month ECL 31 December 2023 Stage 2 Lifetime ECL not credit- impaired Stage 3 Lifetime ECL credit- impaired Total Stage 1 12-month ECL 31 December 2022 Stage 2 Lifetime ECL not credit- impaired Stage 3 Lifetime ECL credit- impaired Loans and advances to customers at amortised cost Gross carrying amount at 1 January Transfers: Transfer from stage 1 to stage 2 Transfer from stage 1 to stage 3 Transfer from stage 2 to stage 3 Transfer from stage 3 to stage 2 Transfer from stage 2 to stage 1 Transfer from stage stage 3 to stage 1 New financial assets originated or purchased Financial assets derecognised during the period other than write-offs Changes in interest accrued and other movements Write-offs Foreign exchange and other movements 2,862,479 899,745 76,580 3,838,804 2,343,421 752,640 141,912 3,237,973 (592,065) 592,065 - (21,914) - 21,914 - - (123,018) 123,018 1,474 (1,474) 130,079 (130,079) - 3,040 - (3,040) - - - - - - (85,122) 85,122 - (14,266) - 14,266 - - (2,670) 2,670 2,537 (2,537) 42,999 (42,999) - 1,644 - (1,644) - - - - - - 2,186,176 861,614 83,529 3,131,319 1,652,040 125,347 13,025 1,790,412 (918,615) (129,405) (16,605) (1,064,625) (1,078,237) (20,231) (17,293) (1,115,761) 277,621 448,011 14,498 740,130 - 31,665 - 450,919 (13,386) 38,283 (13,386) 520,867 - - - - - - - - (73,820) - (73,820) - Closing gross carrying amount 3,958,466 2,871,326 323,317 7,153,109 2,862,479 899,746 76,579 3,838,804 109 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) In millions of naira Stage 1 12-month ECL Investment securities at amortised cost Gross carrying amount at 1 January Transfers: Transfer from stage 1 to stage 3 Financial assets derecognised during the period other than write-offs Changes in amortised cost value New financial assets originated or purchased Foreign exchange and other movements 518,217 - (109,115) - 209,542 12,945 Closing gross carrying amount 631,589 In millions of naira Other financial assets Gross carrying amount at 1 January Transfers: Financial assets derecognised during the period other than write-offs New financial assets originated or purchased Closing gross carrying amount of assts subject to simplified approach 31 December 2023 Stage 2 Lifetime ECL not credit- impaired Stage 3 Lifetime ECL credit- impaired Total Stage 1 12-month ECL 31 December 2022 Stage 2 Lifetime ECL not credit- impaired Stage 3 Lifetime ECL credit- impaired Total - - - - - - - 2,703 520,920 380,199 - - - (2,703) (109,115) (9,263) 1,730 - 1,730 209,542 (16,683) 166,667 - 12,945 - 4,433 636,022 518,217 - - - - - - - - 380,199 2,703 - - - - - (9,263) (16,683) 166,667 - 2,703 520,920 31 December 2023 31 December 2022 Lifetime ECL - 150,690 208,063 - 358,753 Lifetime ECL - 92,747 57,943 - 150,690 110 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) In millions of naira Due from other banks Gross carrying amount at 1 January Transfers: Financial assets derecognised during the period other than write-offs New financial assets originated or purchased Closing gross carrying amount 31 December 2023 31 December 2022 Stage 1 12-month ECL 1,132,870 (701,509) 775,049 1,692,657 Stage 1 12-month ECL 518,111 (16,651) 631,410 1,132,870 111 Zenith Bank Plc Annual Report - 31 December 2023 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 and FVOCI Other financial assets measured at amortised cost Due from other Banks ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) Summary of loss allowance by class of financial instruments also showing ECL coverage ratio as at 31 December 2023. Group Gross Carrying Amount ECL Provision Financial Statement Items Stage 1 Stage 2/Lifetime ECL Stage 3 Total Stage 1 Stage 3 Total Stage 1 Stage 2/Lifetime ECL 326,815 - - 326,815 361 - - 361 2,526,304 - 3,961,465 1,208,287 - 211,269 2,526,304 5,381,021 1,408 43,355 - 158,474 - 127,523 1,408 329,352 % 0.13 0.09 2.36 ECL Coverage Ratio Stage 3 Total Stage 2/Lifetim e ECL % % % - - 0.11 - 10.89 - 60.41 0.06 6.12 1,918,497 453,471 1,915,101 - - - - - - 1,918,497 3,244 9,907 102,395 115,546 0.57 - 453,471 24,904 1,915,101 252 - - - 0 24,904 - 6.25 252 0.01 - - - - 6.02 - 0.01 Subtotal 11,101,653 1,208,287 211,269 12,521,209 73,524 168,381 229,918 471,823 0.66 13.94 108.83 3.77 Off-balance sheet items Loans and other credit related commitments Letters of credit Usance Financial guarantee and similar contracts Financial guarantee and similar contracts Undrawn overdraft balance 621,156 400,909 298 9,905 73 33 621,527 410,846 3,709 2,952 581,492 21,221 31,891 634,604 1,473 42,857 470 507 43,834 52 Subtotal 1,646,414 31,893 32,504 1,710,811 8,186 1 64 19 4 88 50 5 3,760 3,021 0.75 0.65 105 1,598 0.27 - - - 100.00 17.64 0.60 0.74 0.35 0.25 28 84 0.33 0.82 18.22 0.19 188 8,463 0.50 0.28 0.58 0.49 Total 12,748,067 1,240,180 243,773 14,232,020 81,710 168,469 230,106 480,286 0.64 13.58 94.39 3.37 * The Group adopted the simplified approach in estimating the ECL for other financial asset. Under this approach, all ECL allowance are lifetime ECL. 112 Zenith Bank Plc Annual Report - 31 December 2023 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 Due from other banks ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) Bank Financial Statement Items Stage 1 Gross Carrying Amount Stage 3 Stage 2/Lifetime ECL ECL Provision Total Stage 1 Stage 2/Lifetim e ECL Stage 3 Total Stage 1 255,090 - - 255,090 29 - - 29 1,780,431 3,680,845 - 2,423,315 - 308,819 1,780,431 6,412,979 71 34,738 - 170,709 - 278,736 71 484,183 % 0.00 0.00 0.01 ECL Coverage Ratio Stage 3 Total Stage 2/Lifetim e ECL % % % - - 0.07 - 0.01 - 0.90 - 7.55 720,663 249,308 5,636 975,608 1,721 994 2,735 5,451 0.00 0.00 0.49 0.56 - 358,753 1,692,657 - - - 358,753 - 31,061 1,692,657 935 - - - 31,061 - 0.09 935 0.00 - - - 8.66 0.06 Subtotal 8,129,686 3,031,376 314,455 11,475,518 37,494 202,764 281,471 521,730 0.46 6.69 89.51 4.55 Off-balance sheet items Loans and other credit related commitments Letters of credit Usance Performance bonds and guarantees Undrawn overdraft balance Subtotal Total 397,582 385,141 726,543 27,229 43,254 13,635 92 5,532 30,169 424,903 433,927 770,347 2,305 581 30 1,304 1,497 12 175,345 36,265 98 211,708 582 178 - 21 67 - 3,609 2,099 109 760 1,684,610 120,383 35,891 1,840,885 3,498 2,991 88 6,577 9,814,296 3,151,759 350,346 13,316,403 40,992 205,755 281,559 528,307 0.58 0.15 - 0.33 0.21 0.42 - - 0.09 0.49 - 0.38 0.22 0.85 0.48 0.01 - 0.36 2.48 0.25 0.36 6.53 80.37 3.97 * The Group adopted the simplified approach in estimating the ECL for other financial asset. Under this approach, all ECL allowance are lifetime ECL. 113 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) Summary of loss allowance by class of financial instruments also showing ECL coverage ratio as at 31 December 2022. Group Financial Statement Items Stage 1 Gross Carrying Amount Stage 3 Stage 2/Lifetime ECL ECL Provision Total Stage 1 Stage 2/Lifetime ECL Stage 3 Total Stage 1 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 Due from other Banks 228,492 - - 228,492 17 - - 17 1,003,908 3,139,107 - 905,393 - 79,465 1,003,908 4,123,965 407 29,501 - 35,370 - 45,390 407 110,261 % 0.01 0.04 0.94 1,400,136 90,253 195,605 1,685,994 3,323 9,907 49,008 62,238 0.24 - 168,692 1,302,886 - - - 168,692 - 28,973 1,302,886 75 - - - 28,973 - 75 0.01 ECL Coverage Ratio Stage 3 Total Stage 2/Lifetim e ECL % % % - - 3.91 - 0.01 - 57.12 0.04 2.67 - - - - - - 3.69 17.18 0.01 Subtotal 7,074,529 1,164,338 275,070 8,513,937 33,323 74,250 94,398 201,971 0.47 6.38 34.32 2.37 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 363,328 275,723 - 4 27 754 363,355 276,481 2,743 1,794 372,609 363 11,410 384,382 1,015 78,901 7,896 2,952 89,749 260 Subtotal 1,090,561 8,263 15,143 1,113,967 5,812 - - - 65 65 27 133 2,770 1,927 0.75 0.65 40 1,055 0.27 - - - 100.00 100.00 0.75 0.70 0.35 0.27 538 863 0.33 0.82 18.22 0.96 738 6,615 0.53 0.48 0.79 4.87 0.59 6.34 32.78 2.17 Total 8,165,090 1,172,601 290,213 9,627,904 39,135 74,315 95,136 208,586 * The Group adopted the simplified approach in estimating the ECL for other financial asset. Under this approach, all ECL allowance are lifetime ECL. 114 Zenith Bank Plc Annual Report - 31 December 2023 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 Due from other banks ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) Bank Financial Statement Items Stage 1 Gross Carrying Amount Stage 3 Stage 2/Lifetime ECL ECL Provision Total Stage 1 Stage 2/Lifetime ECL Stage 3 Total Stage 1 228,394 - - 228,394 19 - - 19 963,669 2,862,479 - 899,746 - 76,580 963,669 3,838,805 39 25,269 - 34,341 - 43,519 39 103,129 % 0.01 - 0.88 ECL Coverage Ratio Stage 3 Total Stage 2/Lifetim e ECL % % % - - 3.82 - 0.01 - 56.83 - 2.69 518,217 - 2,703 520,920 1,277 - 150,690 1,132,871 - - - 150,690 1,132,871 - 75 - - - 1,306 2,583 0.25 - 48.32 0.50 28,868 28,868 - 6.80 - 75 0.01 - - - 6.80 0.01 Subtotal 5,705,630 1,050,436 79,283 6,835,349 26,679 34,341 73,693 134,713 0.47 3.27 92.95 1.97 Off-balance sheet items Loans and other credit related commitments Letters of credit Usance Performance bonds and guarantees Undrawn overdraft balance 279,764 275,723 372,609 - 4 363 27 754 11,410 279,791 276,481 384,382 2,415 1,794 19 78,901 7,896 2,952 89,749 260 Subtotal 1,006,997 8,263 15,143 1,030,403 4,488 - - - 65 65 Total 6,712,627 1,058,699 94,426 7,865,752 31,167 34,406 74,431 140,004 27 133 40 2,442 1,927 59 0.86 0.65 0.01 - - - 100.00 17.64 0.35 0.87 0.70 0.02 538 863 0.33 0.82 18.22 0.96 738 5,291 0.45 0.46 0.79 4.87 0.51 3.25 78.82 1.78 * The Group adopted the simplified approach in estimating the ECL for other financial asset. Under this approach, all ECL allowance are lifetime ECL. 115 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) 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) (f) (g) 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; 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. 3.3 Market risk Market risk is the risk of potential losses in both on- and off-balance sheet positions arising from movements in market prices. Market risks can arise from adverse changes in interest rates, foreign exchange rates, equity prices, commodity prices and other relevant factors such as market volatilities. The Group undertakes activities which give rise to some level of market risks exposures. The objective of market risk management activities 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. 116 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) 3.3.1 Management of market risk (continued) 'In millions of Naira Group Note Carrying amount At 31 December 2023 Trading Non-trading Carrying amount At 31 December 2022 Trading Non-trading Assets Cash and balances with central bank Treasury bills Assets pledged as collateral Due from other banks Derivative Asset - Hedging Instrument Derivative Asset -Non Hedging Instrument Loans and advances Investment securities Other financial assets Liabilities Customer deposits Derivative liabilities Other financial liabilities On-lending facilities Borrowings Bank Assets Cash and balances with central bank Treasury bills Assets pledged as collateral Due from other banks Derivative Asset - Hedging Instrument Derivative Asset -Non Hedging Instrument Loans and advances Investment securities Other financial assets Liabilities Customer deposits Derivative liabilities Other financial liabilities On-lending facilities Borrowings 15 16 17 18 19 19 20 21 25 28 33 29 30 31 15 16 17 18 19 19 20 21 25 28 33 29 30 31 4,253,374 2,736,273 308,638 1,834,314 462,376 72,363 6,556,470 3,290,895 445,597 15,167,740 70,486 991,354 263,065 1,410,885 - 749,606 - - 462,376 72,363 - 24,293 - - 70,486 - - - 4,253,374 1,986,667 308,638 1,834,314 - - 6,556,470 3,266,602 445,597 15,167,740 - 991,354 263,065 1,410,885 2,201,743 2,246,540 254,662 1,302,811 20,052 29,822 4,013,705 1,728,331 193,465 8,975,653 6,325 545,938 311,192 963,450 - 1,243,038 26,287 - 20,052 29,822 - 12,442 - - 6,325 - - - 2,201,743 1,003,500 228,375 1,302,811 - - 4,013,705 1,715,889 193,465 8,975,653 - 545,938 311,192 963,450 Carrying amount At 31 December 2023 Trading Non-trading Carrying amount At 31 December 2022 Trading Non-trading 3,965,386 2,529,966 255,061 1,691,722 462,376 45,566 5,928,796 1,205,724 394,540 12,154,824 45,514 970,792 263,065 1,450,182 - 749,606 - - 462,376 45,566 - 19,433 - 3,965,386 1,780,360 255,061 1,691,722 - - 5,928,796 1,186,291 394,540 2,102,394 2,206,669 254,564 1,132,796 20,052 28,799 3,735,676 622,780 176,289 - 1,243,038 26,189 - 20,052 28,799 - 10,560 - 2,102,394 963,630 228,375 1,132,796 - - 3,735,676 612,220 176,289 - 45,514 - - - 12,154,824 - 970,792 263,065 1,450,182 7,434,806 6,040 526,945 311,192 999,580 - 6,040 - - - 7,434,806 - 526,945 311,192 999,580 117 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) 3.3.2 Measurement of Market Risk The Group adopts both VAR and 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 daily. 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 i. Net Open Position (NOP- for foreign exchange); ii. Aggregate Control Limits (for Securities); iii. Management Action Trigger (MAT); iv. Duration; v. Factor Sensitivities (Pv01); vi. Permitted Instrument and Tenor Limits; vii. 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 designating part of its derivatives for hedge accounting purposes and trading other basic derivative products. 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. 118 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 Risk management (continued) 3. Group The table below summarizes the Group’s exposure to foreign currency exchange rate risk at 31 December 2023 and 31 December 2022. Included in the table are the Group’s financial instruments at carrying amounts, categorised by currency. In millions of Naira At 31 December 2023 Assets Cash and balances with central banks Treasury bills Assets pledged as collaterals Due from other banks Derivative assets-hedging instruments Derivative assets-non hedging instruments Loans and advances to customers Investment securities Other financial assets Liabilities Customer's deposits Derivative liabilities Other financial liabilities On-lending facilities Borrowings Naira Dollar GBP Euro Others Total 3,883,601 2,529,966 255,061 116,854 - 45,640 2,950,511 1,176,001 389,549 8,364,360 45,513 927,150 263,065 - 122,586 - 41,737 1,466,031 462,376 24,643 3,186,826 1,561,572 6,122 5,224,605 24,748 39,632 - 1,396,823 7,820 - 11,841 62,338 - 2,005 53,878 254,903 16 534,189 224 8,547 - 56 22,873 - - 170,697 - 20 181,007 97,346 193 330,768 - 2,268 - 376 216,493 206,307 - 18,395 - 55 184,248 201,072 49,717 713,819 - 13,022 - 13,630 4,253,374 2,736,273 308,638 1,834,315 462,376 72,363 6,556,470 3,290,895 445,597 15,167,740 70,486 990,619 263,065 1,410,885 As at 31 December 2023, the Group had outstanding SWAP transactions with various counterparties. The SWAP transactions creates for the Group both a right to receive US dollar of the notional SWAP amount at different maturities and an obligation to deliver NGN of the notional SWAP amount at different maturity. The total USD receivables at various maturity dates is USD 1.41 billion while the Naira payable at various maturities is N1,343 billion: In millions of Naira At 31 December 2022 Assets Cash and balances with central banks Treasury bills Assets pledged as collaterals Due from other banks Derivative assets-Hedging instrument Derivative assets-Non Hedging instrument Loans and advances to customers Investment securities Other financial assets Liabilities Customer's deposits Derivative liabilities Other financial liabilities On-lending facilities Borrowings Naira Dollar GBP Euro Others Total 2,089,869 2,227,845 254,565 110 - 326 2,212,928 628,850 77,095 6,185,521 374 430,582 311,192 - 18,937 - - 1,133,525 20,052 29,351 1,615,146 861,522 100,899 2,084,960 5,806 86,339 - 963,450 4,181 - - 62,355 - - 14,087 96,955 227 202,842 - 1,176 - - 4,957 - - 75,185 - - 77,477 35,155 33 135,821 - 10,996 - - 83,799 18,695 98 31,637 - 145 94,066 105,852 15,210 366,511 145 16,845 - - 2,201,744 2,246,540 254,663 1,302,811 20,052 29,822 4,013,704 1,728,333 193,464 8,975,655 6,325 545,938 311,192 963,450 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 106% (31 December 2022: 9%, with all other variables held constant. 119 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) US Dollar effect of 106% (31 December 2022: 9%) up or (down) movement on profit before tax and statement of financial position size (in millions of Naira) 31 December 2023 31 December 2022 384,112 68,926 US Dollar effect of 106% (31 December 2022: 9%) up or (down) movement on profit before tax and statement of financial position size (in millions of Naira) 384,112 68,926 US Dollar effect of 106% (31 December 2022: 9%) up or (down) movement on OCI and statement of financial position size (in millions of Naira) US Dollar effect of 106% (31 December 2022: 9%) up or (down) movement on OCI and statement of financial position size (in millions of Naira) 31 December 2023 31 December 2022 432,948 432,948 8,042 8,042 120 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) Bank The table below summarizes the Bank’s exposure to foreign currency exchange rate risk at 31 December 2023 and 31 December 2022. Included in the table are the Bank’s financial instruments at carrying amounts, categorised by currency. In millions of Naira At 31 December 2023 Assets Cash and balances with central banks Treasury bills Assets pledged as collaterals Due from other banks Derivative assets-Hedging instruments Derivative assets-non hedging instruments Loans and advances to customers Investment securities Other financial assets Liabilities Customer's deposit Derivative liabilities Other financial liabilities On-lending facilities Borrowings Naira Dollar GBP Euro Others Total 3,883,602 2,529,966 255,061 126,765 - 45,565 2,950,400 1,140,970 389,614 8,379,922 45,514 927,622 263,065 - 62,423 - - 1,356,978 462,376 - 2,885,201 34,340 4,657 3,532,122 - 39,014 - 1,449,750 4,986 - - 47,768 - - 2,743 - 16 45,438 - 1,349 - 56 14,375 - - 154,409 - 1 88,369 30,414 193 196,377 - 2,241 - 376 - - - 5,802 - - 2,083 - 60 965 - 566 - - 3,965,386 2,529,966 255,061 1,691,722 462,376 45,566 5,928,796 1,205,724 394,540 12,154,824 45,514 970,792 263,065 1,450,182 As at 31 December 2023, the Group had outstanding SWAP transactions with various counterparties. The SWAP transactions creates for the Bank both a right to receive US dollar of the notional SWAP amount at different maturities and an obligation to deliver NGN of the notional SWAP amount at different maturity. The total USD receivables at various maturity dates is USD 1.4 billion while the Naira equivalent of treasury bills will mature to the respective counter parties. 121 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) In millions of Naira At 31 December 2022 Assets Cash and balances with central banks Treasury bills Assets pledged as collaterals Due from other banks Derivative Asset - Hedging Instrument Derivative Asset -Non Hedging Instrument Loans and advances to customers Investment securities Other financial assets Liabilities Customer's deposits Derivative liabilities Other financial liabilities On-lending facilities Borrowings Debt securities issued Naira Dollar GBP Euro Others Total 2,086,532 2,206,669 254,565 10,020 - 326 2,212,764 593,312 75,387 6,172,467 299 429,971 311,192 - - 10,420 - - 1,032,923 20,052 28,328 1,481,680 15,364 100,813 1,175,734 5,596 77,361 - 999,580 - 3,208 - - 23,240 - - 657 - 55 15,222 - 1,176 - - - 2,235 - - 56,122 - - 38,569 14,103 33 65,964 - 10,996 - - - - - - 10,490 145 - 2,005 - - 5,420 145 7,440 - - - 2,102,395 2,206,669 254,565 1,132,795 20,197 28,654 3,735,675 622,779 176,288 7,434,807 6,040 526,944 311,192 999,580 - The Bank’s exposure to foreign currency risk is largely concentrated in US Dollar. Movement in exchange rate between the US Dollar and the Nigerian Naira affects reported earnings through revaluation gain or loss and statement of financial position size through increase or decrease in the revalued amounts of assets and liabilities denominated in US Dollars. The Group's closing and average Dollar rate as at 31 December 2023 was N951.79/USD and N674.70/USD respectively. The table below shows the impact on the Bank’s profit and statement of financial position size if the exchange rate between the US Dollars, and Nigerian Naira had increased or decreased by 106% (31 December 2022: 9%), with all other variables held constant. In millions of Naira US Dollar effect of 106% (31 December 2022: 9%) up or (down) movement on profit before tax and balance sheet size 31 December 2023 31 December 2022 443,613 68,926 US Dollar effect of 106% (31 December 2022: 9%) up or (down) movement on profit before tax and statement of financial position size (in millions of Naira) 443,613 68,627 US Dollar effect of 106% (31 December 2022: 9%) up or (down) movement on OCI and statement of financial position size (in millions of Naira) 31 December 2023 31 December 2022 432,948 8,042 US Dollar effect of 106% (31 December 2022: 9%) up or (down) movement on OCI and statement of financial position size (in millions of Naira) 432,948 8,042 122 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) Foreign exchange risk 3.3.3.1 A fair value hedge is used to hedge a change in the fair value of an asset or liability or an unrecognized firm commitment that is attributable to a particular risk and could affect the profit or loss or other comprehensive income. The Bank manages the foreign currency risk on a group basis and items that are subject to the same risk are managed together. The Bank has designated its foreign currency borrowings and term deposits as hedged items in a formal hedge relationship for accounting purposes. a) Hedged item: The Bank has hedged the NGN/USD spot exchange rate risk arising from the translation of recognized foreign currency borrowings (see note 31) and savings and term deposits (see note 28) denominated in United States Dollars (USD) to NGN. This risk is due to the sustained depreciation of the Naira against the Dollar, leading to revaluation losses. b) Hedging instrument:The Bank has designated the spot component of its currency swaps with the Central