ECOBANK NIGERIA LIMITED

Transcription

ANNUAL REPORTS AND ACCOUNTS
FOR THE YEAR ENDED 31 DECEMBER 2012
1
Annual Reports and Accounts
31 December 2012
Table of content
GENERAL INFORMATION
3
REPORT OF THE DIRECTORS
4
CORPORATE GOVERNANCE REPORT
10
STATEMENT OF DIRECTORS’ RESPONSIBILITY
16
REPORT OF THE INDEPENDENT AUDITOR
17
STATEMENT OF COMPREHENSIVE INCOME
18
STATEMENT OF FINANCIAL POSITION
19
STATEMENT OF CHANGES IN EQUITY
20
STATEMENT OF PRUDENTIAL ADJUSTMENTS
21
STATEMENT OF CASH FLOWS
22
NOTES TO THE FINANCIAL STATEMENTS
23
FINANCIAL RISK MANAGEMENT
67
2
31 December 2012
GENERAL INFORMATION
DIRECTORS, PROFESSIONALS, ADDRESS
DIRECTORS
The Olor’ogun S. F. Kuku, OFR
Jibril Aku
Alhaji Muazu Anache
Chief Wilfred Belonwu
Mr. Edouard Dossou-Yovo
Mr. Orikolade Karim
Mr. Olufemi Ayeni
Mrs. Funmi Oyetunji
Mr. Thierry Tanoh
Madame Eveline Tall
Ms. Foluke Aboderin
Mr. Oladele Alabi
Mr. Kingsley Aigbokhaevbo
Mr. Henry Ajagbawa
Mr. Shehu Jafiya
-
Chairman
Managing Director
Director
Director
Independent Director
Director
Independent Director
Director
Director
Director
Executive Director, Corporate Bank
Executive Director, Finance & Control
Executive Director, Lagos & West
Executive Director, South-South/South East
Executive Director, Abuja & North
COMPANY SECRETARY
Adenike Laoye
REGISTERED OFFICE
21 Ahmadu Bello Way
Victoria Island
Lagos, Nigeria
INDEPENDENT AUDITORS
Akintola Williams Deloitte
235, Ikorodu Road, Ilupeju
P.O. Box 965, Marina
Lagos, Nigeria
REGISTRAR
EDC Securities Limited
137/139 Broad Street
Lagos Nigeria
3
31 December 2012
REPORT OF THE DIRECTORS
The Directors are pleased to submit their report together with the financial statements for the year ended 31
December 2012.
1.
RESULTS
2012
N’million
The Profit of the Bank after providing for Taxation was
Transfer to Statutory Reserve
Transfer to retained Earnings
2.
7,805
-7,805
2011
N’milion
(Restated)
19,344
-19,344
LEGAL FORM
The Company, which was incorporated on October 7, 1986 as a Public Limited Liability Company,
commenced business on April 24, 1989. Pursuant to Federal High Court Lagos sanction of a Scheme
of Arrangement of the Company’s capital on December 30, 2011, Ecobank Transnational Incorporated
(ETI) became the sole beneficial shareholder of the Company but the Company remained a public
limited liability company until it was, re-registered as a private Limited Liability Company on April 5,
2012.
3.
PRINCIPAL ACTIVITIES AND BUSINESS REVIEW
The Bank is engaged in the business of commercial banking with national authorisation.
During the year, the Bank essentially completed the integration of former Oceanic Bank with its
operations. This impacted significantly and positively on the activities of the Bank. The Bank focused
on culture change programs and training while also ensuring integration of its processes.
The Bank also received and capitalized a total sum of US$400million (NGN64billion) from its parent
company, Ecobank Transnational Incorporated.
The Bank continued to be organized along business lines: Domestic Bank (DB) and Corporate and
Investment Banking (CIB); which is further broken into Treasury and Corporate Banking, all supported
by Operations & Technology, Risk Management, Legal, Audit, Internal Control and Human Resources.
Two key products were launched during the year – “Ecobank Mobile Money”, a fully integrated mobile
banking platform from Domestic Bank and “OMNI”, a self-service collection platform specifically
designed for our corporate clients from Corporate Bank.
There are no inhibiting factors which would affect the Bank continuing as a going concern.
4.
DIRECTORS
1. The names of the current directors are listed in the full annual report.
2. Since the last Annual General Meeting held on July 27, 2012, Mr. Thierry Tanoh was appointed as
director by the Board of Directors, while Mme. Eveline Tall became a substantive director.
A resolution would be proposed to shareholders at the Annual General Meeting in respect of their
appointments.
Mr. Arnold Ekpe and Dr. (Mrs.) Nadu Denloye resigned as directors from the Board.
3. In accordance with Article 93 of the Bank’s Articles of Association, The Olor’ogun S.F. Kuku, OFR and
Mr. Edouard Dossou-Yovo retire by rotation and being eligible, offer themselves for re-election.
4
31 December 2012
REPORT OF THE DIRECTORS (Cont’d)
CURRENT HOLDINGS OF DIRECTORS
31 December
2012
Direct
31 December
2012
Indirect
31 March
2012
Direct
31 March
2012
Indirect
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Olor’ogun S. F. Kuku, OFR
Alhaji Mua’zu Anache
Mr. Kola Karim
Mme. Eveline Tall
Mr. Thierry Tanoh
Mr. Femi Ayeni
Mrs. Funmi Oyetunji
Jibril Aku
Foluke Aboderin
Kingsley Aigbokhaevbo
Dele Alabi
Henry Ajagbawa
Shehu Jafiya
5.
DIRECTORS’ RESPONSIBILITIES
In accordance with the provisions of sections 334 and 335 of the Companies and Allied Matters Act
(CAMA) 1990 and Sections 24 and 28 of the Banks and Other Financial Institutions Act 1991 as
amended, the Directors are responsible for the preparation of Annual Financial Statements.
These responsibilities include ensuring that:
(a) adequate internal control procedures are instituted to safeguard assets, prevent and detect fraud
and other irregularities;
(b) proper accounting records are maintained;
(c) applicable accounting standards are followed;
(d) suitable accounting policies are used and consistently applied;
(e) the financial statements are prepared on a going concern basis, unless it is inappropriate to
presume that the company will continue in business.
5
31 December 2012
6.
ANALYSIS OF SHAREHOLDING
Authorized Shares: 30,000,000,000
Quantity Issued
Share Range
: 18,482,529,765
Number of
Shareholders
% of
Shareholders
Number of
Holdings
%
Shareholding
1
0.00
1
1
1,000,000,000
1
1
18,482,529,764
99.99
TOTAL:
2
100.00
18,482,529,765
100.00
These figures are as at 31 December 2012.
7.
SUBSTANTIAL INTEREST IN SHARES
31 December 2012
Number
%
Ecobank Transnational Inc. (ETI)
Nigerian Citizens and Associations
31 March 2012
Number
%
18,482,529,764
1
100
00.0
27,919,198,911
1
100
0.00
18,482,529,765
100
27,919,198,912
100
During the year, by order of the Federal High Court Lagos, the Bank’s issued share capital was reduced
from N13,959,599,453.50 to N5,904,043,900, to eliminate the negative reserves which arose from ETI’s
acquisition of controlling stake in former Oceanic Bank International Ltd. (OCB). OCB subsequently
merged with Ecobank Nigeria, leaving Ecobank Nigeria as the surviving entity.
Also within the year the Board of Directors, upon authorization from the shareholders also allotted
6,674,441,964 shares to ETI in consideration for Deposit for shares of N66,744,419,640. Consequently the
issued share capital of the Bank is presently N9,241,264,880.
8.
DONATIONS AND CONTRIBUTIONS MADE BY THE BANK DURING THE YEAR AMOUNTED TO
N26,000,000
DESCRIPTION
AMOUNT (N)
Donation to Ogun State Security Fund
Donation to St. Augustine University – Lagos
Donation to SOS Children Village Nigeria – Jos
Donation to SOS Children Village Nigeria – I solo
Donation to SOS Children Village Nigeria – Owe Jibe
Donation to SOS Children Village Nigeria – Gwagwalada
6
75,000,000
5,000,000
1,500,000
1,500,000
1,500,000
1,500,000
86,000,000
31 December 2012
9.
FIXED ASSETS
Movements in fixed assets during the year are shown in note 24 on page 52. In the opinion of the
Directors, the market value of the Company’s properties is not less than the value shown in the
Financial Statements.
10.
EMPLOYMENT AND EMPLOYEES
Employment of Disabled Persons
It is the policy of the Company that there should be no discrimination in considering applications for
employment including those from disabled persons. All employees are given equal opportunities for
self-development. As at December 31, 2012, one disabled person was in the employment of the
Company.
Employee Involvement and Training
The Company is committed to keeping employees fully informed as much as possible regarding the
Company’s performance and progress and seeking their views wherever practicable on matters, which
particularly affect them as employees.
Management, professional and technical expertise are the Company’s major assets and
investment in their further development continues.
Training is carried out from entry level through various levels with both in-house and external courses.
Mandatory Virtual Training is also done by all staff regardless of their level.
Health, safety at work and welfare of employees
Health and safety regulations are in force within the Company’s premises and employees are aware of
safety regulations. The Company provides subsidies for all employees for medical, transportation,
housing and lunch. Incentive schemes designed to meet the circumstances of each individual are
implemented wherever appropriate, and some of these include bonuses, salary review, promotion, use
of health management organizations for medical and gratuity for long service.
Gender analysis as at 31 December 2012 as at 31 December 2012
(a) Analysis of total employees by Gender
Employees
Male
Number
Female
Total
Percentage
Male
4,363
2,825
7,188
61%
7
Female
39%
31 December 2012
(b) Analysis of board and top management staff by gender
Number
Assistant General Managers
Deputy General Managers
General Managers
Board members (Non-Executive Directors)
Board members (Executive Directors)
11.
Percentage
Male
Female
Total
Male
Female
37
14
9
7
5
17
3
5
2
1
54
17
14
9
6
69%
82%
64%
78%
83%
31%
18%
36%
22%
17%
72
28
100
72%
28%
CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABILITY
The Ecobank Group business model and key performance indicators take into account Ecobank’s
commitment to the economic development of Africa.
Ecobank is conscious that its progress must go hand-in-hand with the sustainable development of the
continent. We embrace social and environmental issues, including challenges relating to ecology,
healthcare and education. We are committed to making a strong economic and social contribution in
our local communities, whilst safeguarding the environment for future generations. We continue to do
this within Nigeria.
12.
ECOBANK FOUNDATION
The Ecobank Foundation was set up as part of the Ecobank Group’s mission to contribute, beyond
banking, to the development of all of the African countries in which it operates. Up to one percent of
profit after tax of the Ecobank Group is set aside for the Foundation to support projects, independent of
Ecobank, that promote gender equality, youth engagement, education, healthcare and culture. Since
2005, the Ecobank Foundation has funded a total of approximately US$2million of social welfare
initiatives.
To expand the scope of its activities, it has entered into partnerships with organizations including the
Pathfinder Foundation, the Western Union Foundation and USAID. This strategy has proved effective,
resulting in projects that will have a direct impact on more than 25,000 people of all ages within several
regions of Africa.
13.
DIVERSITY AND INCLUSION
Ecobank, by virtue of its geographical spread, is one of the most diversified groups in Africa in terms of
its people. Ecobank also has a policy of ensuring diversity in its employee talent pool without
compromising the quality of its staff. Regular reports are presented and monitored to ensure
adherence to policy. Within the Ecobank Group, we communicate in English, French and Portuguese.
Reflecting our commitment to equality of opportunity, 44% of our workforce and 31% of our
management team are female.
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31 December 2012
14.
THE ENVIRONMENT
As a responsible corporate citizen, Ecobank aims to operate in a way that minimizes its carbon
footprint. In 1999, the Ecobank Group adopted a general policy that outlined its commitment to a clean
and green environment, requiring all Ecobank subsidiaries to be environmentally responsible. For
example, all staff are discouraged from printing electronic message unless absolutely necessary.
Ecobank has adopted a Social and Environmental Management System (SEMS) and group-wide policy
guidelines that govern project financing and other credits. Environmental Coordinators are present in
the Bank to ensure that we abide by the SEMS and its policy requirements. Environmental and Social
(E&S) assessments are carried out on lending proposals to ensure policy compliance.
The Ecobank Group has centralized credit approval processes to ensure all lending activities remain
consistent with the SEMS and policy guidelines. We are required to conduct social and environmental
due diligence for projects. Any socially or environmentally-sensitive projects are monitored to ensure
that client companies demonstrate compliance with environmental standards or sign up to a corrective
action plan where necessary.
15.
PAPER USAGE
We have deployed workflow solutions, which automate account opening/maintenance and funds
transfer, as we seek to move closer towards paperless business. We are increasingly adopting the
usage of electronic forms that will reduce paper usage as well.
16.
ENERGY
To reduce energy consumption, we promote the use of electronic communications (such as video and
audio conferencing) within the Group, thereby reducing the need for air and road travel. We are also
working on a group-wide energy audit to promote the use of more environmentally friendly appliances
such as energy efficient light bulbs and air conditioners.
17.
BOARD AUDIT & COMPLIANCE COMMITTEE
The Company has in place a Board Audit & Compliance Committee with the following directors as
members as at December 31, 2012:
i.
ii.
iii.
iv.
Alhaji Muazu Anache
Mr. Kola Karim
-
Chairman
Member
Member
Member
BY ORDER OF THE BOARD
ADENIKE LAOYE
COMPANY SECRETARY
15 MARCH, 2013
FRC/2013/CIBN/00000002048
9
31 December 2012
CORPORATE GOVERNANCE REPORT
Commitment to Corporate Governance
Ecobank remains committed to ensuring international best practice in terms of Corporate Governance.
1.
BOARD COMPOSITION
As at December 31, 2012, the Board comprised fifteen (15) Directors: nine (9) non-executive and five
(5) executive directors.
During the year the Bank was in compliance with the CBN Code of Corporate Governance regarding
the appointment of a minimum of two (2) independent non-executive directors. The independent
directors are Mr. Edouard Dossou-Yovo and Mr. Olufemi Ayeni.
All the Bank’s Directors have varied experience and backgrounds and are well equipped to handle the
responsibilities of the Board.
2.
ROLE OF THE BOARD
Fundamental to the guiding principles of Ecobank is that all power belongs to the shareholders.
The role of the Board is well documented in the Ecobank Group Corporate Governance Charter which
is revised from time to time based on the evolving nature of the responsibilities of the Board.
The Board receives continuous training on corporate governance and relevant areas of the banking.
Directors attended training on the following during the financial year
Continuous Education on Corporate Governance
Internal Control Oversight & Monitoring
FITC Improving Board Audit Committee’s Effectiveness
Credit Risk Management Workshop
Enterprise Risk Management Workshop
The Board’s oversight of the operations and activities of the Bank is also carried out transparently.
3.
COMPLIANCE WITH THE CENTRAL BANK OF NIGERIA (CBN) CODE OF CORPORATE
GOVERNANCE AND THE SECURITIES & EXCHANGE COMMISSION (SEC) GOVERNANCE CODE
The Bank rendered monthly returns to the CBN on the status of its compliance with the CBN Code of
Corporate Governance. The Bank is in compliance with the terms of the Code.
4.
BOARD COMMITTEES
During the 2012 financial year, the Board delegated some of its responsibilities to the following
Committees:
i.
Board Credit Committee
Responsibilities
*
*
*
*
*
*
Approval of credits outside management’s approval limit
Approval of insider-related transactions/credits
Review of remedial accounts/past due obligations/classified accounts
Approval of accounts to be written-off and any other related matters
Approval of exceptions to the credit policy
Review of periodic reports and assessment of portfolio performance
10
31 December 2012
CORPORATE GOVERNANCE REPORT (Cont’d)
i.
Board Credit Committee (cont’d)
Committee Composition:
Mr. Olufemi Ayeni
Mr. Kola Karim
Mrs. Funmi Oyetunji
Mr. Jibril Aku
Ms. Foluke Aboderin
ii.
Chairman
Board Governance Committee
Responsibilities
*
*
*
*
Compliance with Governance Code
Corporate governance issues and assessment/evaluation of the Board
Approval of contractors and major contracts
Human Resources matters, relating to employment, termination of employment and review of
performance appraisal of Assistant General Managers and above, staff salary changes and
loans, and consideration of appointment of directors and their emoluments.
Mme. Eveline Tall
Dr. (Mrs.) Nadu Denloye
iii.
-
Chairman
-
Resigned in October 2012
Board Risk Committee
Responsibilities
Review and recommend changes to the Board as needed to ensure that the Bank has in
place at all times a Risk Management Policy
Approve and recommend risk tolerance levels, limits and metrics.
Review on an annual basis a risk assessment prepared by management that identifies and
evaluate all material risks.
Provide oversight to ensure that the risk management monitoring and reporting functions in
the Bank are independent of business line or risk-taking processes.
Discuss and evaluate the Bank’s risk exposures in light of current market conditions,
established risk limits, operating performance and other relevant factors.
Review the report that monitors compliance with risk parameters established by regulation or
Bank policy and measures the adequacy of risk monitoring, testing and governance.
Inform the Board of the status of risk exposures and risk management processes in the Bank.
Oversee the Bank’s risk framework and controls, and monitor the activities of the
management level risk committees.
Periodically review and approve proposals regarding financial, investment, credit and
operating risk management strategies and key decisions of the management level risk
committee.
11
31 December 2012
iii.
Board Risk Committee (Cont’d)
Mrs. Funmi Oyetunji
Mr. Olufemi Ayeni
Mr. Jibril Aku
Mr. Oladele Alabi
iv.
-
Chairman up to October 2012
Chairman effective December 2012
Board Audit & Compliance Committee
Responsibilities
*
*
*
*
*
*
*
*
*
Review and assessment of all internal and external audit reports. Review and monitoring of
internal control and ensuring effectiveness of controls
Review of frauds and forgeries
Review of the Bank’s compliance requirements
Liaising with external and internal auditors and management
Ensuring compliance with all applicable laws and regulations, as well as operating standards
Review of the Bank’s financial performance
Review of scope and planning of audits
Review of audited accounts and management Control Reports
Review of capital expenditure and operating expenses
Mr. Kola Karim
5.
-
Chairman
FREQUENCY OF MEETINGS
Meetings of the Board and its Committees are usually held quarterly, but may be convened at any time
whenever the need arises.
The Board and its Committees met as follows:
Board/Committees
Meetings
Board of Directors
Board Credit
Board Risk
Board Governance
Board Audit & Compliance
No. of
Meetings
8
7
5
4
4
During the year under review, management was supported by the following Management Committees
i.
ii.
iii
iv
v.
vi.
Executive Management Committee chaired by the Managing Director
Human Resources Committee, chaired by an Executive Director
Assets and Liabilities Committee, chaired by the Managing Director
Disciplinary Committee, chaired by an Executive Director
Criticised Asset Committee
Information Technology Steering Committee, chaired by an Executive Director
12
31 December 2012
6.
ATTENDANCE AT BOARD AND COMMITTEE MEETINGS
The Board
The Board of Directors convened eight (8) times during the year
S/N
1.
2.
3.
4.
5.
6.
7.
8.
9
10
11.
12.
13.
14.
15.
16.
17.
Total No.
Attended
8
8
7
5
7
7
6
4
5
2
8
8
8
6
5
4
Directors
The Olor’ogun S. F. Kuku, OFR
Alhaji M. Anache
Chief W. Belonwu
Mr. Kola Karim
Mr. Femi Ayeni *
Mrs. Funmi Oyetunji *
Mr. Arnold Ekpe *
Mr. Thiery Tanoh
Mme. Eveline Tall
Mr. Jibril Aku
Ms. Foluke Aboderin
Mr. Oladele Alabi
Mr. Kingsley Aigbokhaevbo
Mr. Henry Ajagbawa *
Mr. Shehu Jafiya *
Percentage
100%
100%
100%
63%
88%
88%
85%
80%
100%
0%
100%
100%
100%
100%
100%
100%
80%
* Mr. Femi Ayeni was appointed in January 2012
* Mrs. Funmi Oyetunji was appointed in April 2012
* Mr. Henry Ajagbawa was appointed in April 2012
* Mr. Shehu Jafiya was appointed in April 2012
* Mr. Kingsley Aigbokhaevbo was re-appointed in April 2012
* Mr. Thierry Tanoh was appointed in October 2012
* Dr. (Mrs.) Nadu Denloye retired in October 2012
* Mr. Arnold Ekpe retired in October 2012
Board Governance Committee
The Committee convened four (4) times during the year.
S/N
1.
2.
3.
4.
5.
Directors
Mme. Eveline Tall
Dr. Nadu Denloye
Mr. Arnold Ekpe
13
Total No.
Attended
Percentage
4
3
1
3
2
100%
75%
50%
100%
100%
31 December 2012
Board Credit Committee
S/N
1.
2.
3.
4.
5.
6.
7.
Total No.
Attended
7
5
4
6
1
5
5
Directors
Mr. Olufemi Ayeni
Mr. Kola Karim
Mr. Edouard Dossou-Yovo *
Mme. Eveline Tall *
Mr. Jibril Aku
Ms. Foluke Aboderin
Percentage
100%
72%
57%
100%
100%
72%
72%
* Mr. Edouard Dossou-Yovo – member from April 2012 and ceased to be a member in December
2012
* Mrs. Funmi Oyetunji – member from June 2012
* Mme. Eveline Tall – member from April 2012 and ceased to be a member in June 2012
Board Audit & Compliance Committee
S/N
1.
2.
3.
4.
5.
Directors
Mr. Kola Karim
Total No.
Attended
4
2
3
3
2
Percentage
100%
50%
75%
75%
100%
Total No.
Attended
Percentage
4
4
2
3
5
100%
80%
100%
75%
100%
* Mrs. Funmi Oyetunji – member from June 2012
Board Risk Committee
The Committee convened four (4) times during the year
S/N
1.
2.
3.
4.
5.
Directors
Dr. (Mrs.) Nadu Denloye *
Mr. Olufemi Ayeni *
Mr. Jibril Aku
Mr. Oladele Alabi
* Dr. (Mrs.) Nadu Denloye – member from May 2009 and ceased to be a member in October 2012
* Mr. Olufemi Ayeni – member from March 2012
* Mrs. Funmi Oyetunji – member from October 2012
14
31 December 2012
7.
RELATED PARTY TRANSACTIONS
The Bank in the ordinary course of business entered into contracts with a company related to one of the
directors. The contracts were done on arms-length basis and have been duly performed.
These are as follows:
The Bank entered into Computer and ATM supply contracts with Computer Warehouse Group, (a
company in which Chief Belonwu is the Chairman), Resources, Trade and Technologies for the Supply
of Chubb Safes (the Company is related to Mr. Jibril Aku), Telnet/Softworks – for maintenance of 6
ATMs (the Company is related to Dr. Denloye, now a former director).
8.
SHAREHOLDER PARTICIPATION
The Bank is conscious of, and promotes shareholder rights. It continues to take necessary steps to
ensure same. The benefits from contributions, advice and the wise counsel of shareholder members of
the Statutory Audit Committee remain useful.
9.
WHISTLE-BLOWING
In line with our commitment to instill best corporate governance practices in the institution and in
compliance with regulatory requirements, all stake holders are invited to report any concern about a
threatened/suspected or actual breach through an independent Whistle-Blowing process. The Bank
currently subscribes to the KPMG Ethics Line, an independent Whistle-Blowing procedure which
ensures anonymity of the whistle-blower and effective handling of issues reported. All stakeholders are
enjoined to utilize the Line. The e-mail address is Kpmgethicsline@ng.kpmg.com. Toll free hotlines:
07030000026, 0700000027, 08088118888, 08088228888
10.
