New 2012 Annual Reports - Safetrust Mortgage Bank · PDF fileINSTITU High Our Vision To be THE first choice primary mortgage TION in nigeria Our Mission To be AN innovative and efficient

Our Vision

To be THE first choice

primary mortgage

INSTITUTION in nigeria

Our Mission

To be AN innovative and

efficient primary

mortgage

institution

Our Value

Integrity

Team work

Mutual respect

Highest professional

standard

Our strategic priorities

Growth

Service

Excellence

management

SAFETRUSTSAVINGS + LOANS LTD

...real mortgage, built to last

SAFETRUST SAVINGS AND LOANS LIMITED

Annual Report and Accounts

for the year ended 31 December 2012

1



CO

NT

EN

TS Vision/Mission/Strategic Priorities/Value

Overview of Safetrust 2 - 3

Notice of Annual General Meeting 4

Financial Highlights 5

Directors, Officers and Professional Advisers 6

Result at 7

Chairman’s Statement 8 - 12

Managing Director’s Report 13 - 14

Board of Directors 15

Director’s Report 16 - 18

Independent Auditor’s Report 19

Financials:

Statement of Profit or Loss Account 20

Statement of Other Comprehensive Income 21

Statement of Financial Position 22

Statement of Changes in Equity 23

Statement of CashFlow 24

Note to the Financial Statements 25 - 81

Statement of Value Added 82

Financial Summary 83

Proxy Form/ Admission Card 84 - 85




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OVERVIEW OF SAFETRUST SAVINGS AND LOANS LIMITED

HISTORY OF SAFETRUST

Safetrust Savings and Loans Limited is a leading Primary Mortgage Institution (PMI) and an accredited

institution by the Federal Mortgage Bank of Nigeria (FMBN) for the disbursement of the National Housing

Fund (NHF) loan to contributors. Incorporated in May 1992, the company commenced operations in

September 1993 at its registered office located at 18, Keffi Street Ikoyi, Lagos.

The bank has a diversified ownership structure with its shares owned by institutional investors and influential

businessmen and women as well as professionals in various fields of endeavor all with a common goal of

providing first-class mortgage banking services to its customer.

After over ten years of operation and in furtherance of the aspirations of management and shareholders

towards re-positioning the company for greater challenges, a core investor possessed of the requisite

technical and financial background was sought. This desire culminated in the acquisition of 49% of the

company's shareholding by Magnum Trust Bank Plc in 2004.

Following the consolidation of Magnum Trust Bank Plc into Sterling Bank Plc which comprised of NAL Bank

Plc, Trust Bank of Africa Plc, NBM Bank Plc and Indo-Nigeria Bank Limited, Safetrust Savings and Loans

Limited is now an affiliate of Sterling Bank Plc.

Taking a proactive position, the company in June 2007 upon the consent of its shareholders, increased its

authorized and issued share capitals from 200,000,000 & 102,403,000 to 450,000,000 & 375,023,000

respectively. Further, on 6th of December, 2007 the bank in view of its increasing business portfolio increased

its share capital from N450,000,000.00 to N1,000,000,000 by the creation of additional N550,000,000 which

was registered at the Corporate Affairs Commission and fully issued to new investors and shareholders

whose confidence in the growth of the bank is unwavering.

In a bid to further accommodate the interest of its increasing shareholders, the Bank increased its authorized

and issued share capital from 1,000,000,000.00 to 1,067,500,000.00 and recently in March 2013, to

1,600,000,000.00 in which N1,067,500,000.00 was also allotted and registered at the Corporate Affairs

Commission in March, 2009.

In readiness for the CBN recapitalization exercise on the Mortgage Banking industry, the Bank shareholders

fund as at year end 2012 is N2,016,000,000.00. Safetrust Savings & Loans Limited is presently working on

the acquisition of some suitable houses and raising additional capital by way of right issues and private

placement from institutional investors to further increase its share capital/shareholders funds to at least

N5Billion.

In pursuit of its mission of providing comfortable and affordable housing for Nigerians, Safetrust Savings and

Loans Limited has financed various housing estates in different parts of Lagos among which are:

? 12 units of detached bungalows in Warewa, along Lagos- Ibadan Expressway.

? 24 units of 3 bedroom flats at Amuwo Odofin, Lagos.


...real mortgage, built to lastAnnual Report & Financial Statements




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? 9 units of 3 bedroom and 3 units of 4 bedroom apartments in Aba Johnson, Ikeja Lagos.

? 6 units of 3 bedroom apartment, situated in Ikeja Lagos.

? 4 units of 4 bedroom Terrace apartments and 4 units of 3 bedroom flats in Lekki, Phase 1 Lagos

also known as Hamilton Greenville Estate.

? 6 units of 3 bedroom flats and 5 units of 4 bedroom terrace houses also situated in Lekki Phase

1 and known as Aida Ville Estate.

? The bank recently fully financed the construction and development of a massive 112 units of

block of 3 bedroom flats and block of 4 bedroom flats known as Safecourt Apartments.

Principally, the bank engages in the creation of mortgages as well as the provision of mortgage finance

facilities to our target market. We offer various mortgage banking services including variety of savings

schemes geared towards long-term benefits such as homes ownership with a view to complementing the

National Housing Policy of the Federal Government of Nigeria.

We also engage in other auxiliary finance and housing activities including:

? Financial Advisory Services for Real Estate Construction and Mortgages;

? Funds Placements;

? Loan Syndication related to our primary objectives;

? Real Estate Construction Finance related to our primary objectives

Locations

Head Office: 18 Keffi Street off Awolowo Road, Ikoyi Lagos.

Abuja Office: 4th Floor, ITF House, No. 6 Adetokunbo Ademola Crescent, Maitama, Abuja.

Ikeja Office: 109a Allen Avenue, Ikeja Lagos.






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NOTICE OF ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that the 22nd Annual General Meeting of Safetrust Savings and Loans Limited

will be held at Colonades, 3rd Floor, 21 Alfred Rewane Road (Formerly Kingsway Road), Ikoyi Lagos on

Thursday, 27th day of June, 2013 at 12:00 noon to transact the following business:

ORDINARY BUSINESS

1. To receive the Audited Financial Statements for the period ended 31st December, 2012 together with

the Reports of Directors and Auditors.

2. To re-appoint the Auditors.

3. To authorize the Directors to fix the remuneration of the Auditors.

4. To declare dividend.

5. To approve the remuneration of Directors.

NOTES:

PROXY

A member entitled to attend and vote at the General Meeting is entitled to appoint a proxy to attend and vote

in his/her stead. A proxy need not be a member of the Company. A blank Proxy form is enclosed and if

intended to be used, it should be duly completed and returned to the Company not less than 48 hours prior to

the time of the meeting.

BY ORDER OF THE BOARD

Gbenga Adetola

FRC/2013/NBA/00000002822

Company Secretary

18, keffi Street, Ikoyi

Lagos.

DATED THIS 4TH DAY OF JUNE, 2013






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For the year ended 31 December 2012






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COMPANY REGISTRATION NO: RC 203646

DIRECTORS, PROFESSIONAL ADVISERS, ETC.

DIRECTORS: Akin Opeodu - Chairman

Yinka Adeola - Managing Director

Danjuma Saleh - Director

Adekunle Oki - Director

Abdulrazaq Isa - Director

Capt. Harrison Kuti - Director

Femi Adeyanju - Director

Tunji Ogunwusi - Director

Akintayo Oloko - Executive Director

SECRETARY: Gbenga Adetola

REGISTERED OFFICE: SAFETRUST CENTRE

18, Keffi Street, Ikoyi, Lagos

AUDITORS: Akintola Williams Deloitte

(Chartered Accountants)

235 Ikorodu Road, Lagos

BANKERS: Unity Bank Plc

Sterling Bank Plc

Skye Bank Plc






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RESULTS AT A GLANCE

Major profit and loss account items for the year ended 31 December:

2012 2011 %

= =

(De creas e)

Gross income 2,386,825 1,665,093 43

Impairment charge on risk assets (212,259) (110,579) 92

Expenses 503 ,594 412,816 22

Profit before taxa t i on 54 2,070 143,094 279

Profit after taxati o n 40 4,651 117,458 245

Total Comprehensive inco me 404 ,828 11 7,605 244

--------------------------------------------------------------------------------------------------------------------

Major balance sheet items as at 31 December

Mortgage Loans and advances 4,782,117 4,858,808 (2)

Deposits from customer 970,655 828,560 17

Total assets 11,868,816 12,301,257 (4)

Share capital 1,067,500 1,067,500 -

Shareholders' funds 2,017,324 1,694,878 19

--------------------------------------------------------------------------------------------------------------------

Per =N1 share data (Basic):

Earnings 37.91 11

--------------------------------------------------------------------------------------------------------------------

Number of employees 57 55






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Chairman Statement

WELCOME

Fellow Shareholders, Invited Guests, Gentlemen of the Press, Distinguished Ladies and Gentlemen;

I consider it an honour and privilege to welcome you all to the Annual General Meeting (AGM) of Safetrust Savings & Loans Limited- an institution whose track record fills everyone with pride and distinction. In my capacity as the Chairman of this great institution, I shall be presenting to you the Annual Report and Financial Statements for the financial year ended December 31, 2012.

THE GLOBAL ECONOMY

The global economy witnessed unprecedented political upheaval and economic turmoil. The performance of advanced emerging and developing economies witnessed a divergence in the economic all through 2012. Economic uncertainties is still unleashed by the global financial crises sustained the weak recovery of the advanced economies. As a result, growth was better compare to that of 2011 sluggish growth and concerns about inflation were dominant on account of the rising oil and commodity prices in the international markets and fears of fiscal stress in the years ahead. On the other hand however, robust economic growth was recorded in emerging markets and developing economies based essentially on strong domestic demand which offset weak export demand. Financial market conditions in the advanced economies were, however, more stable than in the preceding two years while some emerging economies were confronted with challenges posed by large volatile capital inflows.

A new report by Global Financial Integrity (GFI), titled ‘Developing Countries: 2001-2010’ revealed that

developing countries lost $5.86 trillion in illicit financial flows from 2001-2010. Illicit financial flows includes the

proceeds of crime, corruption, and tax evasion, reached record high levels in 2010, after briefly dipping

during the global financial crisis.