Bank of Nigeria (CBN) as the hedging instrument in the hedge relationship for accounting purposes. c) Hedge ratio :The Bank has defined the hedge ratio as the actual ratio between the hedged item and hedging instruments. This is the ratio that the Bank uses for risk management purposes, which is appropriate for purposes of hedge accounting. The proportion of the hedging instrument designated in the hedge relationship is in line with the defined hedge ratio of 1:1. d) Hedge effectiveness: An economic relationship between a hedged item and hedging instrument exists where the values of the hedged item and hedging instrument will typically move in opposite directions in response to movements in the hedged risk. The Bank’s assessment is that gains and losses on the derivatives attributable to the spot component will continue to move in the opposite direction to the hedged items. The currency swap derivatives transaction was to “sell USD, buy NGN” at inception and “buy USD, sell NGN” at the forward date. A foreign currrency gain is recognised if the Naira depreciates, and a loss recognised if it appreciates. For the hedged items - foreign currency liabilities, a foreign currrency gain is recognised if the Naira appreciates, and a loss recognised if it depreciates. Therefore, management has assessed that there is an economic relationship between the hedging instrument and the hedged item as they will generally move in the opposite direction. The designated amounts and currency denomination for the hedge instruments and hedge items are also closely aligned. The Bank determines hedge effectiveness at the inception of the hedge relationship, and through quarterly prospective effectiveness assessments. Sources of ineffectiveness include; timing differences between the settlement dates of the hedged item and hedging instruments, credit risk of the Bank and its counterparty to the forward contract, and the use of existing currency swaps at the designation dates. In millions of Naira Total exposure to foreign exchange risk- fair value hedge - Interest bearing borrowings - Saving deposits - Term deposits Bank 507,661 340,308 330,831 The Bank’s accounting policy for its fair value hedges is set out in note 2.6 Further information about the hedging derivatives used by the Bank is provided below as at 31 December 2023 and 31 December 2022: In millions of Naira At 31 December 2023 Hedge Type: Fair Value hedge CBN Currency Swap Risk Category Average Strike Price Nominal Amount of Hedging Instrument Carrying Amount of Hedging Instrument Changes in fair value used for calculating Hedging ineffectiveness Line Item in the statement of financial position where the hedging instrument is located Number Assets Assets Foreign exchange risk 630 1,342,024 462,376 458,478 Derivative assets 123 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) In millions of Naira At 31 December 2023 Risk Category Hedge Type: Fair Value hedge Foreign exchange risk on foreign currency interest bearing borrowing Foreign exchange risk on savings deposits Foreign exchange risk on term deposits Foriegn Exchange Risk Foreign Exchange Risk Foreign Exchange Risk In millions of Naira At 31 December 2023 Fair Value hedge Foreign exchange risk Carrying amount of hedged item Change in fair value for calculating hedge ineffectiveness Line item in the statement of financial position where the hedging instrument is located Liabilities 283,954 (144,701) Borrowings 803,311 (273,230) Customers' deposits 256,032 (50,550) Customers' deposits Hedge ratio Effectiveness recognized in profit or loss Hedge ineffectiveness recognized in profit or loss Line item in profit or loss that includes hedge ineffectiveness ForeIgn Exchange - 100% 458,478 (10,004)Other operating income The notional contract amounts of the hedging instruments indicate the balance of designated hedging instruments at the reporting date. This balance fluctuates over the hedging period in line with the amortizing nature of the hedged items. 124 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) The following table shows the profile of the timing of the nominal amount of the hedging instrument In millions of Naira Derivative assets – Hedging Gross settled Receivable Payable In millions of Naira Total exposure to foreign exchange risk- fair value hedge - Interest bearing borrowings - Term deposits - Savings deposits In millions of Naira At 31 December 2023 Up to 1 month 1-3 months 3-6 months 6-12 months 115,750 (115,750) - - 215,280 (215,280) 556,862 (556,862) Bank 54,851 2,162,646 1,350,373 At 31 December 2022 Risk Category Average Strike Price Nominal Amount of Hedging Instrument Carrying Amount of Hedging Instrument Changes in fair value used for calculating Hedging ineffectiveness Line Item in the statement of financial position where the hedging instrument is located Hedge Type: Fair Value hedge Number Assets Assets CBN Currency Swap Foreign exchange risk 430 346,918 20,052 40,632 Derivative assets 125 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) In millions of Naira At 31 December 2022 Risk Category Hedge Type: Fair Value hedge Foreign exchange risk on foreign currency interest bearing borrowing Foreign exchange risk on term deposits Foriegn Exchange Risk Foreign Exchange Risk In millions of Naira At 31 December 2022 Fair Value hedge Foreign exchange risk Carrying amount of hedged item Change in fair value for calculating hedge ineffectiveness Line item in the statement of financial position where the hedging instrument is located Liabilities 271,705 (24,830) Borrowings 100,453 (14,760) Customer's deposits Hedge ratio Effectiveness recognized in profit or loss Hedge ineffectiveness recognized in profit or loss Line item in profit or loss that includes hedge ineffectiveness Foriegn Exchange - 93% 39,590 1,042 Trading gains The notional contract amounts of the hedging instruments indicate the balance of designated hedging instruments at the reporting date. This balance fluctuates over the hedging period in line with the amortizing nature of the hedged items. 126 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) The following table shows the profile of the timing of the nominal amount of the hedging instrument In millions of Naira Derivative assets – Hedging Gross settled Receivable Payable 3.3.4 Interest Rate Risk At 31 December 2023 Less than 3 months 3-6 months 6-12 months 172,776 (172,776) 200,350 (200,350) 331,030 (331,030) 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).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: At 31 December 2023 In millions of Naira Assets Cash and balances with central banks Treasury and other eligible bills (Amortized cost) Assets pledged as collateral (Amortised cost) Due from other banks Derivative Asset - Hedging Instrument Derivative Asset -Non Hedging Instrument 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 Total interest rate gap Note Carrying amount Rate sensitive 15 16 17 18 42 42 20 21 25 28 32 29 30 31 32 4,253,374 1,986,667 308,638 1,834,314 462,376 72,363 6,556,470 3,266,602 445,597 - - - 262,729 - - 2,078,232 280,285 - Non rate sensitive 4,253,374 1,986,667 308,638 1,571,585 462,376 72,363 4,478,238 2,986,317 445,597 19,186,402 2,621,247 16,565,156 15,167,740 70,486 991,354 263,065 1,410,885 - 5,962,092 - - - 527,660 - 9,205,648 70,486 991,354 263,065 883,225 - 17,903,530 6,489,752 11,413,778 1,282,872 (3,868,505) 5,151,378 127 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) The table shows the maturity profile of financial instruments that are rate sensitive. At 31 December 2023 Up to 1 month 1 - 3 months 3 - 6 months 6 - 12 months Over 1 year Total rate sensitive In millions of Naira Assets Loans and advances to customers Liabilities Customer deposits Borrowings 169,958 169,958 1,543,730 1,543,730 5,462,692 - 5,462,692 103,071 430,231 533,302 57,924 57,924 59,267 97,429 156,696 51,802 51,802 153,263 - 153,263 254,818 254,818 183,798 - 183,798 2,078,232 2,078,232 5,962,092 527,660 6,489,751 Total interest repricing gap (5,292,734) 1,010,428 (98,772) (101,461) 71,020 (4,411,519) Impact of interest rate sensitivity on cash flows - Borrowings and Loans and advances to customers: The group is primarily exposed to changes in interest rate on variable rate borrowings and variable rate loans and advances to customers. Impact on cash flow due to +/- 108 bps movement in LIBOR, NIBOR, EURIBOR or and SOFR (holding all other variables constant) has been estimated to be: Loans and advances: N22,445 million Borrowings: N5,699 million. 128 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) At 31 December 2022 In millions of Naira Assets Cash and balances with central banks Treasury and other eligible bills (Amortized cost) Assets pledged as collateral (Amortised cost) Due from other banks Derivative assets Derivatives Asset- Non Hedging instrument Loans and advances to customers Investment securities (Amortized cost and Fair value through OCI) Other financial assets Liabilities Customer deposits Derivative liabilties Other financial liabilities On-lending facilities Borrowings Debt securities issued Total interest rate gap Note Carrying amount Rate sensitive Non rate sensitive 15 16 17 18 42 42 20 21 25 28 32 29 30 31 32 2,201,743 1,003,501 228,474 1,302,811 20,052 29,822 4,013,705 1,715,889 193,465 10,709,462 8,975,654 6,325 545,938 311,192 963,450 - - 0 - - - - 870,276 - - 870,276 3,145,312 284 - - 292,215 - 2,201,743 1,003,501 228,474 1,302,811 20,052 29,822 3,143,429 1,715,889 193,465 9,839,186 5,830,342 6,040 545,938 311,192 671,234 - 10,802,559 3,437,812 7,364,746 (93,097) (2,567,536) 2,474,440 The table shows the maturity profile of financial instruments that are rate sensitive. In millions of Naira At 31 December 2022 In millions of Naira Assets Loans and advances to customers Liabilities Customer deposits Borrowings Total interest repricing gap Up to 1 month 1 - 3 months 3 - 6 months 6 - 12 months Over 1 year 40,139 40,139 2,854,186 - 2,854,186 (2,814,047) 607,695 607,695 104,666 240,529 345,195 262,500 43,640 43,640 37,739 51,685 89,424 30,958 30,958 62,615 - 62,615 (45,784) (31,657) 147,844 147,844 86,106 - 86,106 61,738 Total rate sensitive 870,276 870,276 3,145,312 292,214 3,437,526 (2,567,250) 129 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 Risk management (continued) 3. Group Interest rate sensitivity showing fair value interest rate risk In millions of Naira Financial assets at FVPL Treasury bills Bonds Assets pledged as collateral Total Impact on income statement: Favourable change at 14% reduction in interest rate (2022: 5%) Unfavourable change at 14% increase in interest rate (2022: 5%) FVOCI investment securities Government bonds Impact on other comprehensive income statement: Favourable change at 14% reduction in interest rate (2022: 1%) Unfavourable change at 14% increase in interest rate (2022: 1%) 31 December 2023 31 December 2022 749,606 24,293 - 1,243,038 12,442 26,189 773,899 1,281,669 108,346 (108,346) 64,083 (64,083) 1,528,786 833,849 214,030 (214,030) 8,338 (8,338) 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. Bank The table below summarizes the Bank's interest rate gap position: At 31 December 2023 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 Asset - Hedging Instrument Derivative Asset -Non Hedging Instrument 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 Total interest rate gap Note Carrying amount Rate sensitive 15 16 17 18 19 19 20 21 25 28 32 29 30 31 32 3,965,386 1,780,360 255,061 1,691,722 462,376 45,566 5,928,796 1,186,291 394,540 - - - - - - 1,407,917 - - Non-rate sensitive 3,965,386 1,780,360 255,061 1,691,722 462,376 45,566 4,520,879 1,186,291 394,540 15,710,098 1,407,917 14,302,181 12,154,824 45,514 970,792 263,065 1,450,182 - 4,955,730 - - - 527,660 - 7,199,094 45,514 970,792 263,065 922,522 - 14,884,377 5,483,390 9,400,987 825,721 (4,075,473) 4,901,194 130 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) The table shows the maturity profile of financial instruments that are rate sensitive. At 31 December 2023 In millions of Naira Assets Loans and advances to customers Liabilities Customer deposits Borrowings Up to 1 month 1 - 3 months 3 - 6 months 6 - 12 months Over 1 year 9,257 9,257 4,955,730 - 4,955,730 124,127 124,127 - 430,231 430,231 187,942 187,942 - 97,429 97,429 90,513 736,970 736,970 349,621 349,621 - - - - - - Total rate sensitive 1,407,917 1,407,917 4,955,730 527,660 5,483,390 Total interest repricing gap (4,946,473) (306,104) 736,970 349,621 (4,075,473) Impact of interest rate sensitivity on cash flows - Borrowings and Loans and advances to customers: The Bank is primarily exposed to changes in interest rate on variable rate borrowings and variable rate loans and advances to customers. Impact on cash flow due to +/- 108 bps movement in LIBOR, NIBOR, EURIBOR or and SOFR (holding all other variables constant) has been estimated to be: Loans and advances: N15,206 million Borrowings: N5,699 million. 131 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) At 31 December 2022 In millions of Naira Assets Cash and balances with central banks Treasury and other eligible bills (Amortized cost) Assets pledged as collaterals Due from other banks Derivative assets Derivatives Asset- Non Hedging instrument 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 Total interest rate gap Note Carrying amount Rate sensitive Non rate sensitive 15 16 17 18 42 42 20 21 25 28 29 13 30 31 32 2,102,394 963,630 228,376 1,132,796 20,052 28,799 3,735,676 612,220 176,289 9,000,232 7,434,806 6,040 526,945 311,192 999,580 - - - - - - - 558,051 - - 558,051 2,673,518 - - - 292,215 - 2,102,394 963,330 228,376 1,132,796 20,052 28,799 3,177,625 612,220 176,289 8,441,881 4,761,287 6,040 526,945 311,192 707,365 - 9,278,563 2,965,733 6,312,829 (278,331) (2,407,682) 2,129,052 132 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) The table shows the maturity profile of financial instruments that are rate sensitive. At 31 December 2022 Up to 1 month 1 - 3 months 3 - 6 months 6 - 12 months Over 1 year In millions of Naira Assets Loans and advances to customers Liabilities Customer deposits Borrowings Total interest repricing gap 922 922 2,673,518 - 2,673,518 (2,672,596) 557,129 557,129 - 240,529 240,529 316,600 - - - 51,685 51,685 (51,685) - - - - - - Total rate sensitive 558,051 558,051 2,673,518 292,214 2,965,732 (2,407,681) - - - - - - Interest rate sensitivity showing fair value interest rate risk In millions of Naira Financial assets at FVPL Treasury bills Bonds Assets pledged as collateral Total Impact on income statement: Favourable change at 14% reduction in interest rate (2022: 5%) Unfavourable change at 14% increase in interest rate (2022: 5%) 31 December 2023 31 December 2022 749,606 19,433 - 1,243,038 10,560 26,189 769,039 1,279,787 107,665 (107,665) 63,989 (63,989) 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 effect of 1400 basis points movement on profit is considered moderate and we do not expect all the rates to move at the same time and in the same direction. This risk can largely be handled by the flexibility in the changing/adjusting rates on loans and deposits. 3.3.5 Equity and commodity price risk The group is exposed to equity price risk as a result of holding non-quoted equity investments. Unquoted equity securities held by the group is composed mainly of the following: (i) 6.503% equity holding in African Finance Corporation (AFC) valued at N158.8 billion and cost N40 billion. (ii) 3.6% equity holding in Nigerian Interbank Settlement Scheme (NIBBS) valued at N1.94 billion and cost N50 million. (iii) 2.31% equity holding in FMDQ holdings plc valued at N2.0 billion. (iv) 0.68% equity holding in Unified Payment Services (UPS) valued at N507 million. (v) 0.024% equity holdings in AFREXIM valued N284 million. (vi) 5.88% equity holding in Shared Agent Network expansion facility Limited (SANEF) valued at N50 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. 133 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) NIBSS was incorporated in 1993 and is owned by all licensed banks including the Central Bank of Nigeria (CBN). The Company is responsible for handling inter-bank payments, funds transfer and settlement, and it also operates the Nigerian Automated Clearing System (NACS). The Group does not deal in commodities and is therefore not exposed to any commodity price risk. The sensitivity analysis of unquoted equity is stated in section 3.5 (c). 3.4 Liquidity risk Liquidity risk is the potential loss arising from the Group’s inability to meet its obligations as they fall due or its inability to fund increases in assets without incurring unacceptable costs 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) (b) (c) (d) (e) (f) Projecting cash flows and considering the level of liquid assets necessary in relation thereto. Monitoring balance sheet liquidity ratios against internal and regulatory requirements. Maintaining a diverse range of funding sources with adequate back-up facilities. Managing the concentration and profile of debt maturities. Monitoring deposit concentration in order to avoid undue reliance on large individual depositors and 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 the 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 to be able to withstand a range of different stress events and adequately diversify funding structure and access to funding sources. Those events are regularly reviewed and monitored by the Asset and Liability Committee (ALCO). Alternative scenarios on liquidity positions and on risk mitigants are considered. In line with standard risk management practice and global best practice, the Group: (a). Conducts on a regular basis appropriate stress tests 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. (b). Analyses the separate and combined impact of possible future liquidity stresses on: i) ii) iii) Cash flows; Liquidity position; and Profitability. 134 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) The Board and the Asset and Liability Committee (ALCO) regularly review the stresses and scenarios tested to ensure that their nature and severity remain appropriate and relevant to the Bank. These reviews take into the account the following: (a) (b) (c) Changes in market conditions; 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) (b) (c) (d) (e) (f) (g) (h) outlines strategies, policies and plans to manage a range of stresses. establishes a clear allocation of roles and clear lines of management responsibility. is formally documented. includes clear invocation and escalation procedures. is regularly tested and the result shared with the ALCO and Board. outlines that Group's operational arrangements for managing a huge funding run. is sufficiently 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 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. (a) Exposure to liquidity risk The key measure used by the Group for managing liquidity risk is the ratio of net liquid assets to deposits from customers. For this purpose, ‘net liquid assets’ includes cash and cash equivalents and investment-grade debt securities for which there is an active and liquid market less any balances with foreign banks and regulatory restricted cash. Customers' deposit excludes deposit denominated in foreign currencies. Details of the reported Group ratio of net liquid assets to deposits from customers at the reporting date and during the reporting period were as follows. 135 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) Group Bank At period/year end Average for the year Maximum for the year Minimum for the year 31 December 2023 31 December 2022 31 December 2023 31 December 2022 71.00% 83.00% 91.00% 71.00% 75.00% 45.00% 67.00% 63.00% . 