CUSTOMER COMPLIANTS
Complaints
Number
Amount refunded (N’millions)
Resolved
Unresolved
473
406
67
-
311
-
The unresolved complaints relates to unauthorized deductions, excess charges, interest and COT contested by
the customers.
We were unable to resolve some of these complaints as they were received towards the ending of the year and
are currently under Investigations.
Good Corporate Governance is fundamental to the long term success of any institution. This remains the
bedrock of the operations of the Bank and its Board.
March 2013
15
31 December 2012
Statement of Directors’ Responsibility
The Companies and Allied Matters Act and the Banks and other Financial Institutions Act, requires Directors to
prepare financial statements for each financial year which give a true and fair view of the state of financial
affairs of the Bank at the end of the year and of its profit or loss.
The responsibilities include ensuring that the Bank:
a. keeps proper accounting records that disclose, with reasonable accuracy, the financial position of the Bank
and comply with the requirements of the Companies and Allied Matters Act and the Banks and other
Financial Institutions Act;
b. establishes adequate internal controls to safeguard its assets and to prevent and detect fraud and other
irregularities; and
c. prepares its financial statements using suitable accounting policies supported by reasonable and prudent
judgments and estimates, and are consistently applied.
The Directors accept responsibility for the annual financial statements, which have been prepared using
appropriate accounting policies supported by reasonable and prudent judgements and estimates, in conformity
with the:
-
International Financial Reporting Standards;
Prudential guidelines for licensed banks;
Relevant circulars issued by the Central Bank of Nigeria;
Requirements of Banks and other Financial Institutions Act; and
Requirements of the Companies and Allied Matters Act
The Directors are of the opinion that the financial statements give a true and fair view of the state of the
financial affairs of the Bank and of its profit and cash flows. The Directors further accept responsibility for the
maintenance of accounting records that may be relied upon in the preparation of financial statements, as well
as adequate systems of internal financial control.
Nothing has come to the attention of the Directors to indicate that the Bank will not remain a going concern for
at least twelve months from the date of this statement.
16
31 December 2012
REPORT OF THE INDEPENDENT AUDITORS TO THE MEMBERS OF
Report on the Financial Statements
We have audited the accompanying financial statements of Ecobank Nigeria Limited which comprise the
statement of financial position as at 31 December 2012, 31 December 2011 and 1 January 2011 the income
statement, statement of changes in equity, cash flow statement for the years ended 31 December 2012 and 31
December 2011, a summary of significant accounting policies and other explanatory information set out on
pages 18 to 65.
Directors’ Responsibility for the Financial Statements
The Directors are responsible for the preparation and fair presentation of these financial statements in
accordance with the Companies and Allied Matters Act CAP C20 LFN 2004, the Banks and other Financial
Institutions Act CAP B3 LFN 2004, the Financial Reporting Council of Nigeria Act No 6, 2011, the International
Financial Reporting Standards, and for such internal control as the Directors determine are necessary to enable
the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our
audit in accordance with International Standards on Auditing. Those standards require that we comply with
ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of
the risks of material misstatement of the financial statements, whether due to fraud or error. In making those
risk assessments, the auditors consider internal controls relevant to the entity’s preparation and fair
presentation of the financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal
control. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by Directors, as well as evaluating the overall presentation of the
financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of Ecobank
Nigeria Limited as at 31 December 2012 and 31 December 2011 and 1 January, 2011 and the financial
performance and cash flows for the year then ended 31 December 2012 and 31 December 2011 in accordance
with the Companies and Allied Matters Act CAP C20 LFN 2004, the Financial Reporting Council of Nigeria Act
No 6, 2011 and the International Financial Reporting Standards.
Other reporting responsibilities
In accordance with circular BSD/1/2004 issued by the Central Bank of Nigeria, details of insider-related credits
are as disclosed in note 38.
During the year the bank contravene certain sections of BOFIA and CBN circulars/guidelines, the details of the
contravention and the related penalty are as disclosed in Note 41 to the financial statements.
Chartered Accountants
Lagos, Nigeria
22 April, 2013
FRC number: FRC/ICAN/000000000830
17
31 December 2012
18
31 December 2012
Statement of Comprehensive Income
For the year ended 31 December 2012
Note
(All amounts in millions of Naira unless otherwise stated)
31 December
2012
31 December
2011
Interest income
Interest expense
3
4
118,492
(45,110)
43,656
(21,527)
Net interest income
Impairment charge for credit losses
5
73,382
(12,342)
22,129
15,260
61,040
37,389
Net interest income after impairment charge for credit losses
Net fee and commission income
Net gains from financial instruments at fair value
Other operating income
Employee benefit expense
General and administrative expense
Depreciation and amortisation
Other operating expenses
6
7
8
9
10
11
12
29,059
1,015
8,410
(46,957)
(22,610)
(9,286)
(15,444)
16,390
2,270
5,455
(16,970)
(12,533)
(3,571)
(10,407)
Profit before tax
Income tax
13
5,227
2,578
18,023
1,321
7,805
19,344
10,578
(5,597)
18,383
13,747
7,805
19,344
7,805
19,344
18,383
13,747
18,383
13,747
42.23k
69.29k
PROFIT FOR THE YEAR
Other comprehensive income:
Revaluation of financial assets
14
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
Profit attributable to:
Owners of the parent
Total comprehensive income attributable to:
Owners of the parent
Earnings per share for profit attributable to owners of the
parent
Basic/Diluted
15
The notes on pages 23 to 65 form an integral part of these financial statements.
19
31 December 2012
Statement of Financial Position
As at 31 December 2012
Note
31 December
2012
31 December
2011
1 January
2011
16
17
18
19
112,323
120,078
546,873
23,394
86,919
116,597
410,150
32,812
19,437
100,514
225,369
6,821
20
21
22
23
24
25
26
27
228,576
78,116
109,334
2,744
59,387
103
6,005
38,382
1,325,315
249,272
74,159
18,600
67,131
820
4,709
23,889
1,085,058
26,036
3,949
17,487
19,440
155
2,729
22,041
443,978
28
29
30
31
32
13
33
21,489
1,043,213
58,883
1,279
1,581
45,242
10,116
890,425
64,409
1,502
1,290
1,548
40,406
710
342,379
3,776
502
18
329
30,717
1,171,687
1,009,696
378,431
9,241
115,961
(19,705)
48,131
153,628
13,960
84,799
(64,532)
41,135
75,362
6,940
54,119
(11,188)
15,676
65,547
1,325,315
1,085,058
443,978
(All amounts in millions of Naira unless otherwise
stated)
ASSETS
Cash and balances with Central Bank
Loans and advances to banks
Loans and advances to customers
Financial assets held for trading
Investment Securities:
-Available-for-sale investments
-Loans and receivables
Pledged assets
Non-current assets held for sale
Property, plant and equipment
Intangible assets
Deferred tax asset
Other assets
Total assets
LIABILITIES
Deposits from banks
Deposits from customers
Borrowings
Retirement benefit obligations
Provisions
Current income tax liability
Other liabilities
Total liabilities
EQUITY
Share capital
Share premium
Retained earnings
Other reserves
Total equity
34
35
Total equity and liabilities
These financial statements were approved by the Board of Directors and authorized for issue on 15 March, 2013 and
signed on its behalf by:
The notes on pages 23 to 65 form an integral part of these financial statements.
20
31 December 2012
Statement of Changes in Equity
Balance at 1 January 2011
Profit
Transfer to regulatory risk reserves
Revaluation of equity financial
assets, net of tax
Attributable to equity holders of the parent
Statutory
SMIEIS
Capital
AFS
reserve
reserve
reserve
reserve
N’Million
N’Million
N’Million
N’Million
6,135
1,150
7,218
1,173
Share
capital
N’Million
6,940
Share
premium
N’Million
54,119
Retained
earnings
N’Million
(11,188)
-
-
19,344
(12,255)
-
-
-
-
Regulatory
reserve
N’Million
-
Total
N’Million
65,547
12,255
19,344
-
-
-
-
-
-
-
(5,597)
7,020
-
30,680
-
7,089
(60,433)
-
-
18,800
-
(5,597)
-
12,255
-
13,747
56,500
(60,433)
13,960
84,799
(64,532)
6,135
1,150
26,018
(4,424)
12,255
75,362
Profit
Revaluation of AFS net of tax (i) (i)
-
-
7,805
-
-
-
-
10,578
Total comprehensive income
Issue of new shares (ii) (ii)
Adjustment to regulatory reserves
Inflow receivable from AMCON (iii)
Reduction of shares (iv)(iii)
Prior year IFRS adjustment
3,337
(8,056)
-
63,407
(32,245)
-
7,805
(15,218)
11,372
40,301
568
-
-
(18,800)
-
10,578
-
15,218
-
18,383
47,944
11,372
568
9,241
115,961
(19,705)
6,135
1,150
7,218
6,155
27,473
153,628
Total comprehensive income
Issue of new shares
Acquired from business combination
At 31 December 2011
At 31 December 2012
(5,597)
7,805
10,578
i) This shows the effects from the fair value measurement of equity instruments elected to be presented in other comprehensive income on initial recognition.
ii) A total of 6,674,441,964 shares were issued to Ecobank Transnational Incorporated (ETI) during the year at N10 per share and nominal value of N0.5.
iii) N11.3 billion represents inflow receivable from AMCON in respect of the negative networth acquired from former Oceanic Bank in 2011.
iv) A total of 16,111,111,111 shares, worth N8.05 billion and share premium of N32.2 billion were reduced and transferred to retained earnings during the year.
21
31 December 2012
STATEMENT OF PRUDENTIAL ADJUSMENTS
31 December
2012
31 December
2011
5,328
17,044
4,179
13,440
22,372
17,619
Investment securities - LR
Other assets
5,866
5,709
Impairment - Prudential
Guidelines
Loans:
- General
- Specific
5,486
19,848
4,073
12,274
25,334
16,347
Long term investments
Other assets
12,255
5,866
12,255
5,709
Excess of Prudential guidelines over IFRS
- Loans
- Investments
2,963
12,255
12,255
15,218
12,255
Impairment - IFRS
Loans:
- Collective
- Specific
Excess of Prudential impairment over IFRS impairment transferred
to regulatory reserve
22
31 December 2012
Statement of Cash Flows
Note
Cash flows from operating activities
Profit before tax
Adjustments:
Loan impairment charges
Depreciation
Amortisation of intangible assets
Impairment losses on loans and receivables
Impairment losses on other assets
Profit from sale of property and equipment
Bad loans written off
Property, plant and equipment scrapped
Amount written-off other assets
Interest paid on long term borrowings
Net interest income
Dividend income
Retirement benefit obligation - charge for the period
December
2012
December
2011
5,227
18,023
10,972
8,556
730
707
287
(105)
(6,218)
54
(131)
1,333
(73,382)
(240)
1,892
(16,537)
3,377
194
(34)
846
(67)
(82,814)
62
(219)
852
(22,129)
(130)
1,408
(50,318)
(97,168)
(33,850)
118,492
(45,110)
(141,477)
9,418
20,695
(3,957)
(90,734)
(2,744)
(14,649)
11,373
152,788
(1,502)
(11)
5,925
(549)
-
(55,288)
43,656
(21,527)
(156,423)
(25,991)
(4,423)
(70,210)
(1,113)
6,533
9,406
548,046
1,000
1,272
10,427
(531)
(642)
(66,211)
187,024
20,695
240
(13)
(5,085)
4,324
(223,236)
130
(859)
(51,522)
459
20,161
(275,028)
47,944
(5,526)
(1,333)
56,500
60,633
(852)
41,085
116,281
16
145,826
(66,211)
20,161
41,085
140,861
117,549
187,024
(275,028)
116,281
145,826
16
17
20,783
120,078
29,229
116,597
140,861
145,826
5
11
11
5
5
8
18
4
8
9
Cash reserve balance
Interest received
Interest paid
Investment securities – AFS
Investment securities – loans and receivables
Pledged assets
Other assets
Deposit from banks
Deposit from customers
Provisions
Other liabilities
Value added tax paid
income tax paid
16
3
4
18
19
21
22
28
29
Net cash from operating activities
Cash flows from investing activities
Proceeds from sale of AFS financial assets
Dividend income
Purchase of software
Purchase of property and equipment
Proceeds from sale of property and equipment
20
25
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of shares
Borrowings
Interest paid on long term borrowings
30
4
Net cash (used in)/generated from financing activities
Increase in cash and cash equivalents
Cash and cash equivalents at the beginning of year
Net cash from operating activities
Net cash from investing activities
Net cash from financing activities
Cash and cash equivalents at end of year
Cash and cash equivalents comprise:
Cash and balances with central bank
23
31 December 2012
Notes to the financial statements
1
General Information
Ecobank Nigeria (hereinafter referred to as "the Bank") was incorporated as a public limited liability
company on 7 October 1986, and was granted banking licence on 24 April 1989. The Bank was listed
on the Nigerian Stock Exchange by introduction between 24 April 2006 and remained listed until 31
December 2011. On 30 December 2011, by a Federal High Court Sanction of a Scheme of
Arrangement, Ecobank Transnational Incorporated (ETI), Lome, incorporated in the Republic of Togo
which prior to that date held 85.1% equity shares in the Bank, became beneficial owner of 100%
shareholding in the Bank. The Bank is now a fully owned subsidiary of ETI and has been reregistered as a private limited liability company at the Corporate Affairs Commission, Abuja.
ETI acquired 100% interest in Oceanic Bank Group on 28 October 2011 through the issue of shares
to AMCON and the shareholders of Oceanic Bank. Oceanic Bank was delisted on the Nigerian Stock
Exchange (NSE) on that date and became a Limited liability entity. By reason of the cancellation of
minority shareholding in Ecobank Nigeria on 28 October 2011, ETI acquired 100% holding in
Ecobank Nigeria. As a result of common control in both Ecobank Nigeria and Oceanic Bank Limited,
ETI decided to merge the two operations. The effective date of business combination is 1 November
2011.
The address of its registered office is as follows:
Plot 21, Ahmadu Bello Way,
P.O. Box 72688,
Victoria Island
Lagos, Nigeria
The principal activity of the Bank is commercial banking which includes domestic and corporate
banking services. The Bank operates under a commercial banking license with National Banking
status in line with the Central Bank of Nigeria's present Banking model.
The financial statements for the year ended 31 December 2012 have been approved for issue by the
Board of Directors on 15 March 2013. Neither the entity’s owners nor others have the power to
amend the financial statements after issue.
2
Summary of significant accounting policies
The principal accounting policies adopted in the preparation of these financial statements are set out
below. These policies have been consistently applied to all the years presented, unless otherwise
stated.
An explanation of how the transition to International Financial Reporting Standards (IFRS) has
affected the reported financial position, financial performance and cash flows of the Bank is provided
in note 45. This note includes reconciliations of equity and the statement of comprehensive income
for the comparative periods reported under Nigerian GAAP (Previous GAAP) to those reported for
these periods under IFRS.
2.1
Basis of presentation
The Bank's financial statements for the year 2012 have been prepared in accordance with the
International Financial Reporting Standards (IFRS) as issued by the International Accounting
Standards Board (IASB). Additional information required by national regulations is included where
appropriate. These are the first stand-alone financial statements of the Bank prepared in accordance
with IFRS and IFRS 1 (First-time Adoption of IFRS) has been applied.
The Bank has elected not to consolidate its holdings in 3 of its subsidiaries, in accordance with the
guidance under IAS 27 'Separate Financial Statements', paragraph 10 and with the full consent of its
parent company, Ecobank Transnational Incorporated (ETI).
Ecobank Transnational Incorporated (ETI) is incorporated in Lome, Togo, and it prepares
consolidated IFRS financial statements for public use. These consolidated financial statements are
available at ETI's registered office address:
Transnational Incorporated
2365, Boulevard du Mono
B.P. 3261, Lome - Togo.
24
31 December 2012
2.1
Basis of presentation (cont’d)
The investments and Ecobank Nigeria Limited's holdings in them are listed thus:
% Interest
100
100
100
Oceanic Pension Fund Custodian Nigeria
Oceanic Bureau de Change Nigeria
Oceanic Securities Nigeria
These investments have been accounted for at fair value on the acquisition date.
The financial statements comprise the income statement and statement of comprehensive income
showing as two statements, the statement of financial position, the statement of changes in equity,
the statement of cash flow and the notes.
The financial statements have been prepared under the historical cost convention, except for the fair
value for financial instruments.
The Bank classifies its expenses by the nature of expense method.
The Bank's financial statements are presented in Nigerian Naira, which is the Bank's presentation
currency. The figures shown in the financial statements are stated in millions of Naira (N'Millions).
The disclosures on risks from financial instruments are presented in the financial risk management
report contained in Note 41."
The preparation of these financial statements in conformity with IFRS requires the use of certain
critical accounting estimates. It also requires management to exercise its judgment in the process of
applying the Bank's accounting policies. Changes in assumptions may have a significant impact on
the financial statements in the period the assumptions changed. Management believes that the
underlying assumptions are appropriate and that the Bank’s financial statements therefore present
the financial position and results fairly. The areas involving a higher degree of judgment or
complexity, or areas where assumptions and estimates are significant to the financial statements are
disclosed in Note 44.
2.1.1
Changes in accounting policies and disclosures
(a)
New and amended standards adopted by the Bank
(b)
The Bank has adopted IFRS for the first time in 2012 refers to IFRS 1 (note 46) for further
details.
New standards and interpretations that are not yet effective and have not been early adopted
A number of new standards and amendments to standards and interpretations are effective for
annual periods beginning after 1 January 2012, and have not been applied in preparing these
financial statements. None of these is expected to have a significant effect on the financial statements
of the Bank, except the following set out below:
Amendment to IAS 1, ‘Presentation of Financial Statements’ regarding other comprehensive income.
The main change resulting from these amendments is a requirement for entities to group items
presented in ‘other comprehensive income’ (OCI) on the basis of whether they are potentially
reclassifiable to profit or loss subsequently (reclassification adjustments). The amendments do not
address which items are presented in OCI. The application of this amendment will mainly impact the
presentation of the primary statements.
25
31 December 2012
2.1.1
Changes in accounting policies and disclosures (cont’d)
(b)
New standards and interpretations that are not yet effective and have not been early adopted
IFRS 13, ‘Fair value measurement’, aims to improve consistency and reduce complexity by providing
a precise definition of fair value and a single source of fair value measurement and disclosure
requirements for use across IFRSs. The requirements, which are largely aligned between IFRSs and
US GAAP, do not extend the use of fair value accounting but provide guidance on how it should be
applied where its use is already required or permitted by other standards within IFRSs or US GAAP.
The application of IFRS 13 may enhance fair value disclosures in a lot of circumstances.
IAS 19, ‘Employee benefits’, was amended in June 2012. The impact on the Bank will be as follows:
to immediately recognise all past service costs; and to replace interest cost and expected return on
plan assets with a net interest amount that is calculated by applying the discount rate to the net
defined benefit liability (asset). The directors are yet to assess the full impact of the amendments.
IFRS 9, ‘Financial instruments’, addresses the classification, measurement and recognition of
financial assets and financial liabilities. Issued in November 2009 and October 2011, it replaces the
parts of IAS 39 that relate to the classification and measurement of financial instruments. IFRS 9
requires financial assets to be classified into two measurement categories: those measured as at fair
value and those measured at amortised cost. The determination is made at initial recognition. The
classification depends on the entity’s business model for managing its financial instruments and the
contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains
most of the IAS 39 requirements. The main change is that, in cases where the fair value option is
taken for financial liabilities, the part of a fair value change due to an entity’s own credit risk is
recorded in other comprehensive income rather than the income statement, unless this creates an
accounting mismatch. The directors are yet to assess IFRS 9’s full impact and intend to adopt IFRS 9
no later than the accounting period beginning on or after 1 January 2015. The directors will also
consider the impact of the remaining phases of IFRS 9 when completed by the IASB.
There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to
have a material impact on the Bank.
2.2
Foreign currency translation
(a) Functional and presentation currency
Items included in the financial statements of the Bank are measured using the currency of the primary
economic environment in which the Bank operates ("the functional currency").
The financial statements are presented in Naira and figures are stated in millions of Naira, which is
the Bank’s presentation currency.
(b) Transactions and balances
"Foreign currency transactions that are denominated, or that require settlement, in a foreign currency
are translated into the functional currency using the exchange rates prevailing at the dates of the
transactions.
Monetary items denominated in foreign currency are translated with the closing rate as at the
reporting date. If several exchange rates are available, the forward rate is used at which the future
cash flows represented by the transaction or balance could have been settled if those cash flows had
occurred. Non-monetary items measured at historical cost denominated in a foreign currency are
translated with the exchange rate as at the date of initial recognition; non-monetary items in a foreign
currency that are measured at fair value are translated using the exchange rates at the date when the
fair value was determined.
26
31 December 2012
2.2
Foreign currency translation (cont’d)
Foreign exchange gains and losses resulting from the settlement of foreign currency 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.
Changes in the fair value of monetary assets denominated in foreign currency classified as availablefor-sale are analysed between translation differences resulting from changes in the amortised cost of
the security and other changes in the carrying amount of the security. Translation differences related
to changes in the amortised cost are recognised in profit or loss, and other changes in the carrying
amount, are recognised in other comprehensive income.
Translation differences on non-monetary financial instruments, such as equities held at fair value
through profit or loss, are reported as part of the fair value gain or loss. Translation differences on
non-monetary financial instruments, such as equities classified as available-for-sale financial assets,
are included in other comprehensive income.
2.3
Sale and repurchase agreements
Securities sold subject to repurchase agreements (‘repos’) are reclassified in the financial statements
as pledged assets when the transferee has the right by contract or custom to sell or repledge the
collateral; the counterparty liability is included in deposits from banks or deposits from customers, as
appropriate. Securities purchased under agreements to resell (‘reverse repos’) are recorded as loans
and advances to other banks or customers, as appropriate. The difference between sale and
repurchase price is treated as interest and accrued over the life of the agreements using the effective
interest method. Securities lent to counterparties are also retained in the financial statements.
2.4
Financial assets and liabilities
All financial assets and liabilities – which include derivative financial instruments – have to be
recognized in the statement of financial position and measured in accordance with their assigned
category.
A) Initial recognition and measurement
The Bank uses trade date accounting for regular way contracts when recording financial asset
transactions. Financial instruments at fair value through profit or loss are initially recognised at fair
value while transaction costs, which are directly attributable to the acquisition or issue of the financial
instruments, are 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.
The Bank does not currently apply hedge accounting.
B) Subsequent measurement
Subsequent to initial measurement, financial instruments are measured either at fair value or
amortised cost depending on their classification.
C) Classification and related measurement
Management determines the classification of its financial instruments at initial recognition.
Reclassification of financial assets is permitted in certain instances as discussed below.
2.4.1
Financial assets
The Bank classifies its financial assets in the following categories: financial assets at fair value
through profit or loss, loans and receivables, held-to-maturity and available-for-sale financial assets.
The directors determine the classification of its financial assets at initial recognition. The Bank uses
trade date accounting for regular way contracts when recording financial asset transactions.
27
31 December 2012
2.4.1
Financial assets (cont’d)
(a)
Financial assets at fair value through profit or loss
This category comprises two sub-categories: financial assets classified as held for trading, and
financial assets designated by the Bank as at fair value through profit or loss upon initial recognition.