The report revealed that crime, corruption and tax evasion amounted to nearly $6 trillion from poor countries

within the decade and $859 billion just in 2010. Raymond Baker, GFI director, said, “ astronomical sums of

dirty money continue to flow out of the developing world and into offshore tax havens and banks in

developed countries. Developing economies are hemorrhaging money at a time when rich and poor

nations alike are struggling to spur economic growth. This report should be a wake-up call for world leaders

that more must be done to address these harmful outflows.”

It is appropriate however, at this outset, to review the business environment within which our bank operated during the period. Such a review is appropriate and most pertinent, given the fact that the period was marked by interplay of external and domestic socio-economic issues that impinged significantly on local businesses in general and the banking industry.

Rupee slide to a 3-decade low due to rising import bill and slowing export growth. For these rising

powerhouses of the global economy, the near-term focus will be on crafting appropriate responses to drop in

domestic demand and import orders from advanced economies while dealing with volatile capital flows.

In sub- Saharan Africa, Africa has been a major exception to the global trend: it is estimated to have grown by

4.9% in 2012. The impact of the global slowdown on sub-Saharan Africa to date been limited to a few






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This means that economic growth in most countries of the region have largely bounced back to nearly their pre- crises levels. The IMF in its 'Regional Economic Outlook' for the region in September, 2012 attributed the resilience to sound economic policy implementation. Such policy regimes were characterized by low inflation,

It is appropriate however, at this outset, to review the business environment within which our bank operated during the period. Such a review is appropriate and most pertinent, given the fact that the period was marked

by interplay of external and domestic socio-economic issues that impinged significantly on local businesses in general and the banking industry.

According to Reuters, there will only be a slight improvement in the global economy in 2013. After reaching

3.1 percent in 2012, world economic growth is expected to hit 3.4 percent in 2013. However, much will hinge

on whether China has the largest economy, can pull out of its downturn, and if the euro zone can contain its

prolonged debt crisis. A few big risks have been cited that could adversely impact the growth rate of the global

economy in 2013, such as the prospect of deep spending cuts in the US, the so-called fiscal cliff, which would

immediately dampen growth unless politicians agree a deal to avert it; and the on-going euro sovereign

debt crisis

According to the World Bank, remittances have become an important source of capital and foreign exchange

inflows for developing countries. Officially recorded remittances to developing countries were expected to

reach $406 billion in 2012, up from $381 billion in 2011. The World Bank estimates that the true size of

remittance flows, including unrecorded flows through formal and informal channels, is significantly higher.

Compared with private capital flows, remittance flows have shown remarkable resilience since the global

financial crisis, registering only a modest fall in 2009, followed by a rapid recovery. The size of remittance

flows to developing countries is now more than three times that of official development aid.

The top recipients of remittances in 2012 were India ($70bn), China ($66bn), the Philippines ($24bn), Mexico ($24bn), and Nigeria ($21bn). Others are Egypt ($18bn), Pakistan ($14bn), Bangladesh ($14bn), Vietnam ($9bn), and Lebanon ($7bn). For Nigeria, the size of its 2012 remittance inflow, amounts to about 7.7 percent of GDP in 2012 and nearly 50 percent of the CBN’s foreign exchange reserves. World Bank research shows that the cost of sending remittances is a key driver of remittance flows. Consequently, reducing the cost of sending remittances has been identified as a key policy objective to facilitate these flows.

Sub-Saharan Africa is the most expensive region to send remittances to, with a transfer costing about 12.4 percent

1 of the amount transferred. This is almost twice the corresponding cost of 6.5 percent for South

Asia. The World Bank stated that although channeling international remittances through mobile phones has the promise of expanding access and lowering costs, this service is yet to take off.

Growth in the region, according to the IMF was also driven by strong domestic demand as a result of rising real incomes and sustained private and public investment. Also, exports benefited from increased reorientation of trade towards fast-growing markets in Asia. However, the legacy of the global financial crises remained evident in most countries of the region as reflected in macroeconomic indicators. Unemployment rose substantially in countries with more developed manufacturing sectors; fiscal balances deteriorated particularly in middle-income countries and oil exporters. Exports had not climbed up to pre-crisis levels, just as credit growth remained subdued.






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DOMESTIC ECONOMY

The International Monetary Fund (IMF) predicted a real Gross Domestic Product (GDP) of 6.7 percent for

Nigeria in 2013. The 2013 growth projection is 0.8 percent lower than 7.5 per cent average growth for

other oil rich African countries (namely Angola, Equatorial Guinea, Gabon and Republic of Congo) and

1.0 percent higher than 5.7 percent average growth rate for the rest of sub-Saharan Africa (SSA). The

IMF sated that the economic activity in the SSA region had expanded by more than 5.0 percent in each of the

past three years, continuing a decade-long run of strong performance, which was only briefly interrupted by

the global downturn in 2009.

Nigeria’s consumer inflation rose to its highest in four months in November, as the impact of the countries

worst flooding in 50 years pushed up the cost of food. According to the National Bureau of Statistics (NBS),

headline inflation increased to 12.3 percent year-on-year in November, from 11.7 percent in October. Food

inflation, the biggest contributor to the consumer index, rose to 11.6 percent year-on-year in November, from

11.1 percent in October. Higher food prices continue to reflect the impact of recent floods on the

production of farm produce and the resulting difficulty of moving food products to markets across the country.

Core inflation, which excludes volatile agriculture items, rose to 13.6 percent year-on-year in November, from

12.4 percent in October.

In November, Standard & Poor’s (S&P) upgraded its long-term foreign and local currency sovereign credit

rating on Nigeria to ‘BB-‘, from ‘B+’ because of improved financial stability. S&P also affirmed its 'B' foreign-

and local-currency short-term ratings for Nigeria and it raised the long-term national scale rating to

'ngAA-' from 'ngA+'. S&P further noted that foreign currency savings in Nigeria had grown due to the partial

removal of fuel subsidies and higher oil prices. In addition, Nigeria's fiscal assets in its excess crude account

had risen to about $8.4 billion in October 2012, which provides a reasonable fiscal buffer. Its external reserves

buffer has also been strengthening on the back of high oil prices and strong exports. The government has

sustained reform momentum in several key areas, including cutting the fuel subsidy and reforming the power

sector, and the authorities have restructured and strengthened the previously troubled banking sector. All

these factors resulted in S&P raising its long-term foreign and local currency sovereign credit ratings on

Nigeria by one notch to 'BB-'. S&P however warned that they would consider lowering theratings if fiscal and

external balances deteriorate.

The Economist ‘Pocket world figures 2013 report’ revealed that Nigeria is set to become the fifth largest

country in the world, with an estimated population of 229 million people by 2025. With the looming

reality of the implications of these estimates and projections on the nation's socio-economic activities, the

following questions need to be addressed, what steps

should the government and people take to curb the population boom? In terms of policies and legislations,

what agenda is being drawn up to help cushion the effects the population boom will have on all sectors of the

economy? Combining the current population statistics of the country with almost another hundred million






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more people will lead to a state of chaos by the year 2025, if the government is not fully prepared.

Analysts believe that what the Nigerian economy needs to do to cushion the effects of the population explosion as projected by 2025, is to place more emphasis on the critical sectors of the economy and make them functional. The role of agriculture is crucial in any development strategy Nigeria decides to adopt because changes in that sector can have significant socio-economic effects in the development of the country. As a major employer of labour and income earner, increase in local food production, both commercial and subsistence farming and reduction in imports would go a long way in stabilising the economy. The energy sector is fundamental to driving growth across a number of sectors in the economy. Above all, the issue of security is sacrosanct. The threat to national security, from militancy to armed robbery, kidnapping, assassination has risen. The estimated population growth by 2025 will come with challenges in every sphere of the economy.

Therefore there is the need for a conscious effort to be made by both policy makers and citizens to prevent

the threat that the projected population could bring.

The advent and activities of Boko-Haram, the Islamist fundamentalist group, in the north-eastern part of the federation in 2011 have introduced a new dimension to armed confrontations with public security forces. Suicide bombings indiscriminate attacks on even co- religionists and reports of collaboration with moles in the security agencies have raised serious concerns about the protection of lives and property, sustained attractiveness of Nigeria to foreign investors, and the recovery of the capital market. Tackling this challenge may distract the government from addressing pressing economic and social issues.

The reform policies and development efforts of the CBN impinged on the economy in several ways in 2012.

The apex bank also took initiatives to influence the cost and availability of credit and asset prices as well as encourage credit flow to productive investments.

FINACIAL & REGULATORY DEVELOPMENTS

Agent Banking: In February 2013, the Central Bank of Nigeria launched the approved guidelines for the regulation of agent banking and agent banking relationships in Nigeria, in a bid to promote financial inclusion. Agent banking refers to the delivery of financial services outside conventional bank branches. It entails the use of non-bank retail outlets that rely on technologies such as point-of-sale terminals, mobile phones, amongst others.

Consumer Protection: In November, the Central Bank of Nigeria stated that banks in the country should establish consumer protection units. The CBN Governor, Mallam Sanusi Lamido Sanusi, urged bank directors to approve funds for the establishment of the consumer protection units and ensure that they are well run. Mallam Sanusi said, “We are investing in

the banking industry is helped by increased transparency and consumer confidence. Once people feel that they cannot trust their banks then there is a problem. The banks should have dedicated staff for that focus on consumer issues and respond quickly. We cannot bring people into the financial system only for them to feel cheated and then have no redress mechanisms.”

Customer Identification: Customers can now use their Independent National Electoral Commission

(INEC) voter’s registration cards as a valid means of identification for conducting banking business in

Nigeria. The Central Bank of Nigeria also introduced uniform account opening forms for all deposit money

banks in the country, in line with its vision of promoting financial inclusion in the country. According to the

apex bank, the adoption of a uniform account opening forms is to simplify the process and encourage the






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large numbers of unbanked people to embrace a new financial culture.

FINANCIAL RESULTS

Please permit me to mention that our challenge like any other business in the country has been how to reconcile the drop in domestic demand for credit with the build- up in industry liquidity as a result of CBN’s intervention to protect some industry operators. The fund glut did result in low real estate transaction volume and dwindling margins as the lender failed to lend to project developments and at the same time, consumer finance to buy into available real estate projects seized.

Having said this, we explored opportunities within our environmental constraints and still recorded a cheery

positive performance considering the economic challenges that further attests to the durability and resilience

of the Safetrust brand. We ended the year with total deposits comprises of both customers and bank deposit

of N6.91billion, Gross Earnings of N2.39billion representing a 43.3% increase compared to previous year’s

figure of N1.67billion, Profit after tax increased by 244%, from N117 million in 2011 to N404.2million in 2012.