65.00% 64.00% 75.00% 56.00% 72.00% 67.00% 53.00% 62.00% 136 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) (b) Liquidity reserve 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 31 December 2022 31 December 2023 In millions of naira Gross value Gross value Cash and balances with central banks Treasury bills Balances with other banks Investment securities Total Bank In millions of naira Cash and balances with central banks Treasury bills Balances with other banks Investment securities Total 269,967 2,736,344 126,199 2,773,726 5,906,236 452,135 2,246,946 1,302,886 660,485 4,662,452 Gross value Gross value 126,449 2,530,037 126,199 989,227 3,771,912 407,487 2,206,707 1,132,871 383,973 4,131,038 137 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 Risk management (continued) 3. (c) Financial assets available to support funding The table below sets out the availability of the Group's financial assets to support future funding Group 'In millions of Naira Cash and balances with central banks Treasury bills Assets pledged as collateral Due from other banks Loans and advances Investment securities Other financial assets Bank 'In millions of Naira Cash and balances with central banks Treasury bills Assets pledged as collateral Due from other banks Loans and advances Investment securities Other financial assets Note 15 16 17 18 20 21 25 Note 15 16 17 18 20 21 25 (d) Financial assets pledged as collateral Encumbered At 31 December 2023 Unencumbered 3,983,407 - 308,638 354,150 - - 1,100 269,967 2,736,273 - 1,480,164 6,556,470 3,290,895 444,497 Encumbered At 31 December 2023 Unencumbered 3,838,937 - 255,061 291,279 - - 1,100 126,449 2,529,966 - 1,400,443 5,928,796 1,205,724 393,440 Total 4,253,374 2,736,273 308,638 1,834,314 6,556,470 3,290,895 445,597 Total 3,965,386 2,529,966 255,061 1,691,722 5,928,796 1,205,724 394,540 Encumbered At 31 December 2022 Unencumbered 1,749,608 - 254,662 115,315 1,770 - - 452,136 2,246,540 - 1,187,496 4,011,935 1,728,331 193,464 Encumbered At 31 December 2022 Unencumbered 1,694,907 - 254,564 115,315 - - - 407,488 2,206,669 - 1,017,481 3,735,676 622,780 176,829 Total 2,201,744 2,246,540 254,662 1,302,811 4,013,705 1,728,331 193,464 Total 2,102,395 2,206,669 254,564 1,132,796 3,735,676 622,780 176,829 The total financial assets recognized in the statement of financial position that have been pledged as collateral for liabilities as at 31 December 2023 and 31 December 2022 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 are to the extent of the drawn amount at any point in time. The liquidity analysis of lease liability is disclosed in note 29c. 138 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) Group At 31 December 2023 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 Liabilities Non-derivative liabilities Customer's deposits Other financial liabilities On-lending facilities Borrowings Deriva ve Asset - Hedging Instrument Gross settled: Receivable Payable Derivative Asset -Non Hedging Instrument Gross settled: Receivable Payable Net settled Derivative liabilities Gross settled: Receivable Payable Net settled 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 28 29 30 31 19 33 414,436 727,947 6,785 1,694,780 1,190,084 163,318 409,077 - 360,019 1,015 123,941 808,188 479,801 1,311 - 590,643 17,269 13,353 1,400,530 431,711 19 - 1,197,269 105,741 5,891 1,016,031 213,007 1,480 3,838,939 - 401,200 - 3,964,784 3,018,662 65,489 4,253,374 2,875,878 532,009 1,837,965 8,379,617 4,306,499 477,376 4,253,374 2,736,273 308,638 1,834,314 6,556,470 3,290,895 445,597 4,606,426 1,774,275 2,453,525 2,539,419 11,289,074 22,662,719 19,425,562 13,124,934 618,196 3,056 83,846 830,978 354,262 21,165 498,553 671,685 170 22,107 313,032 374,588 8,555 20,692 94,290 192,136 20,166 222,819 503,441 15,194,321 1,001,348 289,839 1,493,162 15,167,740 991,354 263,065 1,410,885 7,187,769 495,526 381,958 320,194 504,624 10,875,031 9,377,460 - 115,750 115,750 - - - - 215,280 215,280 - 556,863 556,863 33,618 - 193,523 192,525 654 - - - 265,118 386,048 431,214 1,113,725 318 27,936 28,254 200 - 200 - - - - - - - - - - - - - - - - 887,893 887,893 - 462,376 462,376 227,794 192,525 72,363 72,363 2,196,104 - 518 27,936 70,486 70,486 28,454 37,911 139 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) At 31 December 2022 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 Liabilities Non-derivative liabilities Customer's deposits Other financial Liabilities On-lending facilities Borrowings Debt securities issued Derivative assets- Hedging instruments Gross settled: Receivable Payable 15 16 17 18 20 21 25 28 29 30 31 32 19 Net settled Derivative assets-Non Hedging Instrument 33 Gross settled: Receivable Payable Net settled Derivative liabilities Gross settled: Receivable Payable Net settled 33 Note Up to 1 month 1 - 3 months 3 - 6 months 6 - 12 months Over 1 year Carrying amount Gross nominal inflow/ (outflow) 463,163 323,828 4,595 1,263,202 981,044 70,368 168,268 938 460,101 85,164 28,666 557,865 234,430 713 - 613,895 35,375 11,375 511,134 211,719 30 - 1,028,194 21,161 - 592,972 141,728 76 1,697,512 - 302,153 - 1,776,619 1,524,161 54,575 2,161,613 2,426,016 448,448 1,303,243 4,419,634 2,182,407 223,662 2,201,743 2,246,540 254,663 1,302,811 4,013,710 1,728,449 194,791 3,274,467 1,367,876 1,383,529 1,784,130 5,355,020 9,935,446 11,942,707 8,183,517 396,598 2,771 35,146 - 402,334 124,131 23,000 225,342 - 202,080 385 18,092 370,726 - 113,935 9,569 29,871 229,298 - 84,476 16,503 276,278 130,980 - 6,473,275 547,186 350,012 757,153 - 8,975,654 545,938 311,192 963,449 - 7,187,769 495,526 381,958 320,194 504,624 10,875,031 9,377,460 - 614 (614) - - - - - - 95,466 (95,466) - 250,838 (250,838) - - 135,645 (105,614) 66,063 (27,258) 104,297 (63,881) 134,410 (134,400) 13 13 48 252 - 22,659 43,405 - 27,243 58,114 - 731 39,781 - - - - 11 46 242 - - - - - - - - - - - - 346,918 (346,918) - 440,415 (331,153) 326 - 50,633 141,300 299 - 20,052 20,052 - 29,822 29,822 326 - 6,325 6,325 299 140 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) Bank At 31 December 2023 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 Liabilities Non-derivative liabilities Customer's deposits Other financial liabilities On-lending facilities Borrowings Debt securities issued Derivative Asset - Hedging Instrument Gross settled: Receivable Payable Derivative Asset - Non Hedging Instrument Gross settled: Receivable Payable Net settled Derivative liabilities Gross settled: Receivable Payable Net settled At 31 December 2022 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 Note Up to 1 month 1 - 3 months 3 - 6 months 6 - 12 months Over 1 year Gross nominal Carrying amount inflow/ (outflow) 15 16 17 18 20 21 25 28 29 30 31 32 19 33 126,449 591,229 6,784 1,627,792 1,029,508 12,596 359,405 - 308,931 1,015 57,914 708,219 38,915 - - 578,665 17,269 9,636 1,338,411 26,789 - - 1,186,105 96,036 - 961,477 63,549 - 3,838,937 - 357,327 - 3,634,750 1,759,521 66,196 3,965,386 2,664,930 478,431 1,695,342 7,672,365 1,901,370 425,601 3,965,386 2,529,966 255,061 1,691,722 5,928,796 1,205,724 394,540 3,753,763 1,114,994 1,970,770 2,307,167 9,656,731 18,803,425 15,971,195 10,996,341 606,172 3,056 71,617 - 551,419 354,204 21,165 550,067 - 556,190 56 22,107 313,032 - 74,331 576 20,692 94,290 - 30 18,899 222,819 503,441 - 12,178,311 979,907 289,839 1,532,447 - 12,154,824 970,792 263,065 1,450,182 - 11,677,186 1,476,855 891,385 189,889 745,189 14,980,504 14,838,863 - 115,750 115,750 - - - - 215,280 215,280 - 556,863 556,863 - - - - 14 14 - 192,525 192,525 - - - - 223 45,141 200 - - - - - - - - - 223 45,091 200 - - - - - - - - - - - 887,893 887,893 - 462,376 462,376 192,525 192,525 45,564 - 14 14 45,566 45,566 45,564 - - - 45,514 45,514 Note Up to 1 month 1 - 3 months 3 - 6 months 6 - 12 months Over 1 year Gross nominal Carrying amount inflow/ (outflow) 15 16 17 18 20 21 25 407,488 317,767 4,595 1,131,783 956,681 8,653 150,690 - 444,309 85,066 1,380 498,681 10,367 - - 603,408 35,375 - 475,411 57,518 - - 1,020,587 21,161 - 569,863 28,407 - 1,694,907 - 302,153 - 1,671,708 962,816 54,467 2,102,395 2,386,071 448,350 1,133,163 4,172,344 1,067,761 205,157 2,102,394 2,206,669 254,565 1,132,796 3,735,676 622,780 176,289 2,977,657 1,039,803 1,171,712 1,640,018 4,686,051 11,515,241 10,231,169 141 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) At 31 December 2022 In millions of Naira Liabilities Non-derivative liabilities Customer's deposits Other financial liabilities On-lending facilities Borrowings Debt securities issued Derivative assets-Hedging instruments Gross settled: Receivable Payable Net settled Derivative assets-Non Hedging Instrument Gross settled: Receivable Payable Net settled Derivative liabilities Gross settled: Receivable Payable Net settled Note Up to 1 month 1 - 3 months 3 - 6 months 6 - 12 months Over 1 year Gross nominal Carrying amount inflow/ (outflow) 30 29 30 31 32 19 33 6,921,203 385,106 2,771 35,146 - 314,782 124,060 23,000 225,342 - 166,668 282 18,092 384,559 - 42,783 9,439 29,871 251,594 - - 16,034 276,278 130,980 - 7,445,436 534,921 350,012 1,027,621 - 7,434,806 526,945 311,192 999,580 - 7,344,226 687,184 569,601 333,687 423,292 9,357,990 9,272,523 - 614 (614) 13 - - - 13 - 95,466 (95,466) - 250,838 (250,838) 48 252 135,651 (105,620) 66,063 (27,258) 104,297 (63,881) 134,410 (134,410) 13 13 48 252 - 22,659 43,405 - 27,243 58,114 - 731 39,781 - - - - 11 46 242 - - - - - - - - - - - - 346,918 (346,918) - 20,052 (20,052) 326 326 440,421 (331,169) 326 - 50,633 (882,182) 299 28,799 28,799 326 - 5,741 5,741 299 142 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) Liquidity gap analysis (continued) The amounts in the tables above and below 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. 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’). Group At 31 December 2023 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 Undrawn overdraft Total 433,926 566,807 831,593 211,709 2,044,035 2,916 48,735 160,356 17,883 229,890 374,675 423,055 213,880 155,255 1,166,865 56,335 94,891 228,236 38,325 417,788 - 125 217,133 245 217,504 - - 11,988 - 11,988 At 31 December 2022 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 Undrawn overdraft 276,481 363,355 384,381 89,749 20,056 58,461 71,184 10,840 Total 1,113,966 160,541 239,026 273,698 99,505 61,558 673,787 17,399 23,577 144,771 17,352 203,099 - 7,619 51,272 - 58,891 - - 17,650 - 17,650 143 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) Bank At 31 December 2023 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 Undrawn overdraft Total 433,926 770,347 424,903 211,709 1,840,885 2,916 180,996 497 17,883 202,292 374,675 197,641 412,952 155,255 1,140,522 56,335 179,427 11,455 38,325 285,542 - 200,296 - 245 200,541 - 11,988 - - 11,988 At 31 December 2022 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 Undrawn overdraft Total 3.5 Fair value of financial assets and liabilities 276,481 279,791 349,741 89,749 995,762 20,056 33,202 73,320 10,840 137,418 239,026 235,279 74,684 61,558 610,547 17,399 11,310 134,513 17,352 180,574 - - 49,574 - 49,574 - - 17,650 - 17,650 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. i) ii) 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). iii) 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. 144 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) 3.5.a 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. 31 December 2023 In millions of Naira Assets Carried at FVTPL: Treasury bills Investment securities (Fixed income) Derivative Asset - Hedging Instrument Derivative Asset -Non Hedging Instrument Asset pledged as collateral Carried at FVOCI: Equity securities (Unquoted) Debt securities Carried at amortized cost: Treasury bills Assets pledged as collateral Investment securities Liabilities Carried at FVTPL Derivative liabilities Note Carrying value Total Fair value Fair value hierarchy Level 1 Level 2 Level 3 16 21 19 19 17 21 21 16 17 21 33 749,606 24,293 462,376 72,363 - 749,606 24,293 462,376 72,363 - 189,849 23,231 - 36 - 216,134 1,528,786 216,134 1,528,786 - 1,528,786 1,986,667 308,638 1,521,682 1,940,525 295,253 1,481,904 884,461 267,246 1,051,810 559,757 1,062 462,376 72,327 - 209,394 - 881,770 28,007 136,819 - - - - - 6,741 - 174,294 - 293,275 70,486 70,486 - 70,486 - The carrying values of the following assets and liabilities (which are measured at amortized cost) are assumed to be their fair values: Cash and balances with central banks Due from other banks Other financial assets Loans and advances to customers Customers deposits Other financial liabilities Onlending Borrowings See additional disclosures on valuation methods in Note 3.5d 145 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) 31 December 2022 In millions of Naira Assets Carried at FVTPL: Treasury bills Investment securities (Fixed income) Derivative Asset Hedging Instrument Derivative Asset -Non Hedging Instrument Asset pledged as collateral Carried at FVOCI: Equity securities (Unquoted) Debt securities Carried at amortized cost: Treasury bills Assets pledged as collateral Investment securities Liabilities Carried at FVTPL Derivative liabilities Note Carrying value Total Fair value Fair value hierarchy Level 1 Level 2 Level 3 16 21 19 19 21 21 16 17 21 33 1,243,039 12,441 20,052 29,822 26,287 1,243,039 12,441 20,052 29,822 26,287 129,703 11,455 - - 9,997 1,113,336 825 20,052 29,822 16,290 - - - - - 93,883 833,549 93,883 833,549 - 833,549 - - 93,883 - 1,003,501 228,376 794,422 1,002,865 228,394 762,668 835,073 222,646 465,654 167,792 5,749 194,226 - - 102,788 6,325 6,325 - 6,325 - 146 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) Bank The table below sets out the Bank's classification of each class of its financial assets and liabilities. 31 December 2023 In millions of Naira Assets Carried at FVTPL: Treasury bills Investment securities (Fixed income) Derivative Asset - Hedging Instrument Derivative Asset -Non Hedging Instrument Carried at FVOCI: Equity securities (Unquoted) Carried at amortized cost: Treasury bills Assets pledged as collateral Investment securities Liabilities Carried at FVTPL Derivative liabilities Note Carrying value Total Fair value Fair value hierarchy Level 1 Level 2 Level 3 16 21 19 19 21 16 17 21 33 749,606 19,433 462,376 45,566 749,606 19,433 462,376 45,566 189,849 18,371 - - 559,757 1,062 462,376 45,566 - - - - 216,134 216,134 - 209,393 6,741 1,780,360 255,061 970,157 1,766,231 245,452 934,586 884,461 217,445 797,767 881,770 28,007 136,819 45,514 45,514 - 45,514 - - - - The carrying values of the following assets and liabilities are assumed to be their fair values: Cash and balances with central banks Due from other banks Other financial assets Loans and advances to customers Customers deposits Other financial liabilities Onlending Borrowings See additional disclosures on valuation methods in Note 3.5d 147 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) 31 December 2022 In millions of Naira Assets Carried at FVTPL: Treasury bills Investment securities (Fixed income) Derivative assets Derivative Asset -Non Hedging Instrument Asset pledged as collateral Carried at FVOCI: Equity securities (Unquoted) Treasury bills Assets pledged as collateral Investment securities Liabilities Carried at FVTPL Derivative liabilities Carried at amortized cost: Debt securities issued Note Carrying value Total Fair value Fair value hierarchy Level 1 Level 2 Level 3 16 21 19 19 17 21 16 17 21 33 32 1,243,038 10,560 20,052 28,799 26,189 93,883 963,630 228,376 518,337 1,243,038 10,560 20,052 28,799 26,189 93,883 963,669 228,394 501,399 6,040 6,040 - - 129,703 10,433 - - 9,899 - 795,877 222,646 442,388 - - 3.5.b Financial instruments measured at fair value- Reconciliation of level 3. Group and Bank In millions of Naira At 1 January 2022 Transfer due to non-availability of observable data Gain recognised through other comprehensive income of equity investments At 31 December 2022 Reconciliation of Level 3 items At 1 January 2023 Transfer out due to availability of data Gain recognised through other comprehensive income of equity investments At 31 December 2023 1,113,336 127 20,052 28,799 16,290 - 167,792 5,749 59,011 6,040 - 21 - - - - - 93,883 - - - - - 85,574 200 8,109 93,883 93,883 (89,359) 2,217 6,741 There was a transfer between fair value hierarchy during the year from level 3 to level 2 because of the availability of observable market data arising from issue of AFC shares during that period. 3.5.c Level 3 fair value measurements (i) Unobservable inputs used in measuring fair value The table below sets out information about significant unobservable inputs used at 31 December 2023 and 31 December 2022 in measuring financial instruments categorized as level 3 in the fair value hierarchy. Type of financial instrument Fair values at 31 December 2023 Valuation technique Significant unobservable input Unquoted equity investment N6.7 billion Equity DCF model. -Cost of equity. -Terminal growth rate. Risk premium is determined by adding country risk premium to the product of market premium and equity beta. (ii) The effect of unobservable inputs on fair value measurements 148 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) 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. In millions of Naira FMDQ NIBSS UPSL AFREXIM At 31 December 2023 The lowest and highest values if the cost of equity and terminal growth rate decrease or increase by 1% and 0.25% respectively Lowest value 3,706 1,935 361 437 Highest value Actual value 4,096 2,321 337 526 3,742 2,115 350 478 The table below shows the effect of changes in cost of equity and terminal growth rate on other comprehensive income In millions of Naira Effect of 1% decrease in cost of equity and 0.25% increase in terminal growth rate Effect of 1% increase in cost of equity and 0.25% decrease in terminal growth rate 31 December 2023 31 December 2022 595 (246) 4,897 (4,394) 3.5.d Fair valuation methods and assumptions (i) Cash and balances with central banks Cash and balances with Central banks represent cash held with Central banks of the various jurisdictions in which the Group operates. The fair value of these balances is their carrying amounts. (ii) Due from other banks Due from other banks represents balances with local and correspondence banks, inter-bank placements and items in the course of collection. The fair value of the current account balances, floating placements and overnight deposits are their carrying amounts. (iii) Treasury bills, assets pledged as collateral 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. (iv) Loans and advances to customers Loans and advances are carried at amortized cost net of provision for impairment. The estimated fair value of loans and advances represents the discounted amount of amortised cost balance net of provision for impairment. The balance is discounted at current market rates to determine the fair value. (v) Other financial assets/financial liabilities Other financial assets/financial liabilities represent monetary assets, which usually have a short recycle period and as such, whose fair values approximate their carrying amount. (vi) Customer deposits, on-lending and borrowings The estimated fair value of deposits with no stated maturity, which includes non-interest-bearing deposits, is the amount repayable on demand. (vii) Derivatives 149 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) The Group uses widely recognised valuation models for determining the fair value of common and simple financial instruments, such as interest rate and currency swaps that use only observable market data and require little management judgement and estimation. Observable prices or model inputs are usually available in the market for listed debt and equity securities, exchange-traded derivatives, and simple OTC derivatives such as interest rate swaps. Availability of observable market prices and model inputs reduces the need for management judgement and estimation and reduces the uncertainty associated with determining fair values. Availability of observable markets prices and inputs varies depending on the products and markets and is prone to changes based on specific events and general conditions in the financial markets. 3.6 Capital management The strategy for assessing and managing the impact of our business plans on present and future regulatory capital forms an integral part of the Group’s strategic plan. Specifically, the Group considers how the present and future capital requirements will be managed and met against projected capital requirements. This is based on the Group's assessment and against the supervisory/regulatory capital requirements taking account of the Group business strategy and value creation to all its stakeholders. The Group prides itself in maintaining a 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 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 meets 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 and provides 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) (b) (c) Profit from Operations: The Group has consistently reported good profit, which can easily be retained to support the capital base. Issue of Shares: The Group has successfully assessed the capital market to raise equity and debt. With such experiences, the Group is confident that it can access the capital market when the need arises. Bank Loans (long term/short term): In 2014 financial year, Zenith Bank commenced capital computations in accordance with Basel II standard under the guidelines issued by the Central Bank of Nigeria. The guidelines require capital adequacy computations based on the Standardized 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. 150 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) The table below shows the computation of the Group's capital adequacy ratio for the year ended 31 December 2023 as well 31 December 2022. During those two periods, the individual entities within the Group complied with all of the externally imposed capital requirements. The Group and Bank's capital adequacy ratio are above the minimum statutory requirement. In millions of Naira Tier 1 capital Share capital Share premium Statutory reserves SMEIES reserve Retained earnings Non-controlling interest Total qualifying Tier 1 capital Deferred tax assets Intangible assets Investment in capital of financial subsidiaries Unsecured lending to subsidiaries within the same group Group Bank 31 December 2023 Basel II 31 December 2022 31 December 2023 31 December 2022 Basel II Basel II Basel II 15,698 255,047 409,104 3,729 1,179,390 1,628 1,864,596 (17,251) (47,018) - - 15,698 255,047 311,411 3,729 625,005 813 15,698 255,047 367,942 3,729 893,938 - 15,698 255,047 278,602 3,729 494,429 - 1,211,704 1,536,354 1,047,505 (18,343) (25,251) - - - (44,185) (17,313) - - (23,958) (17,313) - Adjusted Total qualifying Tier 1 capital 1,800,327 1,168,110 1,474,856 1,006,234 Tier 2 capital Other comprehensive income (OCI) Total qualifying Tier 2 capital Investment in capital and financial subsidiaries Net Tier 2 Capital Total regulatory capital Risk-weighted assets Credit risk Market risk Operational risk Total risk-weighted assets 364,801 364,801 - 364,801 72,923 72,923 - 72,923 175,983 175,983 (17,313) 158,670 53,731 53,731 (17,313) 36,418 2,165,128 1,241,033 1,633,526 1,042,652 7,882,270 214,752 1,894,809 9,991,831 4,961,579 142,290 1,163,701 6,267,570 6,672,311 153,007 1,667,274 8,492,592 4,335,844 94,041 1,058,784 5,488,669 Risk-weighted Capital Adequacy Ratio (CAR) %22 %20 %19 %19 3.7 Operational risk Operational Risk is the risk of loss resulting from inadequate and /or failed internal processes, people, and systems or from external events, including legal risk and any other risks. Operational risk exists in all products, processes 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 Group 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. 