A financial asset is classified as held for trading if it is acquired or incurred principally for the purpose
of selling or repurchasing it in the near term or if it is part of a portfolio of identified financial
instruments that are managed together and for which there is evidence of a recent actual pattern of
short-term profit-taking.
Derivatives are also categorised as held for trading unless they are designated and effective as
hedging instruments. All derivatives are carried as assets when fair value is positive and as liabilities
when fair value is negative.
The Bank designates certain financial assets upon initial recognition as at fair value through profit or
loss (fair value option). This designation cannot subsequently be changed and can only be applied
when the following conditions are met:
-
the application of the fair value option reduces or eliminates an accounting mismatch that would
otherwise arise or
the financial assets are part of a portfolio of financial instruments which is risk managed and
reported to senior management on a fair value basis or
the financial assets consist of debt host and an embedded derivatives that must be separated. "
Financial instruments included in this category are recognised initially at fair value; transaction costs
are taken directly to profit or loss. Gains and losses arising from changes in fair value are included
directly in profit or loss and are reported as 'Net gains/(losses) on financial instruments classified as
held for trading'. Interest income and expense and dividend income and expenses on financial assets
held for trading are included in 'Net interest income' or 'Dividend income', respectively. Fair value
changes relating to financial assets designated at fair value through profit or loss are recognised in
'Net gains on financial instruments designated at fair value through profit or loss’.
b)
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that
are not quoted in an active market, other than:
(a) those that the Bank intends to sell immediately or in the short term, which are classified as held
for trading, and those that the entity upon initial recognition designates as at fair value through
profit or loss;
(b) those that the Bank upon initial recognition designates as available for sale; or
(c) those for which the holder may not recover substantially all of its initial investment, other than
because of credit deterioration.
Loans and receivables are initially recognized at fair value – which is the cash consideration to
originate or purchase the loan including any transaction costs – and measured subsequently at
amortized cost using the effective interest rate method. Loans and receivables are reported in the
statement of financial position as loans and advances to banks or customers or as investment
securities. Interest on loans is included in the income statement and is reported as ‘Interest income’.
In the case of impairment, the impairment loss is reported as a deduction from the carrying value of
the loan and recognised in the income statement as ‘Loan impairment charges’.
28
31 December 2012
2.4.1
Financial assets (cont’d)
c)
Held-to maturity financial assets
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments
and fixed maturities that the Bank’s management has the positive intention and ability to hold to
maturity, other than:
(i) those that the Bank upon initial recognition designates as at fair value through profit or loss;
(ii) those that the Bank designates as available for sale; and
(ii) those that meet the definition of loans and receivables.
Held-to-maturity investments are initially recognized at fair value including direct and incremental
transaction costs and measured subsequently at amortized cost, using the effective interest method. "
d)
Available-for-sale
Available-for-sale investments are financial assets that are intended to be held for an indefinite period
of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange
rates or equity prices or that are not classified as loans and receivables, held-to-maturity investments
or financial assets at fair value through profit or loss.
Available-for-sale financial assets are initially recognized at fair value, which is the cash consideration
including any transaction costs, and measured subsequently at fair value with gains and losses being
recognized in the statement of comprehensive income, except for impairment losses and foreign
exchange gains and losses, until the financial asset is derecognized. If an available-for-sale financial
asset is determined to be impaired, the cumulative gain or loss previously recognized in the
statement of comprehensive income is recognized in the income statement. However, interest is
calculated using the effective interest method, and foreign currency gains and losses on monetary
assets classified as available for sale are recognized in profit and loss.
2.4.2
Financial liabilities
The Bank’s holding in financial liabilities represents mainly deposits from banks and customers and
other liabilities. Such financial liabilities are initially recognised at fair value and subsequently
measured at amortised cost.
a)
Financial liabilities at fair value through profit or loss
This category comprises two sub-categories: financial liabilities classified as held for trading and
financial liabilities designated by the Bank as at fair value through profit or loss upon initial
recognition.
A financial liability is classified as held for trading if it is acquired or incurred principally for the
purpose of selling or repurchasing it in the near term or if it is part of a portfolio of identified financial
instruments that are managed together and for which there is evidence of a recent actual pattern of
short-term profit-taking. Derivatives are also categorized as held for trading unless they are
designated and effective as hedging instruments. Financial liabilities held for trading also include
obligations to deliver financial assets borrowed by a short seller. Those financial instruments are
recognized in the statement of financial position as ‘Financial liabilities held for trading’."
Gains and losses arising from changes in fair value of financial liabilities classified held for trading are
included in the income statement and are reported as ‘Net gains/(losses) on financial instruments
classified as held for trading’. Interest expenses on financial liabilities held for trading are included in
‘Net interest income’.
Financial liabilities for which the fair value option is applied are recognized in the statement of
financial position as ‘Financial liabilities designated at fair value’. Fair value changes relating to
financial liabilities designated at fair value through profit or loss are recognized in ‘Net gains on
financial instruments designated at fair value through profit or loss'."
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31 December 2012
2.4.2
Financial liabilities (cont’d)
b)
Financial liabilities measured at amortized cost
Financial liabilities that are not classified as at fair value through profit or loss are measured at
amortised cost using the effective interest method. Interest expense is included in 'Interest expense'
in the Statement of comprehensive income.
2.4.3
Determination of Fair Value
"At initial recognition, the best evidence of the fair value of a financial instrument is the transaction
price (i.e. the fair value of the consideration paid or received), unless the fair value of that instrument
is evidenced by comparison with other observable current market transactions in the same
instrument, without modification or repackaging, or based on valuation techniques such as discounted
cash flow models and option pricing models whose variables include only data from observable
markets.
Subsequent to initial recognition, for financial instruments traded in active markets, the determination
of fair values of financial assets and financial liabilities is based on quoted market prices or dealer
price quotations. This includes listed equity securities and quoted debt instruments on major
exchanges and broker quotes.
A financial instrument is regarded as quoted in an active market if quoted prices are readily and
regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory
agency, and those prices represent actual and regularly occurring market transactions on an arm’s
length basis. If the above criteria are not met, the market is regarded as being inactive. Indications
that a market is inactive are when there is a wide bid-offer spread or significant increase in the bidoffer spread or there are few recent transactions.
For all other financial instruments, fair value is determined using valuation techniques. In these
techniques, fair values are estimated from observable data in respect of similar financial instruments,
using models to estimate the present value of expected future cash flows or other valuation
techniques, using inputs existing at the reporting dates.
The Bank uses widely recognised valuation models for determining fair values of non-standardised
financial instruments of lower complexity, such as options or interest rate and currency swaps. For
these financial instruments, inputs into models are generally market-observable.
For more complex instruments, the Bank uses internally developed models, which are usually based
on valuation methods and techniques generally recognised as standard within the industry. Valuation
models are used primarily to value derivatives transacted in the over-the-counter market, unlisted
debt securities (including those with embedded derivatives) and other debt instruments for which
markets were or have become illiquid. Some of the inputs to these models may not be market
observable and are therefore estimated based on assumptions.
The Bank uses its own credit risk spreads in determining the current value for its derivative liabilities
and all other liabilities for which it has elected the fair value option. When the Bank's credit spreads
widen, the Bank recognises a gain on these liabilities because the value of the liabilities has
decreased. When the Bank's credit spreads narrow, the Bank recognises a loss on these liabilities
because the value of the liabilities has increased.
The output of a model is always an estimate or approximation of a value that cannot be determined
with certainty, and valuation techniques employed may not fully reflect all factors relevant to the
positions the Group holds. Valuations may therefore be adjusted, where appropriate, to allow for
additional factors including model risks, liquidity risk and counterparty credit risk. Based on the
established fair value model governance policies, and related controls and procedures applied,
management believes that these valuation adjustments are necessary and appropriate to fairly state
the values of financial instruments carried at fair value in the consolidated statement of financial
position. Price data and parameters used in the measurement procedures applied are generally
reviewed carefully and adjusted, if necessary - particularly in view of the current market
developments.
30
31 December 2012
In cases when the fair value of unlisted equity investments cannot be determined reliably, the
instruments are carried at cost less impairment.
The Fair values of contingent liabilities and irrevocable loan commitments correspond to their carrying
amounts.
2.4.4
Derecognition
Financial assets are derecognised when the contractual rights to receive the cash flows from these
assets have ceased to exist or the assets have been transferred and substantially all the risks and
rewards of ownership of the assets are also transferred (that is, if substantially all the risks and
rewards have not been transferred, the Bank tests control to ensure that continuing involvement on
the basis of any retained powers of control does not prevent derecognition). Financial liabilities are
derecognised when they have been redeemed or otherwise extinguished.
Collateral (shares and bonds) furnished by the Bank under standard repurchase agreements and
securities lending and borrowing transactions is not derecognised because the Bank retains
substantially all the risks and rewards on the basis of the predetermined repurchase price, and the
criteria for derecognition are therefore not met.
Financial assets that are transferred to a third party but do not qualify for derecognition are presented
in the Statement of financial position as 'Assets pledged as collateral'.
2.4.5
Reclassification of financial assets
"The Bank may choose to reclassify a non-derivative financial asset held for trading out of the heldfor-trading category if the financial asset is no longer held for the purpose of selling it in the near-term.
Financial assets other than loans and receivables are permitted to be reclassified out of the held for
trading category only in rare circumstances arising from a single event that is unusual and highly
unlikely to recur in the near-term. In addition, the Bank may choose to reclassify financial assets that
would meet the definition of loans and receivables out of the held-for-trading or available-for-sale
categories if the Bank has the intention and ability to hold these financial assets for the foreseeable
future or until maturity at the date of reclassification.
Reclassifications are made at fair value as of the reclassification date. Fair value becomes the new
cost or amortized cost as applicable, and no reversals of fair value gains or losses recorded before
reclassification date are subsequently made. Effective interest rates for financial assets reclassified to
loans and receivables and held-to-maturity categories are determined at the reclassification date.
Further increases in estimates of cash flows adjust effective interest rates prospectively.
On reclassification of a financial asset out of the ‘at fair value through profit or loss’ category, all
embedded derivatives are re-assessed and, if necessary, separately accounted for."
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31 December 2012
2.4.6
Classes of financial instrument
The Bank classifies the financial instruments into classes that reflect the nature of information and take into account the characteristics of those financial instruments.
The classification made can be seen in the table below:
Category (as defined by IAS 39)
Financial assets at Fair value through
profit and loss
Class (as determined by the Bank)
Subclasses
Debt securities
Equity securities
Derivatives non-hedging
Financial assets designated at fair value through
profit or loss
Debt securities
Equity securities
Loans and receivables
Loans to individual (retail)
Overdraft
Credit cards
Term loans
Mortgages
SMEs
Loans and advances to corporate
Investment securities - debt instruments
Listed
Unlisted
Held-to-maturity investments
Listed
Unlisted
Available-for-sale financial assets
Listed
Investment securities - equity instruments
Listed
Unlisted
Financial liabilities at amortised cost
Deposits – banks
Off-balance sheet financial instruments
Loan commitments
Guarantees, acceptance and other financial facilities
Retail
Large corporate customers
SMEs
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31 December 2012
2.5
Offsetting financial instruments
Financial assets and liabilities are offset and the net amount reported in the statement of financial position
when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on
a net basis or realize the asset and settle the liability simultaneously.
2.6
Interest income and expense
Interest income and expense for all interest-bearing financial instruments are recognized within ‘interest
income’ and ‘interest expense’ in the income statement using the effective interest method.
The effective interest method is a method of calculating the amortized cost of a financial asset or a financial
liability and of allocating the interest income or interest expense over the relevant period. The effective interest
rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of
the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset
or financial liability. When calculating the effective interest rate, the Bank estimates cash flows considering all
contractual terms of the financial instrument (for example, prepayment options) but does not consider future
credit losses. The calculation includes all fees and points paid or received between parties to the contract that
are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.
Once a financial asset or a Bank of similar financial assets has been written down as a result of an impairment
loss, interest income is recognized using the rate of interest used to discount the future cash flows for the
purpose of measuring the impairment loss.
2.7
Fees and commissions income
Fees and commissions are generally recognized on an accrual basis when the service has been provided.
Loan commitment fees for loans that are likely to be drawn down are deferred (together with related direct
costs) and recognized as an adjustment to the effective interest rate on the loan. Loan syndication fees are
recognized as revenue when the syndication has been completed and the Bank has retained no part of the
loan package for itself or has retained a part at the same effective interest rate as the other participants.
Commission and fees arising from negotiating, or participating in the negotiation of, a transaction for a third
party – such as the arrangement of the acquisition of shares or other securities, or the purchase or sale of
businesses – are recognized on completion of the underlying transaction. Portfolio and other management
advisory and service fees are recognized based on the applicable service contracts, usually on a timeapportionate basis. Asset management fees related to investment funds are recognized ratably over the period
in which the service is provided. The same principle is applied for wealth management, financial planning and
custody services that are continuously provided over an extended period of time. Performance-linked fees or
fee components are recognized when the performance criteria are fulfilled.
2.8
Income from bonds or guarantees and letters of credit
Income from bonds or guarantees and letters of credit are recognised on a straight line basis over the life of
the bond or guarantee.
2.9
Dividend income
Dividends are recognized in the income statement in ‘Dividend income’ when the Bank’s right to receive
payment is established.
33
31 December 2012
2.10
Impairment of financial assets
a)
Assets carried at amortized cost
The Bank assesses at each reporting date whether there is objective evidence that a financial asset is
impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if
there is objective evidence of impairment as a result of one or more events that occurred after the initial
recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future
cash flows of the financial asset or group of financial assets that can be reliably estimated.
The criteria that the Bank uses to determine that there is objective evidence of an impairment loss include:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(l)
(m)
Delinquency in contractual payments of principal and interest;
Cash flow difficulties experienced by the borrower (for example, equity ratio, net income percentage of
sales);
Breach of loan covenants and conditions;
Initiation of bankruptcy proceedings;
Deterioration of borrower's competitive position
Deterioration in the value of collateral;
Downgrading below investment grade level;
Significant financial difficulty of the issuer or obligor;
A breach of contract, such as a default or delinquency in interest or principal payments;
The lender, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the
borrower a concession that the lender would not otherwise consider;
It becomes probable that the borrower will enter bankruptcy or other financial reorganization;
The disappearance of an active market for that financial asset because of financial difficulties; or
Observable data indicating that there is a measurable decrease in the estimated future cash flows
from a portfolio of financial assets since the initial recognition of those assets, although the decrease
cannot yet be identified with the individual financial assets in the portfolio including:
(i) adverse changes in the payment status of borrowers in the portfolio; and
(ii) national or local economic conditions that correlate with defaults on the assets in the portfolio.
The estimated period between a loss occurring and its identification is determined by the directors for each
identified portfolio. In general, the periods used vary between 3 and 12 months; in exceptional cases, longer
periods are warranted.
The Bank first assesses whether objective evidence of impairment exists individually for financial assets that
are individually significant, and individually or collectively for financial assets that are not individually
significant. If the Bank determines that no objective evidence of impairment exists for an individually assessed
financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit
risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for
impairment and for which an impairment loss is or continues to be recognized are not included in a collective
assessment of impairment.
The amount of the loss is measured as the difference between the asset’s carrying amount and the present
value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at
the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the
use of an allowance account and the amount of the loss is recognized in the income statement. If a loan or
held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is
the current effective interest rate determined under the contract. As a practical expedient, the Bank may
measure impairment on the basis of an instrument’s fair value using an observable market price.
The calculation of the present value of the estimated cash flows of a collateralized financial asset reflects the
cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not
the foreclosure is probable.
For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar
credit risk characteristics (i.e., on the basis of the Bank’s grading process that considers industry, collateral
type, past-due status and other relevant factors). Those characteristics are relevant to the estimation of future
cash flows for Banks of such assets by being indicative of the debtors' ability to pay all amounts due according
to the contractual terms of the assets being evaluated.
34
31 December 2012
2.10
Impairment of financial assets (cont’d)
Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on
the basis of the contractual cash flows of the assets in the Bank and historical loss experience for assets with
credit risk characteristics similar to those in the Bank. Historical loss experience is adjusted on the basis of
current observable data to reflect the effects of current conditions that did not affect the period on which the
historical loss experience is based and to remove the effects of conditions in the historical period that do not
currently exist.
Estimates of changes in future cash flows for group of assets should reflect and be directionally consistent with
changes in related observable data from period to period (for example, changes in unemployment rates,
property prices, payment status, or other factors indicative of changes in the probability of losses in the Bank
and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed
regularly by the Bank to reduce any differences between loss estimates and actual loss experience.
"When a loan is uncollectible, it is written off against the related allowance for loan impairment. Such loans are
written off after all the necessary procedures have been completed and the amount of the loss has been
determined. Impairment charges relating to loans and advances to banks and customers are classified in loan
impairment charges whilst impairment charges relating to investment securities (held to maturity and loans and
receivables categories) are classified in ‘Net gains/(losses) on investment securities’.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related
objectively to an event occurring after the impairment was recognized (such as an improvement in the debtor’s
credit rating), the previously recognized impairment loss is reversed by adjusting the allowance account. The
amount of the reversal is recognized in profit or loss.
b)
Assets classified as available-for-sale
The Bank assesses at each date of the statement of financial position whether there is objective evidence that
a financial asset or a group of financial assets is impaired. In the case of equity investments classified as
available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is objective
evidence of impairment resulting in the recognition of an impairment loss. If any such evidence exists for
available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition
cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit
or loss – is removed from equity and recognized in the income statement. Impairment losses recognized in the
income statement on equity instruments are not reversed through the income statement. If, in a subsequent
period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be
objectively related to an event occurring after the impairment loss was recognized in profit or loss, the
impairment loss is reversed through profit or loss.
c)
Renegotiated loans
Loans that are either subject to collective impairment assessment or individually significant and whose terms
have been renegotiated are no longer considered to be past due but are treated as new loans. In subsequent
years, the asset is considered to be past due and disclosed only if renegotiated again.
2.11
Impairment of non-financial assets
Assets that have an indefinite useful life such as goodwill or intangible assets not ready to use, are not subject
to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds
its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and
value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which
there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill
that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.
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.
35
31 December 2012
2.12
Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with banks and other short-term highly
liquid investments with original maturities of three months or less.
2.13
Leases
Leases are divided into finance leases and operating leases.
(a) The Bank is the lessee
The leases entered into by the Bank are primarily operating leases. The total payments made under operating
leases are charged to other operating expenses in the income statement on a straight-line basis over the
period of the lease.
When an operating lease is terminated before the lease period has expired, any payment required to be made
to the lessor by way of penalty is recognized as an expense in the period in which termination takes place.
(b) The Bank is the lessor
When assets are held subject to a finance lease, the present value of the lease payments is recognized as a
receivable. The difference between the gross receivable and the present value of the receivable is recognized
as unearned finance income. Lease income is recognized over the term of the lease using the net investment
method (before tax), which reflects a constant periodic rate of return.
(c) Fees paid in connection with arranging leases
The Bank makes payments to agents for services in connection with negotiating lease contracts with the
Bank’s lessees. For operating leases, the letting fees are capitalized within the carrying amount of the related
investment property, and depreciated over the life of the lease.
2.14
Property and equipment
Land and buildings comprise mainly branches and offices. All property and equipment used by the parent or its
subsidiaries is stated at historical cost less depreciation. Historical cost includes expenditure that is directly
attributable to the acquisition of the items.
Subsequent expenditures are included in the asset’s carrying amount or are recognized as a separate asset,
as appropriate, only when it is probable that future economic benefits associated with the item will flow to the
Bank and the cost of the item can be measured reliably. The carrying amount of the replaced part is
derecognized. All other repair and maintenance costs are charged to other operating expenses during the
financial period in which they are incurred.
Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate
their cost to their residual values over their estimated useful lives, as follows:
Buildings
Leasehold improvements
Furniture and Fittings
Motor vehicles
Machinery and equipment
Computer hardware
50 years
5 years
4 years
5 years
3 years
The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each date of the
statement of financial position. Assets are subject to review for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. An asset's carrying amount is written
down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated
recoverable amount. The recoverable amount is the higher of the asset's fair value less costs to sell and value
in use.
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are
included in 'other operating expenses' in profit or loss.
36
31 December 2012
2.15
Intangible assets
Computer software licences
Acquired computer software licences are capitalized on the basis of the costs incurred to acquire and bring to
use the specific software. These costs are amortized on the basis of the expected useful lives. Software has a
maximum expected useful life of 5 years.
Costs associated with developing or maintaining computer software programs are recognized as an expense
incurred. Costs that are directly associated with the production of identifiable and unique software products
controlled by the Bank are recognised as intangible assets when the following criteria are met:
-
it is technically feasible to complete the software product so that it will be available for use;
management intends to complete the software product and use or sell it;
there is an ability to use or sell the software product;
it can be demonstrated how the software product will generate probable future economic benefits;
adequate technical, financial and other resources to complete the development and to use or sell the
software product are available; and
- the expenditure attributable to the software product during its development can be reliably measured.
Directly attributable costs that are capitalised as part of the software product include the software development
employee costs and an appropriate portion of relevant overheads.
Other development expenditures that do not meet these criteria are recognised as an expense as incurred.
Development costs previously recognised as an expense are not recognised as an asset in a subsequent
period.
Computer software development costs recognized as assets are amortized using the straight-line method over
their useful lives.
2.16
Income tax
a) Current income tax
The tax expense for the period comprises current and deferred income tax. Tax is recognised in profit or loss,
except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In
this case, the tax is also recognised in other comprehensive income or directly in equity respectively.
"The current income tax charge is the aggregate of the charge to the profit and loss account in respect of
current income tax, information technology (IT) tax, education tax and deferred income tax.
Current income tax is the amount of income tax payable on the taxable profit for the year determined in
accordance with the Companies Income Tax Act (CITA). Education tax is assessed at 2% of the chargeable
profits. Information Technology levy is assessed at 1% of profit before tax. The directors periodically evaluate
positions taken in tax returns with respect to situations in which applicable tax regulation is subject to
interpretation. They establish provisions where appropriate on the basis of amounts expected to be paid to the
tax authorities."
Where the Bank has tax losses that can be relieved against a tax liability for a previous year, it recognizes
those losses as an asset, because the tax relief is recoverable by refund of tax previously paid. This asset is
offset against an existing current tax balance. Where tax losses can be relieved only by carry-forward against
taxable profits of future periods, a deductible temporary difference arises. Those losses carried forward are set
off against deferred tax liabilities carried in the statement of financial position. The Bank does not offset income
tax liabilities and current income tax assets.
37
31 December 2012
2.16
Income tax (Cont’d)
b) Deferred income tax
Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts in the financial statements. However, deferred tax
liabilities are not recognised if they arise from the initial recognition of goodwill; deferred income tax is not
accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business
combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred
income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the
reporting date and are expected to apply when the related deferred income tax asset is realised or the
deferred income tax liability is settled.
Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be
available against which the temporary differences can be utilised.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current
income tax assets against current income tax liabilities and when the deferred income taxes assets and
liabilities relate to income taxes levied by the same taxation authority on either the same entity or different
taxable entities where there is an intention to settle the balances on a net basis.
2.17
Provisions
Provisions for restructuring costs and legal claims are recognised when: the Bank has a present legal or
constructive obligation as a result of past events; it is probable that an outflow of resources will be required to
settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future
operating losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is
determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood
of an outflow with respect to any one item included in the same class of obligations may be small.