During the same period, total assets of the Bank also drop marginally by 3.5% per cent, from N12.3billion to

N11.9billion; while shareholders' fund rose by 19.0% Per cent, from N1.69billion to N2.02billion.

DIVIDEND

Because we are committed to delivering value to you- our esteemed shareholders; we have set a good chunk of our recorded profit for our valued investors. The Board is therefore pleased to recommend a dividend payout of N53, 350,000; that is, 5 kobo per share.

APPRECIATION

My dear colleagues on the Board, may I seize this opportunity to express my gratitude and deepest appreciation to you for your support and cooperation that has enabled us deliver on our promise to the Bank, the shareholders and other stakeholders. To my fellow shareholders, please accept our profound appreciation. You have entrusted us with your resources and we reaffirm our undying commitment to give you great value in exchange.

I will also thank the strong management of Safetrust, led by Mr. Yinka Adeola. Your leadership and purposeful directions has taken this great legacy out of the wood toward the path of excellence. I will also not fail to acknowledge the hard work of the entire staff of the Bank.

Most importantly, I am extremely grateful to our dear customers for without you we shall not be here today. What we are doing today is the celebration of your commitment and support for the Safetrust brand. We assure you that you will always come first.

Finally, I will like to thank various regulatory authorities and other partners in the industry including the Central Bank of Nigeria (CBN), Nigeria Deposit Insurance Corporation (NDIC), Federal Mortgage Bank of Nigeria (FBMN) and Mortgage Banks Association of Nigeria (MBAN). Thank you Yours sincerely

Akin Opeodu Chairman FRC/2013/ICAN/00000003128






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MANAGING DIRECTOR’S REPORT

WELCOME

In a year when many financial institutions are still struggling to regain financial ground lost as a result of the

global economic meltdown, a year when CBN banking reforms and the persistent global macro economic

difficulties occasioned through various government stimulus programs have only weakened consumer

demand, Safetrust Savings and Loans Limited found the need to focus on its dedication towards capacity

building, competitive advantage over contemporaries and repositioning itself to leverage on business

opportunities without compromising its core values.

Distinguished Shareholders, it is with great pleasure that I welcome everyone to the 21st Annual General

Meeting of our Bank. As always, this platform affords me the opportunity to run through the bank’s activities

over the past year and the plans for the current year.

COMMITMENT TO EXCELLENCE

Our resolve to continue to be a one-stop mortgage banking shop remains unfettered. This is evident in the

substantial strides made by the banking the year under review, towards human capital development,

upgraded service standards and branch networking.

ACHIEVEMENTS

Towards maintaining our commitment in ensuring housing development in Nigeria and also in readiness for

the imminent regulatory increase in capital base, Safetrust during the financial year under review, has

commenced the road map for recapitalization of the bank to start with a state licence of N2.5billion through

private placement, right issue and merger/acquisition.

NETWORK EXPANSION

We are currently working towards expanding our branch network with more branches anticipated especially

in Lagos.

We have concluded on some improved services charnels and also currently working with some of our

partners to improve our services to customers through availing electronic banking services such as ATM

services, Telephone banking, Internet banking and the likes.

CORPORATE SOCIAL RESPONSIBILITY

Safetrust will continue to demonstrate its commitment towards corporate social responsibility geared at

developing its community. Our focus borders on support for education at all levels and social development in

areas of sports and recreation. We are currently working with some communities for the construction of multi-

purpose town halls.






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CONCLUSION

As a dynamic financial institution, Safetrust will continue to anticipate and respond to

changes in the industry environment. We expect there will be new regulatory requirements

to address these issues and turbulence ahead, however, Safetrust is committed to staying

the course, remaining focused, as we chart the path that lies ahead.

Meanwhile, I want to extend a very special thank you to all shareholders and everyone

present, Board chairman and the always enthusiastic, dedicated and insightful Board

members.

Thank you

Yours sincerely

Yinka Adeola

Managing Director

FRC/2013/CIBN/00000002820



1

5

Mr. Femi AdeyanjuMr. Yinka Adeola Mr. Danjuma Saleh M . q Ir Abdulraza sa

Managing Direc or/CE t O Director Director Director

Mr. Akinmolu Opeodu

Chairman

Capt. Harrison Kuti Mr. Kunle Oki

Director Director Director Executive Director

Mr. Tunji Ogunwuusi Mr. Akintayo Oloko






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REPORT OF THE DIRECTORS

FOR THE YEAR ENDED 31 DECEMBER 2012

The directors submit their report together with the financial statements for the year ended 31 December 2012.

1. RESULTS =N'000

The profit for the year after taxation was 404,651

======

Total comprehensive income 404,828

======

2. LEGAL FORM

The company was incorporated as a private limited liability company on 2 September 1992 and was

licensed as a mortgage institution on 31 December, 1992. It commenced operation in September 1993.

3. PRINCIPAL ACTIVITIES AND BUSINESS REVIEW

The company is licensed by the Central Bank of Nigeria (CBN) and Federal Mortgage Bank of Nigeria to

carry on mortgage business

4. BENEFICIAL OWNERSHIP

The company is owned 100% by Nigerians.

5. DIRECTORS' RESPONSIBILITIES

The directors are responsible for the preparation of financial statements which give a true and fair view of

the state of affairs of the company at the end of each financial year, and of the profit or loss for the year,

and which comply with the Companies and Allied Matters Act, CAP C20 LFN 2004. In so doing they ensure

that:

- Internal control procedures are instituted which, as far as is reasonably possible, safeguard the

assets and prevent and detect fraud and other irregularities;

- Proper accounting records are maintained;

- Applicable accounting standards are followed; - Suitable accounting policies are adopted and consistently applied; - Judgements and estimates made are reasonable and prudent; and

- The going concern basis is used, unless it is inappropriate to presume that the company will continue in business.






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6. DIRECTORS AND THEIR INTERESTS

1 The names of the directors who served during the year are listed on page 6 above

2 Directors’ shareholdings: Number of ordinary shares of

N1 each as at 31 December

2012 2011

Danjuma Saleh 2,233,071 1,884,069

Abdulrazaq Isa 2,233,071 1,884,069

Tunji Ogunwusi 5,926,193 5,000,000

Akintayo Oloko 5,333,574 4,500,000

. 3 Major Shareholders and Units of Shares held:

Shareholders 2012 2011

Units % Units %

Concept Features Ltd 225,195,335 21.10 190,000,000 17.80

Walter Smith & Associates Limited 234,249,888 22.36 197,639,435 18.51

Debyl Limited 118,523,860 11.10 100,000,000 9.31

Whyde & Co. Limited 229,509,603 21.50 193,640,000 18.14

Optimum Innovations Ltd. 59,261,930 5.55 50,000,000 5.00

Hak Air 59,261,930 5.55 50,000,000 5.00

7. CHANGES ON THE BOARD OF DIRECTORS:

There were changes to the board of directors during the year under review, an executive director was appointed and

non executive director resigned from the board due to CBN directives of Banks to divestment their holding in all

subsidiaries and associate companies.

8 DONATIONS AND CHARITABLE CONTRIBUTIONS

The company did not make any donation during the year.

9 POST BALANCE SHEET EVENTS

There were no post balance sheet events which could have had a material effect on the state of affairs of the company

as at 31 December, 2012 and on the profit for the year that had not been adequately provided for.

10 EMPLOYMENT AND EMPLOYEES Fraud & Forgeries

There was no incidence of fraud or forgeries during the year under review.






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10 EMPLOYMENT AND EMPLOYEES (cont'd)

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 to widen their experience and

knowledge and to qualify for promotion in furtherance of their career. As at 31 December 2012 there was no disabled

person in the company's employment.

Employees' 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.

Incentive schemes designed to meet the circumstances of each individual are being implemented whenever

appropriate and some of these schemes include bonus, wages review, promotion, etc.

Management's professional and technical expertise is the company's major assets and investment in developing such

skills continues.

The company's expanding skill-base has extended to a range of training provided and has broadened opportunities

for career development within the organisation.

Health, staff welfare and safety at work

The company places a high premium on its human resources and there is existing provision for staff welfare in the

areas of lunch, rent and transportation subsidy; and medical care for staff and immediate dependants.

The company conducts its activities in a way to take due account of the safety of its employees and other persons and

to give proper regard to the preservation of the environment.

The company has therefore evolved a comprehensive programme of fire prevention, detection and suppression.

11. AUDITORS

In accordance with section 357(2) of the Companies and Allied Matters Act, CAP C20 LFN 2004, the auditors,

Akintola Williams Deloitte having indicated their willingness, will continue in office as auditors of the company. A

resolution will be proposed authorising the directors to determine their remuneration.


GBENGA ADETOLA

COMPANY SECRETARY

LAGOS, NIGERIAth6 MARCH, 2013

FRC/2013/NBA/00000002822




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Independent Auditor’s Report to the Members of SAFETRUST SAVINGS AND LOANS LIMITED

Report on the Financial Statements We have audited the accompanying financial statements of Safetrust Savings and Loans Limited which comprise the statements 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 8 to 63. 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, Banks and other Financial Institutions Act CAP B3 LFN 2004 and 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 Safetrust Savings and Loans Limited as at 31 December 2012 and 31 December 2011 and 1 January, 2011 and of their financial performance and cash flows for the year then ended 31 December 2012 and 31 December 2011 in accordance with International Financial Reporting Standards. Other reporting responsibilities The bank has complied with the requirements of the relevant circulars issued by Central Bank of Nigeria In accordance with circular BSD/1/2004 issued by the Central Bank of Nigeria, details of insider-related credits are as disclosed in note 29.1. No contravention of the Banks and Other Financial Institutions Act CAP B3 LFN 2004 by the Bank came to our knowledge during the year ended 31 December 2012. Chartered Accountants Lagos, Nigeria

FRC/2012/ICAN/00000000845

17th May, 2013

Finan

cia

sl




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STATEMENT OF PROFIT OR LOSS ACCOUNT

2012 2011

Note N '000 N '000

Interest income 5 1,847,542 1,468,984

Interest expense 6 (1,106,586) (973,071)

Net interest income 740,956 495,913

Fee and commission income 7 26,864 70,573

Net Fee and Commission Income 26,864 70,573

Other operating income 8 512,419 125,536

Impairment Allowance -Financial Asset 9 (183,850) (109,943)

Impairment Allowance -Non-Financial Asset 9 (28,409) (636)

Net impairment Allowance charge (212,259) (110,579)