151 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) 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 processes 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 a measure which indicate the risk profile of the bank and any change thereof. KRIs act as early warning indicators and are used to monitor and predict potential operational loss events. KRIs are used in conjunction with system of thresholds. When the threshold or tolerance level for any KRI is breached, it triggers review, escalation, or management action. Risk indicators help keep the operational risk management dynamic and risk profile current. Loss Incident Reporting – Loss incidents are reported by all business units using the Loss incident reporting template. The discipline of collecting loss data is not only needed to understand the dimensions of risk the Bank faces but also used to motivate staff to consider and more actively control key elements of risk. The Bank-wide data collection promotes a dialogue within the Bank about determining the major operational risk exposures and reinforces more qualitative efforts to manage operational risk within each of the business lines. Operational Risk Capital Computation – The bank, based on Central Bank of Nigeria guideline, adopted basic indicator approach (BIA) in the calculation of its Operational Risk Capital adequacy. The estimated operational Risk Capital Charge is reported to the Board and management for capital planning and decision making. Business Continuity Management (BCM) In line with ISO 22301 Standards, the bank has a robust documented Business Continuity Plan. The primary objective of this plan is to protect the bank in the event of an undesired 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 recovers 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 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. 152 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) 3.8 Strategic risk Strategic risk is a possible source of loss that might arise from the pursuit of an unsuccessful business plan. Strategic risk examines the impact of design and implementation of business models and decisions on earnings and capital as well as the organisation's responsiveness to industry changes. Processes and procedures have been established to ensure that the right models are employed and appropriately communicated to all decision makers in the Group on issues relating to strategic risk management. This has essentially driven the Group’s sound banking culture and performance record to date. 3.9 Legal risk Legal risk is defined as the risk of loss due to defective contractual arrangements, legal liability (both criminal and civil) incurred during operations by the inability of the organisation to enforce its rights, or by failure to address identified concerns to the appropriate authorities where changes in the law are proposed. The Group manages this risk by monitoring new legislation, creating awareness of legislation among employees, identifying significant legal risks as well as assessing the potential impact of these. Legal risks management in the Group is also being enhanced by appropriate product risk review and management of contractual obligations via well documented Service Level Agreements and other contractual documents. 3.10 Reputational risk Reputational risk is defined as the risk of indirect losses arising from a decline in the bank’s reputation among one or multiple bank stakeholders. The risk can expose the Group to litigation, financial loss or damage to its reputation. The Group's reputation risk management philosophy involves anticipating, acknowledging, and responding to changing values and behaviours on the part of a range of stakeholders. Accordingly, the following are the roles and responsibilities: (a) (b) (c) Board and senior management oversee the proper set-up and effective functioning of the reputational risk management framework. Enterprise Risk Management Policy/Strategy (ERSP) is responsible for supporting the Board and senior management in overseeing the implementation of reputational risk management framework; and Corporate Communications is responsible for managing both the internal and external communications that may impact the reputation of the Bank. The process of reputation risk management within the Bank encompasses the following steps: i. ii. iii. iv. v. vi. 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. 153 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 3. Risk management (continued) 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 regulations. The Group maintains zero tolerance posture for any regulatory breach in all its areas of operations. 154 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 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 period. 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. 4.1 Modification of debt securities issued by the Government of Ghana and Ghana Cocoa Board In assessing the modification gain for investments that are within the scope of the Government of Ghana's Domestic Debt Exchange Programme and Cocoa Bill Exchange Programme, modification gain/loss is calculated as the difference between the carrying value of the old investments and the fair value of new investments calculated as the present value of future cash flows using an appropriate discount rate. Management applied a range of valuation assumptions to arrive at the appropriate discount rate due to the current complexities in Ghana's bond market. Detailed information about the judgements and estimates made by the Group in the above area is set out in note 3.2.18 and note 21. 4.2 Impairment losses on loans and advances 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 3.2.10 to 3.2.17. 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. Incorporation of forward-looking information; Detailed information about the judgements and estimates made by the Group in the above areas is set out in note 3.2.10 to 3.2.17. The table below shows the impact on expected credit losses on loans and advances of changes in macroeconomic risk drivers and how credit losses respond to 10% decrease and increase in macro-variables. 31 December 2023 In millions of Naira Gross loans balance Loss allowance 4.3 Determining fair values 10% increase No change 6,412,979 459,318 6,412,979 484,183 10% decrease 6,412,979 504,464 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 3.5(c). For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgment depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument. The Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements. i) Level 1 : Quoted market price (unadjusted) in an active market for an identical instrument. ii) Level 2 : Valuation techniques based on observable inputs, either directly - i.e, as prices - or indirectly - i.e derived from prices. This category includes instruments such as forward contracts, swaps etc. valued using; quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data. iii) Level 3 : Valuation techniques using significant unobservable inputs. This category 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 required to reflect differences between the instruments. See note 3.5c for sensitivity analysis on unquoted equity investments. 155 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 4.4 Deferred tax assets and liabilities The deferred tax assets and liabilities recognized by the Group are 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. 4.5 Uncertain Tax Position regarding the tax treatment of unrealised exchange gains on foreign currency assets. At each reporting date, the Bank translates its foreign currency deominated assets into the presentation currency (Naira). This leads to the recognition of unrealised exchange differences in the income statement. Based on the tax laws, the unrealised exchange differences are disallowed for tax purposes and results in differences between the tax base and the carrying amount of the assets. The tax treatment of the unrealised exchange differences is considered uncertain in terms of if this creates a temporary or permanent difference for deferred tax purposes. Also, uncertainty arise as to the tax rate that will be applied on the unrealised gain if it eventually becomes realised. The Directors have consulted widely on this uncertain tax position and have reflected the effect of the uncertainty by measuring the estimated tax liability using the expected value method. The Directors have considered the range of possible outcomes and estimated the deferred tax liability as the sum of the probability-weighted amounts within that range of the possible outcomes. The expected deferred tax liability has been appropriately factored in our deferred tax computation. It is anticipated that the reasonable possible outcome of the deferred tax liability sits within a range of 0% and 35% of the unrealized exchange difference. 4.6 Hyperinflation accounting The results of the Group’s operations with a functional currency of the Ghana cedis have been prepared in accordance with IAS 29 ‘Financial Reporting in Hyperinflationary Economies’ as if the economy had always been hyperinflationary. The results of those operations for the year ended 31 December 2023 are stated in terms of current purchasing power using the Consumer Price Index as at 31 December 2023. In accordance with IAS 21 ‘The Effects of Changes in Foreign Exchange Rates’, the results have been translated and presented in Nigerian Naira at the prevailing rate of exchange on 31 December 2023. The Group’s comparative information presented in Nigerian Naira has not been restated. Sierra Leone The effects of hyperinflation accounting in Sierra Leone have not been deemed significant for group reporting purposes, therefore the Group's operations with a functional currency of Sierra Leonean Leone have not been adjusted for the impacts of hyperinflation. Impact of Hyperinflation The application of the hyperinflation accounting procedures to the Group's operations in Ghana resulted in a N6.57 billion decrease in the Group profit before tax in 2023. Included in this is a net monetary loss of N13.225 billion. Other effects on the Group consolidated financial statements for 2023 are: - Total assets increased by N42.13 billion driven by non-monetary assets; - Opening retained profit decreased by N80.94 billion reflecting the impact of adjusting the historical cost of non-monetary assets and liabilities from the date of their initial recognition to 1 January 2023 for the effect of inflation; - Net revenue increased by NGN 6.93 billion; The CPI for Ghana was 200.5 (2022: 162.8) with an increase in the year of 37.7 (2022: 25.94). 156 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 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 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 This segment provide a broad range of banking services to a diverse group of corporations, financial institutions, investment funds, governments and individuals outside Nigeria. The reportable segment 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 Board of Directors, 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. 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. (c) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The board of Directors assess the financial performance and position of the group and makes strategic decisions. The board of Directors is the chief operating decision maker. 157 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 5. Segment Analysis (continued) Information regarding each reportable segment is included in the tables below. The tables also show the reconciliation of the amounts in the statement of profit or loss and statement of financial position for the reportable segments to the amounts in the Group's statement of profit or loss and statement of financial position. In millions of Naira 31 December 2023 Interest and similar income Total Income on fee and commission Other operating income Trading gains Total revenue Revenue: Derived from external customers Derived from other business segments Total revenue Interest expense Impairment loss on financial assets Depreciation charge Amortisation charge Fees and commission expense Admin and operating expenses Profit / (loss) before tax Tax expense Profit / (loss) after tax Nigeria Corporate retail and pensions custodian services Outside Nigeria Total (Outside Nigeria) Total reportable segments Eliminations Consolidation Africa---------------- Europe 928,913 152,508 264,192 538,286 1,883,899 1,850,590 33,309 1,883,899 (355,230) (398,476) (26,231) (2,510) (70,092) (353,478) 677,882 (75,021) 602,861 130,331 23,568 (6,339) 27,007 174,567 99,866 5,902 (854) 1,680 106,594 174,568 106,594 - 174,568 (32,828) (10,341) (2,901) (588) (2,575) (42,949) 82,385 (31,205) 51,180 106,594 (34,941) (520) (725) (371) (20,936) 49,101 (12,116) 36,985 - - 230,197 29,470 (7,193) 28,687 281,161 281,162 - 281,162 (67,769) (10,861) (3,626) (959) (2,575) (63,885) 131,486 (43,321) 1,159,110 181,978 256,999 566,973 2,165,060 2,131,752 33,309 2,165,061 (422,999) (409,337) (29,857) (3,469) (72,667) (417,363) 809,368 (118,342) 88,165 691,026 (14,436) (4,463) (14,411) - (33,310) 1,144,674 177,515 242,588 566,973 2,131,750 - (33,309) 2,131,752 - (33,309) 2,131,752 14,507 (279) - - 4,459 1,217 (13,406) (711) (14,117) (408,492) (409,616) (29,857) (3,469) (68,208) (416,146) 795,962 (119,053) 676,909 158 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 5. Segment Analysis (continued) In millions of Naira 31 December 2023 Expenditure on non-current assets In millions of Naira 31 December 2023 Total assets Other measures of assets Loans and advances to customers Treasury bills Investment securities Total liabilities Other measures of liabilities Customer deposits Borrowings Nigeria Corporate retail and pensions custodian services Outside Nigeria Total (Outside Nigeria) Total reportable segments Eliminations Consolidation Africa---------------- Europe 65,409 10,773 262 11,035 76,444 - 76,444 Nigeria Corporate retail and pensions custodian services Outside Nigeria Total (Outside Nigeria) Total reportable segments Eliminations Consolidation Africa---------------- Europe 16,843,187 1,279,688 2,531,841 3,811,529 20,654,716 (286,261) 20,368,455 5,928,907 2,529,966 1,234,116 197,615 206,307 334,831 482,875 1,721,948 15,009,095 1,075,664 2,212,021 12,154,824 1,028,018 2,203,674 1,450,182 13,631 - - 680,490 206,307 2,056,779 6,609,397 2,736,273 3,290,895 (52,927) - - 6,556,470 2,736,273 3,290,895 3,287,685 18,296,780 (251,705) 18,045,075 3,231,692 15,386,516 (218,776) 15,167,740 13,631 1,463,813 (52,928) 1,410,885 159 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 5. Segment Analysis (continued) In millions of Naira 31 December 2022 Interest and similar income Total Income on fee and commission Other operating income Trading gains Total revenue Revenue: Derived from external customers Derived from other business segments Total revenue Interest expense Impairment loss on financial assets Depreciation charge Amortisation charge Fees and commission expense Admin and operating expenses Profit before tax Tax expense Profit after tax Nigeria Corporate retail and pensions custodian services Outside Nigeria Total reportable segments Eliminations Consolidation Africa---------------- Europe 59,239 9,651 1,791 8,694 79,375 33,883 4,515 (1,062) 2,236 39,572 79,647 39,572 - 79,647 (17,785) (58,867) (1,509) (314) (1,041) (22,381) (22,249) 5,695 (16,554) 39,572 (6,432) (1,322) (485) (233) (10,524) 20,575 (4,317) 16,258 - - - - - - - - - - - - - - - - - - - 543,594 157,222 50,522 212,575 963,913 119,219 - 119,219 (24,217) (60,189) (1,994) (547) (1,041) (32,905) (1,674) 1,378 (296) (3,428) (6) (15,028) 103 (18,359) - (18,637) (18,637) 3,700 (1,042) - - - 454 (15,525) - (15,525) 540,166 157,216 35,494 212,678 945,554 945,554 - 945,554 (173,539) (123,252) (26,630) (3,678) (24,421) (309,384) 284,650 (60,739) 223,911 450,472 143,056 49,793 201,645 844,966 826,335 18,637 844,972 (153,022) (62,020) (24,636) (3,131) (23,380) (276,933) 301,849 (62,117) 239,732 160 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 5. Segment Analysis (continued) In millions of Naira 31 December 2022 Expenditure on non-current assets In millions of Naira 31 December 2022 Total assets Other measures of assets Loans and advances to customers Treasury bills Investment securities Total liabilities Other measures of liabilities Customer deposits Borrowings Nigeria Corporate retail and pensions custodian services Outside Nigeria Total reportable segments Africa---------------- Europe Eliminations Consolidation 71,501 Nigeria Corporate retail and pensions custodian services 10,600,730 3,735,839 2,206,935 648,654 9,378,927 7,434,806 999,580 - - - - - - - - 3,259 398 3,657 Outside Nigeria Total reportable segments Africa---------------- Europe 510,386 1,445,532 1,955,918 90,043 39,603 155,125 451,702 223,953 924,555 1,313,009 436,541 1,303,257 - - - 313,996 39,603 1,079,680 1,764,712 9,174,604 999,580 - - - - - - - - - 75,158 Eliminations Consolidation (271,019) 12,285,629 (36,130) - - 4,013,705 2,246,538 1,728,334 (236,950) 10,906,689 (198,951) 8,975,653 (36,130) 963,450 * Revenues are allocated based on the location of the operations. ** Capital expenditure consists of expenditure on intangible assets and property and equipment during the year. 161 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 In millions of Naira 6. Interest and similar income Loans and advances to customers Placement with banks and discount houses Treasury bills Promissoy notes Commercial papers Government and other bonds Group Bank 31 December 2023 31 December 2022 31 December 2023 31 December 2022 671,920 81,822 178,967 3,205 21,406 187,354 1,144,674 370,446 12,270 43,609 1,332 2,766 109,743 540,166 635,806 39,796 145,646 3,204 21,090 80,690 926,232 346,320 3,968 32,972 1,330 2,726 60,858 448,174 Interest and similar income represents interest income on financial assets measured at amortised cost. Interest income accrued on impaired financial assets amount to N29,093 million and N5,484 million (31 December 2022: N5,228 million and N4,667million) for Group and Bank respectively. 7. Interest and similar expense Current accounts Savings accounts Time deposits Borrowed funds Leases 96,807 85,593 124,348 99,166 2,578 408,492 37,926 32,150 52,634 48,747 2,082 173,539 85,898 84,995 79,858 103,443 1,034 355,228 34,405 31,885 38,269 46,391 2,069 153,019 Total interest expense are calculated using the effective interest rate method reported above and does not include interest expense on financial liabilities carried at fair value through profit or loss. 8. Impairment charge 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) Asset 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 25) 400,650 7,903 (337) 2,173 860 10 38,343 62,742 (400) 19,037 (649) (180) 394,440 2,867 32 2,193 860 10 38,429 1,918 (356) 19,033 17 (180) 411,259 118,893 400,402 58,861 1,633 (3,276) 998 3,361 1,286 (3,276) (326) 3,361 409,616 123,252 398,412 61,896 162 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 In millions of Naira 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 Commission on letters of credit Commission on agency and collection services Total fee and commission income Fees and commission expense Group Bank 31 December 2023 31 December 2022 31 December 2023 31 December 2022 3,980 2,054 47,201 16,247 51,818 4,190 10,956 695 128 19,718 12,068 8,460 6,609 1,165 41,557 10,536 45,739 3,389 9,595 622 1,691 15,551 8,541 12,221 3,045 - 44,969 8,157 46,294 3,072 - 695 128 19,718 7,596 7,498 1,406 - 40,860 6,829 43,275 3,258 - 622 1,691 15,535 8,303 11,699 177,515 (68,208) 109,307 157,216 (24,421) 132,795 141,172 (70,092) 71,080 133,478 (23,380) 110,098 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 N110,083 million and N84,361 million for Group and Bank (31 December 2022: N107,982 million and N84,636 million) respectively while an amount of N71,025 million and N56,811 million (31 December 2022: N49,235 million and N48,840 million) was recognised over the service period. 10. Trading gains Gain/(loss) on other trading books Gain on treasury bills FVTPL Gain/(loss) on bonds at FVTPL Interest income on trading bonds 463,371 98,912 1,100 3,590 566,973 (1,325) 214,508 (910) 405 212,678 438,360 98,135 (1,799) 3,590 538,286 (9,238) 210,932 (454) 405 201,645 Included in gain on other trading books is N4.05 billion gains on derivatives for Group and Bank respectively.(31 December 2022: Group N47.9 billion and Bank N42.8 billion). Inns of Naira In millions of Naira Hedge ineffectiveness recognized comprises: Fair value hedging FV gains on the derivatives designated as hedging instruments - (spot component only) - Losses on the hedged items attributable to the hedged risk -Fair value hedge ineffectiveness 458,478 (468,482) (10,004) 40,632 (39,590) 1,042 458,478 (468,482) (10,004) 40,632 (39,590) 1,042 The effective portion of the fair value gains on the derivatives designated in the fair value hedge of the foreign currency risk has been transferred to other 163 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 In millions of Naira 10. Trading gains (continued) Group Bank 31 December 2023 31 December 2022 31 December 2023 31 December 2022 income to net off the recognised losses on the hedged item attributable to the hedged risk. Gain/(loss) on other trading books includes N410 billion net gain on matured swap and forward transactions. 11. Other operating income Dividend Income from equity instruments (See note a below) Gain on disposal of property and equipment (see note 44(vi)) Income on cash handling Loan recovery (see note c below) Foreign currency revaluation gain (see note b below) Net monetary loss arising from hyperinflationary economy (see note d below) 5,661 189 27 20,954 228,982 (13,225) 242,588 2,223 2,563 476 5,030 25,202 - 35,494 19,777 186 - 15,290 228,810 - 264,063 17,148 2,451 445 4,426 25,320 - 49,790 a) b) c) d) Dividend income from equity investments represent dividend received from subsidiaries of N14,116 million and N5,661 million received from 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. Foreign currency revaluation gain represents net gain on the revaluation of foreign currency-denominated assets and liabilities. This also includes the effective portion of the gains on the derivatives designated in the fair value hedge of the foreign currency risk (note 3.3.3). This represents amount recovered for previously written-off facilities. The amount is recognised on a cash basis only. Net monetary loss arising from hyperinflationary economy relates to the remeasurement of monetary items in Ghana following its designation as a hyperinflationary economy. 