Provisions are measured at the present value of the expenditures expected to be required to settle the
obligation using a pre-tax rate that reflects current market assessments of the time value of money and the
risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest
expense.
2.18
Employee benefits
a) Defined contribution scheme
The bank operates a defined contribution pension scheme in line with the provisions of the Pension Act. A
defined contribution plan is a pension plan under which the bank pays fixed contributions into a separate
entity. The bank 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 bank pays contributions to publicly or privately administered pension
insurance plans on a contractual basis. The bank contributes 7.5% of basic salary, housing and transport
allowances, with the employee contributing a further 7.5%. The bank 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.
b) Defined benefit scheme
The Bank also operates a defined benefit scheme for employees who have spent 10 years and above in its
employment. A defined benefit plan is a pension plan that is not a defined contribution plan. Typically defined
benefit plans define an amount of pension benefit that an employee will receive on retirement, usually
dependent on one or more factors such as age, years of service and compensation.
38
31 December 2012
2.18
Employee benefits (Cont’d)
Defined benefit scheme
The liability recognised in the balance sheet in respect of defined pension plan is the present value of the
defined benefit obligation at the end of the reporting period less the fair value of plan assets, together with
adjustments for unrecognised past-service costs. The defined benefit obligation is calculated annually by
independent actuaries using the projected unit credit method. The present value of the defined benefit
obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality
government bonds and that have terms to maturity approximating to the terms of the pension obligation.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are
charged or credited to income statement in the period in which they arise. Past-service costs are recognised
immediately in profit or loss, unless the changes to the pension plan are conditional on the employees
remaining in service for a specified period of time (the vesting period). In this case, the past-service costs are
amortised on a straight-line basis over the vesting period.
2.19
Borrowings
Borrowings are recognised initially at fair value net of transaction costs incurred. Borrowings are subsequently
stated at amortised cost; any difference between proceeds net of transaction costs and the redemption value
is recognised in the income statement over the period of the borrowing using the effective interest method.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent
that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the
draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be
drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the
facility to which it relates.
2.20
Share capital
Share issue costs
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary
shares or options are shown in equity as a deduction, net of tax, from the proceeds.
2.21
Dividends payable
Dividends on ordinary shares are recognised in equity in the period in which they are approved by the Bank’s
shareholders. Dividends for the year that are declared after the date of the statement of financial position are
dealt with in the subsequent events note.
2.20
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief
operating decision-maker. The chief operating decision-maker is the person or Bank that allocates resources
to and assesses the performance of the operating segments of an entity. The Bank has determined the
Executive board as its chief operating decision maker.
All transactions between business segments are conducted on an arm´s length basis, with intra-segment
revenue and costs being eliminated in head office. Income and expenses directly associated with each
segment are included in determining business segment performance.
In accordance with IFRS 8, the Bank has the following business segments: Corporate banking group,
Domestic banking group and Ecobank Capital group.
2.21
Acceptances and letters of credit
Acceptances and letters of credit are accounted for as off-balance sheet transactions and disclosed as
contingent liabilities.
39
31 December 2012
2.22
IFRS 1 – First time adoption
As these financial statements represent the initial presentation of the results and financial position under IFRS,
they were prepared in accordance with IFRS 1, First Time Adoption of International Financial Reporting
Standards (“IFRS 1”). IFRS 1 requires retrospective application of all IFRS standards, with certain optional
exemptions and mandatory exceptions, which are described further in this Note. The accounting policies
described in Note 2 have been applied consistently to all periods presented in our Financial Statements with
the exception of the optional exemptions elected and the mandatory exceptions required. At 1 January, 2011
(“the Transition Date”), an opening balance sheet was prepared under IFRS."
The most significant IFRS impact for the bank resulted from the implementation of IAS 39, which requires
financial assets to be measured at fair value or at amortized cost (using the effective interest method) if certain
criteria are met. As well as requirement to measure the impairment of financial assets only in case where
there is objective evidence of impairment as a result of one or more loss events that occurred after the initial
recognition of the asset.
The 2011 Financial Statements were previously prepared in accordance with the Nigerian SAS. In this Note
the transition to IFRS is explained through the following:
a. First time adoption optional exemptions and mandatory exceptions to retrospective application of
IFRS.
This section describes the standards for which IFRS was not applied retrospectively as available in IFRS
1.
b. Reconciliations of total equity and comprehensive income from Nigerian SAS to IFRS.
Quantitative and qualitative explanations are included in this section to explain the differences between
Nigerian SAS and IFRS in total equity and comprehensive income.
c. Reconciliation of statement of financial position from Nigerian SAS to IFRS.
This section explains quantitatively and qualitatively the impact and differences between Nigerian SAS and
d. Additional disclosures
This section contains additional disclosures as at 1 January, 2011 and 31 December, 2011 for items where
the most recent Financial Statements prepared under Nigerian SAS do not provide sufficient context.
2.23
First time adoption optional exemptions and mandatory exceptions to retrospective application
As previously noted, IFRS 1 requires retrospective application of all IFRS standards with certain optional
exemptions and mandatory exceptions. The optional exemptions elected and the mandatory exceptions to
retrospective application of IFRS are described below:
1
Optional exemptions
a. Financial instruments
IAS 39, Financial Instruments: Recognition and Measurement (“IAS 39”) sets out the classification and
designation requirements for financial instruments at the date of initial recognition, which is the date the entity
becomes a party to the contractual provisions of the financial instrument. However, IFRS 1 allows for revised
designation of financial instruments held at the Transition Date as AFS or FVTPL. The revised designations
have been done primarily to reduce measurement inconsistencies or accounting mismatch.
b. Business combinations
The retrospective application of IFRS 3, Business Combinations (“IFRS 3”), would require the restatement of
all business combinations that occurred prior to the Transition Date. IFRS 1 provides an option not to apply
IFRS 3 retrospectively to acquisitions that occurred before the Transition Date and we have elected this
optional exemption. Therefore, no adjustments were required to retained earnings or other balances as a
result of the adoption of IFRS 3.
c.
Fair value as deemed cost
IFRS 1 provides option to elect to remeasure property, plant and equipment at fair value at the Transition date
and use that fair value as their deemed cost. The “fair value as deemed cost” exemption may be applied on an
asset-by-asset basis. We had elected to use fair value as deemed cost for property, plant and equipment.
40
31 December 2012
2.23
First time adoption optional exemptions and mandatory exceptions to retrospective application
(cont’d)
1
Optional exemptions
d
Fair value measurement of financial assets and financial liabilities at initial recognition.
The current guidance in IAS 39 states the transaction price of a financial instrument is generally the best
evidence of fair value, unless fair value is evidence by comparison with other observable current market
transactions in the same instrument or based on a valuation technique whose variables include only data from
observable market.
At initial recognition, an entity may recognize as a gain or loss on the difference between this fair value
measurement and the transaction price (i.e., “day one” gain or loss) only if the measurement of fair value is
based entirely on observable market inputs without modification. Otherwise, IAS 39 does not allow the
recognition of a day one gain or loss and force initial recognition at the transaction price, which is considered
the best evidence of fair value. Subsequent measurement and recognition would follow the guidance as
defined by IAS 39.
We had remeasured certain AFS securities to fair value as of the Transition Date and applied this exemption
prospectively.
2.24
Mandatory exceptions
a. Estimates
Estimates made in accordance with IFRS at the Transition Date are consistent with estimates we previously
made under Nigerian SAS.
b. De-recognition of financial assets and liabilities exception
Financial assets and liabilities derecognized before 1 January 2011 are not re-recognized under IFRS.
All other mandatory exceptions in IFRS 1 were not applicable because there were no significant differences in
management’s application of Nigerian SAS in these areas.
41
31 December 2012
3
Interest income
31 December
2012
N’ Million
31 December
2011
N’ Million
Loans and advances:
- To Banks
- To Customers
6,101
60,622
6,480
24,395
Investment Securities:
Available-for-sale
51,769
12,781
118,492
43,656
4,683
39,094
1,333
2,051
18,624
852
45,110
21,527
13,540
375
(2,567)
(13,984)
465
(1,819)
-
(734)
Investment
Increase in impairment
Reversal of impairment
707
-
619
(653)
Other assets
287
846
12,342
(15,260)
Interest income earned outside Nigeria amounted to N883.7 million
(2011: N 1.24 billion)
4
Interest expense
Deposits from banks
Borrowings
5
Loans and advances to customers (refer note 18.1)
Amounts written off in the year as uncollectible
Advances under finance leases (refer note 18.1)
42
31 December 2012
6
7
31 December
2012
N’ Million
31 December
2011
N’ Million
Credit related fees and commissions
Commission on off-balance sheet transaction
Commissions on Turnover
Letters of credit commission
Other fees
6,619
23
9,553
1,677
12,974
4,278
1,207
3,970
1,921
5,398
Fee and commission income
30,846
16,774
Fee and commission expense
(1,787)
(384)
29,059
16,390
1,254
-
-
1,254
-
(239)
2,270
1,015
2,270
Net gains / (losses) from financial instruments at fair value
Net gains / (losses) arising on:
7.1 Financial instruments classified as held for trading:
- Interest rate instruments
- Others
7.2 Investment securities
Financial assets classified as Available-for-sale
- Allowance for impairment (Note 21)
8
Foreign exchange gains / (losses)
Dividend income
Rental income
Profit on sale of property, plant and equipment
9
7,772
240
293
105
5,210
130
48
67
8,410
5,455
41,965
14,910
1,650
1,892
1,450
538
1,408
114
46,957
16,970
Employee benefits expense
Wages and salaries
Pension costs:
- Defined contribution plans
- Retirement benefit cost - Gratuity (Note 31)
- Other employee costs and benefits
43
31 December 2012
10
31 December
2012
N’ Million
31 December
2011
N’ Million
2,760
5,282
5,446
3,538
1,488
1,979
925
932
260
2,040
3,118
3,103
1,919
895
496
629
329
4
22,610
12,533
8,556
730
3,377
194
9,286
3,571
83
125
6,540
524
3,306
4,866
110
311
5,547
1,164
1,828
1,447
15,444
10,407
Current taxes on income for the reporting period
Current taxes referring to previous periods
53
-
323
405
Total current tax
53
728
Deferred tax
Impact of change in tax rate
(2,631)
-
(2,049)
-
Total deferred tax
(2,631)
(2,049)
Income tax expense
(2,578)
(1,321)
Information, communication and technology
Insurance expenses
Premises expenses
Equipment running costs
Advertisement and business promotion
Motor vehicle running costs
Business travels
Office consumables
Penalties (Note 41)
11
Depreciation of property and equipment (Note 24)
Amortisation of intangible assets (Note 25)
12
Auditors' remuneration
Directors' emoluments
Consultancy and advisory expenses
Cash processing costs
Banking resolution sinking fund cost
13
Taxation
44
31 December 2012
13
Taxation
Reconciliation of effective tax rate
31 Dec 2011
31 Dec 2012
N’ Million
5,227
1,568
Profit before income tax
Income tax using the domestic corporation tax rate at 30%
Effect of:
Deferred tax on fixed assets excluding revaluation
Collective impairment on loans charged to P & L
IT tax
Change in tax rate
Tax loss effect
(Over) / under provided in prior years
Total income tax expense in income statement
(57%)
67%
1%
0%
(60%)
0%
(49%)
N’ Million
18,023
5,407
(2,996)
3,507
53
(3,142)
(2,578)
4%
(1%)
2%
1%
(15%)
2%
(7%)
779
(202)
323
151
(2,777)
405
(1,321)
The movement in the current income tax liability is as follows:
At 1 January
Tax paid
Prior period over/(under) provision
Income tax charge
At 31 December
31 December
2012
N’ Million
1,548
(20)
53
1,581
31 December
2011
N’ Million
329
1,133
(642)
405
323
1,548
53
1,528
1,581
323
1,225
1,548
Current
Non-current
14 Income tax effects relating to components of other comprehensive income
31 December 2012
31 December 2011
Tax
Tax
Before
(expense)
(expense)
Net of
tax
/ Benefit
Net of tax
Before tax
/ Benefit
tax
Fair value gains on fair-valuethrough-other comprehensive
income
Actuarial gains/(losses) on
defined benefit plans
Other comprehensive for the
year
10,578
-
10,578
-
-
-
-
10,578
-
10,578
(5,597)
45
(5,597)
-
(5,597)
-
-
(5,597)
31 December 2012
15
Earnings per share
Basic/Diluted
Basic/Diluted earnings per share is calculated by dividing the net profit attributable to equity holders of the
Company by the weighted average number of ordinary shares in issue during the year, excluding the average
number of ordinary shares purchased by the Company and held as treasury shares.
31 December
31 December
2012
2011
N’ Million
N’ Million
Profit attributable to equity holders of the Company (N’000)
Weighted average number of ordinary shares in issue (in '000s)
Basic/Diluted earnings per share (expressed in Kobo per
share)
16
7,805,192
18,482,530
19,344,100
27,919,199
42.23k
69.29k
Cash and balances with central banks
Cash
Balances with central banks other than mandatory reserve
deposits
Mandatory reserve deposits with central banks
31 December
2012
31 December
2011
1 January
2011
N’ Million
28,595
N’ Million
21,083
N’ Million
13,688
(7,812)
8,146
3,347
20,783
91,540
29,229
57,690
17,035
2,402
112,323
86,919
19,437
Mandatory reserve deposits are not available for use in the Bank and Bank's day-to-day operations. The Bank
had restricted cash balance of N91.5billion (N57.7billion: 31 December 2011).
16.1
Cash and cash equivalents
Cash and cash equivalents comprise balances with less than three months' maturity from the date of
acquisition, including cash in hand, deposits held at call with other banks and other short-term highly liquid
investments with original maturities less than three months.
31 December 31 December
1 January
2012
2011
2011
N’ Million
N’ Million
N’ Million
Cash and balances with central banks (Note 16)
Loans and advances to banks (Note 17)
17
Current balances with banks with Nigeria
Current balances with banks outside Nigeria
Placements with local banks and discount houses
Placements with foreign banks and discount houses
20,783
120,078
29,229
116,597
17,035
100,514
140,861
145,826
117,549
6,783
70,226
36,954
6,115
5,993
49,126
39,604
21,874
2,163
26,590
65,209
6,552
120,078
116,597
100,514
Included in balances with banks outside Nigeria is the amount of N5.17 billion (2011: 15.24 billion) which
represents the Naira value of foreign currency bank balances held on behalf of customers in respect of letters
of credit. The corresponding liabilities are included in other liabilities.
46
31 December 2012
17
Loans and advances to banks (Cont’d)
31 December
2012
N’ Million
31 December
2011
N’ Million
1 January
2011
N’ Million
120,078
-
116,597
-
100,514
-
120,078
116,597
100,514
Current
Non-current
Further breakdown of placements with banks and discount houses for December 2012:
Name
First securities discount house limited
Associated discount house limited
Kakawa discount house limited
Sterling Bank PLC
Ecobank Uganda
Ecobank Paris
Ecobank Ghana
Standard Chartered London
18
18.1
Gross
Loans and advances to
amount
customers comprise:
N’ Million
31 December 2012
Specialised loans
Non- specialised loans
Overdrafts
Term loans
Commercial papers ('CP')
Advances under finance lease
31 December 2011
Specialised loans
Non- specialised loans
Overdrafts
Term loans
01 January 2011
Specialised loans
Non- specialised loans:
Overdrafts
Term loans
Tenor
(days)
6
56
68
91
Rate
(%)
11
14
14
18
Amount
N’ Million
8,017
7,161
20,214
1,562
36,954
30
50
90
90
5.5
0.2
6.9
0.3
468
9
5,466
172
6,115
Specific
impairment
Collective
impairment
N’ Million
N’ Million
Total
impairment
Carrying
amount
N’ Million
N’ Million
170,942
(1,072)
(1,903)
(2,975)
167,967
153,798
232,187
2,339
9,979
(13,024)
(2,734)
(213)
(1,254)
(2,172)
-
(14,278)
(4,906)
(213)
139,520
227,281
2,339
9,766
569,245
(17,043)
(5,329)
(22,372)
(4,753)
546,873
102,684
(818)
(43)
(861)
101,823
96,311
218,596
3,093
7,084
(11,689)
(720)
(213)
(1,112)
(3,024)
-
(12,801)
(3,743)
(213)
83,510
214,853
3,093
6,871
427,768
(13,440)
(4,179)
(17,618)
410,150
48,448
(3,233)
(170)
(3,403)
45,045
111,715
101,546
3,424
6,212
(32,567)
(3,492)
(213)
(1,716)
(4,586)
-
(34,282)
(8,078)
(213)
77,433
93,468
3,424
5,999
271,345
(39,505)
(6,472)
(45,976)
225,369
47
31 December 2012
Current
Non-current
Reconciliation of impairment allowance
on loans and advances to customers:
31 December
2012
N’ Million
31 December
2011
N’ Million
1 January
2011
N’ Million
358,751
210,494
275,732
152,036
163,207
108,138
569,245
427,768
271,345
To customers
Specialised
NonSpecialised
N’million
N’million
Specific impairment
Collective impairment
Finance
lease
Total
N’million
N’million
818
43
12,480
4,065
142
71
13,440
4,179
861
16,545
213
17,619
211
903
12,180
246
-
12,391
1,148
(48)
(6,218)
(2,519)
-
(6,218)
(2,567)
1,927
20,233
213
22,373
981
946
15,923
4,311
142
71
17,046
5,328
Balance at 31 December 2012
1,927
20,233
213
22,373
Specific impairment
3,233
170
36,058
6,301
213
-
39,504
6,471
3,403
42,359
213
45,975
654
(127)
70,260
(12,274)
(2,236)
734
(805)
71
70,994
(12,425)
(2,293)
(3,069)
-
(79,745)
(1,819)
-
(82,814)
(1,819)
861
16,545
213
17,619
Specific impairment
818
43
12,480
4,065
142
71
13,440
4,179
Balance at 31 December 2011
861
16,545
213
17,619
Additional provision
Specific impairment
***Loans written off during the year as
uncollectible
Amounts recovered during the year
Specific impairment
Specific impairment
***Loans written off during the year as
uncollectible
Amounts recovered during the year
*** All loans written off during the year were fully provided for.
48
31 December 2012
18.2
Advances under finance lease may be analysed as
follows:
31 December
2012
N’million
2,093
10,824
31 December
2011
N’million
1,253
7,392
1 January
2011
N’million
1,293
5,677
12,917
(2,937)
8,645
(1,561)
6,970
(758)
Net investment
9,980
7,084
6,212
The net investment may be analysed as follows:
- No later than 1 year
- Later than 1 year and no later than 5 years
1,918
8,062
1,027
6,057
1,152
5,060
142
71
213
-
344
-
213
213
344
142
71
734
142
(142)
(734)
142
71
(131)
(131)
213
-
213
213
213
79,817
20,971
343,945
124,512
71,174
26,268
285,184
45,142
22,856
51,856
151,087
45,546
569,245
427,768
271,345
Gross investment
- No later than 1 year
- Later than 1 year and no later than 5 years
Unearned future finance income on finance leases
Reconciliation of impairment allowance on advances
under finance lease
Opening balance
Specific impairment
Specific impairment
Loans written off during the year as uncollectible
Specific impairment
Closing balance
18.3
Nature of security in respect of loans and
advances:
Secured against real estate
Secured by shares
Otherwise secured
Unsecured
The Bank is not permitted to sell or repledge the collateral in the absence of default by the owner of the
collateral.
During the period, the Bank obtained assets by taking possession of collateral held as security:
Nature of assets and carrying amount:
Real estate
Shares
31 December
2012
N’million
31 December
2011
N’million
1 January
2011
N’million
180
-
597
-
427
-
180
597
427
Repossessed properties are sold as soon as practicable, with the proceeds used to reduce the outstanding
indebtedness.
49
31 December 2012
19
Treasury bills
Federal Government Bonds
20
31 December
2012
N’million
31 December
2011
N’million
1 January
2011
N’million
15,295
8,099
32,812
6,821
23,394
32,812
6,821
Investments securities: Available-for-sale
Debt securities - at Fair value
- Listed
Federal Government Bonds - At fair value through
other comprehensive income
Treasury bills
- Unlisted
Government Guaranteed Bonds - At fair value through
other comprehensive income
State Government Bonds
AMCON Bonds
Local Contractor Bonds
Euro Bond (see note (a)
Bills discounted (see note (b)
28,858
25,193
100,756
18,511
1,956
15,154
8,800
114,575
31,098
-
5,017
106,867
2,416
-
905
3,106
1,233
Total Debt securities
208,523
233,567
22,354
-
1
9
28
4
13
696
3
11
23
11
13
-
87
9,914
1,848
214
9
178
793
211
76
345
200
2,266
357
242
893
580
200
193
101
33
1,313
87
7,507
1,622
251
48
176
529
102
39
334
2,130
400
250
500
580
200
48
144
7
87
1,550
214
48
169
264
79
41
485
400
250
34
20,053
15,705
3,682
228,576
249,272
26,036
Equity securities - at Fair value through Other
comprehensive income
- Listed
Cadbury Nigeria Plc
Guaranty Trust Bank Plc
Nigerian Breweries Plc
Oando Plc
Daar Communication Plc
Honeywell Flour Mills Plc
- Unlisted
Express Discount House Limited
African Finance Corporation
First Securities Discount House Limited
Accion Microfinance Limited
Afreximbank
Central Securities Clearing System
Nigerian Automated Clearing System
SME II Partnership
Aureos West Africa Fund
Vintage Press Limited
Oceanic Pension Fund Custodian Limited
Crusader Nigeria Plc
Flour Mills of Nigeria Plc
Chellarams Plc
Oceanic Bank Bureau de Change
Vivi Oil & Gas Limited
Maitama Amusement Park
Seaward Ventures
Oceanic Securities Int’l Limited
Others
Total equity investments
Total securities Available-for-sale
50
31 December 2012
Available-for-sale continued
Debt securities - at Fair value:
- Listed
- Unlisted
Equity securities - at Fair value:
- Listed
- Unlisted
Equity securities - at Fair value:
- Unlisted
Total securities Available-for-sale
31 December
2012
N’million
31 December
2011
N’million
1 January
2011
N’million
54,052
155,965
119,627
115,450
17,110
5,894
18,387
751
13,630
62
2,795
172
174
176
228,576
249,272
26,037
(a)
Euro bond represents the Bank's investment in the Zambian Eurobond (of $15 million) at coupon rate of
6.25% for the tenor of less than one year.
(b)
Bills discounted represents discounted sovereign debt note issued by the Federal Government of Nigeria to
the Bank's customer in respect of importation and supply of petroleum products.
(c)
Investments in listed and unlisted debts and equity investments are held at fair value through other
comprehensive income. They represent financial assets that are intended to be held for a period of time. They
may be sold in response to needs for liquidity or changes in investment rates.
-
51
-
31 December 2012
21
Investments securities: loans & receivables
31 December
2012
N’million
31 December
2011
N’million
1 January
2011
N’million
860
200
30,150
41,254
8,902
900
15
30,150
43,880
114
400
190
3,459
81,366
(3,250)
75,059
(900)
4,049
(100)
78,116
74,159
3,949
Total investment securities
306,692
323,431
29,986
Current
Non-current
205,273
101,419
233,419
90,012
22,316
7,670
Total investments
306,692
323,431
29,986
Debt securities – at amortised cost:
Tinapa Business Resort Limited
Card Technology
TBPlC (a)
ETI Promissory notes (see note (b)
CBN Promissory notes (see note (c)
Allowance for impairment
Total securities Loans and receivables
(a)
The promissory notes were issued by Ecobank Transnational Incorporated (ETI) for the acquisition of
Oceanic Bank's non-core assets under the Asset sale and purchase agreement dated 21 December 2011
between ETI and Oceanic Bank. The principal sum shall be payable in five (5) equal installments
commencing from the date the notes was issued.