Operating Income 1,067,980 581,443

Depreciation and amortization expenses 10 (22,316) (25,533)

Personnel cost 33 (83,810) (91,416)

General and administrative expense. 33 (363,231) (234,484)

Other operating expenses 33 (56,553) (86,916)

Profit before income tax 542,070 143,094

Income tax expense 11 (137,810) (25,636)

Profit for the year 404,260 117,458

Earnings per share (kobo)- Basic 12 37.87 11.00






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STATEMENT OF OTHER COMPREHENSIVE INCOME

2012 2011

Note N '000 N '000

PROFIT FOR THE YEAR 404,260 117,458

Other comprehensive income

Fair value gains/(losses) on available-for-sale Investment 27 177 147

TOTAL COMPREHENSIVE INCOME FOR THE YEAR 404,437 117,605






STATEMENT OF FINANCIAL POSITION

31 December 31 December 1 January

2012 2011 2011

Note N '000 N '000 N '000

ASSETS

Cash & Cash Equivalents 13 5,982,919 7,351,358 10,023,056

Financial Assets:

Mortgage Loans and other receivables 14 4,782,117 4,858,808 4,419,617

Available for sale-Investment Securities 15 1,109 932 785

Non-Financial Assets:

Other assets 16 73,903 45,479 41,570

Intangible assets 17 1,022 - -

Investment property 18 1,000,184 - -

Property, plant and equipment 19 27,562 44,680 63,714

Total assets 11,868,816 12,301,257 14,548,742

LIABILITIES

Deposits from customers 20 970,655 828,560 1,148,099

Due to National Housing Fund 22,068 5,811 6,609

Financial Liabilities:

Borrowings 21 5,938,069 7,297,160 9,499,403

Debt Securities in Issue 21 2,639,126 2,315,616 2,000,000

Non-Financial Liabilities:

Current income tax liability 11 30311 34,075 143,937

Other liabilities 23 111,822 116,845 100,447

Deferred tax 24 139,832 8,311 10,687

Total liabilities 9,851,883 10,606,378 12,909,183

EQUITY

Share capital 25 1,067,500 1,067,500 1,067,500

Share premium 26 2,180 2,180 2,180

Statutory reserves 27.1 260,604 179,752 156,261

Retained earnings 27 686,325 445,300 413,618

Other reserves 27.2 324 147 -

Total equity 2,016,933 1,694,879 1,639,559

Total equity and liabilities 11,868,816 12,301,257 14,548,742

The financial statements were approved by the Board of Directors on 6 March, 2013 and signed on its behalf by :

______________________________

Yinka Adeola Managing Director FRC/2013/CIBN/00000002820

_____________________________

Kayode Idowu Chief Financial Officer FRC/2013/ICAN /00000002819

______________________________

Akin Opeodu Chairman



FRC/2013/ICAN/00000002822




23

STATEMENT OF CHANGES IN EQUITY

Fair value

on

available-

Share

Share Statutory

Retained

for-sale

Total

Capital Premium

Reserves

Earnings

Investment

Equity

N'000 N'000 N'000 N'000 N'000 N'000

Balance at 1 January 2012 1,067,500 2,180 179,752 445,300 147 1,694,879

Effect of transition to IFRS - - - (82,383) - (82,383)

As restated 1,067,500 2,180 179,752 362,917 147 1,612,497

Profit for the year - - - 404,260 - 404,437

Other comprehensive income for the year - - - - 177 -

Transfer from retained earnings to statutory

reserves - - 80,852 (80,852) - -

Total comprehensive income for the year 80,852 323,480 177 404,437

Dividends - - - - - -

- - - - - -

Balance at 31 December 2012 1,067,500 2,180 260,064 686,325 324 2,016,933

Fair value

on

available-

Share Share Statutory Retained for-sale Total

Capital Premium Reserves Earnings Investment Equity

N'000 N'000 N'000 N'000 N'000 N'000

Balance at 1 January 2011 1,067,500 2,180 156,260 413,619 - 1,639,559

Effect of transition to IFRS - - - (8,910) - (8,910)

As restated 1,067,500 2,180 156,260 404,708 - 1,639,649

Profit for the year 117,458 147 -

Other comprehensive income for the year - - - - - -

Transfer from retained earnings to statutory

reserves - - 23,492 (23,492) - -

Total comprehensive income for the year - - 23,792 93,966 147 117,605

Dividends - - - (53,375) - (53,375)

- - - (53,375) - (53,375)

Balance at 31 December 2011 1,067,500 2,180 179,752 445,300 147 1,694,879



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STATEMENT OF CASHFLOW

31 December 31 December

2012 2011

Notes N '000 N '000

Cash flows from operating activities

Profit before tax 542,070 117,458

Adjustment for:

Depreciation 10

19,963 25,533

Amortization 10

2,353 -

Impairment loss 9 212,259 110,579

Fair value gain on investment property (452,582) -

Operating profit before changes in operating assets 324,063 253,569

Income tax paid 11 (10,053) (33,227)

Loans advanced 14 76,691 (439,191)

Other assets 16 (28,424) (4,545)

Other liabilities 23 5,023 16,399

Deposits from customers 20 142,094 (2,376)

National housing fund 16,257 (798)

Net cash flows from operating activities 525,652 (210,170)

Cash flows from investing activities

– Dividend received 8 50 152

– Purchase of intangible assets 17 (3,375) -

– Purchases of investment property 18 (547,602) -

– Purchase of property, plant and equipment 19 (2,845) (5,796)

Net cash flows from/ (Used in) investing activities (553,772) (5,644)

Cash flows from financing activities

– Repayments of borrowings 21 (1,286,742) (2,156,783)

- Dividend paid 27 (53,575) (53,375)

Net cash flows used in financing activities (1,340,314) (2,210,010)

Net (decrease)/increase in cash, cash equivalents and

bank overdrafts (1,368,439) (2,425,971)

Cash, cash equivalents and bank overdrafts at 1 January 7,351,358 9,777,329

Cash and cash equivalents at 31 December 5,982,919 7,351,358






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NOTES TO THE FINANCIAL STATEMENTS

1. General Informat io n Safetrust Savings and Loans Limited is a leading Primary Mortgage Bank (PMB) accredited by the Federal Mortgage Bank of Nigeria (FMBN) for the disbursement of the National Housing Fund (NHF) to Contributors. Incorporated in May 1992, the Bank commenced operations in September 1993 at its registered office located at 18, Keffi Street Ikoyi, Lagos. The Bank has a diversified ownership structure with its shares owned by institutional investors, influential businessmen and women, as well as professionals in various fields of endeavour all sharing a common resolve of providing first-class mortgage banking services to its customer. In July 2004, the Bank in line with its aspirations of aligning and positioning itself for greater opportunities and challenges, sought an investor with requisite technical and financial background for investment in the Bank. This led to the acquisition of 49% of the Bank’s shareholding by Magnum Trust Bank Plc (now Sterling Bank Plc).and by so doing affiliated the Safetrust Savings and Loans Limited with Sterling Bank Plc. In 2008, the Bank increased its authorized and issued share capital from 450,000,000 & 375,023,000 to 1,000,000,000 & 1,000,000,000 respectively and by March, 2009, the Bank’s authorized and issued share capital had grown to N1,067,500,000. In compliance with the recent divestment policy by the Central Bank of Nigeria (CBN) that directs all commercial banks to divest their interest/shareholdings from subsidiaries and affiliates; in 2011, Sterling Bank Plc fully divested its interest/shareholdings from Safetrust Savings and Loans Limited. The Bank, through its Board and Management is working on increasing its share capital to enable it remain an active player in the mortgage banking business in Nigeria. Composition of financial statemen t s The financial statements are drawn up in naira, the functional currency of Safetrust Savings and Loans in accordance with IFRS accounting presentation. The financial statements comprise: 1. Statement of profit or loss and other comprehensive income

Statement of Financial Po s it i o n Statement of Changes in E q u ity

2. 3. 4. Statement of Cas h f l o w s

5. Notes to the Financial Statements. 6. Statement of Value Added 7. Financial Summa r y Accounting conve n t i o n The financial statements have been prepared using the historical cost convention, as modified by the revaluation of certain items, as stated in the accounting policies. Financial p e r i od These financial statements cover the financial year from 1 January to 31 December 2012, with comparative figures for the financial years from 1 January to 31 December 2011. 1.1 Statement of compliance with international financial reporting standards

These financial statements have been prepared in Accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).



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NOTES TO THE FINANCIAL STATEMENTS 2 Adoption of new and revised stan d a r d s 2.1 Accounting standards and interpretations issued but not yet effective The following contains effective dates of new and revised International Financial Reporting Standards and International Accounting Standards which have not been early adopted by the company and that might affect future reporting p e r i o d s. IFRS 9 FINANCIAL INSTRUMEN T S IFRS 9 introduces new requirements for classifying and measuring financial assets. At the IASB's July 2011 meeting, the IASB decided to postpone the mandatory application of IFRS 9 to annual periods beginning on or after 1 January 2013 with early application still permitted.

IFRS 13 FAIR VALUE ME A S U RE MENTIFRS 13 applies when another IFRS requires or permits fair value measurements or disclosures about fair value measurements (and measurements, such as fair value less costs to sell, based on fair value or disclosures about those measurements), IFRS 13 is applicable to annual reporting periods beginning on or after 1 January 2015. An entity may apply IFRS 13 to an earlier accounting period, but if doing so it must disclose the fact. IAS 19: EMPLOYEE BEN E F I T S The standard was amended which will affect Post-Employment Benefits and Termination Benefits projects and introducing enhanced disclosures about defined benefit plans. Amendments made in June 2011 and effective for annual periods beginning on or after 1 January 2013. 2.2 Early adoption of Standards and Interpretations The company has not early adopted any standards or interpretations during the current year 2.3 Standards and Interpretations effective in the current year The following new and revised Standards and interpretations have been adopted in the current year and have primarily affected the disclosure in these financial statements IAS 1- Presentation of Financial Statemen t s : An amendment was issued to revise the way other comprehensive income is presented in January 2011. Effective for annual periods beginning on or after December 2011.






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NOTES TO THE FINANCIAL STATEMENTS 3. Basis of preparation

The accounting policies set out below have been applied consistently to all periods presented in these financial statements.

(a) Functional and presentation currency These financial statements are presented in Nigerian Naira, which is the Bank’s functional currency.

Except where indicated, financial information presented in Naira has been rounded to the nearest thousand.