164 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 In millions of Naira 12. Operating expenses Directors' emoluments (see note 37 (b)) Auditors' remuneration Deposit insurance premium Professional fees Training and development Information Technology Lease expense Advertisement Outsourcing services Bank charges Fuel and maintenance Insurance Licenses, registrations and subscriptions Travel and hotel expenses Printing and stationery Security and cash handling Fines & Penalties (see note 42) Donations AMCON levy Telephone,postages and communication charges Corporate promotions General running expenses Group Bank 31 December 2023 31 December 2022 31 December 2023 31 December 2022 5,989 1,337 28,048 9,387 3,857 33,596 3,495 11,450 24,876 5,258 41,171 3,220 10,139 5,155 5,049 7,246 21 5,765 57,383 9,262 15,890 4,137 5,444 1,065 21,747 6,413 2,934 30,971 593 8,787 14,758 11,936 29,648 2,258 4,712 2,987 4,137 4,784 - 1,697 44,010 9,709 8,230 6,152 4,759 700 26,234 8,173 3,299 28,678 2,496 11,205 24,845 4,055 36,009 2,485 6,594 4,289 2,925 5,321 21 5,673 57,383 8,843 15,723 1,976 5,154 600 21,747 5,738 2,858 27,662 583 8,622 14,571 11,124 25,905 1,991 3,246 2,637 3,133 4,467 - 1,670 44,010 9,323 7,999 1,663 291,731 222,972 261,686 204,703 Lease expense for the year ended 31 December 2023 amounting to N3,495 million and N2,496 million, (31 December 2022: N593 million and N583 million) respectively were recognised. They represent the amount of straight line amortisation on short term lease in which the Group/Bank has applied the recognition exception. The Bank paid the external auditors’ professional fees for the provision of Non audit services. The total amount of non-audit services provided by the external auditors during the year was N143 million. These non-audit services were for the following: assessment of risk management practices (N67 million) and assessment of compliance with whistle blowing guidelines (N14 million), review of the Bank's corporate governance (N31 million), trainings (N15 million), and professional service relating to the creation of a customer analytic portal for the bank (N16 million). These services in the Bank’s opinion, did not impair the independence and objectivity of the external auditors. The Group auditors did not engage in any non-audit service for any of the Bank's subsidiaries. Included in training and development is a total N657 million which the bank paid as contribution to the industrial training fund. 165 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 In millions of Naira 13. Taxation (a) Major components of the tax expense Income tax expense Corporate tax Information technology tax Tertiary Education tax Police trust fund levy National agency for science and engineering infrastructure levy (NASENI) National Fiscal Stabilization Levy & Financial Sector Recovery Effect of hyperinflation Prior period underprovision/(Reversal of prior period over provision) Current income tax Deferred tax expense Origination of temporary differences Income tax expense Total tax expense (b) Reconciliation of the tax expense Profit before income tax Tax calculated at the weighted average Group rate of 30% (2022: 30%) Tax effect of adjustments on taxable income Effect of difference of rate across different tax jurisdictions Non-deductable expenses Tax exempt income Balancing charge Effect of tax laws arising from current period Origination of Temporary differences Information technology levy Capital allowance utilised Tertiary education tax Prior period underprovision/(Reversal of prior period over provision) National Fiscal Stabilization Levy & Financial Sector Recovery Levy Police trust fund levy NASENI Total tax expense In millions of Naira (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 (d) The movement in the current income tax receivable balance is as follows: At start of the year Tax paid Current income tax charge (see note 13a) At end of the year Group Bank 31 December 2023 31 December 2022 31 December 2023 31 December 2022 55,792 6,775 3,127 33 1,670 8,177 1,622 712 77,908 41,145 119,053 119,053 795,962 238,789 (6,450) 32,068 (228,282) 13,051 - 61,408 6,776 (12,050) 3,126 737 8,177 33 1,670 119,053 68,156 3,026 6,775 15 735 - - (6,513) 72,194 (11,455) 60,739 60,739 284,650 85,395 (889) 35,802 (27,207) 5,610 (146) (11,455) 3,026 (30,408) 6,775 (6,513) - 15 735 60,739 16,824 6,677 2,876 33 1,670 - - 712 28,792 43,322 72,114 72,114 667,715 200,315 - 56,730 (228,282) 112 - 43,322 6,676 (12,050) 2,876 712 - 33 1,670 72,114 51,370 2,940 6,595 15 735 - - (6,513) 55,142 4,315 59,457 59,457 294,050 88,215 - 17,658 (26,734) 2,640 - 4,315 2,940 (30,408) 6,595 (6,513) - 15 735 59,457 Group Bank 31 December 2023 31 December 2022 31 December 2023 31 December 2022 64,856 (85,514) 54,535 33,877 - 42,348 (23,373) 18,975 16,909 (24,247) 72,194 64,856 61,655 (62,367) 28,792 28,080 14,241 (7,728) 55,142 61,655 - - - - - - - - - - - - 166 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 In millions of Naira 14. Earnings per share (EPS) Basic earnings per share Group Bank 31 December 2023 31 December 2022 31 December 2023 31 December 2022 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. Profit attributable to shareholders of the Bank (N'million) 676,569 224,050 595,601 234,593 Number of issued shares at the end of the year (millions) Weighted average number of ordinary shares in issue (millions) Basic and diluted earnings per share (Naira) 31,396 31,396 21.55 31,396 31,396 7.14 31,396 31,396 18.97 31,396 31,396 7.47 Basic and diluted earnings per share are the same, as the Bank has no potentially dilutive ordinary shares. 167 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 In millions of Naira 15. Cash and balances with central banks 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 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 41) 17. Assets pledged as collateral Bonds pledged as collateral Treasury bills under repurchase agreement ECL Allowance on assets pledged and under repo Group Bank 31 December 2023 31 December 2022 31 December 2023 31 December 2022 146,264 123,703 3,902,718 80,689 85,437 366,699 1,668,919 80,689 105,262 21,187 3,758,248 80,689 66,067 341,420 1,614,217 80,689 4,253,374 2,201,744 3,965,386 2,102,394 269,967 3,983,407 452,136 1,749,608 126,449 3,838,937 407,488 1,694,906 4,253,374 2,201,744 3,965,386 2,102,394 749,606 1,986,738 (71) 1,243,038 1,003,908 (408) 749,606 1,780,431 (71) 1,243,038 963,669 (39) 2,736,273 2,246,538 2,529,966 2,206,668 2,736,273 2,246,538 2,529,966 2,206,668 2,736,273 2,246,538 2,529,966 2,206,668 209,246 232,218 209,246 232,218 209,246 232,218 209,246 232,218 217,446 91,221 (29) 308,638 119,145 135,536 (18) 254,663 163,869 91,221 (29) 255,061 119,047 135,536 (18) 254,565 Included in assets pledged as collateral for Group/Bank are treasury bills at amortised cost of N91.22 billion and bonds at amortised cost of N217.45 billion (Group) and N163.87 billion (Bank) (31 December 2022: treasury bills N109,346 million and bonds 119,047 million). All other assets pledged as collateral for Group/Bank are treasury bills at fair value. Some of the balances are restricted (see note 3.4.3c). 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) N4 billion (31 December 2022: N3.74 billion), being collateralized, Financial Market dealers Quotation (FMDQ) N11.19 billion (31 December 2022: 1.81 billion), E-Transact N50 million (31 December 2022: N47 million), V-pay: N50 million (31 December 2022: N47 million), Interswitch: N2.4 billion (31 December 2022: N2,247 billion), System specs / Remitta N2.5 billion (31 December 2022: N2.3 billion), CBN Settlement clearing N15 billion (31 December 2022: N14.78 billion), CBN Real Sector Support Fund: N23 billion (31 December 2022: N21.67 billion), Federal Inland Revenue Service: N9 billion (31 December 2022: N8.43 billion) and Bank of Industries (BOING) N34 billion (31 December 2022: N31.88 billion). Zenith Bank UK pledged securities totalling N53.58billion to JP Morgan Chase (31 December 2022: Zenith Bank UK pledged securities totalling N52.07 billion to JP Morgan Chase and Barclays Bank and Zenith Bank Ghana Pledged securities totalling N3.86 billion to pension funds management companies, institutional investors and high net worth customers). Assets exchanged under repurchase agreement as at 31 December 2023 are with the following counterparties (note 31): 168 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 Assets pledged as collateral (continued) 17. Counterparties ABSA (see note 31) Access Bank Carrying value of asset Carrying value of liability Carrying value of asset Carrying value of liability Group Bank 147,093 14,296 161,389 95,179 13,000 108,179 147,093 14,296 161,389 95,179 13,000 108,179 Assets exchanged under repurchase agreement as at 31 December 2022 are with the following counterparties (note 31): Counterparties Carrying value of asset Carrying value of liability Carrying value of asset Carrying value of liability ABSA (see note 31) Standard Bank London (see note 31) In millions of Naira Classified as: Current Non-current 18. Due From Other Banks Current balances with banks within Nigeria Current balances with banks outside Nigeria Placement with banks ECL allowance Classified as: Current Group Bank 51,492 130,770 182,262 46,340 63,456 109,796 113,809 50,477 164,286 46,340 63,456 109,796 Group Bank 31 December 2023 31 December 2022 31 December 2023 31 December 2022 108,792 199,845 142,905 111,758 308,637 254,663 99,087 155,974 255,061 142,807 111,758 254,565 - 837,559 997,690 (935) - 907,358 395,528 (75) - 922,922 769,735 (935) - 957,902 174,969 (75) 1,834,314 1,302,811 1,691,722 1,132,796 1,834,314 1,302,811 1,691,722 1,132,796 Included in balances with banks outside Nigeria are the amount of N254.47 billion and N363.72 billion for the Group and Bank respectively (31 December 2022: N45.02 billion and N113.9 billion) which represent 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). Some of the balances are restricted (see note 3.4.3c). Due from banks with maturity greater than 3 months and restricted balances: 272,851 46,407 363,715 115,315 19. Derivative assets Instrument types(fair value) Forward and Swap Contracts Futures contracts Instrument types (Notional amount): Forward and Swap contracts Futures contracts Total a) Hedging derivative assets 489,167 45,572 534,739 49,548 326 49,874 462,376 45,566 507,942 891,925 190,854 960,894 24,624 889,583 190,834 1,082,779 985,518 1,080,417 48,525 326 48,851 924,485 37,659 962,144 169 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 19. Derivative assets (continued) The Group estimates the fair value of the hedge derivative instrument transacted with the counterparties (CBN) using the discounted mark-to-market technique. The Group has designated part of its swap contracts with the CBN as hedging instruments in order to manage the foreign exchange volatility in its Profit or Loss. As at 31 December 2023, the mark-to-market value of these hedged asset is N462 bn. b) 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. See note 3.3.4 for the mark to market value of these non-hedged assets. During the year, various derivative contracts entered into by the Group generated a net gain which was 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 Overdraft Term Loans On Lending Facilities Gross loans and advances to customers Less: ECL Allowance (see note 3.2.18) Net Loans classified as: Current Non-current Group Bank 31 December 2023 31 December 2022 31 December 2023 31 December 2022 1,098,703 5,291,536 665,208 450,649 2,982,808 690,509 7,055,447 (498,977) 4,123,966 (110,261) 1,032,834 4,714,937 665,208 6,412,979 (484,183) 427,453 2,720,843 690,509 3,838,805 (103,129) 6,556,470 4,013,705 5,928,796 3,735,676 2,855,923 3,700,547 2,133,065 1,880,640 2,790,053 3,138,743 1,958,733 1,776,943 6,556,470 4,013,705 5,928,796 3,735,676 Movement in ECL Allowance as at 31 December 2023 is presented in Note 3.2.18. As at 31 December 2023, the Bank's only exposure to USD LIBOR is N627 bn in the loan book. These are legacy loan facitlities from prior period and syndicated facilities. All new financial instrument transactions are quoted in SOFR. The applicable rate to be applied on the legacy syndicated facilities are communicated by the lead syndicate and which will be obtained from the synthetic USD LIBOR issued by ICE pending the completion of reassessment of SOFR. The following tables show the total amounts of unreformed non-derivative financial assets as at 31 December 2023. The amounts of these assets are shown at their gross carrying amounts. In millions of Dollars 31 December 2023 Loans and advances to customers Multilateral loans In millions of Dollars 31 December 2022 USD Carrying value at 31 December 2023 LIBOR Of which have yet to be transitioned as at 31 December 2023 NGN Carrying value at 31 December 2023 NIBOR Of which have yet to be transitioned as at 31 December 2023 Assets Assets Assets Assets 1,469 1,469 USD Carrying value at 31 December 2022 659 659 9,718 9,718 9,718 9,718 LIBOR Of which have yet to be transitioned as at 31 December 2022 NGN Carrying value at 31 December 2022 NIBOR Of which have yet to be transitioned as at 31 December 2022 Assets Assets Assets Assets 170 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 Loans and advances to customers Multilateral loans 1,228 1,228 873 873 13,528 13,528 13,528 13,528 171 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 In millions of Naira 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 and FVTOCI Debt securities (measured at fair value through profit or loss) (see note ii) Net debt securities Equity securities At fair value through other comprehensive income (see note (i) below) Modification of financial assets Group Bank 31 December 2023 31 December 2022 31 December 2023 31 December 2022 1,563,994 1,528,786 (42,312) 852,145 833,849 (63,986) 3,050,468 24,293 1,622,008 12,443 975,608 - (5,451) 970,157 19,433 520,921 - (2,583) 518,338 10,560 3,074,761 1,634,451 989,590 528,898 216,134 93,883 216,134 3,290,895 1,728,334 1,205,724 93,883 622,781 The following table provides summary information on investment securities issued by the Government of Ghana with lifetime ECL whose cash flows were modified during the period and their respectve effect on the Group's financial performance: Amortised cost before modification Net modification loss 250,775 (2,523) - - - - - - Movement in gross carrying amount and impairment allowance on investment securities are presented in Note 3.2.18 Classified as: Current Non-current 314,392 2,976,503 101,339 1,626,995 309,532 896,192 3,290,895 1,728,334 1,205,724 77,887 544,894 622,781 i. ii. iii. The Group holds equity investments in unquoted entities which the Group has elected to carry at fair value through other comprehensive income. These investments are held for strategic purposes rather than for trading purposes see note 3.3.5. The Group and Bank debt securities measured at FVTPL comprise sovereign bonds (31 December 2023: N6.71 billion and N1.85 billion respectively; 31 December 2022; N12.44 billion and N3.25 billion respectively). The Group's debt securities measured at amortised cost can be analysed as follows: Sovereign (Federal) Sub-sovereign (State) Corporate bonds Promissory note Commercial papers 1,061,763 34,765 196,509 43,539 227,418 660,485 32,996 120,438 18,464 19,762 1,563,994 852,145 580,306 34,765 89,580 43,539 227,418 975,608 383,973 31,636 67,798 18,425 19,089 520,921 172 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 22. Investment in subsidiaries (a). The following table lists the entities which are controlled by the Group, either directly or indirectly through subsidiaries. Bank Name of company Zenith Bank (Ghana) Limited Zenith Bank (UK) Limited Zenith Bank (Sierra Leone) Limited Zenith Bank (Gambia) Limited Zenith Pensions Custodian Limited Zenith Nominees Limited Name of company Zenith Bank (Ghana) Limited Zenith Bank (UK) Limited Zenith Bank (Sierra Leone) Limited Zenith Bank (Gambia) Limited Zenith Pensions Custodian Limited Zenith Nominees Limited Jurisdiction of Incorporation Ghana United Kingdom Sierra Leone Gambia Nigeria Nigeria Jurisdiction of Incorporation Ghana United Kingdom Sierra Leone Gambia Nigeria Nigeria Principal place of business 31 December 2023 Ownership interest % 31 December 2023 Ghana United Kingdom Sierra Leone Gambia Nigeria Nigeria 99.42% 100.00% 99.99% 99.96% 99.00% 99.00% 7,066 21,482 2,059 1,038 1,980 1,000 34,625 Principal place of business 31 December 2022 Ownership interest % 31 December 2022 Ghana United Kingdom Sierra Leone Gambia Nigeria Nigeria 99.42% 100.00% 99.99% 99.96% 99.00% 99.00% 7,066 21,482 2,059 1,038 1,980 1,000 34,625 173 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 22. Investment in subsidiaries (continued) (b) Condensed results of consolidated entities 31 December 2023 Condensed statement of profit or loss Operating income Expenses (Impairment charge)/writeback for financial and non-financial assets Profit before tax Taxation Profit for the year Condensed statement of financial position Assets Cash and cash equivalents Treasury bills Assets pledged as collateral Due From Other Banks Derivative asset held for risk management Loans and advances Investment securities Investment in subsidiaries Current tax receivable Deferred tax asset Other assets Property and equipment Intangible assets Zenith Group Intra-group transactions and balances Zenith Bank Plc Zenith Bank Ghana Zenith Bank UK Zenith Bank Sierra Leone Zenith Bank Gambia Zenith Pension Custodian Zenith Nominee Limited 2,131,750 (926,172) (409,616) 795,962 (119,053) 676,909 4,253,374 2,736,273 308,638 1,834,314 534,739 6,556,470 3,290,895 - 18,975 17,251 474,976 295,532 47,018 (33,310) 20,183 (279) (13,406) (711) (14,117) - - - (218,774) (35) (52,927) - (34,625) - (3,110) (1,371) - - 1,869,753 (803,626) (398,412) 667,715 (72,114) 595,601 3,965,386 2,529,966 255,061 1,691,722 507,942 5,928,796 1,205,724 34,625 - - 417,419 230,267 44,185 160,233 (75,059) (9,968) 75,206 (29,318) 45,888 275,667 174,294 - 78,567 24,538 179,719 293,276 - 18,433 17,338 52,350 60,057 1,369 106,594 (56,973) (520) 49,101 (12,116) 36,985 32 - 53,577 262,727 2,294 482,875 1,721,948 - 542 2,816 2,799 1,496 735 20,368,455 (310,842) 16,811,093 1,175,608 2,531,841 8,799 (3,921) (200) 4,678 (1,171) 3,507 5,709 - - 12,415 - 9,084 34,381 - - 173 677 804 409 63,652 5,535 (2,861) (173) 2,501 (716) 1,785 6,580 32,013 - 6,979 - 8,812 7,174 - - 29 892 2,367 86 64,932 13,587 (3,779) 29 9,837 (2,823) 7,014 - - - 557 - 111 26,003 - - - 2,146 540 216 29,573 559 (136) (93) 330 (84) 246 - - - 121 - - 2,389 - - 5 64 1 18 2,593 174 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 Zenith Group Elimination entries Zenith Bank Plc Zenith Bank Ghana Zenith Bank UK Zenith Bank Sierra Leone Zenith Bank Gambia Zenith Pension Custodian Zenith Nominee Limited 31 December 2023 Liabilities & Equity Customer deposits Derivative liabilities Current income tax Deferred income tax liabilities Other liabilities On-lending facilities Borrowings Equity and reserves 15,167,740 70,486 33,877 59,310 1,039,712 263,065 1,410,885 2,323,380 (218,776) 24,468 - (3,110) (1,365) - (52,928) (34,627) 12,154,824 45,514 28,080 59,233 1,003,947 263,065 1,450,182 1,806,247 937,694 - - 3,110 24,849 - 13,631 171,821 2,203,674 504 - - 7,843 - - 319,821 20,368,455 (286,338) 16,811,092 1,151,105 2,531,842 Condensed statement of cash flow Net cash (used in)/from operating activities Net cash (used in)/from financing activities Net cash (used in)/from investing activities 1,786,545 (576,810) (1,395,437) 625,030 (44,243) (390,184) 1,364,211 (527,596) (1,004,170) Increase / (decrease) in cash and cash equivalents (185,702) 190,603 (167,555) 183,276 18,557 (75,017) 126,816 (389,240) (17,528) 70,223 (336,545) Cash and cash equivalents At start of year Exchange rate movements on cash and cash equivalents At end of year 1,940,758 549,455 2,304,511 (483,288) 20,684 (272,001) 1,657,186 528,771 2,018,402 234,695 - 361,511 476,175 - 139,630 Increase / (decrease) in cash and cash equivalents (185,702) 193,206 (167,555) 126,816 (336,545) (1,375) (3,385) 44,608 - 2,096 - 1,567 - - 15,382 63,653 (2,365) - 990 (1,375) 35,327 - 33,952 45,716 - 820 - 1,576 - - 16,820 64,932 (5,552) - 2,167 (3,385) 20,592 - 17,207 - - 2,798 77 1,057 - - 25,640 29,572 11,078 (6,000) 539 5,617 55 - 5,672 5,617 - - 83 - 238 - - 2,276 2,597 107 - 15 122 16 - 138 122 175 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 31 December 2022 Condensed statement of profit or loss Operating income Expenses Impairment charge for financial and non-financial assets Profit/(loss) before tax Taxation Profit for the year Condensed statement of financial position Assets Cash and balances with central banks Treasury bills Assets pledged as collateral Due From Other Banks Derivative asset held for risk management Loans and advances Investment securities Investment in subsidiaries Deferred tax asset Other assets Property and equipment Intangible assets Zenith Group Intra-group transactions and balances Zenith Bank Plc Zenith Bank Ghana Zenith Bank UK Zenith Bank Sierra Leone Zenith Bank Gambia Zenith Pension Custodian Zenith Nominee Limited 945,554 (537,652) (123,252) 284,650 (60,739) 223,911 2,201,744 2,246,538 254,663 1,302,811 49,874 4,013,705 1,728,334 - 18,343 213,523 230,843 25,251 (18,637) 3,112 - (15,525) - (15,525) - - - (198,949) - (36,130) - (34,625) - (1,326) - - 833,087 (477,141) (61,896) 294,050 (59,457) 234,593 2,102,394 2,206,668 254,565 1,132,796 48,851 3,735,676 622,781 34,625 - 193,792 214,572 23,958 70,786 (39,812) (58,749) (27,775) 6,753 (21,022) 92,246 22,789 98 63,175 - 85,764 135,912 - 15,017 17,248 13,023 458 39,572 (16,659) (2,368) 20,545 (4,317) 16,228 16 - - 290,321 1,023 223,953 924,555 - 3,241 773 1,192 458 12,285,629 (271,030) 10,570,678 445,730 1,445,532 5,790 (2,871) (90) 2,829 (709) 2,120 3,337 - - 8,667 - 2,510 15,762 - 61 304 470 53 31,164 3,072 (1,445) (24) 1,603 (349) 1,254 3,751 16,814 - 6,022 - 1,769 3,451 - 6 310 1,315 62 33,500 11,470 (2,750) (63) 8,657 (2,524) 6,133 - 267 - 763 - 163 23,691 - 13 2,385 266 247 27,795 415 (86) (62) 267 (136) 131 - - - 16 - - 2,182 - 5 37 5 15 2,260 176 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 31 December 2022 Liabilities & Equity Customer deposits Derivative liabilities Current income tax Deferred income tax liabilities Other liabilities On-lending facilities Borrowings Equity and reserves Condensed statement of cash flow Net cash (used in)/from operating activities Net cash (used in)/from financing activities Net cash (used in)/from investing activities Increase / (decrease) in cash and cash equivalents Cash and cash equivalents At start of year Exchange rate movements on cash and cash equivalents At end of year Zenith Group Intra-group transactions and balances Zenith Bank Plc Zenith Bank Ghana Zenith Bank UK Zenith Bank Sierra Leone Zenith Bank Gambia Zenith Pension Custodian Zenith Nominee Limited 8,975,653 6,325 64,856 16,654 568,559 311,192 963,450 1,378,940 (198,951) - - - (1,324) - (36,130) (34,627) 7,434,806 6,040 61,655 15,911 546,347 311,192 999,580 1,195,147 388,556 75 (545) 743 11,511 - - 45,390 1,303,257 210 564 - 8,978 - - 132,523 12,285,629 (271,032) 10,570,678 445,730 1,445,532 1,179,123 (97,606) (363,231) 718,286 (137,609) 5,323 120,212 (12,074) 1,279,759 79,278 (408,165) 792,316 158,905 (14,549) (91,331) 53,025 (142,081) (3,102) 12,344 (132,839) 1,134,519 87,954 1,940,759 171,527 - 159,453 776,574 88,295 88,295 125,771 (343) 178,453 48,266 - (84,573) 23,831 - 444 - 655 - - 6,237 31,167 13,619 - 441 14,060 1,680 - 15,730 24,154 - 291 - 1,443 - - 7,614 33,502 1,985 - 1,354 3,339 9,084 - 12,423 3,339 - - 2,382 - 786 - - 24,626 27,794 4,226 (6,000) 2,251 477 1,486 - 1,963 477 - - 65 - 163 - - 2,030 2,258 329 - (337) (8) 131 2 125 (8) Increase / (decrease) in cash and cash equivalents 718,286 (12,074) 792,316 53,025 (132,839) 14,050 177 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 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 in Nigeria 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. Investments 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. The investment in associates have been fully impaired. Hence the carrying amount of the investment in associates is Nil as at 31 December 2023 (31 December 2022: Nil). 