(b)
Promissory notes were issued by the Central Bank of Nigeria in respect of acquired AIB (Africa International
Bank) customers' deposits verified and paid during the year.
(c)
Investment of N30.15 billion in Treasury Bond Protected Investment Corporation Limited at coupon rate of
11.48% for the tenure of 15 years.
22
Pledged assets
Treasury Bills are pledged to various third parties in respect of the Bank's ongoing participation in the Nigerian
settlement system. Federal Government Bonds are pledged to BOI (Bank of Industry) as collateral in respect
of loans obtained for the purpose of on-lending to manufacturing customers. These instruments are classified
as available for sale.
The nature and carrying amounts of the assets pledged as collaterals are as follows:
31 December
31 December
2012
2011
N’million
N’million
Investments securities Treasury Bills
Investments securities: Federal Government Bonds
23
1 January
2011
N’million
38,462
70,872
7,158
11,442
8,645
8,842
109,334
18,600
17,487
Non-current assets held for sale are Property, plant and equipment, which the Bank had obtained approval
from Central Bank of Nigeria (CBN) for disposal: N2.74 billion.
52
31 December 2012
24
Land
N'million
Cost
At 1 January 2012
Additions
Reclassifications
Write offs
Transferred to non-current assets
held for sale
Disposals
Leasehold
buildings
N'million
Office
equipment
N'million
Furniture
& fittings
N'million
Computer
equipment
N'million
Motor
vehicles
N'million
Work in
progress
N'million
Total
N'million
6,520
-
40,915
382
1,773
(113)
17,310
1,134
(109)
(3)
9,363
221
(64)
(5)
10,322
3,107
(6)
(25)
8,659
236
-
16,739
5
(1,594)
-
109,828
5,085
(146)
-
(450)
(250)
(37)
(22)
(12)
(762)
(2,408)
(1,157)
(2,858)
(2,240)
6,520
42,257
18,295
9,493
13,386
8,133
11,585
109,669
-
9,206
2,252
(67)
11,177
2,748
-
6,446
1,456
(4)
8,843
1,020
(21)
7,025
1,080
-
-
42,697
8,556
(92)
-
(114)
(16)
(27)
(20)
(12)
(687)
(3)
(114)
(765)
-
11,261
13,898
7,878
9,830
7,418
(3)
50,282
Net book amount at 31 December 2012
6,520
30,996
4,397
1,615
3,556
715
11,588
59,387
Cost
At 1 January 2011
Additions
Reclassifications
Write offs
Disposals
3,641
2,879
-
10,679
31,973
648
(1,971)
(261)
(153)
4,972
12,245
513
129
(440)
(109)
692
8,631
76
66
(87)
(15)
3,725
6,477
631
29
(511)
(29)
3,253
5,952
206
(752)
1,771
13,269
42
1,747
(58)
(32)
28,733
81,426
2,116
(1,357)
(1,090)
6,520
40,915
17,310
9,363
10,322
8,659
16,739
109,828
At 31 December 2012
Accumulated depreciation
At 1 January 2012
Charge for the year
Write offs
Transferred to non-current assets
held for sale
Disposals
At 31 December 2012
At 31 December 2011
53
31 December 2012
24
Property, plant and equipment (continued)
Accumulated depreciation
At 1 January 2011
Charge for the year
Write offs
Disposals
At 31 December 2011
Net book amount at 31 December 2011
Land
Leasehold
buildings
N'million
Office
equipment
N'million
-
1,222
7,576
667
(259)
-
2,577
7,977
1,153
(439)
(91)
335
5,825
385
(86)
(13)
3,108
5,738
535
(511)
(27)
-
9,206
11,177
6,446
6,520
31,709
6,133
2,917
54
Furniture
& fittings
N'million
Computer
equipment
N'million
Motor
vehicles
N'million
Work in
progress
N'million
Total
N'million
2,051
4,904
637
(567)
-
9,293
32,020
3,377
(1,295)
(698)
8,843
7,025
-
42,697
1,479
1,634
16,739
67,131
Financial Statements
31 December 2012
25
Intangible assets
Computer
software
N’million
Cost:
31 December 2012:
At 1 January
Additions
4,600
13
At 31 December
4,613
31 December 2011:
At 1 January
Acquired on combination
1,210
3,390
At 31 December
4,600
1 January 2011:
At 1 January
Additions
1,205
5
At 31 December
1,210
Amortisation
31 December 2012:
At 1 January
Amortisation charged
3,780
730
At 31 December
4,510
31 December 2011:
At 1 January
Acquired on combination
1,055
2,531
194
At 31 December
3,780
1 January 2011:
At 1 January
731
324
At 31 December
1,055
Carrying Amount
31 December 2012
103
31 December 2011
820
1 January 2011
155
The amortisation charge for the period is included in depreciation and amortisation expenses in the Statement
of comprehensive income.
55
31 December 2012
26
Deferred tax
Deferred income taxes are calculated on all temporary differences under the liability method using a tax rate of
30% (2011: 30%).
Deferred income tax assets are attributable to the
following items:
31 December
2012
31 December
2011
1 January
2011
N’million
N’million
7,340
(1,335)
-
3,374
1,253
82
688
1,890
151
6,005
4,709
2,729
6,005
-
4,709
-
N’million
Deferred tax assets
Fixed assets and intangible assets
Opening IFRS adjustment
Allowances for loan losses
Employee benefits
Deferred tax assets
- Deferred tax asset to be recovered after more than 12
months
- Deferred tax asset to be recovered within 12 months
2,729
-
31 December
2011
Recognised
in P&L
N’million
N’million
N’million
N’million
3,374
1,253
82
2,996
(3,507)
3,142
-
-
6,370
(2,254)
3,142
82
4,709
2,631
-
7,340
Movements in temporary differences during
the year:
Opening balance as at 1 January 2012
Fixed assets and intangible assets
Allowances for loan losses
Tax loss carry forward
Employee benefits
Recognised
in OCI
31 December
2012
Deferred income tax assets are recognised for tax losses carried forward only to the extent that realisation of the
related tax benefit is probable. The Bank has tax losses of N3.1 billion (2011: N2.8 billion) to carry forward
against future taxable income. These tax losses are not expected to expire in line with local tax law. The benefit
of the tax losses has not been recognised in these financial statements due to uncertainty of their recoverability.
56
31 December 2012
27
Other assets
31 December
2012
N’million
31 December
2011
N’million
1 January
2011
N’million
32,769
(5,865)
15,795
(5,709)
21,123
(1,023)
26,904
10,086
20,100
9,969
1,509
11,778
2,025
1,824
117
38,382
23,889
22,041
26,904
11,478
10,086
13,802
20,099
1,941
38,382
23,889
22,041
Reconciliation of impairment account
At start of period
Amounts written off
5,709
287
(131)
1,023
4,059
846
(219)
1,042
104
(123)
At end of period
5,865
5,709
1,023
3,239
18,250
-
42
1,324
5,750
3,000
710
-
21,489
10,116
710
21,489
-
10,116
-
710
-
21,489
10,116
710
Financial assets
Sundry receivables
Less specific allowances for impairment
Non-financial assets
Prepayments
Prepaid employee benefit expense
Current
Non-current
28
Deposits
28.1
Deposits from banks
Money market deposits
Items in course of collection
Other deposits from banks
Deposits from banks under repurchase agreements
Current
Non-current
Deposits from banks only include financial instruments classified as liabilities at amortised cost.
Deposits from banks under repurchase agreements are secured by treasury bills sold of N Nil (2011: N3
billion).
Further breakdown of other deposits from banks for December 2012:
Name
Ecobank Togo
Fidelity Bank Plc
First Bank of Nigeria Limited
Keystone Bank Limited
United Bank for Africa Plc
57
Tenor(days)
Rate (%)
Amount
92
10
14
7
7
3.5
3.5
3.0
4
3.5
601
4,686
7,809
1,562
3,592
18,250
31 December 2012
29
Deposits due to customers are primarily comprised of savings deposits, amounts payable on demand, and
term deposits.
31 December 31 December
1 January
2012
2011
2011
N’million
N’million
N’million
Demand
Savings
Term
Domiciliary
Current
Non-current
30
Borrowings
Long term borrowing comprise:
International Finance Corporation (see note (i) below)
Deutsche Bank (see note (ii) below)
International Finance Corporation (see note (iii) below)
Merrill Lynch (see note (iv) below)
Bank of Industry (see note (v) below)
CBN Agric Loan (see note (vi) below)
Current
Non-current
386,527
157,966
270,518
228,202
357,986
155,383
262,240
114,816
102,314
33,630
115,680
90,755
1,043,213
890,425
342,379
1,038,316
4,897
888,707
1,718
341,836
543
1,043,213
890,425
342,379
1,938
9,532
43,593
3,820
2,506
473
9,632
8,520
41,278
2,000
3,098
678
-
58,883
64,409
3,776
58,883
436
63,973
1,213
2,563
58,883
64,409
3,776
The Bank has not had any defaults of principal, interest or other breaches with respect to their liabilities during
the period (2011: nil).
(i)
The amount represents outstanding balance ($18.8 million) on dollar denominated on-lending credit obtained
from the International Finance Corporation. The facility will expire on or after 24 November 2015 and has a
rate of 2.75% above 3 month's Libor.
(ii)
The amount represents outstanding balance ($1.5 million) on dollar denominated loan from Deutsche Bank
with Sun and Sand Industries as the beneficiary. The facility will run for 2 years ended in June 2012 at 1.8%
above Libor payable semi-annually.
(iii)
The amount represents Tier II capital loan of $61.03 million granted by the International Finance Corporation.
The facility has a tenure of 8 years with moratorium of 5 years and interest rate is 8.5% above 6-month Libor
payable semi - annually.
(iv)
The amount represents outstanding balance on $175 million unsecured credit facility between Oceanic Bank
and Merrill Lynch International on 16 May 2007. This is a 5 year loan with maturity date of 18 May 2012 at the
rate of 13.4%.
(v)
This represents CBN intervention funds on-lent to some of the Bank's customers in the manufacturing sector
through Bank of industry (BOI). The fund is administered at an all-in interest rate of 7% per annum payable on
a quarterly basis. The maximum tenor of the facility is 15 years. A total of N12.5 billion bonds held by BOI as
collateral. (see note 22).
(vi)
This represents CBN intervention funds to some of the Banks customers in the Agricultural sector. The fund is
administered at a maximum interest rate of 9% per annum. The maximum tenor of the facility 7 years.
58
31 December 2012
31
30
Statement of Financial Position
Reconciliation
31 December
2012
N’million
31 December
2011
N’million
1 January
2011
N’million
4,389
4,389
3,180
1,678
1,427
925
-
1,502
502
Balance on 1 January
Past service cost
Current service cost
Interest cost
Actuarial gains/losses
Payments
Liability Acquired
3,180
840
596
563
(42)
(748)
-
At 31 December
4,389
1,427
451
315
(771)
(59)
1,817
1,817
3,180
Balance on 1 January
Contributions to the scheme
Benefits paid
Return on assets
1,678
2,562
149
-
925
741
(59)
129
(58)
At 31 December
4,389
1,678
840
596
563
(149)
42
451
315
(129)
771
1,892
1,408
Defined benefit obligation
Plan assets
Net liability
Reconciliation of Obligation
Reconciliation of Plan Assets
Income Statement
Past service cost
Current service cost
Interest cost
Return on plan assets
59
31 December 2012
31
Retirement benefit obligations (continued)
Assumptions used:
Rate of return on assets
9%
12%
12%
Rate of increase in remuneration
5%
10%
10%
14%
12%
12%
Discount Rate
Major classes of plan assets
Defined contribution scheme
The Bank and its employees make a joint contribution of 15% basic salary, housing and transport allowance to
each employee's retirement savings account maintained with their nominated pension fund administrators
Gratuity scheme
The Bank has a gratuity scheme for employees who have spent 10 years and above in its employment. An
amount of N2.6 billion (N741 million; 2011) was transferred to the fund administrator.
32
31 December
2012
N’million
31 December
2011
N’million
1 January
2011
N’million
At 1 January
- Additional provisions
Utilised during the year
1,290
22
(33)
18
1,224
48
-
18
-
At 31 December
1,279
1,290
18
Current
Non-current
1,279
1,290
18
1,279
1,290
18
Provisions
Included within provisions are:
Provisions of N1.1 billion (2011: N1.2 billion) have been made in respect of costs arising from contingent
liabilities and contractual commitments.
An amount of N228 million representing a provision for certain legal claims brought against the Bank by
customers and former staff. Legal actions are subject to many uncertainties, and their outcome is often
difficult to predict, particularly in the earlier stages of a case.
60
31 December 2012
33
Other liabilities
31 December
2012
N’million
31 December
2011
N’million
1 January
2011
N’million
9,932
25,814
672
1,258
7,566
34,249
1,258
4,899
27,528
939
2,250
45,242
40,406
30,717
15,000
15,000
15,000
9,241
13,960
6,940
13,960
3,337
(8,056)
6,940
7,020
-
3,609
3,331
-
9,241
13,960
6,940
Issued during the year
Cancelled during the year
84,799
63,407
(32,245)
54,119
30,680
-
11,917
42,202
-
At 31 December 2011
115,961
84,799
54,119
Customer deposits for letters of credit
Accounts payable
Unearned income
Bank cheques/draft
Other liabilities
34
Share capital
Authorised
30,000,000,000 ordinary shares of 50k each
Issued and fully paid
18,482,529,765 ordinary shares of 50 kobo each
Movements during the period:
Balance at 1 January
Issued during the year
Cancelled during the year
At 31 December
35
Share premium and reserves
In 2012, a special resolution was passed at the Annual General Meeting to undertake a share reduction that
resulted into cancelation of 16,111,111,111 shares, worth N8,055,555,556 and share premium of
N32, 244,444,445. The contra of the resulted in a credit of N40, 301,021,171 in retained earnings
The nature and purpose of the reserves in equity are as follows:
Share premium: Premium from the issue of shares are reported in share premium.
Retained earnings: Retained earnings comprise the undistributed profits from previous years, which have not
been reclassified to the other reserves noted below.
Statutory reserve: Undistributable earnings required to be kept by the Central Bank in accordance with
national law.
61
31 December 2012
SMEISS reserve: Appropriated from retained earnings by regulation for investment in small scale industries.
Revaluation reserve: The revaluation reserve shows the effects from the fair value measurement of equity
instruments elected to be presented in other comprehensive income on initial recognition after deduction of deferred
taxes. No gains or losses are recognised in the income statement.
36
Contingent liabilities and commitments
36.1
Capital commitments
Authorised and contracted
36.2
31 December
2012
N’million
31 December
2011
N’million
3,151
1,735
Confirmed credits and other obligations on behalf of customers
In the normal course of business the Bank 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:
Contingent Liability - Bonds & Guarantees
Contingent Liability - unfunded letters of credit
Contingent Liability - Guaranteed commercial papers
37
63,386
93,473
6,401
72,005
108,613
18,799
163,260
199,417
Litigation
The Bank is a party to legal actions arising out of its normal business operations for claims against it totaling
N114 billion as at 31 December 2012 (2011: N242 billion).
The Directors believe that, based on currently available information and advice of counsel, none of the
outcomes that result from such proceedings will have a material adverse effect on the financial position of the
Group, either individually or in the aggregate. Consequently, no provision has been made in these financial
statements.
37a
Events After Reporting Period
During the year, the Bank carried out a share reconstruction of its share capital in line with the
recommendations of the Shareholders at the Annual General Meeting. The reconstruction which was effective
31 December 2012 was stamped at the Corporate Affairs Commissions on 12 March 2013.
Apart from the above, there are no Post Balance Sheet Events which could have had a material effect on the
state of affairs of the Company as at December 31, 2012 which have not been adequately provided for.
62
31 December 2012
38
Related party transactions
The parent company of the Bank is Ecobank Transnational Incorporated.
A number of banking transactions are entered into with related parties in the normal course of business. These
include loans and deposits.
The volumes of related-party transactions, outstanding balances at the year-end, and relating expense and
income for the year are as follows:
38.1
Included in loans and advances is an amount of N40.6 billion (2011: N5.2 billion) representing credit facilities
to companies in which certain directors and shareholders have interests and personal loans to directors. The
balances as at 31 December, 2012 are as follows:
Name of company/individual
Costain West Africa Plc
Nigerian Ropes Plc
Shoreline Natural Resources Ltd
Shoreline Power Company Limited
Computer Warehouse Group Limited
Aigbokhaevbo Kingsley
Chief J.A Odeyemi
Offong & Hamda Ambah
Dele Alabi
Gbenga Kuye
Okorodudu Jolone
Okorodudu Jolone
Ronke Wilson
Henry Ajagbawa
Agbara Estate Limited
Bewcastle Nigeria Limited
Bewcastle Nigeria Limited
Clina-Lancet Laboratories Ltd
Oceanic Homes, Savings and
Loans Limited
Relationship
Joint director
Joint director
Joint director
Joint director
Joint director
Director
Ex-Director
Ex-Director of
Parent company
Director
Director (until
January 2012)
Executive in parent
company
Executive in parent
company
Executive in parent
company
Director
Director of Parent
company
Holding Company
Holding Company
Holding Company
Holding Company
Joint director
Holding Company
Facility Type
Overdraft
Term loan
Term loan
Term loan
Lease
Term loan
Overdraft
Mortgage
Mortgage
N’million
834
112
15,618
2,674
43
8
1
68
Status
Performing
Performing
Performing
Performing
Performing
Performing
Performing
Performing
Security
Legal mortgage
Legal mortgage
Debenture
Charge over Asset
Asset financed
Domiciliation
Share
Mortgage property
4
77
Performing
Mortgage property
Performing
Legal mortgage
Performing
Legal mortgage
Performing
Asset Financed
Mortgage
21
Mortgage
9
Term loan
6
Term loan
Mortgage
95
Performing
Performing
Asset financed
Legal mortgage
Term loan
Term loan
Overdraft
Term loan
Overdraft
Lease
Term loan
1,394
11,368
1,987
4,752
119
4
1,436
Doubtful
Performing
Performing
Performing
Performing
Performing
Doubtful
Mortgage
ETI Guarantee
ETI Guarantee
Share
Share
Asset financed
Clean
40,630
Off-balance sheet engagements
Costain West Africa Plc
38.2
Joint director
3,116
3,116
Legal mortgage
The bank granted various credit facilities to other companies which have common directors with the bank and
those that are members of the Bank. The rates and terms agreed are comparable to other facilities being held
in the bank's portfolio. Details of these are described below:
Key
management
Common
personnel
Directorship
Period ended 31 December 2012
N’million
N’million
Loans outstanding at 1 January
133
5,090
Loans issued during the year
35,432
Loan repayments during the year
(26)
107
Loans outstanding at 31 December
63
40,523
31 December 2012
38.2
Loans and advances to related parties (cont’d)
The loans issued to directors and other key management personnel (and close family members) during the
year of N35.4 billion are repayable monthly over two years and have variable interest rates. The loans
advanced to the directors during the year are collateralised.
38.3
Deposits from related parties
Key
management
personnel
N’million
Period ended 31 December 2012
Due to customers
Deposits at 1 January
595
Deposits received during the year
Deposits repaid during the year
977
(1,454)
118
Deposits at 31 December
39
Employees
The average number of persons employed by the Bank
during the period was as follows:
Executive directors
Management
Non-management
31 Dec 2012
6
292
6,890
Number
31 Dec 2011
5
281
7,473
1 Jan 2011
6
118
2,652
7,188
7,759
2,776
125
46,957
N'million
311
16,663
293
12,814
47,082
16,974
13,107
Compensation for the above staff:
Executive directors
Other staff (excluding executive directors)
64
31 December 2012
39 Employees (continued)
The number of employees of the Bank, other than directors, who received emoluments in the following ranges
(excluding pension contributions and certain benefits) were:
Number
31 December
31 December
1 January
2012
2011
2011
Less than N1,000,001
221
232
270
N1,000,001 - N2,000,000
378
953
444
N2,000,001 - N3,000,000
508
717
805
1,382
N3,000,001 - N4,000,000
1,531
421
N4,000,001 - N5,000,000
1,919
1,820
242
N5,000,001 - N6,000,000
231
242
N6,000,001 and above
2,774
2,270
346
7,182
7,754
2,770
In accordance with the provisions of the Pensions Act 2004, the Bank commenced a contributory pension
scheme in January 2005. The contribution by employees and the bank are 7.5% and 7.5% respectively of the
employees' basic salary, housing and transport allowances. The contribution by the Bank during the period was
N1.65 billion and N538 (2011) respectively.
40
Directors' emoluments
Remuneration paid to the Bank's directors (excluding certain allowances) was:
31 December
2012
28
71
26
N'million
31 December
2011
25
38
248
1 January
2011
31
28
234
125
311
293
Chairman
15
12
7
Highest paid director
17
45
38
Fees and sitting allowances
Executive compensation
Other director expenses
Fees and other emoluments disclosed above include
amounts paid to:
The number of directors who received fees and other emoluments (excluding pension contributions and certain
benefit) in the following ranges was:
Number
31 December
31 December
1 January
2012
2011
2011
Below N3,000,001
3
N3,000,001 - N4,000,000
3
N4,000,001 - N5,000,000
6
6
1
N5,000,001 and above
8
6
4
14
65
12
11
31 December 2012
41 Compliance with banking regulations
The Bank contravened the following banking legislations and provisions during the year:
Banking legislation
Nature of Contravention
Penalties
N'million
31 Dec 2012
31 Dec 2011
Section 60 (1) of BOFIA 1991
Amended
- Illegal transfer on the account of Folky
Merchants Nigeria Limited
2
2
Section 2.15 of the CBN
Revised Guidelines for the
Operation of FX Market
- Failure to return to the CBN, WDAS funds
purchased after five working days of nonutilization in line with regulation
2
2
Section 2.15 of the CBN
Revised Guidelines for the
Operation of FX Market
- Processing petroleum products importation
without valid DPR import permits as at time of
examination
2
-
Provision of the Regulation of
the Scope of Banking
Activities and Ancillary Matter
No. 3, 2016
- Non-compliance with the provision of the
regulations on the scope of Banking activities
and ancillary matters No. 3 2016
2
-
- Non-submission of Returns on Parastatal
balances with Financial Institutions
0.08
-
Section 6 (1) OF BOFIA 1991
Amended
- Failure to obtain approval for relocation of
branches
28
-
Amended
- Failure to comply with Regulatory directives on
Organogram
4
-
Section 9 (9) of the RRF
Guidelines
- Contravention of Refinancing and Rediscounting
Scheme (RRF) Guidelines
217
-
Section 25 of BOFIA 1991
Amended
- Failure to render daily return
0.03
-
Section 25 of BOFIA 1991
Amended
- Late rendition of daily e-Fass return
0.03
-
Amended
- Sale of Properties by private tenders
2
-
260
4
Section 60 (1) of BOFIA
1991 Amended
66
31 December 2012
42
Financial risk management
The Bank’s business involves taking on risks in a targeted manner and managing them professionally. The
core functions of the Bank’s risk management are to identify all key risks for the Bank, measure these risks,
manage the risk positions and determine capital allocations. The Bank regularly reviews its risk management
policies and systems to reflect changes in markets, products and best market practice. The Bank’s aim is to
achieve an appropriate balance between risk and return and minimise potential adverse effects on the Bank’s
financial performance. The Bank defines risk as the possibility of losses or profits foregone, which may be
caused by internal or external factors.