(b) Basis of measurement

These financial statements have been prepared on the historical cost basis except for the following:

Available-for-sale financial assets are measured at fair value. Investment Property is measured at fair value. Assets and liabilities held for trading are measured at fair value

3.1 Use of estimates and judgments

The preparation of the financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in any future periods affected.

Information about significant areas of estimation uncertainties and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements will be described in the notes

3.2 Special purpose entities Special purpose entities (SPEs) are entities that are created to accomplish a narrow and well-defined

objective such as the securitisation of particular assets, or the execution of a specific borrowing or Lending transaction. An SPE is consolidated if, based on an evaluation of the substance of its relationship with the Bank and the SPE’s risks and rewards, the Bank concludes that it controls the SPE. The following circumstances may indicate a relationship in which, in substance, the controls and consequently consolidates an SPE:

• The activities of the SPE are being conducted on behalf of the Bank according to its specific business

needs so that the Bank obtains benefits from the SPE’s operation. • The Bank has the decision-making powers to obtain the majority of the benefits of the activities of the

SPE. • The Bank has the rights to obtain the majority of the benefits of the SPE and therefore may be

exposed to risks incident to the activities of the SPE.

• The Bank retains the majority of the residual or ownership risks related to the SPE or its assets in order to obtain benefits from its activities.






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3.3 Income recognition

Interest income

Interest income and expense are recognised in profit or loss using the effective interest method. The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability (or, where appropriate, the next repricing date) to the carrying amount of the financial asset or liability. When calculating the effective interest rate, the Bank estimates future cash flows considering all contractual terms of the financial instruments but not future credit losses. The calculation of the effective interest rate includes contractual fees and points paid or received transaction costs, and discounts or premiums that are an integral part of the effective interest rate. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or liability. Interest income and expense presented in the Income statement include:

Interest on financial assets and liabilities measured at amortised cost calculated on an effective

interest rate basis.

Interest on financial assets measured at fair value through profit or loss calculated on an effective interest rate basis

Fees and commission Fees and commission income and expenses that are integral to the effective interest rate on a financial asset or liability are included in the measurement of the effective interest rate. Other fees and commission income, including loan account servicing fees, commitment and arrangement fee, investment management and other fiduciary activity fees, sales commission, placement fees and syndication fees, and other agency fee on project finance account which are determine by management are recognized as the related services are performed. When a loan commitment is not expected to result in the draw-down of a loan, loan commitment fees are recognised on a straight-line basis over the commitment period. Other fees and commission expense relates mainly to transaction and service fees, which are expensed as the services are received.

Dividend income Dividend income is recognised when the right to receive income is established. Dividends on trading equities are reflected as a component of net trading income (when any). Dividend income on long term equity investments is recognised as a component of other operating income.



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3.4 Leases Leases are accounted for in accordance with IAS 17 and IFRIC 4. They are divided into finance leases and operating leases.

(a) The Bank is the lessee

i. Operating lease Leases in which a significant portion of the risks and rewards of ownership are retained by

another party, the lessor, are classified as operating leases. Payments, including prepayments, made under operating leases (net of any incentives received from the lessor) are charged to 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 recognised as an expense in the period in which termination takes place.

ii. Finance lease Leases, where the Bank has substantially all the risks and rewards of ownership, are classified as

finance leases. Finance leases are capitalised at the lease’s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding.

The corresponding rental obligations, net of finance charges, are included in deposits from banks or deposits from customers or other liabilities depending on the counter party. The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for the period. The investment properties acquired under finance leases are measured subsequently at their fair value.

(b) The Bank is the lessor

When assets are held subject to a finance lease, the present value of the lease payments is recognised as a receivable. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. Lease income is recognised over the term of the lease using the net investment method (before tax), which reflects a constant periodic rate of return.

3.5 Income Tax

(a) Current income tax Income tax payable is calculated on the basis of the applicable tax law and is recognised as an

expense for the period except to the extent that current tax related to items that are charged or credited in other comprehensive income or directly to equity. In these circumstances, current tax is charged or credit to other comprehensive income or to equity (for example, current tax on of available-for-sale investment).

Where the Bank has tax losses that 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 consolidated statement of financial position.

The Bank evaluates positions stated in tax returns; ensuring information disclosed are in agreement with the underlying tax liability, which has been adequately provided for in the financial statement.

(b) Deferred income tax Deferred income tax is provided in full, using the liability method, on temporary differences arising

between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the date of the statement of financial position and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.






30


The principal temporary differences arise from depreciation of property, plant and equipment, revaluation of certain financial assets and liabilities including derivative contracts (if any), provisions for pensions and other post-retirement benefits and carry-forwards; and, in relation to acquisitions, on the difference between the fair values of the net assets acquired and their tax base.

However, the deferred income tax is not recognised for:

• temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;

• temporary differences related to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future; and

• temporary differences arising on the initial recognition of goodwill.

Deferred tax assets are recognised when it is probable that future taxable profit will be available against which these temporary differences can be utilised. Deferred income tax is provided contemporary differences arising from investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Bank and it is probable that the difference will not reverse in the foreseeable future. The tax effects of carry-forwards of unused losses or unused tax credits are recognised as an asset when it is probable that future taxable profits will be available against which these losses can be utilised.

Deferred tax related to fair value re-measurement of available-for-sale investments and cash flow hedges, which are recognised in other comprehensive income, is also recognised in the other comprehensive income and subsequently in the consolidated income statement together with the deferred gain or loss. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities against current tax assets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

3.6 Financial assets and liabilities

(i) Recognition The Bank initially recognises loans and advances, deposits, debt securities issued and subordinated

liabilities on the date that they are originated. All other financial assets and liabilities (including assets and liabilities designated at fair value through profit or loss) are initially recognised on the trade date at which the Bank becomes a party to the contractual provisions of the instrument. All financial instruments are measured initially at their fair value plus transaction costs, except in the case of financial assets and financial liabilities recorded at fair value through profit or loss. Subsequent recognition of financial assets and liabilities is at amortised cost or fair value. When the transaction price differs from the fair value of other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data observable from markets, the bank immediately recognises the difference between the transaction price and fair value (a ‘Day 1’ profit or loss) in ‘Net gains/ (losses) on financial instruments classified as held for trading’. In cases where fair value is determined using data which is not observable, the difference between the transaction price and model value is only recognised in the income statement when the inputs become observable, or when the instrument is derecognised.

(ii) Classification The classification of financial instruments depends on the purpose and management’s intention for

which the financial instruments were acquired and their characteristics. (iii) De-recognition The Bank derecognises a financial asset when the contractual rights to the cash flows from the

financial asset expire, or when it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Bank is recognised as a separate asset or liability.






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The Bank derecognizes a financial liability when its contractual obligations are discharged or cancelled or expired. The Bank enters into transactions whereby it transfers assets recognised on its statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets or a portion of them. If all or substantially all risks and rewards are retained, then the transferred assets are not derecognised. Transfers of assets with retention of all or substantially all risks and rewards include, for example, securities lending and repurchase transactions.

In transactions in which the Bank neither retains nor transfers substantially all the risks and rewards of ownership of a financial asset and it retains control over the asset, the Bank continues to recognize the asset to the extent of its continuing involvement, determined by extent to which it is exposed to changes in the value of the transferred asset.

The rights and obligations retained in the transfer are recognized separately as assets and liabilities as appropriate. In transfers where control over the asset is retained, the Bank continues to recognise the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes in the value of the transferred asset.

The Bank writes off certain loans and investment securities when they are deemed to be uncollectible

(vi) Amortised cost measurement The amortised cost of a financial asset or liability is the amount at which the financial asset or liability

is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment

(v) Fair value measurement Fair value is the amount for which an asset could be exchanged, or a liability settled, between

knowledgeable, willing parties in an arm’s length transaction on the measurement date. 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 (for example, NSE, LSE) and broker quotes from Bloomberg and Reuters.

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 Bank, 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 bid-offer spread or there are few recent transactions.

For all other financial instruments, fair value is determined using valuation technique 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 (for example, NIBOR, LIBOR yield curve, FX rates, volatilities and counterparty spreads) existing at the dates of the consolidated statement of financial position.

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.

In cases when the fair value of unlisted equity instruments cannot be determined reliably, the

instruments are carried at cost less impairment. The fair value for loans and advances as well as liabilities to banks and customers are determined using a present value model on the basis of contractually agreed cash flows, taking into account credit quality, liquidity and costs. The fair values of contingent liabilities and irrevocable loan commitments correspond to their carrying amounts.






32


The best evidence of the fair value of a financial instrument at initial recognition is the transaction

price, i.e. the fair value of the consideration given or received, unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument (i.e. without modification or repackaging) or based on a valuation technique whose variables include only data observable from markets. When transaction price provides the best evidence of fair value at initial recognition, the financial instrument is initially measured at the transaction price and any difference between this price and the value initially obtained from a valuation model is subsequently recognised in profit or loss on an appropriate basis over the life of the instrument but not later than when the valuation is supported wholly by observable market data or the instrument is closed out.

Any difference between the fair value at initial recognition and the amount that would be determined

at that date using a valuation technique in a situation in which the valuation is dependent on unobservable parameters is not recognised in profit or loss immediately but is recognised over the life of the instrument on an appropriate basis or when the instrument is redeemed, transferred or sold, or the fair value becomes observable.

(vi) Identification and measurement of impairment (A) Assets carried at amortised cost The Bank assesses at each reporting date whether there is objective evidence that a financial asset

or Bank of financial assets is impaired. A financial asset or a Bank 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 Bank 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) significant financial difficulty of the issuer or obligor; (b) a breach of contract, such as a default or delinquency in interest or principal payments; (c) 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; (d) it becomes probable that the borrower will enter bankruptcy or other financial re-organisation;

(e) the disappearance of an active market for that financial asset because of financial difficulties; or (f) 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 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 local management for each identified portfolio. In general, the periods used vary between three months 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 Bank 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 recognised are not included in a collective assessment of impairment.






33

NOTES TO THE FINANCIAL STATEMENTS 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 recognised 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 future 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 foreclosure is probable. For the purposes of a collective evaluation of impairment, financial assets are Banked on the basis of similar credit risk characteristics (that is, on the basis of the Bank’s grading process that considers asset type, industry, geographical location, 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.

Future cash flows in a 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 Banks 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 recognise (such as an improvement in the debtor’s credit rating), the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the consolidated income statement.