178 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 In millions of Naira 24. Deferred tax balances Deferred tax assets (i) Deferred tax asset Group Bank 31 December 2023 31 December 2022 31 December 2023 31 December 2022 Unutilised capital allowances ECL allowance on not-credit impaired financial instruments Tax loss carry forward Other assets Lease liability Fair value reserve Total deferred tax asset (5) 50,412 - 18,381 3,402 1,904 74,094 32 21,149 6 587 2,898 2,701 27,373 - 50,331 - - 3,402 - 53,733 - 6,132 - - 2,898 - 9,030 Set-off of deferred tax asset against deferred tax liabilities pursuant to set-off provisions (see (ii) below) (56,843) (9,030) (53,733) (9,030) Net deferred tax asset 17,251 18,343 - - (ii) Deferred tax liability Property and equipment Right of use asset Foreign exchange differences Total deferred tax liability Set-off of deferred tax liabilities pursuant to set-off provisions (see (i) above) 26,850 3,402 85,901 116,153 (56,843) 17,296 3,161 5,227 25,684 (9,030) 23,663 3,402 85,901 112,966 (53,733) 16,553 3,161 5,227 24,941 (9,030) Net deferred tax liability 59,310 16,654 59,233 15,911 Group 31 December 2023 Movements in temporary differences during the year Asset Other assets Unutilized capital allowances ECL Allowance on not-credit impaired financial instruments Tax loss carry forward Fair value reserve Lease liability 1 January 2023 Recognised in profit or loss Recognised in OCI 31 December 2023 587 32 21,149 6 2,701 2,898 27,373 17,794 (37) 29,263 (6) 1,806 504 49,324 - - - - (2,603) - (2,603) 18,381 (5) 50,412 - 1,904 3,402 74,094 179 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 24. Deferred tax balances (continued) 31 December 2023 Movements in temporary differences during the year Liabilities Property and equipment Right of use asset Foreign exchange differences Bank 31 December 2023 Movements in temporary differences during the year Asset ECL Allowance on not-credit impaired financial instruments Fair value reserves 31 December 2023 Movements in temporary differences during the year Liability Property and equipment Right of use asset Foreign exchange differences 1 January 2023 Recognised in profit or loss Recognised in OCI31 December 2023 17,296 3,161 5,227 25,684 9,554 241 80,674 90,469 - - - - 26,850 3,402 85,901 116,153 1 January 2023 Recognised in profit or loss 31 December 2023 6,132 2,898 9,030 44,199 504 44,703 50,331 3,402 53,733 1 January 2023 Recognised in profit or loss 31 December 2023 16,553 3,161 5,227 24,941 7,110 241 80,674 88,025 23,663 3,402 85,901 112,966 Zenith Bank plc (the parent) and Zenith Bank Ghana have deferred tax assets and deferred tax liabilities which have been presented on a net basis in the financial statements. Each entity has the legal right to settle current tax amounts on a net basis and the deferred tax amounts are levied by the same tax authority. The Group’s deferred tax asset is largely attributable to Zenith bank Ghana, which suferred a loss in prior year. The Group has recognised all of its deferred tax asset as at 31 December 2023. The Group, therefore, has no unrecognised deferred tax asset. The Group will continue to assess the recoverability of its deferred tax asset and ensure that only amounts considered recoverable are recognised in the books and presented in the statement of financial position. 25. Other assets Non-financial assets Prepayments Other non-financial assets* Gross other non-financial assetss Less impairment (see note (i) below) Net other non-financial assets Other financial assets E-card and settlement receivables Intercompany receivables Deposits for investment in AGSMEIS Other receivables** Deposits for shares Gross other financial assets Less: ECL allowance(see note 25(ii)) Net other financial assets Total other assets (Net) 18,862 10,602 29,464 (85) 29,379 348,566 - 65,476 62,698 - 476,740 (31,143) 445,597 474,976 9,803 13,615 23,418 (3,361) 20,057 127,583 - 53,747 41,109 - 222,439 (28,973) 193,466 213,523 12,985 9,979 22,964 (85) 22,879 345,486 651 65,476 13,268 720 425,601 (31,061) 394,540 417,419 7,363 13,501 20,864 (3,361) 17,503 125,569 542 53,747 24,579 720 205,157 (28,868) 176,289 193,792 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.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 promptly settled. 180 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 In millions of Naira 25. Other assets (continued) Group Bank 31 December 2023 31 December 2022 31 December 2023 31 December 2022 *Other non-financial assets comprise withholding tax receivables and stock in trade relating to telecommunication products. **Other receivables comprises of mobile electronic funds receivable from customer. Classified as: Current Non-current 409,500 65,476 157,545 55,978 474,976 213,523 351,223 66,196 417,419 139,324 54,468 193,792 See note 3.2.18 for movement in impairment allowance for other financial assets as at 31 December 2023 (i) Movement in impairment allowance for non-financial assets . At start of the year Charge for the year (see note 8) At end of the period 3,361 (3,276) 85 - 3,361 3,361 3,361 (3,276) 85 - 3,361 3,361 (ii) Provision matrix The table below summarises the provision matrix of the Bank as at 31 December 2023. The loss allowance recorded by the other subsidiaries on their other financial assets is considered insignificant to the Group. 31 December 2023 Assets Receivables* Expected loss rate ECL 31 December 2022 Assets Receivables* Expected loss rate ECL 0-30 days 31-60 days 61-90 days 91-180days Above 180 days Total 342,066 4.27 % 14,607 86 % 8.77 8 179 % 13.15 24 100.00 - % - 16,422 % 100.00 16,422 358,753 - 31,061 0-30 days 31-60 days 61-90 days 91-180days Above 180 days Total 124,077 2.35 % 2,918 555 % 4.71 26 145 % 7.07 10 1,813 % 100.00 1,813 24,101 % 100.00 24,101 150,691 - 28,868 *The receivables exclude the deposit for shares, intercompany receivables and deposit for AGSMEIS which are not subject to impairment by the simplified approach. 181 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 26. Property and equipment (a) Property and equipment movement Group 31 December 2023 Cost At 1 January 2023 Additions Reclassifications from WIP Modifications Impact of Hyperinflation Disposals/Write off Exchange difference At 31 December 2023 Accumulated Depreciation At 1 January 2023 Charge for the year Reclassifications/transfer from WIP Disposals Impact of Hyperinflation Exchange difference At 31 December 2023 Net book amount At 31 December 2023 Land Buildings Leasehold improvements Furniture, fittings and equipment Computer equipment Aircraft Motor vehicles Right-of-use assets - Buildings Work in progress Total 38,847 2,709 440 - - - - 41,996 66,062 3,693 3,812 - 25,355 (67) 836 99,691 26,453 1,067 149 - 1,698 (169) 1,501 30,699 110,885 7,286 2,258 - 3,400 (1,771) 1,065 123,123 47,878 12,511 1,650 - 1,338 (258) 338 63,457 25,704 - - - - - - 25,704 34,393 8,328 269 - 3,623 (2,030) 388 44,971 28,729 2,128 - 755 16,889 (111) 2,719 51,109 43,419 14,687 (9,224) - 2,149 (904) 133 50,260 422,370 52,409 (646) 755 54,452 (5,310) 6,980 531,010 Land Buildings Leasehold improvements Furniture, fittings and equipment Computer equipment Aircraft Motor vehicles Right-of-use assets Buildings Work in progress Total - - - - - - - 11,337 1,570 47 (64) 3,407 164 16,461 21,920 2,141 (76) (169) 1,218 1,170 26,204 88,358 9,979 45 (1,727) 2,763 794 100,212 38,917 6,760 (16) (257) 1,125 288 46,817 357 1,100 - - - - 1,457 22,708 5,377 - (1,789) 2,193 279 28,768 7,932 2,930 - (45) 2,920 1,823 15,560 - - - - - - - 191,528 29,857 - (4,051) 13,626 4,518 235,478 41,996 83,230 4,495 22,911 16,640 24,247 16,203 35,549 50,260 295,532 Expenses relating to short term lease and low value lease assets can be seen in note 12 as lease expense There were no impairment losses on any class of property and equipment during the year (31 December 2022: Nil). There were no capitalised borrowing costs related to the acquisition of property and equipment during the year (31 December 2022: Nil). All property and equipment are non-current. None of the Bank's assets were financed from borrowings, consequently no borrowing cost has been capitalized as part of asset cost. 182 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 26. Property and equipment (continued) For accounting policy and judgements on right of use see note 2.14. The Group has no ROU in respect of leases that are yet to commence. There are no restrictions on the title of the properties and none of them are pledged as securities for liabilities. 183 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 26. Property and equipment (continued) Group 31 December 2022 Cost At 1 January 2022 Additions Reclassifications from WIP Modifications Disposals Exchange difference At 31 December 2022 Accumulated Depreciation At 1 January 2022 Charge for the year Reclassifications/Transfers from WIP Disposals Exchange difference At 31 December 2022 Net book amount At 31 December 2022 Land Buildings Leasehold improvements Furniture, fittings and equipment Computer equipment Right of use asset - Aircraft Motor vehicles Right-of-use Aircraft assets Buildings Work in progress Total 36,431 2,422 (6) - - - 38,847 67,888 2,475 (848) - - (3,453) 66,062 24,945 1,656 1,512 - (981) (679) 103,908 8,144 793 - (1,035) (925) 26,453 110,885 40,866 5,392 2,462 - (548) (294) 47,878 12,600 - - - (12,600) - - 26,760 8,868 679 - (1,267) (645) 34,395 27,104 3,772 - 675 (172) (2,650) 28,729 - 25,704 - - - - 25,704 35,898 12,584 (4,592) - (33) (439) 43,419 376,400 71,017 - 675 (16,636) (9,085) 422,372 Land Buildings Leasehold improvements Furniture, fittings and equipment Computer equipment Right of use asset - Aircraft Motor vehicles Right-of-use Aircraft assets Buildings Work in progress Total - - - - - - 10,398 1,354 (81) (7) (326) 11,338 20,950 2,142 52 (680) (549) 21,915 78,646 11,264 47 (966) (639) 88,352 34,727 4,865 (18) (509) (149) 38,916 38,847 54,724 4,538 22,533 8,962 5,250 735 - (5,985) - - - 20,554 3,601 1 (1,058) (378) 22,720 5,867 2,312 - (175) (72) 7,932 - 357 - - - 357 - - - - - - 176,392 26,630 - (9,380) (2,113) 191,529 11,675 20,799 25,347 43,419 230,843 184 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 26. Property and equipment (continued) Bank 31 December 2023 Cost At 1 January 2023 Additions Reclassifications /transfer from WIP Disposals Modifications At 31 December 2023 Accumulated Depreciation At 1 January 2023 Charge for the year Reclassifications/transfer from WIP Disposals At 31 December 2023 Net book amount At 31 December 2023 Land Buildings Leasehold improvements Furniture, fittings and equipment Computer equipment Aircraft Motor vehicles Right-of-use assets - Buildings Work in progress Total 38,847 2,709 440 - - 41,996 58,555 3,679 3,812 (67) - 65,979 24,261 969 147 (169) - 108,297 6,556 2,258 (1,730) - 25,208 115,381 46,334 9,763 1,522 (240) - 57,379 25,704 - - - - 25,704 32,073 7,304 251 (1,944) - 37,684 20,829 1,685 - (81) 755 23,188 42,408 9,600 (8,429) (904) - 42,675 397,308 42,265 - (5,135) 755 435,193 Land Buildings Leasehold improvements Furniture, fittings and equipment Computer equipment Aircraft Motor vehicles Right-of-use assets - Buildings Work in progress Total - - - - - 10,479 1,205 47 (64) 11,667 20,428 1,791 (76) (169) 21,974 86,525 9,496 45 (1,701) 94,365 37,768 6,045 (16) (240) 43,557 357 1,100 - - 1,457 21,583 4,576 - (1,724) 24,435 5,595 1,877 - - 7,472 - - - - - 182,734 26,090 - (3,898) 204,926 41,996 54,312 3,234 21,016 13,822 24,247 13,249 15,716 42,675 230,267 Expenses relating to short term lease and low value lease assets can be seen in note 12 as lease expense. There were no impairment losses on any class of property and equipment during the year (31 December 2022: Nil). There were no capitalised borrowing costs related to the acquisition of property and equipment during the year (31 December 2022: Nil). All property and equipment are non-current. None of the Bank's assets were financed from borrowings, consequently no borrowing cost has been capitalized as part of asset cost. For accounting policy and judgements on right of use, see note 2.14 and the bank has NIL ROU in respect of leases that are yet to commence. 185 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 26. Property and equipment (continued) There are no restrictions on the title of the properties and none of them are pledged as securities for liabilities. 186 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 Property and equipment (continued) 26. Bank 31 December 2022 Land Buildings Leasehold improvements Furniture, fittings and equipment Computer equipment Right of use asset - Aircraft Motor vehicles Right-of-use Aircraft assets - Buildings Work in progress Total Cost At 1 January 2022 Additions Reclassifications from WIP Disposals Modifications At 31 December 2022 36,431 2,422 (6) - - 38,847 57,158 2,246 (849) - - 58,555 21,631 1,177 1,488 (35) - 100,500 7,772 698 (673) - 24,261 108,297 38,795 5,114 2,468 (43) - 46,334 12,600 - - (12,600) - - 24,672 7,986 406 (991) - 32,073 16,761 3,394 - - 675 20,829 - 25,704 - - - 25,704 34,677 11,937 (4,205) - - 42,408 343,224 67,751 - (14,342) 675 397,308 Land Buildings Leasehold improvements Furniture, fittings and equipment Computer equipment Right of use asset - Aircraft Motor vehicles Right-of-use Aircraft assets - Buildings Work in progress Total Accumulated Depreciation At 1 January 2022 Charge for the year Reclassifications/transfer from WIP Disposals At 31 December 2022 - - - - - 9,429 1,132 (81) - 10,479 18,479 1,925 52 (28) 20,428 76,179 10,924 49 (627) 86,525 33,213 4,609 (20) (34) 37,768 Net book amount At 31 December 2022 38,847 48,076 3,833 21,772 8,566 5,250 735 - (5,985) - - 19,185 3,231 - (833) 21,583 3,989 1,606 - - 5,595 - 357 - - 357 - - - - - 165,724 24,519 - (7,507) 182,736 10,490 15,234 25,347 42,408 214,572 187 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 26. Property and equipment (continued) (b) Right of use amounts and lease liability amounts recognised in the statement of financial position In millions of Naira Right-of-use assets Buildings (see note 26) 31 December 2023 31 December 2022 31 December 2023 31 December 2022 35,549 35,549 20,797 20,797 15,715 15,715 15,234 15,234 Additions to the right-of-use asset for during the year ended 31 December 2023 was N1,207 million and N1,003 million (31 December 2022: N3,772 million and N3,394 million respectively ). In millions of Naira Lease liabilities Current Non-current 31 December 2023 31 December 2022 31 December 2023 31 December 2022 3,515 17,385 20,900 419 14,571 14,990 300 10,008 10,308 24 8,892 8,916 (c) Amounts recognised in the income statement 31 December 2023 31 December 2022 31 December 2023 31 December 2022 In millions of Naira Depreciation charge of right-of-use asset Aircraft (see note 26) Buildings (see note 26) Interest expense (included in finance cost) Lease expense - 2,930 2,930 2,578 3,495 735 2,312 3,047 2,082 593 - 1,877 1,877 1,034 2,496 735 1,606 2,341 2,069 583 The total cash outflow of leases as at 31 December 2023 was N1,601 million and N1,191 million respectively (31 December 2022: 3,826 million and N3,255 million respectively). 188 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 In millions of Naira 27. Intangible assets Computer Software Cost At start of the year Additions Disposal Impact of hyperinflation Exchange difference At the end of the year Accumulated amortization At start of the year Charge for the year Disposal Impact of hyperinflation Exchange difference At the end of the year Carrying amount at the end of the year Group Bank 31 December 2023 31 December 2022 31 December 2023 31 December 2022 49,274 24,035 - 2,449 2,288 78,046 24,024 3,469 - 1,839 1,696 31,028 47,018 48,353 4,130 (2,884) - (324) 49,275 23,352 3,678 (2,884) - (122) 24,024 25,251 45,115 22,674 - - - 67,789 21,157 2,447 - - - 23,604 44,185 41,654 3,461 - - - 45,115 18,112 3,045 - - - 21,157 23,958 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. 189 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 In millions of Naira 28. Customers' deposits Demand Savings Term Classified as: Current Non-current 29. Other liabilities Other financial liabilities Customer deposits for letters of credit Managers' Cheques Collections accounts Unclaimed dividend Lease liability (see note (c) below) AMCON payable Electronic card and settlement payables Customers' foreign transactions payables Account payables Total other financial liabilities Non-financial liabilities Tax collections Deferred income on financial guarantee contracts Other payables* Off Balance Sheet exposures impairment allowance Total other non-financial liabilities Total other liabilities 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 Group Bank 31 December 2023 31 December 2022 31 December 2023 31 December 2022 6,875,307 5,047,056 3,245,377 4,880,784 2,717,049 1,377,820 5,290,857 4,955,730 1,908,237 3,844,612 2,673,518 916,676 15,167,740 8,975,653 12,154,824 7,434,806 14,975,471 192,269 8,975,653 690,509 12,154,824 665,208 7,434,806 690,509 15,167,740 9,666,162 12,820,032 8,125,315 354,178 22,052 353,851 30,116 20,900 - 198,756 4,089 7,412 113,680 19,614 111,953 29,764 14,990 1,908 107,619 30,979 115,431 991,354 545,938 10,143 2,864 25,284 10,067 48,358 5,765 2,507 7,735 6,614 22,621 354,150 21,330 353,797 30,116 10,308 - 197,002 4,089 - 970,792 9,573 1,796 15,209 6,577 33,155 1,039,712 568,559 1,003,947 1,029,704 10,008 556,023 12,536 993,939 10,008 1,039,712 568,559 1,003,947 1,597 3,105 5,365 10,067 1,054 863 4,697 6,614 109 2,858 3,610 6,577 113,680 19,244 108,689 29,764 8,916 1,908 106,268 30,975 107,501 526,945 5,503 1,926 6,683 5,290 19,402 546,347 539,225 7,122 546,347 59 863 4,369 5,291 190 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 In millions of Naira 29. Other liabilities (continued) (c) Lease liability Group Bank 31 December 2023 31 December 2022 31 December 2023 31 December 2022 This relates to lease rental for properties used by the Group. The net carrying amount of leased assets, included within property and equipment is N35.55 billion and N15.72 billion as at 31 December 2023. (31 December 2022: N20.8 billion and N15.2 billion) for both Group and Bank respectively. The undiscounted cash flow 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 The table below shows the movement in lease liability during the year. As at 1 January Reclassification Additions Lease Termination Principal repayment Modification Interest expense Interest paid Foreign exchange difference At end of the year 30. On lending facilities (a) This comprises: Central Bank of Nigeria (CBN) Commercial Agriculture Credit Scheme Loan (i) Bank of Industry (BOI) Intervention Loan (ii) Central Bank of Nigeria (CBN) / Bank of Industry(BOI) - Power & Aviation intervention Funds (iii) CBN MSMEDF Deposit (iv) FGN SSB Intervention Fund (v) Excess Crude Loan Facilty Deposit (vi) Real Sector Support Facility (vii) Non-Oil Export Stimulation Facility (viii) National Food Security Programme (ix) Accelerated Agricultural Development Scheme (x) Classified as: Current Non-current 3,697 11,063 15,220 29,980 14,990 - 1,269 (80) (1,543) 755 2,578 (224) 3,155 20,900 12,653 25,024 1,585 544 122,418 68,031 13,417 5,258 11,657 2,478 263,065 1,252 8,572 13,141 22,965 24,102 1,491 1,255 (4,011) (3,493) 675 2,082 (333) (1,631) 14,990 27,848 29,772 2,380 1,349 126,917 74,007 15,546 11,538 16,790 5,045 311,192 64,212 198,853 71,023 240,169 263,065 311,192 524 3,679 15,220 19,423 8,916 - 874 (80) (979) 755 1,034 (212) - 10,308 12,653 25,024 1,585 544 122,418 68,031 13,417 5,258 11,657 2,478 263,065 64,212 198,853 263,065 857 2,921 13,114 16,892 16,708 1,367 - (8,640) (2,927) 674 2,069 (335) - 8,916 27,848 29,772 2,380 1,349 126,917 74,007 15,546 11,538 16,790 5,045 311,192 71,023 240,169 311,192 191 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 30. On lending facilities (continued) Movement At beginning of the year Principal addition during the year Principal repayment during the year Interest expense