Risk management is carried out by the Bank Risk Management under policies approved by the Board of
Directors. Bank Risk Management identifies, evaluates and hedges financial risks in close co-operation with
the operating units of the Bank. The Board provides written principles for overall risk management, as well as
written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of
derivative financial instruments and non-derivative financial instruments. In addition, the Internal Audit and
Compliance is responsible for the independent review of risk management and the control environment.
The most important types of risk are credit risk, liquidity risk, market risk and other operational risk. Market risk
includes currency risk, interest rate risk and other price risk.
42.1
Credit risk
Credit risk is the risk of suffering financial loss, should any of the Bank’s customers, clients or market
counterparties fail to fulfill their contractual obligations to the Bank. Credit risk arises mainly from commercial
and consumer loans and advances, credit cards, and loan commitments arising from such lending activities,
but can also arise from credit enhancement provided, financial guarantees, letters of credit, endorsements and
acceptances.
The Bank is also exposed to other credit risks arising from investments in debt securities and other exposures
arising from its trading activities (‘trading exposures’), including non-equity trading portfolio assets, derivatives
and settlement balances with market counterparties and reverse repurchase loans.
Credit risk is the single largest risk for the Bank’s business; the directors therefore carefully manage the
exposure to credit risk. The credit risk management and control are centralised in a credit risk management
team, which reports to the Board of Directors and head of each business unit regularly.
42.1.1 Credit risk measurement
(a) Loans and advances (including loan commitments and guarantees)
The estimation of credit exposure is complex and requires the use of models, as the value of a product varies
with changes in market variables, expected cash flows and the passage of time. The assessment of credit risk
of a portfolio of assets entails further estimations as to the likelihood of defaults occurring, of the associated
loss ratios and of default correlations between counterparties.
The Bank has developed models to support the quantification of the credit risk. These rating and scoring
models are in use for all key credit portfolios and form the basis for measuring default risks. In measuring
credit risk of loan and advances at a counterparty level, the Bank considers three components: (i) the
‘probability of default’ (PD) by the client or counterparty on its contractual obligations; (ii) current exposures to
the counterparty and its likely future development, from which the Bank derive the ‘exposure at default’ (EAD);
and (iii) the likely recovery ratio on the defaulted obligations (the ‘loss given default’) (LGD). The models are
reviewed regularly to monitor their robustness relative to actual performance and amended as necessary to
optimise their effectiveness.
67
31 December 2012
42
Financial risk management
(i) Probability of default
The Bank assesses the probability of default of individual counterparties using internal rating tools tailored to
the various categories of counterparty. They have been developed internally and combine statistical analysis
with credit officer judgement. They are validated, where appropriate, by comparison with externally available
data. The Bank's rating method comprises 10 rating levels for loans. The rating methods are subject to an
annual validation and recalibration so that they reflect the latest projection in the light of all actually observed
defaults.
The Bank’s internal ratings scale and mapping of external ratings as supplemented by the Bank's own
assessment through the use of internal rating tools are as follows:
The Bank utilizes an internal risk system rating based on a scale of 1 to 10. A risk rating of "1" identifies
obligors or transactions of the highest quality or lowest risk. A risk rating of "10" is assigned to obligor's or
transactions of lowest quality or highest risk. The table below provides a grid showing comparisons between
the risk rating system of Ecobank and the rating scale used by Standard & Poor's
Investment quality
Ecobank
S&P
Definition
Investment Grade
1
2
3
4
5
6
AAA
AA
A
BBB
BB
B
Largely risk free
Exceptional credit / Minimal risk
Excellent credit / very low risk
Good credit quality / low risk
Satisfactory credit quality
Acceptable credit quality but less stable
Non-Investment Grade
7
8
9
10
CCC
CC
C
D
Risk factors deteriorating
Special mention
Substandard credit quality
Doubtful / Loss
Obligors risk rated 1 to 4 are considered low risk ("investment grade"). Those risk rated 5 and 6 are considered
as medium risk, while those risk rated 7 through 10 are considered high risk. Medium and high risk obligors
are also commonly categorized as "non-investment grade".
Risk rating is assigned to individual obligors (obligor risk ratings) and to individual credit facilities (facility risk
rating). They are also assigned total facilities extended to an obligor (approval risk rating), to all the facilities
extended to a group or related obligors (economic group rating), or to an entire portfolio (portfolio risk rating).
(ii) Exposure at default (“EAD”)
"EAD is based on the amounts the Bank expects to be owed at the time of default. For example, for a loan this
is the face value. For a commitment, the Bank includes any amount already drawn plus the further amount that
may have been drawn by the time of default, should it occur.
(iii) Loss given default / Loss severity
Loss given default or loss severity represents the Bank’s expectation of the extent of loss on a claim should
default occur. It is expressed as a percentage loss per unit of exposure and typically varies by type of
counterparty, type and seniority of claim and availability of collateral or other credit mitigation."
The measurement of exposure at default and loss given default is based on the risk parameters standard
under Basel II.
(b) Debt securities and other bills
For debt securities, external rating such as Standard & Poor’s rating or their equivalents are used by Bank
Treasury for managing of the credit risk exposures as supplemented by the Bank's own assessment through
the use of internal ratings tools.
68
31 December 2012
42.1.2 Risk limit control and mitigation policies
The Bank manages, limits and controls concentrations of credit risk wherever they are identified − in particular,
to individual counterparties and Banks, and to industries and countries.
The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in
relation to one borrower, or Banks of borrowers, and to geographical and industry segments. Such risks are
monitored on a revolving basis and subject to an annual or more frequent review, when considered necessary.
Limits on the level of credit risk by product, industry sector and by country are approved quarterly by the Board
of Directors.
The exposure to any one borrower including banks and other non-bank financial institutions is further restricted
by sub-limits covering on- and off-statement of financial position exposures and daily delivery risk limits in
relation to trading items such as forward foreign exchange contracts. Actual exposures against limits are
monitored daily.
Lending limits are reviewed in the light of changing market and economic conditions and periodic credit
reviews and assessments of probability of default. Some other specific control and mitigation measures are
outlined below:
Risk limit control and mitigation policies continued
(a) Collateral
The Bank takes in addition to the debtor’s covenant to repay, tangible assets and/or assurances as security
for the loan. The qualities the Bank looks out for in a good collateral are:
(i) It should have assurance of title and an ascertainable value which is stable and not subject to undesirable
downward valuation.
(ii) It should also be marketable, readily realizable without undue cost or difficulties as well as be devoid of all
cases of encroachment or encumbrance and lastly, there should be a good margin between the value of the
security provided and the amount of facility being sought.
(iii) There should be a good margin between the value of the security provided and the amount of facility being
sought.
Exposure to credit risk is also managed through regular analysis of the ability of borrowers and potential
borrowers to meet interest and capital repayment obligations and by changing these lending limits where
appropriate.
Some other specific control and mitigation measures are outlined below:
The Bank employs a range of policies and practices to mitigate credit risk. The most traditional of these is the
taking of security for funds advances, which is common practice. The Bank implements guidelines on the
acceptability of specific classes of collateral or credit risk mitigation. The principal collateral types for loans and
advances are:
• Mortgages over residential properties.
• Charges over business assets such as premises, inventory and accounts receivable.
• Charges over financial instruments such as debt securities and equities.
Collateral held as security for financial assets other than loans and advances depends on the nature of the
instrument.
Longer-term finance and lending to corporate entities are generally secured; revolving individual credit facilities
are generally unsecured. In addition, in order to minimise the credit loss the Bank will seek additional collateral
from the counterparty as soon as impairment indicators are identified for the relevant individual loans and
advances."
69
31 December 2012
(b) Lending limits (for derivative and loan books)
The Bank maintains strict control limits on net open derivative positions (that is, the difference between
purchase and sale contracts) by both amount and term. The amount subject to credit risk is limited to expected
future net cash inflows of instruments, which in relation to derivatives are only a fraction of the contract, or
notional values used to express the volume of instruments outstanding. This credit risk exposure is managed
as part of the overall lending limits with customers, together with potential exposures from market movements.
Collateral or other security is not always obtained for credit risk exposures on these instruments, except where
the Bank requires margin deposits from counterparties.
Settlement risk arises in any situation where a payment in cash, securities or equities is made in the
expectation of a corresponding receipt in cash, securities or equities. Daily settlement limits are established for
each counterparty to cover the aggregate of all settlement risk arising from the Bank’s market transactions on
any single day.
(c) Master netting arrangements
The Bank further restricts its exposure to credit losses by entering into master netting arrangements with
counterparties with which it undertakes a significant volume of transactions. Master netting arrangements do
not generally result in an offset of assets and liabilities of the statement of financial position, as transactions
are either usually settled on a gross basis or under most netting agreements the right of set off is triggered
only on default. However, the credit risk associated with favourable contracts is reduced by a master netting
arrangement to the extent that if a default occurs, all amounts with the counterparty are terminated and settled
on a net basis. The Bank’s overall exposure to credit risk on derivative instruments subject to master netting
arrangements can change substantially within a short period, as it is affected by each transaction subject to
the arrangement.
(d) Financial covenants (for credit related commitments and loan books)
The primary purpose of these instruments is to ensure that funds are available to a customer as required.
Guarantees and standby letters of credit carry the same credit risk as loans. Documentary and commercial
letters of credit – which are written undertakings by the Bank on behalf of a customer authorising a third party
to draw drafts on the Bank up to a stipulated amount under specific terms and conditions – are collateralised
by the underlying shipments of goods to which they relate and therefore carry less risk than a direct loan.
Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans,
guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Bank is
potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amount of
loss is less than the total unused commitments, as most commitments to extend credit are contingent upon
customers maintaining specific credit standards (often referred to as financial covenants).
The Bank monitors the term to maturity of credit commitments because longer-term commitments generally
have a greater degree of credit risk than shorter-term commitments.
42.1.3
Impairment and provisioning policies
The internal and external rating systems described in Note 41.1.1 focus on expected credit losses – that is,
taking into account the risk of future events giving rise to losses. In contrast, impairment allowances are
recognised for financial reporting purposes only for losses that have been incurred at the reporting date based
on objective evidence of impairment. Due to the different methodologies applied, the amount of incurred credit
losses provided for in the financial statements is usually lower than the amount determined from the expected
loss model that is used for internal operational management and banking regulation purposes.
The impairment allowance shown in the statement of financial position at year-end is derived from each of the
four internal rating grades. However, the largest component of the impairment allowance comes from the
default grade. The table below shows the percentage of the Bank’s on- and off-balance sheet items, like
financial guarantees, loan commitments and other credit related obligations, relating to loans and advances
and the associated impairment allowance for each of the Bank’s internal rating categories.
70
31 December 2012
2012
1. Current
1A. Watchlist
II. Substandard
III. Doubtful
IV. Loss
1. Current
1A. Watchlist
II. Substandard
III. Doubtful
IV. Loss
1. Current
1A. Watchlist
II. Substandard
III. Doubtful
IV. Loss
Loans and advances
Amount
%
490,309
86.0%
52,575
9.2%
3,026
0.5%
10,633
1.9%
12,702
2.2%
569,245
100%
2011
Loans and advances
Amount
%
397,246
92.9%
5,633
1.3%
8,860
2.1%
6,498
1.5%
9,531
2.2%
427,768
100%
2010
Loans and advances
Amount
%
188,187
69.4%
18,473
6.8%
3,916
1.4%
19,433
7.2%
41,336
15.2%
271,345
100%
Amount
4,299
1,029
106
6,111
10,827
22,372
Impairment provision
%
19.2%
4.6%
0.5%
27.3%
48.4%
100%
Amount
4,002
1,016
672
2,904
9,025
17,618
%
22.7%
5.8%
3.8%
16.5%
51.2%
100%
Amount
4,551
787
8,223
32,415
45,976
%
9.9%
0.0%
1.7%
17.9%
70.5%
100%
42.1.4 Maximum exposure to credit risk before collateral held or other credit enhancements
Financial instruments whose carrying amounts do not represent the maximum exposure to credit risk without
taking account of any collateral held or other credit enhancements are disclosed in Note 35(c).
Concentration of risks of financial assets with credit risk exposure
Maximum exposure
2012
2012
2011
Credit risk exposures relating to on-balance sheet assets are as
follows:
120,078
116,597
19,437
Loans and advances to customers:
Corporate Bank
− Overdrafts
47,451
35,122
24,594
− Term loans
223,014
116,992
56,436
− Others
5,244
6,023
Domestic Bank
− Overdrafts
85,716
76,745
50,419
− Credit cards
759
667
6,195
− Term loans
181,670
171,105
83,967
− Mortgages
3,020
3,497
3,758
Trading assets
− Debt securities
23,394
32,812
6,821
Investment securities
− Debt securities
427,399
341,781
47,472
Other assets
27,010
23,889
22,041
Contingent liabilities and commitments are as follows:
Loan commitments and other credit related
liabilities
At 31 December
71
166,411
201,152
82,267
1,311,163
1,126,381
403,407
31 December 2012
42.1.5 Loans and advances
Loans and advances are summarised as follows:
31 December 2012
Loans and
Loans and
advances
advances to
to banks
customers
Neither past due nor
impaired
Past due but not
impaired
Impaired
Gross
Less: allowance for
impairment
Net
31 December 2011
Loans and
Loans and
advances to
advances to
banks
customers
31 December 2011
Loans and
Loans and
advances
advances to
to banks
customers
120,078
490,309
116,597
397,246
19,437
188,187
120,078
52,575
26,361
569,245
116,597
5,633
24,889
427,768
19,437
18,473
64,685
271,345
120,078
(22,372)
546,873
116,597
(17,618)
410,150
19,437
(45,976)
225,369
(a) Loans and advances neither past due nor impaired
The credit quality of the portfolio of loans and advances that were neither past due nor impaired can be assessed
by reference to the internal rating system adopted by the Bank.
The credit quality of the portfolio of loans and advances that were neither past due nor impaired can be assessed
by reference to the internal rating system adopted by the Bank.
31 December 2012
Grades:
1. Current
IA. Watchlist
Overdrafts
33,248
14,636
Corporate Bank
Term
loans
Others
225,136
-
5,243
-
Overdrafts
Credit
cards
45,640
37,390
425
303
Domestic Bank
Term
Loans Mortgages
177,768
76
2,850
170
Total
490,309
52,575
Total
47,884 225,136
5,243
83,030
728
177,844
3,020 542,884
Mortgage loans in the sub-standard class were considered not to be impaired after taking into consideration the
recoverability from collateral.
31 December 2011
Corporate Bank
Overdrafts
Term
loans
1. Current
IA. Watchlist
35,407
4,870
130,580
-
Total
1 January 2011
40,277
130,580
Grades:
Domestic Bank
Others
Over
drafts
Credit
cards
Term
Loans
Mortgages
Total
-
56,465
762
674
-
169,891
-
4,229
-
397,246
5,632
57,227
674
169,891
4,229
402,878
Corporate Bank
Domestic Bank
Over drafts
Term
loans
Others
Over
drafts
Credit
cards
Term
Loans
Mortgages
Total
1. Current
IA. Watchlist
5,167
507
52,959
5,199
-
38,785
3,807
5,062
497
82,772
8,125
3,442
338
188,187
18,473
Total
5,674
58,158
-
42,592
5,559
90,897
3,780
206,660
Grades:
72
31 December 2012
Loans and advances continued
(b) Loans and advances past due but not impaired
Late processing and other administrative delays on the side of the borrower can lead to a financial asset being past due but not impaired. Therefore, loans and advances
less than 90 days past due are not usually considered impaired, unless other information is available to indicate the contrary. Gross amount of loans and advances by
class to customers that were past due but not impaired were as follows:
Loans and advances less than 90 days past due are not considered impaired, unless other information is available to indicate the contrary. Gross amount of loans and
advances by class to customers that were past due but not impaired were as follows:
Corporate Bank
Term loans
Others
31 December 2012
Overdrafts
Past due up to 30 days
Past due 30-60 days
Past due 60-90 days
Total
Fair value of collateral
Amount of
undercollateralisation
31 December 2011
Past due 30-60 days
Past due 60-90 days
Total
Amount of
undercollaterization
Overdrafts
Credit cards
Term Loans
Domestic Bank
Mortgages
Total
1,938
8,413
4,285
14,636
9,898
-
-
3,139
3,784
30,467
37,390
13,578
303
303
-
76
76
-
31
139
170
-
5,077
12,228
35,270
52,575
23,476
4,738
-
-
23,812
303
76
170
29,099
Others
Overdrafts
Corporate Bank
Overdrafts
Term loans
Domestic Bank
Credit cards
Term Loans
Mortgages
Total
173
4,698
4,870
-
-
536
113
114
762
-
-
-
709
113
4,812
5,634
-
-
-
-
-
-
-
-
4,870
-
-
762
-
-
-
5,633
73
31 December 2012
1 January 2011
Past due 30-60 days
Past due 60-90 days
Total
Amount of
undercollaterization
Over drafts
237
237
Corporate Bank
Term loans
Others
Domestic Bank
Credit cards
Term Loans
114
3,312
40
1,434
120
66
274
4,812
-
1
1
Over drafts
10,219
2,380
137
12,736
-
-
-
-
-
237
-
1
12,736
274
Total
Mortgages
88
126
199
413
13,971
3,980
522
18,473
-
-
-
4,812
413
18,473
(c) Loans and advances individually impaired
(i) Loans and advances to customers
The individually impaired loans and advances to customers before taking into consideration the cash flows from collateral held is N26.3 billion (2011: N24.8 billion).
The breakdown of the gross amount of individually impaired loans and advances by class are as follows:
31 December 2012
Over drafts
Individual impaired
loans
Impairment allowance
Corporate Bank
Term
loans
Others
Over drafts
Credit cards
Domestic Bank
Term
Loans
Mortgages
Total
1
434
-
2,059
-
62
-
17,120
13,104
5,603
729
740
-
8,511
5,840
6,133
132
-
26,361
22,372
11,736
81
368
-
1,278
872
-
5
-
17,617
11,859
2,602
1,465
1,435
14
4,447
3,024
906
55
-
24,889
17,618
3,522
31 December 2011
Individual impaired
loans
74
31 December 2012
1 January 2011
Individual impaired loans
9,356
2,412
-
1
3,263
-
120
-
40,683
30,390
5,076
6,018
4,884
273
7,935
4,514
51
(ii) Loans and advances to banks
The total amount of individually impaired loans and advances to banks as at 31 December 2012 was N20.6 billion (2011: N24.8 billion).
75
692
393
148
64,685
45,976
5,548
31 December 2012
42.1.6 Debt securities
The tables below present an analysis of debt securities by rating agency designation at 31 December 2012 and
at 31 December 2011, based on Standard & Poor’s ratings or their equivalent:
42.1.7 Repossessed collateral
The Bank obtained assets by taking possession of collateral held as security. The nature and carrying amounts
of such assets at the reporting date are as follows:
Nature of assets
Residential property
2012
2011
2012
Carrying amount
Related
Collateral
Loan
180
113
Carrying amount
Related
Collateral
Loan
597
5,257
Carrying amount
Related
Collateral
Loan
427
1,009
Repossessed properties are sold as soon as practicable, with the proceeds used to reduce the outstanding
indebtedness. Repossessed property is classified within ‘other assets’.
42.2
Market risk
The Bank takes on exposure to market risks, which is the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in market prices. Market risks arise from open positions in interest
rate, currency and equity products, all of which are exposed to general and specific market movements and
changes in the level of volatility of market rates or prices such as interest rates, foreign exchange rates and
equity prices. The Bank separates exposures to market risk into either trading or non-trading portfolios.
The market risks arising from trading and non-trading activities are concentrated in Bank Treasury and monitored
by two teams separately. Regular reports are submitted to the Board of Directors and heads of each business
unit.
Trading portfolios include those positions arising from market-making transactions where the Bank acts as
principal with clients or with the market.
Non-trading portfolios primarily arise from the interest rate management of the entity’s retail and commercial
banking assets and liabilities. Non-trading portfolios also consist of foreign exchange and equity risks arising
from the Bank’s held-to-maturity and available-for-sale financial assets.
42.2.1 Market risk measurement techniques
The objective of market risk measurement is to manage and control market risk exposures within acceptable
limits while optimising the return on risk. The Bank Treasury is responsible for the development of detailed risk
management policies and for day-to-day implementation of those policies.
(a) Value at risk
The Bank applies a ‘value at risk’ (VAR) methodology to its trading and non-trading portfolios to estimate the
market risk of positions held and the maximum losses expected, based upon a number of assumptions for
various changes in market conditions. The Board sets limits on the value of risk that may be accepted for the
Bank, which are monitored on a daily basis by Bank market risk. Interest rate risk in the non-trading book is
measured through the use of interest rate repricing gap analysis (Note 3.2.5).
76
31 December 2012
(a) Value at risk continued
VAR is a statistically based estimate of the potential loss on the current portfolio from adverse market
movements. It expresses the ‘maximum’ amount the Bank might lose, but only to a certain level of
confidence (95%). There is therefore a specified statistical probability (5%) that actual loss could be greater
than the VAR estimate. The VAR model assumes a certain ‘holding period’ until positions can be closed (1
day). It also assumes that market moves occurring over this holding period will follow a similar pattern to
those that have occurred over 1-day period in the past. The Bank’s assessment of past movements is based
on data for the past five years. The Bank applies these historical changes in rates, prices, indices, etc.
directly to its current positions − a method known as historical simulation. Actual outcomes are monitored
regularly to test the validity of the assumptions and parameters/factors used in the VAR calculation. The use
of this approach does not prevent losses outside of these limits in the event of more significant market
movements.
The quality of the VAR model is continuously monitored by back-testing the VAR results for trading books.
All back-testing exceptions and any exceptional revenues on the profit side of the VAR distribution are
investigated, and all back-testing results are reported to the Board of Directors.
(b) Stress tests
Stress tests provide an indication of the potential size of losses that could arise in extreme conditions. The
stress tests carried out by Bank market risk include: risk factor stress testing, where stress movements are
applied to each risk category; emerging market stress testing, where emerging market portfolios are subject
to stress movements; and ad hoc stress testing, which includes applying possible stress events to specific
positions or regions − for example, the stress outcome to a region following a currency peg break.
The results of the stress tests are reviewed by senior management in each business unit and by the Board
of Directors. The stress testing is tailored to the business and typically uses scenario analysis.
42.2.2 VAR summary for 2012 and 2011
(a) FX trading portfolio VAR
The average FX VAR by historical simulation at a 95% confidence level over a 1-day holding period in 2012 was
N5.2 million (2011: N2.5 million).
42.2.3 Foreign exchange risk
The Bank takes on exposure to the effects of fluctuations in the prevailing foreign currency exchange rates on its
financial position and cash flows. The Board sets limits on the level of exposure by currency and in aggregate for
both overnight and intra-day positions, which are monitored daily. The table below summarises the Bank’s
exposure to foreign exchange risk at 31 December 2012. Included in the table are the Bank’s financial
instruments at carrying amounts, categorised by currency.