(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 Bank 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 recognised in profit or loss – is removed from equity and recognised in the consolidated income statement. Impairment losses recognised in the consolidated income statement on equity instruments are not reversed through the consolidated 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 recognised in profit or loss, the impairment loss is reversed through the consolidated income statement.






34


Assets classified as available for sale are assessed for impairment in the same manner as assets

carried at amortised cost above for impairment assessment for available for sale debt instruments). (vii) Reclassification of financial assets and liabilities

The Bank may choose to reclassify a non-derivative financial asset held for trading out of the held-for- 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 amortised 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

3.7 Cash and cash equivalents

Cash and cash equivalents include notes and coins on hand, unrestricted balances held with central

banks and highly liquid financial assets with original maturities of less than three months, which are subject to insignificant risk of changes in their fair value, and are used by the Bank in the management of its short-term commitments. Cash and cash equivalents are carried at amortised cost in the statement of financial position.

3.8 Loans and advances

Loans and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and that the Bank does not intend to sell immediately or in the near term. When the Bank is the lessor in a lease agreement that transfers substantially all of the risks and rewards incidental to ownership of an asset to the lessee, the arrangement is classified as a finance lease and a receivable equal to the net investment in the lease is recognised and presented within loans and advances. When the Bank purchases a financial asset and simultaneously enters into an agreement to resell the asset (or a substantially similar asset) at a fixed price on a future date (“reverse repo or stock borrowing”), the arrangement is accounted for as a loan or advance, and the underlying asset is not recognised in the Bank’s financial statements. Loans and advances are initially measured at fair value plus incremental direct transaction costs, and subsequently measured at their amortised cost using the effective interest method.

3.9 Investment securities

Investment securities are initially measured at fair value plus, in case of investment securities not at fair

value through profit or loss, incremental direct transaction costs and subsequently accounted for depending on their classification as either held for trading, held-to-maturity, fair value through profit or loss or available-for-sale.

(i) Held-to-maturity Held-to-maturity investments are non-derivative assets with fixed or determinable payments and fixed

maturity that the Bank has the positive intent and ability to hold to maturity, and which are not designated at fair value through profit or loss or available-for-sale.






35


Held-to-maturity investments are carried at amortised cost using the effective interest method. A sale

or reclassification of a significant amount of held-to-maturity investments would result in the reclassification of all held-to-maturity investments as available-for-sale, and prevent the Bank from classifying investment securities as held-to-maturity for the current and the following two financial years. However, sales and reclassifications in any of the following circumstances would not trigger a reclassification:

● Sales or reclassifications that are so close to maturity that changes in the market rate of interest

would not have a significant effect on the financial asset’s fair value. ● Sales or reclassification after the Bank has collected substantially all the asset’s original

principal. ● Sales or reclassification attributable to non-recurring isolated events beyond the Bank’s control

that could not have been reasonably anticipated.

(iii) Available-for-sale Available-for-sale investments are non-derivative investments that are not designated as another

category of financial assets. Unquoted equity securities whose fair value cannot be reliably measured are carried at cost. All other available-for-sale investments are carried at fair value.

Interest income is recognized in profit or loss using the effective interest method. Dividend income is

recognised in profit or loss when the Bank becomes entitled to the dividend. Foreign exchange gains or losses on available-for-sale debt security investments are recognised in profit or loss.

Other fair value changes are recognised directly in other comprehensive income until the investment

is sold or impaired whereupon the cumulative gains and losses previously recognised in other comprehensive income are recognised to profit or loss as a reclassification adjustment.

A non-derivative financial asset may be reclassified from the available-for-sale category to the loans

and receivable category if it otherwise would have met the definition of loans and receivables and if the Bank has the intention and ability to hold that financial asset for the foreseeable future or until maturity

3.10 Property, plant and equipment

(i) Recognition and measurement Items of property and equipment are measured at cost less accumulated depreciation and impairment

losses. Cost includes expenditures that are directly attributable to the acquisition of the asset.

When parts of an item of property or equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment The gain or loss on disposal of an item of property and equipment is determined by comparing the proceeds from disposal with the carrying amount of the item of property and equipment and are recognized net within other income in profit or loss.

The assets’ carrying values and useful lives are reviewed, and written down if appropriate, at each

date of the financial statement of financial position. Assets are impaired whenever events or changes in circumstances indicate that the carrying amount is less than the recoverable amount; see explanation on impairment of non-financial assets (note 12 below).

(ii) Subsequent costs The cost of replacing part of an item of property or equipment is recognised in the carrying amount of

the item if it is probable that the future economic benefits embodied within the part will flow to the Bank and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-today servicing of property and equipment are recognised in profit or loss as incurred.






36


(iii) Depreciation Depreciation is recognised in profit or loss on a straight-line basis to write down the cost of each

asset, to their residual values over the estimated useful lives of each part of an item of property and equipment. Leased assets under finance lease are depreciated over the shorter of the lease term and their useful lives.

Depreciation begins when an asset is available for use and ceases at the earlier of the date that the

asset is derecognised or classified as held for sale in accordance with IFRS 5. A non-current asset or disposal Bank is not depreciated while it is classified as held for sale.

The estimated useful lives for the current and comparative periods are as follows: Leasehold improvements over the shorter of the useful life of the item or lease term

Motor veh i c les 4 years Office equipment 5 years Office fur n it ure 5 years Computer equipm e nt 3 years Capital work in progress is not depreciated. Upon completion it is transferred to the relevant asset

category. Depreciation methods, useful lifes and residual values are reassessed at each reporting date.

(iv) De-recognition An item of property and equipment is derecognized on disposal or when no future economic benefits

are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the year the asset is derecognised.

3.11 Intangible assets

(i) Software Software acquired by the Bank is stated at cost less accumulated amortization and accumulated

impairment losses. Expenditure on internally developed software is recognized as an asset when the Bank is able to

demonstrate its intention and ability to complete the development and use the software in a manner that will generate future economic benefits, and can reliably measure the costs to complete the development. Development costs previously expensed cannot be capitalised. The capitalized costs of internally developed software include all costs directly attributable to developing the software and capitalised borrowing costs, and are amortised over its useful life. Internally developed software is stated at capitalised cost less accumulated amortisation and impairment.

Subsequent expenditure on software assets is capitalised only when it increases the future economic

benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.

Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful life of the

software, from the date that it is available for use since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. The maximum useful life of software is five years.

Amortisation methods, useful lives and residual values are reviewed at each financial year-end and

adjusted if appropriate.






37

NOTES TO THE FINANCIAL STATEMENTS 3.12 Impairment of non-financial assets

The carrying amounts of the Bank’s non-financial assets other than investment property and deferred Tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any, such indication exists then the asset’s recoverable amount is estimated. For goodwill and intangible assets that have indefinite useful lives or that are available for use, the recoverable amount is estimated each year at the same time.

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. A cash-generating unit is the smallest identifiable asset Bank that generates cash flows that largely are independent from other assets and Banks. Impairment losses are recognised in profit or loss. Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (Bank of units) on a prorata basis.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognized 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

3.13 Deposits, debt securities issued

Deposits and debt securities issued are the Bank’s sources of debt funding. When the Bank sells a financial asset and simultaneously enters into a “repo” or “stock lending” agreement to repurchase the asset (or a similar asset) at a fixed price on a future date, the arrangement is accounted for as a deposit, and the underlying asset continues to be recognised in the Bank’s financial statements. The Bank classifies capital instruments as financial liabilities or equity instruments in accordance with the substance of the contractual terms of the instruments. Deposits and debt securities issued are initially measured at fair value plus transaction costs, and subsequently measured at their amortised cost using the effective interest method, except where the Bank chooses to carry the liabilities at fair value through profit or loss.

3.14 Provisions

A provision is recognized if, as a result of a past event, the Bank has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. A provision for restructuring is recognized when the Bank has approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been announced publicly. The Bank recognizes no provision for future operating losses. A provision for onerous contracts is recognised when the expected benefits to be derived by the Bank from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract



38




NOTES TO THE FINANCIAL STATEMENTS 3.15 Financial guarantees

Financial guarantees are contracts that require the Bank to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. Financial guarantee liabilities are initially recognised at their fair value, and the initial fair value is amortised over the life of the financial guarantee. The guarantee liability is subsequently carried at the higher of this amortised amount and the present value of any expected payment (when a payment under the guarantee has become probable). Financial guarantees are included within other liabilities.

3.16 Employee benefits

(i) Defined benefit plans 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 fund administrators (PFA) on a mandatory, contractual or voluntary basis. The Bank has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense in comprehensive income statement 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

(ii) Short-term employee benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed

as the related service is provided. A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-

sharing plans if the Bank has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably

3.17 Borrowing Costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

All other borrowing costs are recognized in profit or loss in the period in which they are incurred

3.18 Investment Properties

An Investment property is an investment in Land or Buildings held primary for generating income or capital appreciation and not occupied substantially for use in the operation of the Bank. An occupation of more than 15% of the property is considered substantial. Investment properties are carried in the Bank’s books at their market value and fair valued yearly on a systematic basis. Investment properties are not subject to periodic charge for depreciation. When there has been a decline in value of an investment property, the carrying amount of the property is written down to recognize the loss. Such a reduction is charged to the profit or loss account. Reductions in carrying amount are reversed when there is an increase, following a fair valuation in accordance with the Bank’s policy, in value of the investment property, or if the reasons for the reduction no longer exist.






39

NOTES TO THE FINANCIAL STATEMENTS An increase in carrying amount arising from the fair valuation of investment is credited to equity as fair value increase. To the extent that a decrease in carrying amount offsets a previous increase, for the same property that has been credited to fair valuation increase and not subsequently reversed or utilized, it is charge against fair valuation increase rather than the profit or loss account. An increase on fair valuation which is directly related to a previous decrease in carrying amount for the same property that has charge to the profit or loss account, is credited to profit or loss account to the extent that is offsets the previously recorded decrease. On disposal of an investment property, the difference between the net disposal proceeds and the carrying amount is charged or credited to the profit or loss account. Investment properties are disclosed separately from property and equipment used for the purpose of the business

4. Financial risk management

4.1 Introduction and overview

The risk management philosophy of the Safetrust Savings & Loans Limited is drawn from its mission

and vision Statements and seeks to achieve maximum optimization of the risk – return trade off, while

ensuring strong Commitment to the following key indices .Excellent service delivery across business

segments

• Sound performance reporting (financial and non-financial) • Sound corporate governance • Consistent appreciation in shareholders’ value.