during the year Interest paid during the year At end of the year 311,192 - (48,080) 5,731 (5,778) 263,065 369,241 - (59,470) 6,278 (4,857) 311,192 311,192 - (48,080) 5,731 (5,778) 263,065 369,241 - (59,470) 6,278 (4,857) 311,192 192 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 30. On lending facilities (continued) (i) The fund received under the Central Bank of Nigeria (CBN) Commercial Agriculture Credit Scheme represents a credit line granted to the Bank for the purpose of providing concessionary funding to the agricultural sector. The facility has a tenor of 16 years with effect from 2009 and will expire in September 2025. The facility attracts an interest rate of 2% per annum and the Bank is under obligation to on-lend to customers at an all-in interest rate of not more than 9% per annum. Based on the structure of the facility, the Bank assumes the default risk of all amounts lent to the Bank's customers. This facility is not secured. (ii) The Central Bank of Nigeria (CBN) / Bank of Industry (B0I) - SME / Manufacturing Intervention Fund represents an intervention credit granted to the Bank for the purpose of refinancing / restructuring existing loans to Small and Medium Scale Enterprises (SMEs) and Manufacturing Companies. The total facility is secured by Nigerian Government Securities. The maximum tenor for term loans under the programme is 15 years while the tenor for working capital is one year, renewable annually subject to a maximum tenor of five years. A management fee of 1% per annum is deductible at source in the first year, and quarterly in arrears thereafter, is paid by the Bank under the Intervention programme and the Bank is under obligation to on-lend to customers at an all-In interest rate of 7% per annum. The Bank is the primary obligor to CBN / BOI and assumes the risk of default. (iii) The purpose of granting new loans and refinancing / restructuring existing loans to companies in the power and aviation industries is to support Federal Government's focus on the sectors. The facility is secured by Irrevocable Standing Payment Order (ISPO). The maximum tenor for term loans under the programme is 15 years while the tenor for working capital is one year, with option to renew the facility annually subject to a maximum tenor of five years. The facility attracts an interest rate of 2% 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. (iv) 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 2% per annum and the Bank is obligated to on-lend to SMEs at 9% per annum. The maximum tenor is 5 years while the tenor for working capital is 1 year. This facility is not secured. (v) The Salary Bailout Scheme was approved by the Federal Government to assist State Governments in the settlement of outstanding salaries owed their workers. Funds are disbursed to Banks nominated by beneficiary States at 2% for onlending to the beneficiary states at 9%. The loans have a tenor of 20 years. Repayments are deducted at source, by the Accountant General of the Federation, as a first line charge against each beneficiary state’s monthly statutory allocation. This facility is not secured.. (vi) Excess Crude Account (ECA) facilities are loans of N10 billion to each State with a tenor of 10-years priced at 9% per annum interest rate to the beneficiaries. Repayments are deducted at source, by the Accountant General of the Federation, as a first line charge against each beneficiary state’s monthly statutory allocation. This facility is not secured. The fund is disbursed to the bank at 2% interest rate. (vii) The Real Sector Support Facility (RSSF): The Central Bank of Nigeria, as part of the efforts to unlock the potential of the real sector to engender output growth, productivity and job creation has established a N300 billion Real Sector Support Facility (RSSF). The facility is disbursed to large enterprises and startups with financing needs of N500 million up to a maximum of N10.0 billion. The activities targeted by the Facility are manufacturing, agricultural value chain and selected service subsectors. The funds are received from the CBN at 2%, and disbursed at 9% to the beneficiary. (viii) Non-oil Export Stimulation Facility (NESF): This Facility was established by the Central Bank of Nigeria to diversify the economy away from the oil sector, after the fall in crude prices. The Central Bank invested N500billion debenture, issued by Nigerian Export-Import Bank (NEXIM). The facility disbursed per customer shall not exceed 70% of total cost of project, or subject to a maximum of N5billion. Funds disbursed to the Bank from CBN are at a cost of 2% which are then disbursed to qualifying customers at the rate of 9% per annum. (ix) The National Food Security Programme (NFSP) was launced in 2001. The main objective of this programme was to improve food security by promoting sustainable agaricultural practices, providing credit facilities to farmers, and distributing agricultural inputs. The fund was disbursed to the Bank as 5% interest rate. (x) 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. 193 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 In millions of Naira 31. Borrowings Long term borowings comprise: Due to BUNGESA (iv) Due to KEXIM Due to AFREXIM (i) Due to COMMERZ Due to AREDIN (iv) Due to ABSA bank (iii) Due to ICBC (Standard Bank London) Due to AXENDO Due to Mashreq (iv) Due to IFC (ii) Due to Africa Trade (iv) Due to CAIXA (iv) Due to EMIRATESNB Due to Standard Chartered Bank UK Due to WILBENTRAD (iv) Due to CITILON (iv) Due to SUMITOMOBN (iv) Due to ADMSTF (iv) Due to ZENUK (iv) Interbank takings (v) Due to banks for clean letters of credit (vi) Group Bank 31 December 2023 31 December 2022 31 December 2023 31 December 2022 50,065 - 283,954 - 17,784 249,786 - 46,122 98,508 243,705 48,921 186,372 - - 23,338 28,898 49,216 18,369 - 13,000 52,847 51,938 3,859 30,943 49,064 - 105,677 63,459 - 124,209 116,909 - 151,200 16,493 67,869 33,790 36,207 46,578 12,979 23 - 52,253 50,065 - 283,954 - 17,784 249,786 - 46,122 98,508 243,705 48,921 186,372 - - 23,338 28,898 49,216 18,369 29,676 13,000 62,468 1,410,885 963,450 1,450,182 51,938 3,859 30,943 49,064 - 105,677 63,459 - 124,209 116,909 - 151,200 16,493 67,869 33,790 36,207 46,578 12,979 13,856 - 74,550 999,580 The Group has not had any defaults of principal, interest,or other breaches with respect to the debt securities during the year (31 December 2022: nil). The assets exchanged under repurchase agreements with counterparties are disclosed in note 17. Classified as: Current Non-current Movement in borrowings At the beginning of the year Addition during the year Interest expense Interest paid Repayments (principal) Foreign exchange difference At the end of the year 1,001,635 409,250 846,540 116,910 1,040,932 409,250 1,410,885 963,450 1,450,182 882,670 116,910 999,580 963,450 1,148,702 93,435 (97,895) (1,569,493) 872,686 750,469 1,243,614 40,609 (20,917) (1,135,414) 85,089 999,580 1,197,352 97,712 (97,569) (1,569,493) 822,600 769,395 1,279,743 38,254 (20,917) (1,154,340) 87,445 1,410,885 963,450 1,450,182 999,580 194 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 31. Borrowings (continued) Details of Borrowings i. Due to AFREXIM (African Export-Import Bank) The outstanding balance of N283.95 billion (US $300.00 million) due to AFREXIM represents the amount payable by the Bank from 5year amortized term loan received in 2023, with a one-year moratorium. The $300m facility will mature in December 2027. ii. Due to IFC (International Finance Corporation) The amount of N243.71 billion (US $250million) represents the amount payable by the bank on 3-year term loan granted by IFC in two tranches of $150m & $100m. Interest is payable semi-annually and the facility will mature in June 2025. iii Due to ABSA (Amalgamated Banks of South Africa) The amount of N95.18 billion (US $100 million) represents the amount payable by the Bank on a 6 months repurchase facility granted by ABSA with a maturity date of February 2024. Interest is payable quarterly. iv Trade loans These are trade loans due to various financial institutions with tenors ranging between 3 months and 1 year. The interest rates are referenced to the SOFR. v Interbank takings The tenure is 1 working day. vi Due to banks for clean letters of credit The amount represents a clean line from various international banks for letter of credit. 195 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 In millions of Naira 32. Debt Securities issued Group Bank 31 December 2023 31 December 2022 31 December 2023 31 December 2022 In May 2022, the Group paid down outstanding balance of the second tranche of US $500million eurobond. This eurobond was issued by Zenith Bank in May 2017 with a maturity date of May 2022. The Group did not have any defaults of principal, interest or other breaches with respect to the debt securities during the year (31 December 2022: Nil). Movement in debt securities issued At start of the year Revaluation loss for the year Interest expense Principal repayment Interest paid Foreign exchange At end of the year Derivative liabilities 33. Instrument types (Fair value): Forward and swap contracts Futures contracts Instrument types (Notional Amount) Forward and swap contracts Futures contracts Classified as: Current 34. Share capital - - - - - - - 504 69,982 70,486 518 96,131 96,649 45,799 - 1,860 (46,071) (1,699) 111 - 6,026 299 6,325 229,332 6,262 235,594 - - - - - - - - 45,514 45,514 14 96,131 96,145 45,799 - 1,860 (46,071) (1,699) 111 - 5,741 299 6,040 191,737 11,589 203,326 70,486 6,325 45,514 6,040 Issued and fully paid 31,396,493,787 ordinary shares of 50k each (December 2022: 31,396,493,787) 15,698 15,698 15,698 15,698 Issued Ordinary 15,698 15,698 15,698 15,698 196 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 In millions of Naira Group Bank 31 December 2023 31 December 2022 31 December 2023 31 December 2022 Share premium, retained earnings and other reserves 35. (a) There was no movement in the Share premium account during the current and prior year. Share premium 255,047 255,047 255,047 255,047 The nature and purpose of the reserves in equity are as follows: (b) Share premium: Premiums from the issue of shares are reported in share premium (c) Retained earnings: Retained earnings represent undistributed profits, net of statutory appropriations attributable to the ordinary shareholders. (d) Statutory reserve: This represents the cumulative amount set aside from general reserves/retained earnings by the Bank and its subsidiaries. This amount is non-distributable. The Bank's appropriation is in line with BOFIA 2020 which 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 N89.34 billion (2022: N35.19 billion) representing 15% of Zenith Bank's profit after tax was appropriated. Other Non-Nigerian subsidiaries also make appropriation which is based on their profit and in line with the requirement of their Central Bank. (e) SMIEIS reserve: 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). 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) Fair value reserve: Comprises fair value movements on equity and debt instruments that are carried at fair value through Other Comprehensive Income. (g) Foreign currency translation reserve: Comprises exchange differences resulting from the translation to Naira of the results and financial position of Group companies that have a functional currency other than Naira. (h) Credit risk reserve: This reserve represents the cumulative difference between the loan loss provision determined per the Prudential Guidelines of the Central Bank of Nigeria and the Central Bank of other subsidiaries vis-a-viz the allowance/reserve for loan losses as determined in line with the principles of IFRS 9. As at 31 December 2023, the Bank has made a cumulative credit risk reserve of N93.91 billion, while the cumulative amount made by the Group is N93.98 billion (31 December 2022: Group N95.30 billion and Bank N93.91 billion). (i) 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 below for the changes in non-controlling interest during the year. Movement in Non-controlling interest At start of the year Impact of adopting IAS 29 on 1 January 2023 Profit for the year Foreign currency translation differences At end of the year 31 December 2023 813 31 December 2022 1,144 472 340 3 1,628 - (139) (192) 813 197 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 In millions of Naira 36. Pension contribution Group Bank 31 December 2023 31 December 2022 31 December 2023 31 December 2022 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 respective jurisdictions. The contribution by the Group and the Bank during the year were N6.01 billion and N2.79 billion respectively (31 December 2022: N3.89 billion and N2.98 billion). 198 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 37. Personnel expenses Compensation for the staff are as follows: Salaries and wages Other staff costs* Pension contribution 92,637 25,766 6,012 124,415 74,102 8,423 3,887 86,412 71,627 13,670 2,786 88,083 58,576 6,916 2,983 68,475 *Other staff costs comprise benefits to staff other than salaries and pension. These benefits include productivity expenses, medical expenses and staff professional subscriptions. (a) The average number of persons employed during the year by category: Executive directors Management Non-management Number Number Number Number 6 572 7,587 8,165 6 449 7,622 8,077 6 519 6,154 6,679 6 399 6,295 6,700 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 Directors' renumeration excluding certain benefits are as follows: Executive compensation Fees and sitting allowances Retirement Benefit costs Fees and other emoluments disclosed above include amounts paid to: The Chairman The highest paid director Number 183 91 1,795 172 1,462 42 4,420 Number 257 61 2,601 683 717 58 3,700 Number - - 1,719 31 1,406 - 3,523 Number - - 2,487 456 518 13 3,226 8,165 8,077 6,679 6,700 2,575 1,039 1,826 5,440 1,563 602 3,279 5,444 2,575 358 1,826 4,759 46 2,168 1,563 312 3,279 5,154 39 285 The number of directors who received fees and other emoluments (excluding pension contributions and reimbursable expenses) in the following ranges was: N5,500,001 and above 38. Group subsidiaries and related party transactions Parent: Number 14 Number 15 Number 14 Number 15 The Group is controlled by Zenith Bank Plc (incorporated in Nigeria) which is the parent company and whose shares are widely held. 199 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 38. Group subsidiaries and related party transactions (continued) Subsidiaries: The amount of N7,649 billion (31 December 2022: N6,266 billion) represents the total pension assets under custody held by the Bank’s subsidiary, Zenith Pensions Custodian Limited under the custodial business and guaranteed by the bank as required by the National Pensions Commission of Nigeria . Included in the amount above is N130 billion which represents the amount of the Group’s cash held by the subsidiary under custody. 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, are eliminated on consolidation and are not separately disclosed in the consolidated financial statements. The Group's effective interests and investments in subsidiaries as at 31 December 2023 are shown below. Entity Zenith Bank (Ghana) Limited Zenith Bank (UK) Limited Zenith Bank (Sierra Leone) Limited Zenith Bank (The Gambia ) Limited Zenith Pension Custodians Limited Zenith Nominees Limited 31 December 2023 Effective Holding % 99.42 100.00 99.99 99.96 99.00 99.00 Nominal share capital held 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 31 December 2022 Transactions and balances with subsidiaries In millions of naira Zenith Bank (UK) Limited Zenith Bank (Ghana) Limited Zenith Bank (Sierra Leone) Limited Zenith Bank (Gambia) Limited Zenith Pensions Custodian Limited 198,112 16 565 71 - 29,676 3,225 - 4,503 - 16,411 - - - 6,000 4,866 - - - - 31 December 2022 Receivable from Payable to Income earned from Expense paid to 158,211 24 442 796 - 36,212 9,968 - - 708 4,643 6,897 - - 6,000 - - - - 697 Amounts payable to subsidiairies relate to short term borrowings mostly from Zenith bank UK. The balances with related parties relate to deposits with Zenith Bank UK and salaries of seconded staff of Zenith Bank PLC receivable from the subsidiaries. Transactions during the year relate to dividends received from subsidiaries and interest expense on borrowings with Zenith Bank UK. 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 and 3.6 for disclosures on liquidity and capital adequacy requirements respectively. The carrying amounts of banking subsidiaries' assets and liabilities are N3,751 billion and N3,266 billion respectively (31 December 2022: N1,986 billion and N1,767 billion respectively). Non-controlling interest in subsidiaries The Group does not have any subsidiary that has material non-controlling interest. 200 Zenith Bank Plc Annual Report - 31 December 2023 38. Group subsidiaries and related party transactions (continued) Key management personnel Key management personnel is defined as the Group's executive and non-executive directors, including their family members 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 Key management compensation Salaries and other short-term benefits Retirement benefit cost Allowances At the end of the year Loans and advances to key management personnel At start of the year Granted during the year Repayment during the year At end of the year Interest earned Group Bank 31 December 2023 31 December 2022 31 December 2023 31 December 2022 2,575 1,826 1,039 5,440 3,245 272 (667) 2,850 50 1,861 3,279 602 5,742 2,902 445 (102) 3,245 261 2,575 1,826 358 4,759 1,692 272 (667) 1,297 50 1,861 3,279 312 5,452 1,432 310 (50) 1,692 69 Loans to key management personnel include mortgage loans and other personal loans. The loans are repayable from various repayment cycles, ranging from monthly to annually over the tenor and have an average interest rate of 4%. Loans granted to key management personnel are performing. Insider related transactions: These have been disclosed in accordance with CBN circular BSD/1/2004 31 December 2023 Name of company Directors Quantum Fund Management Relationship/Name Zenith General Insurance Company Limited Sirius Lumina Limited Cyberspace Network Quantum Zenith Trustees & Inv. Ltd 31 December 2022 Name of company Directors Quantum Fund Management Zenith General Insurance Company Limited Cyberspace Network Zenith Trustees Ltd Oviation Limited Sirius Lumina Ltd At end of the year Common significant shareholder/JimOvia Common directorship/JimOvia Common significant shareholder/JimOvia Common significant shareholder/JimOvia Common significant shareholder Relationship/Name Common significant shareholder/JimOvia Common directorship/JimOvia Common significant shareholder/JimOvia Common significant shareholder/JimOvia Common directorship/Jim Ovia Director/Prof. Sam Enwemeka Loans Deposits Interest received Interest paid 679 48 - - - - - 727 Loans 1,588 - - - - - - 1,588 3,134 3 957 1 466 11 - 4,572 Deposits 3,298 10 1,026 763 7 3,497 1 8,602 50 - - - - - - 50 Interest received 69 - - - - - - 69 31 - - - - - - 31 Interest paid - - - - - - - - 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 2022: Nil). During the year, Zenith Bank Plc paid N1.65 billion as insurance premium to Zenith General Insurance Limited (31 December 2022: N795 million) and N886 million to prudential Zenith (31 December 2022: NIL). These expenses were reported as operating expenses. The Bank paid N3.99 billion (31 December 2022:N3.33 billion) to Cyberspace Network for various Information technology services rendered during the year. 201 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 39. Contingent liabilities and commitments a) Legal proceedings 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 N1 trillion (31 December 2022: N967 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. In arriving at this conclusion, the Group has relied on evidence and recommendations from its internal litigation group and its team of external solicitors. b) Capital commitments At the reporting date, the Group had capital commitments amounting to N489 million (31 December 2022: N629 billion) in respect of authorized and contracted capital projects. Break down of capital commitments Property and equipment: Motor vehicles, Furniture and equipment Property Intangible assets: Information technology Group 31 December 2023 31 December 2022 55 434 - 489 191 104 334 629 c) Confirmed credits and other obligations on behalf of customers In the normal course of business the group is a party to financial instruments with off-balance sheet risk. These instruments are issued to meet the credit and other financial requirements of customers. The contractual amounts of the off-balance sheet financial instruments are: In millions of Naira Performance bonds and guarantees Usance (see note ii below) Letters of credit (see note ii below) Group Bank 31 December 2023 31 December 2022 31 December 2023 31 December 2022 740,714 433,926 555,368 384,382 276,481 363,355 770,347 433,926 424,903 1,730,008 1,024,218 1,629,176 349,742 276,481 279,791 906,014 Pension Funds (See Note iii below) 7,648,625 6,265,755 7,648,625 6,265,755 i. ii. iii. The transaction related performance bonds and guarantees are, generally, short-term commitments to third parties which are not directly dependent on the customer's creditworthiness. As at 31 December 2023, performance bonds and guarantees worth N12.19 billion (31 December 2022: N7.5 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 N7,649 billion (31 December 2022: N6,266 billion) represents the total pension 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 N130.2 billion (31 December 2022: N114.4 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. Other than the Guarantee on the pension assets held by our subsidiary, Zenith Pension Custodian Limited, the Group does not have any contingent liabilities in respect of related parties. The Group and Bank has undrawn loan commitments of N211.71 billion (31 December 2022: N89.75 billion). 