77
31 December 2012
Concentrations of currency risk – on- and off-balance sheet financial instruments
Assets
Trading assets
Investment securities - available-for-sale
Pledged assets
Other assets
Dollar
Euro
CFA
Naira
Gh. Cedis
Others
Total
1,303
77,938
171,808
49,069
-
944
66
8,229
-
110,076
42,140
374,813
23,393
257,623
109,334
30,153
-
186
-
112,323
120,078
546,873
23,393
306,692
109,334
38,382
Total financial assets
Liabilities
Deposits from banks
Due to customers
Borrowed funds
Other liabilities
300,118
9,239
-
947,534
-
186
1,257,077
21,372
217,064
12,504
7,722
13,421
1,059
-
117
812,728
46,380
36,462
-
-
21,489
1,043,213
58,883
45,242
Total financial Liabilities
258,662
14,480
-
895,687
-
-
1,168,827
41,456
(5,241)
-
52,847
-
186
88,250
104,367
18,473
-
39,848
-
732
163,421
170,713
86,334
3,463
10,450
-
830,559
902,781
-
7,663
5,790
1,012,398
1,005,356
84,379
(6,987)
-
(72,222)
-
1,873
7,042
110,906
18,473
-
76,748
-
7,567
213,694
90,714
89,744
11,598
11,584
-
317,689
274,547
-
1,653
1,707
421,653
377,582
970
13
-
43,142
-
(54)
44,071
52,732
(6,744)
-
41,292
-
(34)
87,246
Net on-balance sheet financial position
Credit commitments
Total financial liabilities
Credit commitments
As at 1 January 2011
Credit commitments
78
31 December 2012
42.2.4 Foreign exchange risk sensitive analysis
The foreign currency risk sensitivity analysis reflects the expected financial impact in Naira equivalent resulting from a 1% shock to foreign currency risk exposure. The
foreign exchange rate sensitivity analysis reflects a potential gain of N.211 billion and loss of N.15 billion for USD and Euro Aggregate Net open positions respectively.
42.2.5 Interest rate risk
Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest rate
risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates. The Bank takes on exposure to the effects of fluctuations in
the prevailing levels of market interest rates on both its fair value and cash flow risks. Interest margins may increase as a result of such changes but may reduce losses in
the event that unexpected movements arise. The Board sets limits on the level of mismatch of interest rate repricing and value at risk that may be undertaken, which is
monitored daily by Bank Treasury.
The tables below summarise the Bank’s non-trading book fair value exposure to interest rate risks. It includes the Bank’s financial instruments at carrying amounts (nonderivatives), categorised by the earlier of contractual repricing (for example for floating rate notes).
Assets
Trading assets
Investment securities - available-forsale
Pledged assets
Other assets
Liabilities
Deposits from banks
Due to customers
Borrowed funds
Other liabilities
Total interest repricing gap
Up to 1 month
1-3 months
3-12 months
1-5 years
Over 5 years
Non-interest
bearing
Total
20,783
36,142
156,479
-
8,364
113,162
-
55,291
23,394
145,898
-
76,045
-
91,539
75,572
-
112,322
120,078
546,873
23,394
13,978
14,300
241,682
23,956
57,612
79
203,173
69,739
2,650
22,589
173,668
168,369
15,983
15,709
345,960
30,650
18,789
125,484
167,112
306,692
109,334
38,382
1,257,078
13,082
331,998
345,080
8,407
109,787
16,453
134,647
29,761
14,038
43,799
4,897
163
14,751
19,811
58,720
58,720
566,769
566,769
21,489
1,043,213
58,883
45,241
1,168,826
(103,398)
68,526
129,869
326,149
66,764
-
-
79
31 December 2012
Trading assets
Investment securities-available-forsale
Pledged assets
Other assets
Liabilities
Deposits from banks
Due to customers
Borrowed funds
Other liabilities
Up to 1 month
29,229
116,597
176,340
13,116
1-3 months
54,409
5,818
3-12 months
42,240
13,878
1-5 years
137,161
-
Over 5 years
-
Non-interest
bearing
57,690
-
Total
86,919
116,597
410,150
32,812
11,879
95
1,600
358
12,344
783
328,087
18,600
692
10,081
342,031
18,600
23,888
347,161
60,322
58,076
150,288
334,349
67,771
1,030,997
5,687
769,777
3,219
3,105
94,036
15,244
1,324
24,894
8,830
-
1,718
21,943
44,579
-
-
10,116
890,425
64,409
40,406
778,683
112,385
35,048
23,661
55,579
-
1,005,356
(431,522)
(52,063)
23,028
126,627
291,800
Up to 1 month
17,035
100,514
107,093
4,929
1-3 months
39450
1,893
3-12 months
5,316
-
1-5 years
73,510
-
Over 5 years
-
Non-interest
bearing
2,402
-
Total
19,437
100,514
225,370
6,822
20,113
95
11,928
358
12,344
783
5,712
17,487
692
-
29,984
17,487
22,041
249,684
41,438
17,602
86,637
23,891
2,402
421,654
Trading assets
Investment securities-available-forsale
Pledged assets
Other assets
80
31 December 2012
Liabilities
Deposits from banks
Due to customers
Borrowed funds
Other liabilities
284,315
226
2,943
50,698
2,232
710
4,590
342
2,025
2,775
569
23,517
2,639
-
-
710
342,379
3,776
30,717
287,484
52,930
7,668
26,861
2,639
-
377,582
(37,800)
(11,492)
9,935
59,776
21,252
42.2.6 Interest rate sensitivity
A parallel 100 basis points (1%) interest rate increase in all yield curves would increase net interest income by N4.5 billion, while a parallel decrease in all yield would
decrease net interest income by N4.5 billion.
42.3 Liquidity risk
Liquidity risk is the risk that the Bank is unable to meet its obligations when they fall due as a result of customer deposits being withdrawn, cash requirements from
contractual commitments, or other cash outflows, such as debt maturities or margin calls for derivatives. Such outflows would deplete available cash resources for client
lending, trading activities and investments. In extreme circumstances, lack of liquidity could result in reductions in the statement of financial position and sales of assets, or
potentially an inability to fulfill lending commitments. The risk that the Bank will be unable to do so is inherent in all banking operations and can be affected by a range of
institution-specific and market-wide events including, but not limited to, credit events, merger and acquisition activity, systemic shocks and natural disasters.
81
31 December 2012
42.3.1 Liquidity risk management process
The Bank’s liquidity management process, as carried out within the Bank and monitored by a separate team in
Bank Treasury, includes:
•
•
•
•
Day-to-day funding, managed by monitoring future cash flows to ensure that requirements can be met. This
includes replenishment of funds as they mature or are borrowed by customers. The Bank maintains an active
presence in global money markets to enable this to happen;
Maintaining a portfolio of highly marketable assets that can easily be liquidated as protection against any
unforeseen interruption to cash flow;
Monitoring the liquidity ratios of the statement of financial position against internal and regulatory
requirements; and
Managing the concentration and profile of debt maturities.
Monitoring and reporting take the form of cash flow measurement and projections for the next day, week and month
respectively, as these are key periods for liquidity management. The starting point for those projections is an
analysis of the contractual maturity of the financial liabilities and the expected collection date of the financial assets
(Notes 41.3.3 – 41.3.4).
Bank Treasury also monitors unmatched medium-term assets, the level and type of undrawn lending
commitments, the usage of overdraft facilities and the impact of contingent liabilities such as standby letters of
credit and guarantees.
42.3.2 Funding approach
Sources of liquidity are regularly reviewed by a separate team in Bank Treasury to maintain a wide diversification
by currency, provider, product and term.
82
31 December 2012
42.3.3 Non-derivative financial liabilities and assets held for managing liquidity risk
The table below presents the cash flows payable by the Bank under non-derivative financial liabilities and assets held for managing liquidity risk by remaining contractual
maturities at the reporting date. The amounts disclosed in the table are the contractual undiscounted cash flow, whereas the Bank manages the liquidity risk based on a
different basis (see Note 41.3.1 for details), not resulting in a significantly different analysis.
Liabilities
Deposits from banks
Due to customers
Borrowed funds
Other liabilities
Provisions
Current income tax liabilities
Up to 1 month
1 -3 months
3 - 12 months
1 - 5 years
13,342
11,189
16,453
8,532
160,407
14,038
879,734
163
16,030
-
-
Total liabilities (contractual maturity)
40,985
Total assets
Trading assets
Pledged assets
Other assets
Total assets (expected maturity dates)
Over 5 years
Total
-
-
58,935
1,279
1,581
-
21,875
1,051,331
59,098
46,520
1,279
1,581
182,977
895,927
61,795
-
1,181,684
20,783
112,108
156,618
13,978
14,440
-
8,442
113,256
24,018
58,175
79
55,293
23,550
54,043
2,676
21,234
146,022
169,727
16,139
15,710
91,539
76,110
30,905
18,973
-
112,323
120,551
547,299
23,550
292,671
110,402
37,023
317,927
203,970
156,796
347,598
217,527
1,243,818
83
31 December 2012
Up to 1 month
1 -3 months
3 - 12 months
1 - 5 years
Over 5 years
Total
Liabilities
Deposits from banks
Due to customers
Borrowed funds
Other liabilities
Provisions
Deferred income tax liabilities
5,729
773,487
3,433
-
3,105
94,036
15,244
-
1,324
24,894
8,830
-
1,718
21,943
1,290
1,548
533,642
-
55,579
1,502
10,158
894,135
64,409
40,620
1,290
1,548
533,642
1,502
782,649
112,385
35,048
26,499
57,081
1,013,662
Total assets
Trading assets
Pledged assets
Other assets
86,919
117,150
176,758
13,335
11,879
16,044
54,409
5,818
95
42,240
13,878
1,600
358
137,161
12,344
783
330,557
18,738
10,773
86,919
133,194
413,567
33,031
344,501
18,738
23,888
409,041
76,366
58,076
150,288
360,067
1,053,838
Up to 1 month
1 -3 months
3 - 12 months
1 - 5 years
Over 5 years
Total
285,742
239
2,943
-
50,698
2,232
-
713
4,590
342
2,025
-
2,775
569
23,517
18
329
502
2,639
-
713
343,806
3,789
30,717
18
329
502
288,924
52,930
7,670
27,710
2,639
379,873
Liabilities
Deposits from banks
Due to customers
Borrowed funds
Other liabilities
Provisions
84
31 December 2012
Total assets
Trading assets
Pledged assets
Other assets
19,437
100,933
108,971
4,974
20,113
39,450
1,893
95
5,316
12,153
358
73,510
5,712
783
17,618
692
19,437
100,933
227,248
6,867
30,209
17,618
22,041
254,428
41,438
17,827
86,637
24,022
424,352
42.3.4 Assets held for managing liquidity risk
The Bank holds a diversified portfolio of cash and high-quality highly-liquid securities to support payment obligations and contingent funding in a stressed market
environment. The Bank’s assets held for managing liquidity risk comprise:
•
•
•
•
Cash and balances with central banks;
Certificates of deposit;
Government bonds and other securities that are readily acceptable in repurchase agreements with central banks; and
Secondary sources of liquidity in the form of highly liquid instruments in the Bank's trading portfolios."
85
31 December 2012
42.3.5 Contingent liabilities and commitments
(a) Loan commitments
The dates of the contractual amounts of the Bank’s contingent liabilities that it commits to extend credit to
customers and other facilities (Note 35) are summarised in the table below.
(b) Other financial facilities
Other financial facilities (Note 35) are also included in the table below, based on the earliest contractual
maturity date.
(c) Operating lease commitments
Where the Bank is the lessee, the future minimum lease payments under non-cancellable operating leases, as
disclosed in Note 35, are summarised in the table below.
(d) Capital commitments
Capital commitments for the acquisition of buildings and equipment (Note 35) are summarised in the table
below:
Guarantees, acceptances and other financial facilities
Capital commitments
Not later
than 1 Year
120,550
3,151
Over one
year
42,710
-
Total
163,260
3,151
123,701
42,710
166,411
Not later
than 1 Year
155,857
1,735
Over one
year
43,560
-
Total
199,417
1,735
157,592
43,560
201,152
Not later
than 1 Year
77,515
190
Over one
year
4,562
-
Total
82,077
190
77,705
4,562
82,267
Capital commitments
Capital commitments
86
31 December 2012
43
Fair value of financial instruments
(a) Financial instruments not measured at fair value
The following table summarises the carrying amounts and fair values of those financial assets and liabilities not
presented on the Bank’s statement of financial position at their fair value:
Assets
banks
customers
Liabilities
Deposits from banks
Due to customers
Other deposits
Borrowed funds
Carrying value
2012
2011
LCY'000
LCY'000
2010
LCY'000
Fair Value
2012
2011
LCY'000
LCY'000
2010
LCY'000
120,078
116,597
100,514
120,898
119,191
100,770
546,873
410,150
225,369
543,954
406,457
229,726
21,489
1,043,213
58,883
10,116
890,425
64,409
710
342,379
18,598
1,047,527
59,098
7,047
892,302
64,312
710
338,430
3,941
3,776
(i) Loans and advances to bank
Loans and advances to banks include inter-bank placements and items in the course of collection.
"The carrying amount of floating rate placements and overnight deposits is a reasonable approximation of fair
value.
The estimated fair value of fixed interest bearing deposits is based on discounted cash flows using prevailing
money-market interest rates for debts with similar credit risk and remaining maturity."
(ii) Loans and advances to customers
Loans and advances are net of charges for impairment. The estimated fair value of loans and advances
represents the discounted amount of estimated future cash flows expected to be received. Expected cash flows
are discounted at current market rates to determine fair value.
(iii) Investment securities
The fair value for loans and receivables and held-to-maturity financial assets is based on market prices or
broker/dealer price quotations. Where this information is not available, fair value is estimated using quoted
market prices for securities with similar credit, maturity and yield characteristics.
Investment securities (available-for-sale) disclosed in the table above comprises only those equity securities
held at cost less impairment. The fair value for these assets is based on estimations using market prices and
earnings multiples of quoted securities with similar characteristics. All other available-for-sale financial assets
are already measured and carried at fair value.
(iv) Deposits from banks and customers
The estimated fair value of deposits with no stated maturity, which includes non-interest-bearing deposits, is the
amount repayable on demand.
The estimated fair value of fixed interest-bearing deposits not quoted in an active market is based on
discounted cash flows using interest rates for new debts with similar remaining maturity.
(v) Off-balance sheet financial instruments
The estimated fair values of the off-balance sheet financial instruments are based on markets prices for similar
facilities. When this information is not available, fair value is estimated using discounted cash flow analysis.
87
31 December 2012
Fair value of financial instruments continued
(b) Fair value hierarchy
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 fail value hierarchy:
•
Level 1 – Level 1 - Quoted prices (adjusted) in active markets for identical assets or liabilities. This level
includes listed equity securities and debt instruments on exchanges.
• Level 2 – Inputs other than quoted prices included within level 1 that are observable for the asset or liability,
either directly (that is as prices) or indirectly (that is derived from prices).
• Level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs).
This level includes equity investments and debt instruments with significant unobservable component
This hierarchy requires the use of observable market data when available. The group considers relevant and
observable market prices in its valuations where possible.
43.1 Assets and liabilities measured at fair value
Level 1
Trading assets
Pledge assets
-
174,525
109,334
77,446
-
283,859
31 December 2012
Level 2
Level 3
32,812
119,268
-
-
130,004
18,600
152,080
-
148,604
Level 1
Trading assets
Pledge assets
Level 3
23,394
54,052
-
Level 1
Trading assets
Pledge assets
31 December 2012
Level 2
1 January 2011
Level 2
Level 3
6,821
17,110
-
-
8,466
17,487
23,931
-
25,953
The following table shows the sensitivity of level 3 measurements to reasonably possible alternative
assumptions:
44.
Capital management
"The Bank manages its capital base to achieve a prudent balance between maintaining capital ratios to support
business growth and depositor confidence, and providing competitive returns to shareholders. The capital
management process ensures that the Bank maintains sufficient capital levels for legal and regulatory
compliance purposes. The Bank ensures that its actions do not compromise sound governance and appropriate
business practices and it eliminates any negative effect on payment capacity, liquidity or profitability."
Capital adequacy and the use of regulatory capital are monitored daily by the Bank’s management, employing
techniques based on the guidelines developed by the Central Bank of Nigeria (CBN), for supervisory purposes.
The required information is filed with the CBN on a monthly basis. Auditors to the Bank are also required to
render an annual certificate to the Nigeria Deposit Insurance Corporation (NDIC) that includes the computed
capital adequacy ratio of the Bank.
88
31 December 2012
The CBN requires each bank to:
(a) hold the minimum level of the regulatory capital of N25 billion and
(b) maintain a ratio of total regulatory capital to the risk-weighted asset at or above the minimum of 10%.
The capital adequacy ratio, which reflects the capital strength of an entity compared to the minimum regulatory
requirement, is calculated by dividing the capital held by that entity by its risk weighted assets. The Bank’s regulatory
capital as managed by its Financial Control and Treasury Unit is divided into two tiers:"
• Tier I capital: (primary capital) represents permanent forms of capital such as share capital, retained earnings and
reserves created by appropriations of retained earnings. The book value of goodwill is deducted in arriving at Tier 1
capital; and
•Tier II capital: (secondary capital) includes preference shares, minority interests arising on consolidation, qualifying
debt stock, fixed assets revaluation reserves, foreign currency revaluation reserves, general provisions subject to
maximum of 1.25% of risk assets and hybrid instruments - convertible bonds.
The risk-weighted assets are measured by means of a hierarchy of five risk weights classified according to the nature
of credit/counterparty risk and reflecting an estimate of credit risks associated with each asset and counterparty. A
similar treatment is adopted for off balance sheet exposures, with some adjustments to reflect the more contingent
nature of the potential losses.
The table below summarises the composition of regulatory capital and the ratios of the Bank for the years ended 31
December 2012 and 31 December, 2011. During those two years, the Bank complied with all of the externally
imposed capital requirements.
31 December
1 January
31 December
2012
2011
2011
N'million
N'million
N'million
Tier 1 capital
Share capital
9,241
13,960
6,940
Share premium
115,961
84,799
54,119
Statutory reserves
6,135
6,135
6,135
Contingency reserve
SMIEIS reserve
1,150
1,150
1,150
Capital reserve
7,218
26,018
7,218
Retained earnings
(19,705)
(64,532)
(11,188)
Other reserves
33,627
7,832
1,173
Deposit for shares
Less: goodwill and intangible assets
(6,005)
(4,709)
(2,729)
Total qualifying Tier 1
capital
147,622
70,653
62,818
Tier 2 capital
Long-term borrowing
Minority interest
Convertible bonds
Revaluation reserve - fixed assets
Revaluation reserve – investment securities
Translation reserve
General provision
Total qualifying Tier 2
capital
5,328
9,632
4,321
6,471
5,328
13,953
6,471
Total regulatory capital
152,950
84,605
69,289
Risk-weighted assets:
On-balance sheet
Off-balance sheet
741,100
88,643
608,831
90,801
287,908
45,954
829,743
699,632
333,862
18%
12%
21%
Total risk-weighted assets
Risk weighted Capital Adequacy Ratio (CAR)
89
31 December 2012
45.
Critical accounting estimates and judgement
The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities within the
next financial year. All estimates and assumptions required in conformity with IFRS are best estimates
undertaken in accordance with the applicable standard. Estimates and judgements are evaluated on a
continuous basis, and are based on past experience and other factors, including expectations with regard to
future events.
Accounting policies and directors’ judgements for certain items are especially critical for the Bank’s results and
financial situation due to their materiality.
(a) Impairment losses on loans and advances
The Bank reviews its loan portfolios to assess impairment at least on a quarterly basis. In determining whether
an impairment loss should be recorded in profit or loss, the Bank makes judgements as to whether there is any
observable data indicating an impairment trigger followed by measurable decrease in the estimated future cash
flows from a portfolio of loans before the decrease can be identified with that portfolio. This evidence may
include observable data indicating that there has been an adverse change in the payment status of borrowers in
a bank, or national or local economic conditions that correlate with defaults on assets in the Bank. The directors
use estimates based on historical loss experience for assets with credit risk characteristics and objective
evidence of impairment similar to those in the portfolio when scheduling future cash flows. The methodology
and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to
reduce any differences between loss estimates and actual loss experience.
(b) Impairment of available-for-sale equity investments
The Bank determines that available-for-sale equity investments are impaired when there has been a significant
or prolonged decline in the fair value below its cost. This determination of what is significant or prolonged
requires judgement. In making this judgement, the Bank evaluates among other factors, the volatility in share
price. In addition, objective evidence of impairment may be deterioration in the financial health of the investee,
industry and sector performance, changes in technology, and operational and financing cash flows.
(c) Fair value of financial instruments
The fair value of financial instruments where no active market exists or where quoted prices are not otherwise
available are determined by using valuation techniques. In these cases, the fair values are estimated from
observable data in respect of similar financial instruments or using models. Where market observable inputs are
not available, they are estimated based on appropriate assumptions. Where valuation techniques (for example,
models) are used to determine fair values, they are validated and periodically reviewed by qualified personnel
independent of those that sourced them. All models are certified before they are used, and models are
calibrated to ensure that outputs reflect actual data and comparative market prices. To the extent practical,
models use only observable data; however, areas such as credit risk (both own credit risk and counterparty
risk), volatilities and correlations require management to make estimates.
90
31 December 2012
(d) Held-to-maturity investments
In accordance with IAS 39 guidance, the Bank classifies some non-derivative financial assets with fixed or
determinable payments and fixed maturity as held-to-maturity. This classification requires significant judgement.
In making this judgement, the Bank evaluates its intention and ability to hold such investments to maturity. If the
Bank were to fail to keep these investments to maturity other than for the specific circumstances – for example,
selling an insignificant amount close to maturity – the Bank is required to reclassify the entire category as
available-for-sale. Accordingly, the investments would be measured at fair value instead of amortised cost.
(e) Retirement benefits
The present value of the retirement benefit obligations depends on a number of factors that are determined on
an actuarial basis using a number of assumptions. Any changes in these assumptions will impact the carrying
amount of pension obligations.
The assumptions used in determining the net cost (income) for pensions include the discount rate. The Bank
determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to
determine the present value of estimated future cash outflows expected to be required to settle the pension
obligations. In determining the appropriate discount rate, the Bank considers the interest rates of high-quality
corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to
maturity approximating the terms of the related pension liability.
Other key assumptions for pension obligations are based in part on current market conditions.
91
31 December 2012
46
Divisional analysis
The Bank's operations by major business divisions during the year are summarised below:
(i)
(ii)
(iii)
Domestic banking - provides banking services to governments, small and medium scale enterprises and
local companies including retail solutions to consumers.
Corporate banking - provides a broad range of financial solutions to multinationals, regional companies,
state-owned companies, non-governmental organisations, international and multinational organisations
and financial institutions.
Ecobank Capital comprises our treasury, investment banking, and asset management businesses which
focus on financial markets and investors.