The bank defines risk as the possibility of losses or profits foregone, which may be caused by internal

or external factors.

The Bank’s risk management policies are established to identify and analyze the risks faced by the Bank, to set appropriate risk limits and controls, to monitor risks and adherence to limits. This policy is subject to review at least once a year. More frequent reviews may be conducted in the opinion of the Board, when changes in laws, market conditions or the Bank’s activities are material enough to impact on the continued adoption of existing policies. The Bank, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment, in which all employees understand their roles and obligations Risk management is carried out under risk policies approved by the Board of Directors. Bank risk committee identifies, evaluates and hedges financial risks in close co-operation with the bank’s operating units. 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, internal audit is responsible for the independent review of risk management and the control environment. The risks arising from financial instruments to which the bank is exposed are financial risks, which includes credit risk, liquidity risk and market risk (discussed in subsequent sections) The key elements of the Bank’s risk management philosophy are the following: • The Bank considers sound risk management to be the foundation of a long-lasting financial

institution. • The Bank continues to adopt a holistic and integrated approach to risk management and,

therefore, brings all risks together under one or a limited number of oversight functions. • Risk officers are empowered to perform their duties professionally and independently without

undue interference. • Risk management is governed by well-defined policies that are clearly communicated across the

Bank. • Risk management is a shared responsibility. Therefore, the Bank aims to build a shared

perspective on risks that is grounded in consensus.






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NOTES TO THE FINANCIAL STATEMENTS • The Bank’s risk management governance structure is clearly defined. • There is a clear segregation of duties between market-facing business units and risk

management functions. • Risk-related issues are taken into consideration in all business decisions. The Bank shall continue

to strive to maintain a conservative balance between risk and revenue considerations. • Risks are reported openly and fully to the appropriate levels once they are identified. • Risk officers work as allies and thought partners to other stakeholders within and outside the

Bank, and are guided in the exercise of their powers by a deep sense of responsibility, professionalism and respect for other parties.

4.2 Credit ris k

Lending and other financial activities form the core business of the Bank. The Bank recognises this

and has laid great emphasis on effective management of its exposure to credit risk. The Bank defines credit risk as the risk of counterparty’s failure to meet the terms of any lending contracts with the Bank or otherwise to perform as agreed. Credit risk arises anytime the Bank’s funds are extended, committed, invested or otherwise exposed through actual or implied contractual agreements.

The Bank’s specific credit risk objectives, as contained in the designed Credit Risk Management Framework, are:

a) maintenance of an efficient loan portfolio b) institutionalization of sound credit culture in the Bank c) adoption of international best practices in credit risk management d) development of Credit Risk Management professionals

Each business unit is required to implement credit policies and procedures in line with the credit approval authorities granted by the Board. Each business unit is responsible for the quality and performance of its credit portfolio and for monitoring and controlling all credit risks in its portfolio, including those subject to Management Credit Committee’s approval.

The Internal Audit and Credit Administration units respectively undertake regular audits of business unit and credit quality reviews. The Group continues to focus attention on intrinsic and concentration risks inherent in its business to manage the Bank’s portfolio risk. It sets portfolio concentration limits that are measured under the following parameters: concentration limits per obligor, industry, sector and rating grade. Sector limits reflect the risk appetite of the Bank.

For risk management purposes, credit risk arising on trading securities is managed independently, but reported as a component of market risk exposure.

Management of credit risk The Board of Directors has delegated responsibility for the management of credit risk to its Board Credit Committee. A separate Management Credit Committee reporting to the Board Credit Committee is responsible for oversight of the Bank’s credit risk.

4.2.1 Credit risk measuremen t

"In measuring credit risk of loan and advances to customers and to banks at a counterparty level, the bank reflects the following components:

• The character and capacity to pay of the client or counterparty on its contractual obligations; • Current exposures to the counterparty and its likely future development; • The likely recovery ratio in case of default obligations – value of collateral and other ways out.

The bank’s rating scale reflects the range of default probabilities defined for each rating class. This means that, in principle, exposures migrate between classes as the assessment of their probability of default changes. The rating tools are reviewed and upgraded when necessary. The bank regularly validates the performance of the rating and their predictive power with regard to default events.






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Collateral Risk Rating (CRR)/Facility Risk Rating (FRR)

• The Bank does not lend to speculative grade obligors, on an unsecured basis. The Facility Risk

Rating (FRR) is different from the Obligor Risk Rating (ORR) to the extent of the perceived value of enhancement provided.

• The Collateral Risk Rating grid indicates the acceptable collateral types rated 1–10 from best to

worst in order of liquidity."

Rating Grade Group

Description Scoring Description

1 Exceptional Capacity AAA

2 Very Strong Capacity AA

3 Strong Repayment Capacity A

4 Good Credit Quality & Adequate Repayment

BBB

5 Possibility that Credit Risk May Occur BB

6 Significant Credit Risk May Occur but meets all

B Performing

7 Default is a real possibility CCC Watch list

8 Default is probable CC

9 Default is imminent C Non-Performing 10 Default/Lost D

4.2.2 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.

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 country are approved quarterly by the Board of Directors."

Portfolio l i m its The process of setting the limits is as follows:

• The Bank engages in a detailed portfolio plan annually. In drawing up the plan, the Bank reviews the macro-economic factors, identifies the growth sectors of the economy and conducts a risk rating of the sectors to determine its acceptable target market industries and exception. The Bank’s target loan portfolio is then distributed across acceptable target market industries, strategic business units and approved product programmes.

• Aggregate large exposure limit of not more than 20% of Bank’s shareholders’ funds. • Public sector exposure limit of not more than 5% of the Bank’s loan portfolio. • Industry/economic sector limits are imposed on the Bank’s lending portfolio, in line with the

following policies:

– The Bank’s target market is companies operating in industries rated ‘BB’ or better unless on an exception basis.

– The Bank would not have more than 5% of its portfolio in any bank of positively correlated industries in terms of risk (e.g., oil exploration and oil service, tyre manufacturing and tyre distribution, etc.).


...real mortgage, built to lastAnnual Reports & Financial Statements




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NOTES TO THE FINANCIAL STATEMENTS – The Bank would strive to limit its exposure to any single industry to not more than 25% of its

loan portfolio and such industry must be rated ‘BBB’ or better. – No more than 25% of the Bank’s portfolio would be in any industry rated ‘BB’.

Geographical lim i t s

Presently, the Bank does not have any exposure to counterparties domiciled outside Nigeria. However, the Bank has a fully developed country risk rating system that could be employed, should the need arise. In such eventuality, limits will be graduated on country risk rating. Single obligor lim i t s

• Limits are imposed on loans to individual borrowers. The Bank as a matter of policy does not lend

above its regulatory lending limit, which is 20% of its shareholders’ funds unimpaired by losses. The internal guidance limit is, however, set at 18% of Shareholders fund to create a prudent buffer.

• Also, the Bank will not ordinarily advance beyond 18% of customers’ shareholders’ fund/net worth in cases of loans offered under individual assessment.

• Product programmes contain guidelines on single obligor limits. • Except with the approval of the Board of Directors, the Bank shall not lend more than:

– 20% of the Bank’s shareholders’ funds to any company. Only companies rated ‘A’ or better may qualify for this level of exposure.

– No single retail loan should amount to more than 5% of total retail portfolio. – No single retail loan should amount to more than 5% of the related retail product portfolio.

The bank also sets internal credit approval limits for various levels in the credit process. Approval limits are set by the Board of Directors and reviewed from time to time as the circumstances of the bank demand. Exposure to credit risk is also managed through regular analysis of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing these lending limits where appropriate."

The bank also controls and mitigates risk through collateral.

Collateral 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.

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. Collateral held as security for financial assets other than loans and advances depends on the nature of the instrument. Debt securities, treasury and other eligible bills are generally unsecured, with the exception of asset-backed securities and similar instruments, which are secured by portfolios of financial instruments.






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NOTES TO THE FINANCIAL STATEMENTS 4.2.3 Impairment and provisioning polic i e s Impairment allowances are recognised for financial reporting purposes only for losses that have been

incurred at the date of the statement of financial position based on objective evidence of impairment.

4.2.4 Maximum exposure to credit risk before collateral held or credit enhancements

The bank's maximum exposure to credit risk at 31 December 2012, 31 December 2011 and 1 January 2011 respectively is represented by the net carrying amounts of the financial assets in the Statement of Financial Position but no credit risk on equity financial instruments.

4.2.5 Concentration of risks of financial assets with credit risk exposure

(a) Industry secto r s

The following table breaks down the bank’s credit exposure at carrying amounts (without taking into account any collateral held or other credit support), as categorised by the industry sectors of the bank’s counterpa r t i e s .

Loans and advances to customers

N'000 Residential personal mortgage loans 1,077,824

Residential commercial mortgage loans 2,724,438

Real estate construction loans 538,162

Other loans 1,155,807

Staff personal loans 14,168

Staff Car loans 0

Staff share loans 10,477

Staff rent loans 1,776

Impairment Allowance (740,536)

Total 4,782,117 4.2.6 Credit quality of financial assets

(a) Financial assets neither past due nor impaired

The credit quality of the portfolio of loans and advances, cash and balances with central banks and debt securities that were neither past due nor impaired can be assessed by reference to the internal rating system adopted by the bank (See section 3.3.1 for an explanation of the internal rating system).

Loans and advances to customers

Loans and advances to

banks

N '000 N '000

31 December 2012

Grades:

AAA

AA 4,782,117 -

A

BBB

BB

B

CCC

CC

4,784,897 -






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The credit risk associated with other facilities and other financial assets that were neither past due nor impaired are considered to below at 31 December 2012.

(b) Financial assets past due but not impaired

Past due up to 30 days Past due by 30 - 60 days Past due 60-90 days

(c) Financial assets individually impaired

Gross amount 5,522,653

Below B

Specific impairment (740,536)

Net amount 4,782,117 4.3 Liquidity r i s k 4. 3 . 1 Liquid ity 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 fulfil 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."

Management of liquidity risk

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. • 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. 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.

Funding approac h Sources of liquidity are regularly reviewed by a separate team in bank Treasury to maintain a wide

diversification by currency, geography, provider, product and term.






45

NOTES TO THE FINANCIAL STATEMENTS 4.3.2 Maturity analysis The table below analyses financial assets and liabilities of the bank into relevant maturity bankings

based on the remaining period at balance sheet date to the contractual maturity date. The table includes both principal and interest cash flows.