202 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 39. Contingent liabilities and commitments (continued) 40. Dividend payable Dividend proposed Number of share 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 period Interim Dividend paid during the period Total dividend paid during the year 15,698 31,396 0.50 0.50 3.50 91,050 15,698 106,748 100,467 31,396 3.20 0.30 2.90 87,952 9,419 97,371 15,698 31,396 0.50 0.50 3.50 91,050 15,698 106,748 100,467 31,396 3.20 0.30 2.90 87,910 9,419 97,330 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, paid an interim dividend of N0.50 per share and proposed a final divdend of N3.50 per share (31 December 2022: Interim dividend: N0.30, final: N2.90) from the retained earnings account as at 31 December 2023. This is subject to approval by shareholders at the next Annual General Meeting. The number of shares in issue and ranking for dividend represents the outstanding number of shares as at 31 December 2023 and 31 December 2022 respectively. Dividends are paid to shareholders' net of withholding tax at the rate of 10% in compliance with extant tax laws. Cash and cash equivalents 41. For the purposes of the cash flow statement, cash and cash equivalents include cash and non-restricted balances with central banks, treasury bills and other eligible bills, operating account balances with other banks, amount due from other banks and short-term governement securities. Cash and balances with central banks (less mandatory reserve deposits) (see note 15) Treasury bills (3 months tenor) (see note 16) Due from other banks(see note 18) 269,967 209,246 1,825,298 452,136 232,218 1,256,404 126,449 209,246 1,682,707 407,487 232,218 1,017,481 2,304,511 1,940,758 2,018,402 1,657,186 42. Compliance with Banking Regulations During the year, the bank paid the following penalties to Central Bank of Nigeria. S/N 1 2 3 4 Description Late rendition of CBN returns Employment of prospective employees before CBN approval Outstanding Auditors'recommendation. Spot checks on compliance on politically exposed persons Total Amount paid in Naira 5,000,000 10,000,000 2,000,000 4,000,000 21,000,000 203 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 43. Prudential Adjustments Provisions under prudential guidelines are determined using the time-based provisioning specified by the revised Prudential Guidelines issued by the Central Bank of Nigeria. This is at variance with the expected credit loss (ECL) model required under IFRS 9. As a result of the differences in the methodology/provision, there will be variances in the impairments 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) 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: (i) 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. (ii) 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 credit risk reserve is thereafter transferred to the general reserve account. (b) The non-distributable reserve is classified under Tier 1 as part of the core capital for the purpose of determining capital adequacy. In the guidelines to IFRS implementation, the Central Bank of Nigeria (CBN) directed banks to maintain a regulatory credit risk reserve in the event that the impairment on loans determined using the CBN prudential guideline is higher than the impairment determined using IFRS principles. As at 31 December 2023, the Bank holds a total of N93,911 million in its credit risk reserves. Provision for loan losses per prudential guidelines In millions of Naira Loans and advances: -Lost -Doubtful Sub-standard -Watchlist -Performing -Other known losses (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) Difference (n)=(a)-(m) As as 31 December 2023, the Bank holds a total of N93,911 million in its credit risk reserves. Bank 31 December 2023 31 December 2022 61,483 90,107 5,002 276,808 102,402 6,805 542,607 34,739 170,708 278,736 484,183 935 71 29 5,451 31,061 85 6,577 528,392 14,215 74,968 1,901 1,069 96,484 62,850 - 237,272 25,268 34,341 43,518 103,127 75 39 18 2,583 28,868 3,361 5,290 143,361 93,911 204 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 44. Statement of cash flow workings (i) Investment securities (see note 17 & 21) 31 December 2023 At 1 January 2023 Change in ECL allowance Additions to Investment securities Disposal of Investment securities Unrealised gain from changes in fair value recognised in profit or loss Fair value gain/loss OCI Interest income Interest received Impact of hyperinflation Foreign exchange difference Balance as at 31 December 2023 Recognised in cash flow statement 31 December 2022 At 1 January 2022 Change in ECL allowance Additions to Investment securities Disposal to Investment Securities Unrealised gain from changes in fair value recognised in profit or loss Fair value gain/loss OCI Interest income Interest received Foreign exchange difference Balance as at 31 December 2022 Recognised in cash flow statement 31 31 December 2023 Investment securities (including pledged instruments) at amortised cost Investment securities (including pledged instruments) at FVTPL and FVOCI Investment securities (including pledged instruments) at amortised cost Investment securities (including pledged instruments) at FVTPL and FVOCI 907,188 (7,283) 820,166 (122,846) - - 211,964 (70,091) - - 940,273 - - - - 129,929 - - (2,421) - 637,367 (2,877) 539,842 (82,885) - - 104,984 (62,434) - - (1,739,098) (1,769,213) (1,133,997) - (701,432) - 104,443 - - - - 122,252 - - - - (235,567) (8,872) Investment securities (including pledged instruments) at amortised cost Investment securities (including pledged instruments) at amortized cost and FVOCI Investment securities (including pledged instruments) at amortised cost Investment securities (including pledged instruments) at amortized cost and FVOCI 757,851 (62,562) 559,128 (403,066) - - 113,841 (59,116) 1,113 907,188 685,135 - 200 - (1,802) 1,507 - - 603 940,273 - (254,630) 483,199 (1,738) 206,085 (65,448) - - 64,914 (50,758) 1,113 (637,367) - 97,471 - 200 - (1,802) 8,109 - - 603 104,443 138 In millions of Naira (iia) Treasury bills (Amortised cost) (see note 16 & 17) 31 December 2023 Treasury bills (including pledged instrumets) at armotised cost as 1 January Change in ECL allowance Interest income Additions Redemptions Interest received Group Bank 31 December 2023 31 December 2022 31 December 2023 31 December 2022 (989,891) (748,022) (950,021) (648,637) (337) (178,967) (4,547,984) 3,543,236 305,302 (400) (43,609) (3,060,163) 2,833,003 29,300 32 (145,646) (2,824,475) 2,031,575 226,200 (356) (32,972) (2,968,565) 2,679,567 20,942 Balance as at 31 December 2023 (1,868,641) (989,891) (1,662,335) (950,021) - - - - 205 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 In millions of Naira 44. Statement of cash flow workings (continued) (iib) Treasury bills (FVTPL) (see note 16) 31 December 2023 Treasury bills fair value through profit or loss (including pledged instruments) as at 1 January Unrealised fair value gain Balance as at end of year Recognised in Cashflow (iii) Loans and advances (see note 20) 31 December 2023 Loans and advances at 1 January Changes in ECL allowance Interest Income Interest received Exchange difference Impact of hyperinflation Balance as at end of year Recognised in Cash flow (iv) Customer deposits 31 December 2023 As at 1 January Interest expense Interest paid Exchange difference Balance as at end of year Recognised in Cash flow (v) Other liabilities (see note 29) 31 December 2023 As at 1 January Changes in ECL allowance Lease modification Lease liability additions Interest expense on lease liability Lease interest paid Principal repayment on lease liability Foreign Exchange difference Unclaimed dividend received Impact of hyperinflation Lease terminations Balance as at end of year Net cash movement in operating activties (vi) Gain on disposal of property and equipment 31 December 2023 Cost (see note 25) Accumulated depreciation (see note 25) Net book value Sales proceed Profit on Disposal (see note 10) Group Bank 31 December 2023 31 December 2022 31 December 2023 31 December 2022 1,159,965 954,462 1,159,965 952,131 187,052 (749,606) 597,411 129,402 (1,159,965) (76,101) 187,052 (749,606) 597,411 129,281 (1,159,965) (78,553) 4,013,705 (400,650) 671,919 (722,437) - (8,029) (6,556,471) 3,355,728 (38,343) 370,446 (342,562) 125,432 - (4,013,705) 3,735,676 (394,440) 635,806 (671,888) - - (5,928,796) 3,099,452 (38,429) 346,320 (298,466) 124,357 - (3,735,676) (3,001,963) (543,004) (2,623,642) (502,442) (8,975,653) (306,748) 310,064 174,281 15,167,740 (6,472,054) (122,710) 116,053 (134,652) 8,975,653 (7,434,806) (250,751) 243,790 - 12,154,825 (5,169,199) (104,559) 101,000 (108,216) 7,434,806 6,369,684 2,362,290 4,713,058 2,153,832 (568,559) (1,633) (755) (1,269) (2,577) 224 1,543 (3,156) (352) 4,228 80 1,039,712 467,486 (5,244) 4,051 (1,193) 1,382 189 (487,432) (998) (675) (1,491) (2,082) 333 4,011 (39,361) (1,117) - 8,640 568,559 48,387 (644) - (644) 3,207 2,563 (546,347) (1,286) (755) (875) (1,034) 212 979 - (352) - 80 1,003,947 454,569 (5,055) 3,900 (1,155) 1,341 186 (427,876) 326 (675) (1,363) (2,069) 333 2,927 (40,993) (1,117) - 8,640 546,347 84,480 (220) - (220) 2,671 2,451 206 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 In millions of Naira 44. Statement of cash flow workings (continued) (vii) Due from Banks (greater than 90 days) 31 December 2023 As at 1 January Changes in ECL allowance Interest income Interest received Foreign exchange difference Balance as at end of year Recognised in cash flow statement (viii) Other assets 31 December 2023 As at 1 January Changes in ECL allowance Withholding tax receivable utilised Reclassification Impact of hyperinflation Balance as at end of year Net cash movement in operating activities (ix) Net movement in Derivatives Derivative assets 31 December 2023 As at 1 January Balance as at end of year Derivative liabilities 31 December 2023 As at 1 January Balance as at end of year Recognised in cash flow Net movement in derivatives (x) Restricted balances (Cash Reserve) 31 December 2023 Opening Balance Mandatory Reserve deposit with Central Bank Special Cash Reserve Group Bank 31 December 2023 31 December 2022 31 December 2023 31 December 2022 46,407 (860) 81,822 (81,822) - (9,015) 36,532 213,523 1,103 - 646 837 (474,977) (258,868) (49,874) 534,739 484,865 (6,325) 70,486 64,161 420,704 29,986 649 12,270 (12,159) - (46,407) (15,661) 168,210 (22,398) 8,125 - - (213,523) (59,586) (56,187) 49,874 (6,313) (14,674) 6,325 (8,349) 2,036 115,315 (860) 39,796 (39,796) - (9,015) 105,440 193,792 1,083 - - - (417,419) (222,544) (48,851) 507,942 459,091 (6,040) 45,514 39,474 419,617 94,157 (17) 3,967 (3,857) - (115,315) (21,066) 152,326 (22,394) 8,125 - - (193,792) (55,735) (57,476) 48,851 (8,625) (15,170) 6,040 (9,130) 505 1,749,608 3,902,717 80,689 1,330,897 (1,668,919) 80,689 1,694,906 3,758,248 80,689 1,275,201 (1,614,217) 80,689 Recognised in cashflow (2,233,798) (418,711) (2,144,031) (419,705) (xi) Interest paid 31 December 2023 Customer deposit (see note 44(iv)) Onlending facilities (see note 30b) Lease liabilities (see 44(v)) Borrowings (see note 31) Debt securities (see note 32) (310,064) (5,778) (224) (97,895) - (413,961) (116,053) (4,857) (333) (20,917) (1,699) (143,859) (243,790) (5,778) (212) (97,569) - (347,349) (101,000) (4,857) (333) (20,917) (1,698) (128,805) 207 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 In millions of Naira 44. Statement of cash flow workings (continued) (xii) Unrealised fair value change 31 December 2023 Investment securities (see note 44(i)) Treasury bills (see note 44(ii)) Derivatives (see note 44(ix)) Hedging effectiveness (xiiia) Interest received from operating activities 31 December 2023 Due from other banks (see note 41(vii)) Loans and advances (see note 41(iii)) (xiiib) Interest received from treasury bills and investment securities 31 December 2023 Treasury bills (see note 41(ii)) Investment securities (see note 41(i)) (xiva) Acquisition of Right of use asset 31 December 2023 Addition to right of use (see note 26) Lease liability addition (see note 44(v)) (xivb) Additions to property,plant and equipment other than right of use 31 December 2023 Addition to property, plant and equipment (see note 26) Addition to right of use asset (see note 26) (xv)Addition to investment securities 31 December 2023 Investment securities at amortized cost Investment securities at FVOCI (xvi)Lease Modification 31 December 2023 Right of use Lease Liability Group Bank 31 December 2023 31 December 2022 31 December 2023 31 December 2022 - (187,052) (420,704) 458,478 (149,278) 1,802 (129,402) (2,036) 39,590 (90,046) - (187,052) (419,616) 458,478 (148,190) 1,802 (129,281) (505) 39,590 (88,394) 81,822 722,437 804,259 12,160 342,562 354,722 39,796 671,888 711,684 3,858 298,466 302,324 305,302 69,461 374,763 (2,128) 1,269 (859) 29,300 59,116 88,416 (3,772) 1,491 (2,281) 226,200 62,434 288,634 (1,685) 875 (810) 20,942 50,758 71,700 (3,394) 1,363 (2,031) (52,409) 2,128 (50,281) (71,017) 3,772 (67,245) (42,269) 1,685 (40,584) (67,751) 3,394 (64,357) (820,166) - (820,166) (599,128) (200) (599,328) (539,842) - (539,842) (206,085) (200) (206,285) 755 (755) - - - 675 (675) - - - 755 (755) - - - 675 (675) - - - 208 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 In millions of Naira Group Bank 31 December 2023 31 December 2022 31 December 2023 31 December 2022 - - - - - - - - (xvii)Unclaimed dividend received 31 December 2023 As at 1 January Balance as at 31 Dec 2022 (xviii)Lease derecognition 31 December 2023 Right of use- cost Right of use-Accumulated depreciation lease liability (xix)Dividend received 31 December 2023 Dividend Income Dividend receivable (xx) Foreign exchange revaluation loss 31 December 2023 Cash and bank balances Due to other banks Loans and advances Investment securities Other assets Customer deposits Other liabilities less finance lease Leases Borrowings Debt securities issued Hedging ineffectiveness (29,764) 30,116 352 66 - (80) (14) 5,661 - 5,661 (42,723) (486,389) - - - - - 3,156 872,686 - (458,478) (111,748) (28,647) 29,764 1,117 12,773 (6,160) (8,640) (2,027) - - - (812) (87,142) (125,432) (1,716) (8,125) 113,055 40,993 (1,632) 45,499 111 - (25,201) (29,764) 30,116 352 81 - (79) 2 19,777 - 19,777 (42,531) (486,246) - - - - - - 822,600 - (458,478) (164,655) (28,647) 29,764 1,117 12,600 (5,985) (8,640) (2,025) - - - (812) (87,483) (124,358) (1,716) (8,125) 108,215 40,993 - 47,855 111 - (25,320) 209 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Notes to the Consolidated and Separate Financial Statements for the Year Ended 31 December 2023 45. Comparatives Certain disclosures and some prior year figures have been re-presented to conform with current year presentation. 210 Zenith Bank Plc Annual Report - 31 December 2023 OTHER NATIONAL DISCLOSURES ZENITH BANK PLC Value Added Statement In millions of Naira Group Value Added Gross income Interest and fee 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 Profit for the year (including statutory reserves, small scale industry, and non- controling interest) 31 December 2023 31 December 2023 % 31 December 2022 31 December 2022 % 2,131,750 (302,912) (173,788) 1,655,050 (409,616) 1,245,434 (262,775) (28,956) 953,703 124,415 119,053 33,326 676,909 956,351 (132,589) (76,169) 747,593 (123,252) 624,341 (206,841) (16,131) 401,369 86,412 60,739 30,308 233,910 100 16 15 3 71 100 22 15 8 58 Total Value Added 953,703 100 401,369 100 Value added represents the additional wealth which the group has been able to create by its own and employees efforts. 212 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Value Added Statement In millions of Naira Bank Gross Income Interest and fee expense -Local -Foreign Impairment loss on financial and non-financial instruments Bought-in material and services -Local -Foreign Value added Distribution Employees Salaries and benefits Government Income tax Retained in the Bank Replacement of property and equipment/intagible assets Profit for the year (including staturory reserves and small scale industry) Total Value Added 31 December 2023 31 December 2023 % 31 December 2022 31 December 2022 % 1,869,753 (321,877) (103,443) 1,444,433 (398,412) 1,046,021 (261,686) - 784,335 88,083 72,114 28,537 595,601 784,335 833,087 (136,285) (40,112) 656,690 (61,896) 594,794 (204,704) - 390,088 68,475 59,457 27,564 234,593 390,089 100 11 9 4 76 100 100 18 7 8 60 100 Value added represents the additional wealth which the Bank has been able to create by its own and employees efforts. 213 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Five-Year Financial Summary In millions of Naira 31 December 2023 31 December 2022 31 December 2021 31 December 2020 31 December 2019 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 Current tax receivable Deferred tax Other assets Property and equipment Intangible assets Total assets Liabilities Customer deposits Derivative liabilities Current tax payable Deferred 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 Financed by: 4,253,374 2,736,273 308,638 1,834,314 534,739 6,556,470 3,290,895 18,975 17,251 474,976 295,532 47,018 2,201,744 2,246,538 254,663 1,302,811 49,874 4,013,705 1,728,334 - 18,343 213,523 230,843 25,251 1,488,363 1,764,946 392,594 691,244 56,187 3,355,728 1,303,725 - 1,837 168,210 200,008 25,001 1,591,768 1,577,875 298,530 810,494 44,496 2,779,027 996,916 - 5,786 169,967 190,170 16,243 936,278 991,393 431,728 707,103 92,722 2,305,565 591,097 - 11,885 77,395 185,216 16,497 20,368,455 12,285,629 9,447,843 8,481,272 6,346,879 15,167,740 70,486 33,877 59,310 1,039,712 263,065 1,410,885 - 8,975,653 6,325 64,856 16,654 568,559 311,192 963,450 - 18,045,075 10,906,689 2,323,380 1,378,940 15,698 255,047 1,179,390 871,617 2,321,752 1,628 2,323,380 15,698 255,047 625,005 482,377 1,378,127 813 1,378,940 6,472,054 14,674 16,909 11,603 487,432 369,241 750,469 45,799 8,168,181 1,279,662 15,698 255,047 607,203 400,570 1,278,518 1,144 1,279,662 5,339,911 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 1,117,473 4,262,289 14,762 9,711 25 363,764 392,871 322,479 39,092 5,404,993 941,886 15,698 255,047 412,948 257,439 941,132 754 941,886 214 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Five Year Financial Summary In millions of Naira 31 December 2023 31 December 2022 31 December 2021 31 December 2020 31 December 2019 Statements of Profit or Loss and Other Comprehensive Income Gross earnings Share of profit/(loss) of associate Interest expense Operating and direct expenses Impairment charge for financial and non-financial assets Profit before taxation Taxation Profit after tax Foreign currency translation differences Impact of applying IAS 29 on 1 January 2023 Fair value movement on equity instruments Fair value movements on debt securities at FVOCI Income tax effect relating to fair value movement on debt securities at FVOCI 2,131,750 - (408,492) (517,680) (409,616) 795,962 (119,053) 676,909 162,942 - 122,252 10,280 (2,603) 945,554 - (173,539) (364,113) (123,252) 284,650 (60,739) 223,911 (28,768) - 8,109 (6,602) - 765,558 - (106,794) (318,458) (59,932) 280,374 (35,816) 244,558 8,485 - 5,599 (2,227) - 696,450 - (121,131) (279,924) (39,534) 255,861 (25,296) 230,565 - - 16,295 1,981 (355) 662,251 - (148,532) (246,393) (24,032) 243,294 (34,451) 208,843 (8,498) - 13,870 518 (66) Total Comprehensive income 969,780 196,650 256,415 248,486 214,667 Earnings per share Basic and diluted (kobo) 2,155 714 778 734 665 215 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Five Year Financial Summary In millions of Naira 31 December 2023 31 December 2022 31 December 2021 31 December 2020 31 December 2019 Bank Statement of Financial Position Assets Cash and balances with central banks Treasury bills Assets pledged as collateral Due From Other Banks Derivatives Loans and advances Investment securities Investment in subsidiaries Investment in associates Deferred tax Other assets Property and equipment Intangible assets Total assets Liabilities Customer 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 Reserves Attributable to equity holders of the parent Total shareholder's equity 3,965,386 2,529,966 255,061 1,691,722 507,942 5,928,796 1,205,724 34,625 - - 417,419 230,267 44,185 2,102,394 2,206,668 254,565 1,132,796 48,851 3,735,676 622,781 34,625 - - 193,792 214,572 23,958 1,397,666 1,577,647 357,000 518,053 57,476 3,099,452 477,004 34,625 - - 152,326 177,501 23,542 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 16,811,093 10,570,678 7,872,292 7,124,987 5,435,073 12,154,824 45,514 28,080 59,233 1,003,947 263,065 1,450,182 - 15,004,845 1,806,248 15,698 255,047 893,938 641,565 1,806,248 1,806,248 7,434,806 6,040 61,655 15,911 546,347 311,192 999,580 - 9,375,531 1,195,147 15,698 255,047 494,429 429,973 1,195,147 1,195,147 5,169,199 15,170 14,241 11,596 427,876 369,241 769,395 45,799 6,822,517 1,049,775 15,698 255,047 466,250 312,781 1,049,776 1,049,776 4,298,258 11,076 9,117 - 599,464 384,573 874,090 43,177 3,486,887 14,762 6,627 - 386,061 392,871 329,778 39,092 6,219,755 4,656,078 905,232 778,995 15,698 255,047 382,292 252,195 905,232 905,232 15,698 255,047 302,028 206,222 778,995 778,995 216 Zenith Bank Plc Annual Report - 31 December 2023 ZENITH BANK PLC Five Year Financial Summary In millions of Naira 31 December 2023 31 December 2022 31 December 2021 31 December 2020 31 December 2019 Statements of Profit or Loss and Other Comprehensive Income Gross earnings Interest expense Other operating expenses Impairments Profit before tax Taxation Profit after taxation Other comprehensive income Fair value movements on equity instruments Total Comprehensive income Earning per share Basic and diluted (kobo) 1,869,753 (355,228) (448,398) (398,412) 667,715 (72,114) 595,601 122,252 122,252 717,853 833,087 (153,019) (324,122) (61,896) 294,050 (59,457) 234,593 8,109 8,109 677,283 (82,718) (281,223) (56,175) 257,167 (24,034) 233,133 5,599 5,599 242,702 238,732 595,921 (102,111) (246,566) (37,237) 210,007 (12,155) 197,852 16,295 16,295 214,147 564,687 (126,237) (215,037) (23,393) 200,020 (22,017) 178,003 13,870 13,870 191,873 1,897 747 743 630 567 217 Zenith Bank Plc Annual Report - 31 December 2023
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