December 2012
December 2011
Corporate
Domestic
Ecobank
Banking
N’million
Banking
N’million
Capital
N’million
Total
N’million
Corporate
Domestic
Banking
N’million
Banking
N’million
Ecobank
Capital
N’million
Total
N’million
Revenue :
- Derived from external
customers
- Derived from other
33,752
57,096
68,009
158,857
19,585
35,037
13,533
68,155
149
50,362
(50,511)
0
1,382
11,767
(13,149)
-
33,901
107,458
17,498
158,857
20,967
46,804
384
68,155
(10,253)
(21,527)
business divisions
Total revenue
Total cost
- Interest expense
(27,917)
(7,033)
(45,203)
(6,502)
(11,110)
(3,915)
- Risk and other asset
provisions
- Other operating expenses
(698)
(10,937)
(707)
(12,342)
15,260
(72,048)
(12,056)
(96,085)
3,702
(26,485)
34
(11,981)
11,524
(10,347)
(7,033)
(43,865)
Total cost
(22,932)
(110,902)
(19,796)
(153,630)
(5,325)
(33,893)
(10,914)
(50,132)
10,969
(3,444)
(2,298)
5,227
15,642
12,911
(10,530)
18,023
-
-
-
2,578
-
-
-
1,321
10,969
(3,444)
(2,298)
7,805
15,642
12,911
(10,530)
19,344
Divisional asset
275,709
271,164
778,442
1,325,315
167,068
243,082
674,908
Divisional liabilities
256,026
787,187
128,473
1,171,687
184,907
705,518
119,271
1,085,05
8
1,009,69
Profit/(loss) before tax
Tax
Profit/(loss) after tax
6
Net asset
19,683
(516,023)
649,968
153,628
(17,839)
(462,436)
555,387
75,362
All transactions between business units were conducted at an arm’s length basis. Internal charges and transfer pricing
adjustments are reflected in the performance of each division.
The Bank operates in a single geographical location, thus no divisional analysis based on geographical location is
presented in this financial statement.
92
31 December 2012
(All amounts in N' million Naira unless otherwise stated)
47
Transition to IFRS
Reconciliation of Equity as at:
(a)
i
ii
iii
iv
v
(b)
ii
iv
v
(c)
i
ii
(d)
i
(f)
1 Jan. 2011
=N' mil =
Shareholders' equity under NGAAP
IFRS Adjustments
Fair valuation of Financial Instruments
Being reversal of adjustment to diminution of
unquoted investment equities.
Being adjustment for fair value of pledged financial
assets
Being adjustment for fair value of debt investments
securities - AFS financial assets
Being adjustment for fair value of equity investments
- AFS financial assets
Being adjustment to recognise permanent
impairment of unquoted investment equities.
Loan loss provision
Recognition of Interest in Suspense in interest
Income
Specific and collective Impairment of loans and
advances
Recognition of reversal of impairment in TBPIC
31 Dec. 2011
=N' mil =
74,320
68,096
a, i
64
64
a,ii
(550)
511
a,iii
73
(4,322)
a,iv
1,650
41
a,v
(210)
(247)
b,ii
7,828
1,306
b,iv
b,v
(19,176)
-
(3,424)
12,255
Employee Benefit - staff Loans
Amortization of prepaid payroll cost over the life of
the loan
Increase in interest income due to application of
Effective Interest Rate on staff loans
c,i
(30)
(467)
c,ii
38
516
Deferred Tax
Income statement impact of deferred tax asset on
Employee benefits and Loan loss provision
d,ii
2,041
1,335
f,i
(502)
(8,774)
(273)
7,265
65,546
75,362
Retirement Benefit Obligation
IFRS adjustment to reflect additional provision for
retirement benefits
Total IFRS Adjustment
Shareholders' equity under IFRS
93
31 December 2012
47
Transition to IFRS continued
Reconciliation of Statement of
Financial Position
Note
Nigerian GAAP
=N' mil=
01 January 2011
Adjustments
=N' mil=
IFRS
=N' mil=
Assets
Treasury Bills
Bills discounted
Advances under finance leases
-Loans and receivables
Pledged Assets
Intangible Assets
Deferred tax asset
Other assets
Liabilities
Deposits from banks
Borrowings
Provisions
Deferred tax liability
Other liabilities
19,437
20,756
1,233
100,339
231,108
5,999
19,656
19,595
688
35,428
-
(20,756)
(1,233)
175
(5,739)
(5,999)
6,821
(19,656)
26,036
3,949
17,487
(155)
155
2,041
(13,387)
-
19,437
100,514
225,369
6,821
26,036
3,949
17,487
19,440
155
2,729
22,041
-
454,239
(10,261)
443,978
939
340,147
3,760
329
34,744
(229)
2,232
16
502
18
(4,027)
710
342,379
3,776
502
18
329
30,717
379,919
1,488
378,431
a,w
a,x
a,y
6,940
54,119
(1,242)
(9,946)
6,940
54,119
(11,188)
a,z
b,a
b,b
b,c
b,d
6,135
1,150
7,218
1,173
-
6,135
1,150
1,173
7,218
74,320
(8,773)
65,547
454,239
(10,261)
443,978
a,a
a,b
a,c
a,d
a,e
a,f
a,g
a,h
a,i
a,j
a,k
a,l
a,m
a,n
a,p
a,q
a,r
a,s
a,t
a,u
a,v
Total liabilities
Share capital
Share premium
Retained earnings
Other reserves
Statutory reserve
SSI Reserve
SMIES Reserve
Fair value reserve
Capital Reserves
Total equity
94
31 December 2012
Reconciliation of Statement of Comprehensive Income
Note
Interest income
Interest expense
c,a
IFRS
NGAAP
Adjustments
IFRS
49,700
(21,527)
(6,044)
-
43,656
(21,527)
28,173
(6,044)
22,129
(13,363)
28,623
15,260
14,810
22,579
37,389
16,390
-
16,390
2,448
5,277
(16,663)
(12,533)
(3,571)
(10,407)
(178)
178
(307)
-
2,270
5,455
(16,970)
(12,533)
(3,571)
(10,407)
Operating profit
(4,249)
22,272
18,023
Profit before tax
Income tax expense
(4,249)
1,958
22,272
(637)
18,023
1,321
PROFIT FOR THE YEAR
Other comprehensive income:
Revaluation of equity financial assets
Tax effect of revaluation of equity
financial assets
Other comprehensive income for the
year, net of tax
(2,291)
21,635
19,344
-
(5,597)
(5,597)
-
-
-
-
(5,597)
(5,597)
(2,291)
16,038
13,747
Net interest income
Impairment charge for credit losses and
investments
c,b
Net interest income after impairment
charge for credit losses
Net gains / (losses) from financial
instruments at fair value
Employee benefit expense
c,c
c,d
TOTAL COMPREHENSIVE INCOME
FOR THE YEAR
95
31 December 2012
Reconciliation of Statement of Financial Position
31 December 2011
Note
Assets
Treasury Bills
Advances under finance leases
-Held to maturity investments
Pledged Assets
Intangible Assets
Deferred tax asset
Other assets
a,a
a,c
a,d
a,e
a,f
a,g
a,h
a,i
a,j
a,k
a,l
a,m
a,n
Liabilities
Deposits from banks
Borrowings
Provisions
Deferred tax liability
Other liabilities
a,o
a,p
a,q
a,r
a,s
a,t
a,u
a,v
Total liabilities
Share capital
Share premium
Deposit for shares
Retained earnings
Other reserves
Statutory reserve
SMIES Reserve
Fair value reserve
Capital Reserves
Regulatory risk reserve
a,w
a,x
a,y
a,z
b,a
b,d
b,e
Total equity
96
Nigerian
GAAP
=N' mil=
Adjustments
=N' mil=
IFRS
=N' mil=
86,919
23,987
116,141
401,807
6,871
347,476
67,131
820
3,374
47,501
-
(23,987)
456
8,343
(6,871)
32,812
(347,476)
248,136
75,294
18,600
1,335
(23,613)
-
86,919
116,597
410,150
32,812
248,136
75,294
18,600
67,131
820
4,709
23,888
-
1,102,027
(16,969)
1,085,058
10,011
873,532
64,243
1,548
84,597
105
16,893
166
1,502
1,290
(44,191)
10,116
890,425
64,409
1,502
1,290
1,548
534
40,406
1,033,931
(24,235)
1,009,696
13,960
84,799
18,800
(23,666)
(40,300)
6,135
1,150
7,218
-
(18,800)
(40,866)
13,960
84,799
(64,532)
(4,423)
18,800
12,255
6,135
1,150
(4,423)
26,018
12,255
68,096
(33,034)
75,362
1,102,027
(57,269)
1,085,058
31 December 2012
Notes to the reconciliation of equity
(a)
IAS 32, 39 and IFRS 7 Fair valuation of financial instruments
Nigerian GAAP investment securities are either classified as short term or long term investments. Short-term
investments are investments that management intends to hold for less than one year. These investments are
measured at the lower of cost or net realisable value subsequent to initial recognition. Long term investments are
investments other than short term investments and are carried at cost less impairment. Under IFRS, financial
assets and liabilities are required to be classified as fair value through profit or loss (Held for Trading), fair value
through other comprehensive income (Available for Sale), loans and receivables and held to maturity. Financial
instruments are measured based on their classification. The application of fair value changes and its impact on the
income statement or other comprehensive income resulted in a write-down in equity of N4.0 billion at 31 December
2011 (1 January 2011, N1.0 billion).
(b)
Loan Loss Provision
"Under NGAAP, provision on loans is determined using the prudential guideline which prescribes the percentage to
be written down as soon as loan is designated as impaired, depending on whether the status of impairment is
doubtful, substandard or lost. A general provision is then calculated as 1% of all performing loans. Under IFRS, a
loan is assessed for impairment if there is objective evidence that impairment has occurred after its initial
recognition. The reporting entity is also required to perform a collective impairment evaluation on all its insignificant
loans as well as on its significant but non-impaired loans. The reporting entity determines by available history the
Probability of Defaults (PD) and Loss Giving Default (LGD) by sectors and applies these ratios on the performing
loans at each reporting date.
The Bank assesses for impairment all loans that are due or unpaid for 90 days or more. The estimated cash flows
expected from the loans including the collateral realization and timing are determined and discounted to present
value. Application of IFRS to specific impairment calculation decreased Retained Earnings by N3.4 bn as at 31
December 2011 (N19.1 bn; 1 January 2011).
The application of collective impairment procedures on all its insignificant loans as well as on its significant but
non-impaired loans gave rise to a negative adjustment of N4.1 bn as on 31, December 2011 ( N6.4 bn; 1 January
2011).
Under NGAAP, interest is accrued on Non-performing loans and advances at a default or contractual rate, but
such interest is usually suspended and included as part of specific provision on the loans. Under IFRS, interest is
accrued and recognized on impaired loans using effective interest rate. The recognition of Interest on impaired
loans was a positive adjustment in retained earnings at 31 December 2011 of N1.3bn, (1 January 2011, N7.8bn)."
(c)
Employee Benefit - staff Loans
Employees were granted loans at a below market interest rate. Under IFRS, the difference between the rate
granted and a market related rate is an employee benefit, which must be deferred and recognised as an employee
expense over the life of the loan. Amortization of prepaid benefits gave rise to a net debit in equity of N19 m for
the year ending 31 December 2011,(1 January 2011, N8 m) was adjusted in equity.
(d)
Deferred Tax Asset
The impact of changes in deferred income tax resulted from timing differences on fair value gains on available for
sale financial instruments recognized under IFRSs. Nominal tax rate of 30% was used in calculating the deferred
tax adjustments which also increased the balance sheet carrying amount of deferred tax assets by same amounts.
(e)
Retirement Benefit Obligation
An actuarial valuation of the defined benefit scheme, showed a deficit of N273 million as at 31 December 2011
(N502 m; 01 January 2011). The liability was not recognised in the Nigerian GAAP financial statements. Under
IFRS, a defined benefit obligation must be recognised based on the projected unit credit method. Actuarial
valuation was performed by Alexander Forbes Actuaries using the projected unit credit method of valuation. This
gave rise to an obligation of N1.5 billion as at 31 December 2011 (N502 m; 01 January 2011), when the value of
the assets as at the valuation date was compared to the liability of the scheme.
97
31 December 2012
Notes to the reconciliation of Statement of Financial Position
a,a
"Under NGAAP, treasury bills (including the portion pledged to third parties), are reported as separate line from
investments. Under IFRS, treasury bills qualify as financial assets and have been properly classified in line with
IAS 39 at fair value through other comprehensive income (Available for Sale) and pledged assets. Treasury bill
amounting to N15.3 bn (N12.1 bn; 01 January 2011) was reclassified to Investment securities at fair value through
equity while pledged treasury bills of N7.2 bn ((N8.6bn; 01 January 2011) was reclassified to pledged assets."
a,b
Under NGAAP, bills discounted was reported as separate line from investments on the face of the financial
statement. Under IFRS, bills discounted qualify as financial assets held at fair value through other comprehensive
income (Available for Sale) and have been properly classified in line with IAS 39.
a,c
As at 1 January 2011, included in Investment Securities is a placement with other banks and discount houses of
N175 million. This has been reclassified to Loans and Advances to Banks under IFRS.
a,d
Loan and Advances to Customers includes Loans and advances, Advances under Finance Leases and other
facilities. Other Facilities include foreign currency denominated on-lending facilities. The difference of N5.7bn
between the NGAAP and IFRS balances for loans to customers is a result of the reclassifications, the impact of
additional impairment losses, and write-downs in respect of staff loans in order to reflect the correct amortized cost
based on market rate. IFRS requires financial assets carried at amortised cost to be measured using the effective
interest rate (EIR) 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, or where appropriate, a shorter period to
the net carrying amount of the financial asset or financial liability.
a,e
Advances under finance lease are reported separately in the balance sheet under Nigerian GAAP. Given the size
of this portfolio, management has reclassified the total balance of N6.8 billion as at 31 December 2011 (N5.9 billion
at 1 January 2011) from Advances under finance lease to Loans and Advances to Customers.
a,f
"Under IFRS, IAS 39 has four clearly defined categories of financial assets, namely (1) Financial assets ‘at fair
value through profit or loss’ [measured at fair value with fair value gain or loss recognised in profit or loss] (2) Heldto-maturity investments [measured at amortised cost] (3) Loans and receivables [measured at amortised cost]; and
(4) Available-for-sale financial assets [measured at fair value with fair value gain or loss recognised in other
comprehensive income]. Furthermore there are two defined categories of financial liabilities, namely: (1) Financial
liabilities 'at fair value through profit or loss' and (2) Other liabilities (measured at amortised cost). Under Nigerian
GAAP, investment securities are either classified as short term or long term investments. Short-term investments
are investments that management intends to hold for less than one year. These investments are measured at the
lower of cost or net realisable value subsequent to initial recognition. Long term investments are investments other
than short term investments and are carried at cost less impairment. Based on the classification and measurement
criteria under IFRS the following was performed:
Fair value adjustments
The application of IFRS classification and measurement gave rise to the following classification of investments. A
fair value adjustment of (N209m) was recorded on AFS equity adjustments, (N14.3bn) on AFS debt investment
adjustments and N511m from fair value adjustment to pledged assets. A fair value adjustment was recognised on
HFT debt security investment of N0 m as at 31 December 2011 (N0 m; 01 January 2011).
Reversal of previously recognised impairment charge
Under IFRS, the fair value changes of available for sale financial instruments are recognized in other
comprehensive income and transferred to fair value reserve in the equity section of the statement of financial
position. To appropriately recognise the fair value adjustments, impairment on investment securities charged under
NGAAP had to reverse through retained earnings.
Reclassification adjustments
To ensure that the underlying asset are reported at their carrying amount before applying the measurement criteria
under IFRS, the respective interest receivables classified as a component of other asset under NGAAP were
reclassified to the respective investment securities. The total of N10.2bn as at 31 December 2011 (N625 m, 01
January 2011) were reclassified to underlying assets. Also pledged assets under repurchase agreement
amounting to N18.6bn as at 31 December 2011 (N17.5bn; 01 January 2011) made up of bonds and treasury bills,
which were part of the components of Other assets under NGAAP, were reclassified as a separate line item as
pledged assets on the primary statements. "
98
31 December 2012
Notes to the reconciliation of Statement of Financial Position
a,j
"Under NGAAP, pledged assets (bills and bonds) are either reported as part of other assets or disclosed within the
notes of the financial statement. Under IFRS, pledged assets have been reported as a separate line item on the
primary financial statement. Due to the separate disclosure of the pledged items, a reclassification of N7.1 billion
and N11.4 bn in 31 December 2011 (N8.6 bn, and N8.8 bn; 01 January 2011) relating to investment securities bonds and Treasury bills respectively was made."
a,l
Under NGAAP computer software was usually reported as part of property plant and equipment. The application of
IFRS on 1 January 2011 required that this be separated. The total amount for computer software of N155m, has
been reclassified to Intangible assets. Intangible assets represents the net book value of computer software being
used in the Bank as there were no patents, trademarks or any other form of intangibles on this date.
a,m
The implications of application of IFRS to loan losses provisioning and employee benefits increased Retained
earnings by N3.4 bn on 31 December 2011 (1 January 2011, N19.1 bn). Nominal tax rate of 30% was used in
calculating the deferred tax adjustments which also increased the balance sheet carrying amount of deferred tax
assets by same amounts.
a,n
The change in other assets on application of IFRS is accounted for by the reclassification of accrued interest
receivable to the underlying assets in line with IAS 39 before measurement, as well as the recognition of additional
staff benefit arising from restating staff loans carrying amount using the market rate. The recognized embedded
prepaid staff benefits are carried in other asset, and amortized over the remaining expected life of the loans. In
addition to this pledged debt equities previous reporting as a component under other assets under NGAAP has
been classified under pledged bonds a separate financial statement line item on the primary statement for IFRS
reporting purpose.
a,p
Included in other liabilities are Customer's cash collateral due to Banks amounting to N0 m as at 31 December
2011 (N710m; 01 January 2011). This was reclassified from other liabilities to deposit from Banks for proper
presentation under IFRS. N16.8 billion as at 31 December 2011 (N2.2 billion; 01 January 2011) relating to
customers' deposit for letters of credit which was reclassified to deposits from customers under IFRS.
a,q
"Under NGAAP, interest payable was mapped to other liabilities. In applying the effective interest method, IFRS
requires a financial instrument carried at amortised cost to be measured at its net carrying amount. The application
of the effective interest method resulted in a reclassification of N166m as at 31 December 2011 (N16m. 01
January 2011) from other liabilities to Borrowings."
a,v
The Bank accounted for interest payable and unearned income on its financial liabilities and assets as a separate
component of other liabilities. IFRS requires a financial instrument carried at amortised cost to be measured at its
net carrying amount and available for sale financial assets at fair value through equity. The change in other
liabilities on application of IFRS is accounted for by the reclassification of unearned income on treasury bills and
bonds to the underlying assets in line with IAS 39 of N24.2bn in 31 December 2011 (N1.9bn; 01 January 2011).
Other liability balance of N16 m relating to interest payable on borrowings was reclassified to the underlying liability
account in order to measure this at amortized cost. Also included in other liabilities are Customer cash collateral
due to Banks amounting to N0 m as at 31 December 2011 (N710m; 01 January 2011). This was reclassified from
other liabilities to deposit from Banks for proper presentation under IFRS.
b,c
position. This classification was not required under NGAAP. The changes in retained earnings under IFRS arose
from the reversal of impairment charges on loans and advances to customers and on financial assets recognised
under NGAAP. The respective financial assets have subsequently been measured in line with IAS 39 and
appropriate adjustments passed. See explanations on differences arising from measurement above.
99
31 December 2012
Notes to the reconciliation of Statement of comprehensive Income
c,a
The application of effective interest rate to loans and advances resulted in reclassification from fee income to
interest income. In addition, additional interest raised on staff loans on application of market rate, as well as
recognition of interest on impaired loans in line with IFRS gave rise to an increase in interest income.
c,b
Impairment charges on credit losses and investments decreased due to the application of the incurred loss model
and the collective impairment on performing loans and reversal of impairment charge on TBPIC.
c,c
Employee benefit expense adjustments relate to amortization of staff benefits imbedded in staff loans granted at
concessionary rates. The prepaid staff benefits are usually held as other assets in the statement of financial
position, but amortized systematically to income as part of personnel expenses.
c,d
position.
Notes to the Statement of cashflow
(a) The cash flow statement has been prepared under IAS 7, using the indirect method.
(b) Under Nigerian GAAP, the Bank classifies cash flows relating from the acquisition or sale (and redemption) of
investment securities as investing cash flows. Under IFRS, the cash flows from trading are considered part of the
principal revenue producing activities of the Bank, and are therefore classified as operating cash flows. Cash
flows associated with non-trading debt and equity securities at fair value continue to be classified as investing
activities.
(c) Under IFRS, only call deposits and other short-term investments that are readily convertible to a known amount
of cash and subject to insignificant risks of changes in value due to the short maturities thereof (three months or
less from the date of acquisition) are classified as cash and cash equivalents. Under Nigerian GAAP, all treasury
bills are classified as cash and cash equivalents. Under IFRS, only treasury bills with a maturity of three months
or less are classified as cash and cash equivalents in the consolidated cash flow statements under IFRS.
100
31 December 2012
STATEMENT OF VALUE ADDED
2012
N'million
2011
%
N'million
Gross income
158,764
68,155
Interest paid
(45,110)
(21,527)
113,654
46,628
(12,342)
15,260
Bought-in materials and services
(34,685)
(20,682)
Value added
%
66,627
100
41,206
100
46,957
70
16,970
41
2,578
4
1,321
3
9,286
14
3,571
9
7,805
12
19,344
47
66,627
100
41,206
100
Distribution
Employees
-
Salaries and benefits
Government
-
Income tax
Retained in the Bank
-
Asset replacement (depreciation &
amortisation)
- Expansion (transfers to reserves)
101
31 December 2012
FIVE YEAR FINANCIAL SUMMARY
Assets:
Cash and balances with the central bank
Treasury bills and other eligible bills
Investment Securities: available-for-sale
Investment Securities: loans and receivables
Pledged assets
Property and equipment
Intangible assets
Deferred income tax asset
Other assets
Financed by:
Share capital
Share premium
Retained earnings
Other reserves
Deposits from banks
Deposit for shares
Borrowings
Provisions
Current income tax
Deferred income tax liabilities
Other liabilities
Acceptances and guarantees
2012
N'million
2011
N'million
IFRS
2010
N'million
112,323
120,078
546,873
23,394
228,576
78,116
109,334
2,744
59,387
103
6,005
38,382
1,325,315
86,919
116,597
410,150
32,812
249,272
74,159
18,600
67,131
820
4,709
23,889
1,085,058
19,437
100,514
225,369
6,821
26,036
3,949
17,487
19,440
155
2,729
22,041
443,978
9,524
15,116
73,490
183,719
6,000
15,38721,382
1,073
29,971
355,662
18,768
21,247
162,467
144,917
8,902
22,155
18,818
35,192
432,466
9,241
115,961
(19,705)
48,131
1,043,213
21,489
58,883
1,279
1,581
45,242
13,960
84,799
(64,532)
41,135
890,425
10,116
64,409
1,502
1,290
1,548
40,406
6,940
54,119
(11,188)
15,676
342,379
710
3,776
502
18
329
30,717
3,609
11,917
(2,861)
14,503
243,831
17,147
46,366
4,576
213
16,361
3,609
11,917
1,727
14,503
310,714
23,913
45,070
3,269
752
283
16,709-
1,325,315
1,085,058
443,978
355,662
432,466
-
-
-
93,723
173,366
55,156
(898)
893
(5)
IFRS
2009
2008
N'million
N'million
N-GAAP
158,764
5,227
2,578
7,805
68,155
18,023
1,321
19,344
58,313
2,120
(501)
1,619
N-GAAP
59,864
(5,944)
1,356
(4,588)
Earnings/(Loss) per share (Basic)
42k
69k
12k
(1k)
(0k)
Number of business offices
511
578
256
256
240
Gross earnings
Profit /(Loss) before taxation
Income tax
Profit/(Loss) after taxation
102

ECOBANK NIGERIA LIMITED

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