Over 1

year

0 - 30 31 - 90 91 - 180 181 - 365 but less

31 December 2012 (N' 000) days days days days than 20 yrs

Financial liabilities

Customer deposits 489,170 297,706 175,899 1,614 -

Due to other financial institutions(NHF)

22,068

Debt Securities in Issue 2,639,126

Borrowings 4,438,069 1,500,000

Other liabilities

Total financial liabilities 489,170 4,735,775 175,899 1,614 4,161,194 Financial assets

Cash and cash equivalent 1,615,388 4,367,531

Mortgage Loans and other receivables

1,723,171 3,802,263

Investment securities -Quoted equities

1,109

Total financial assets 1,615,388 4,368,640 - 1,723,171 3,802,263

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.

4.4 Market ri s k

Market risk is the exposure to an adverse change in the market value of our trading and investment positions caused by a change in prices and rates. Such positions result from market making, proprietary trading, underwriting and investing activities. The market risk factors are foreign exchange rates, commodity price, interest rates, and equity prices. Each market risk category the Bank is exposed to daily is described below: • Foreign exchange risks arise from exposures to changes in spot and forward rates and volatilities

of the exchange rates. • Interest rate risks result from exposures to changes in the level and shape of the yield curve, the

volatility of interest rates and credit spreads. • Equity price risks result from exposures to the changes in prices and volatilities of individual

equit i e s ."






46

NOTES TO THE FINANCIAL STATEMENTS 4.4.1 Management of market ri s k

Safetrust Savings and Loans Ltd has put in place a clearly defined market risk management framework that provides the Board of Directors and Management with guidance on market risk management processes. The Bank has also prescribed tolerable market related losses, vis-a-vis the quantum of available capital and level of other risk exposures.

The Bank’s market risk policy and strategy are anchored on the following: i. product diversification which involves trading, application and investment in a wide range and

class of products such as debt, equity, derivative, foreign exchange instruments, corporate securities and government securities;

ii. risk taking within well-defined limits with the sole purpose of creating and enhancing shareholder value and competitive advantage;

iii. effective utilisation of risk capital; iv. continuous re-evaluation of risk appetite and communication of same through market risk limits; v. independent market risk management function that reports directly to Management; vi. robust market risk management infrastructure reinforced by a strong automated system for

controlling, monitoring and reporting market risk vii. deployment of a variety of tools to monitor and restrict market risk exposures such as position

limits, sensitivity analysis, ratio analysis and management action triggers; viii. setting the internal Open Position Limit (OPL) lower than the CBN prescribed limit (currently 5% of

shareholders’ funds). The Bank has put in place an approval process for exceeding the internal OPL limit. However, any trading above the CBN regulated OPL limit must be approved by the Central Bank; and

ix. enforcement of market risk operating limits and other risk management guidelines that will ensure consistent compliance with OPL limit. "

4.4.2 Market risk measurement techniq u e s

(a) at Value risk ( V A R)

The bank applies a ‘value at risk’ (VAR) methodology to its trading portfolios (including assets and liabilities designated at fair value) and at a bank level 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 Treasury. Interest rate risk in the non-trading book is measured through the use of interest rate repricing gap analysis.

VaR, in general, is a quantitative measure of market risk which applies recent historic market

conditions to estimate the potential future loss in market value that will not be exceeded in a set time period at a set statistical confidence level. VaR is calculated for expected movements over a minimum of one business day and to a confidence level of 99% and a 10-day holding period. The confidence level suggests that potential daily losses, in excess of the VaR measure, are likely to be experienced three times per year in every 250 days.

The Bank uses parametric method as its VaR methodology with an observation period of two

years obtained from published data from preapproved sources. VaR is calculated on the Bank’s positions at close of business.

The Bank recently deployed SAS risk management systems capabilities for a more robust market

risk analysis including VAR models based on Monte-Carlo simulation. The data in the table and graph below comprise the trading VaR of the Bank. The major contributors to the trading VaR are Treasury bill and bond due to the high level of volatility witnessed in those instruments in the year. The yields on the various maturities rose up by over 10,000bps on the average.






47


(b) Stress t ests Stress tests provide an indication of the potential size of losses that could arise in extreme

conditions. In recognition of the volatile market environment and the frequency of regulations that have had

significant effect on market rates and prices, the Bank augments other risk measures with stress testing to evaluate the potential impact of possible extreme movements in financial variables on portfolio values that are rare but plausible.

Stress testing is an integral part of the market risk management framework and considers both

historical market events and forward-looking scenarios. A consistent stress testing methodology is applied to trading and non-trading books.

Stress scenarios are regularly updated to reflect changes in risk profile and economic events. The

ALCO has responsibility for reviewing stress exposures and, where necessary, enforcing reductions in overall market risk exposure. The stress testing methodology assumes that scope for management action would be limited during a stress event, reflecting the decrease in market liquidity that often occurs. Regular stress test scenarios are applied to interest rates, exchange rates, and equity prices. This covers all asset classes in the financial markets banking and trading books. Ad hoc scenarios are also prepared reflecting specific market conditions and for particular concentrations of risk that arise within the businesses. "

Non-trading book: Other sensitivity analy s e s The Bank is yet to adopt the use of VaR for its equity exposure as a result of low market liquidity. The bank does not trade in commodity and therefore is not exposed to commodity risk except in transactions where commodities have been used as collateral for credit transactions. The latter is covered under credit risk management.

4.4.3 Foreign exchange r isk

The bank in the year under review has no exposure to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows.

4.4.4 Interest r a t e 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. Value at risk exposure is disclosed in Note 3.5.2. It includes the bank’s financial instruments at carrying amounts (non-derivatives), categorised by the earlier of contractual repricing (for example for floating rate notes).






48

NOTES TO THE FINANCIAL STATEMENTS The table below summarises the bank's interest rate gap position

Carrying

amount

31 December 2012

Financial assets

Cash and balances with central banks 5,982,919

Mortgage Loans and other receivables 4,782,117

Available for sale financial assets 1,109

Asset pledged as collateral -

Managed funds -

Other assets 73,903

10,840,048


Customer deposits 970,655

Due to other financial institutions (NHF) 22,068

Borrowings 5,938,069

Other liabilities 111,822

7,042,614 4.4.5 Equity and commodity price risk The bank is exposed to equity price risk by holding investments quoted on the Nigerian Stock

Exchange (NSE) and other non-quoted investments. Equity securities quoted on the NSE is exposed to movement based on the general movement of the all share index and movement in prices of specific securities held by the bank.

The bank holds a number of investments in quoted securities with a market value of N1.1 million of

which investments in First Bank of Nigeria Plc, Sterling Bank Plc. and Vita foam are the significant h o ld ings.

The bank does not deal in commodities and is therefore not exposed to any commodity price risk. 4.5 Fair value of financial assets and liabilities

(a) Financial instruments not measured at fair value The table below 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:

Carrying Fair

value value

N '000 N '000

Financial assets

Cash and balances with Central banks 5,982,919 -

Mortgage Loans and other receivables (Gross): 4,784,897 -

Residential personal mortgage loans 1,077,824 -

Residential commercial mortgage loans 2,724,438 -

Real estate construction loans 538,162 -

Other loans 1,155,807 -

Staff personal loans 14,168 -

Staff Car loans - -




49

Staff share loans 10,477 -

Staff rent loans 1,776 -

Impairment Allowance (740,536) -


Deposits from customers 970,655 -

Other liabilities 111,822 -

Borrowings 5,938,069 -

(b) Financial instruments measured at fair value IFRS 7 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation

techniques are observable or unobservable. Observable input reflect market data obtained from independent sources; unobservable inputs reflect the bank's market assumptions. These two types of inputs have created the following fair value hierarchy:

● Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. ● Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset

or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices) ● Level 3: Inputs for the asset or liability that are not based on observable market data

(unobservable inputs )

This hierarchy requires the use of observable market data when available. The bank considers relevant and observable market prices in its valuations where possible.

31 December 2012 Level 1 Level 2

Financial assets

Financial assets held for trading

Listed Debt Securities n/a n/a

Listed Equity Securities n/a n/a

Derivatives n/a n/a

Available-for-sale financial assets

Investment securities - listed debt n/a n/a

Investment securities - unlisted equity

Investment securities - listed equity yes n/a

Financial liabilities held for trading

Derivatives n/a n/a

Financial a s sets Unquoted investment security - Mortgage refinancing company but this was classified to other asset and carried at cos t

(1) There was no reason for sensitivity on increase or decrease in profit of the investee company under normal operating conditions with all other variables held constant.

(c) Fair valuation methods and assumptions

(i) Cash and cash equivalent Cash and cash equivalent represent cash held with banks, investment houses & central bank of

Nigeria. The fair value of these balances is their carrying amounts.

(ii) Equity securi t ie s The fair value of quoted equity securities are determined by reference to quoted prices

(unadjusted) in active markets for identical instruments. Unquoted equity securities are carried at cost.






50


(iii) Loans and advances to customers Loans and advances are carried at amortised cost net of allowance 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.

(iv) Other assets

Other assets represent monetary assets which usually has a short recycle period and as such the fair values of these balances approximate their carrying amount.

(v) Deposits from banks and due to 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 values of fixed interest-bearing deposits and borrowings are determined using a discounted cash flow model based on a current yield curve appropriate for the remaining term to maturity.

4.6 Capital managem e n t

The bank’s objectives when managing capital, which is a broader concept than the ‘equity’ on the face

of the statement of financial position, are:

• To comply with the capital requirements set by the regulators of the banking markets where the bank operates;

• To safeguard the bank’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders; and

• To maintain a strong capital base to support the development of its business.

Capital adequacy and the use of Regulatory Capital are monitored daily by the bank’s management, employing techniques based on the CBN guideline. The required information is filed with the CBN on a quarterly basis. The bank maintains a ratio of Total Regulatory Capital to its risk-weighted assets (the ‘Basel ratio’) above a minimum level required by the regulatory authority which takes into account the risk profile of the bank. The regulatory capital requirements are strictly observed when managing economic capital. The bank’s regulatory capital, comprising of the following two tiers, is managed by Risk Management, Treasury and Strategy.

• Tier 1 capital: share capital, retained earnings and reserves created by appropriations, statutory

reserve, non-controlling interests arising on consolidation from interests in permanent shareholders’ equity.

• Tier 2 capital: qualifying subordinated loan capital, collective impairment allowances and

unrealised gains arsing on the fair valuation of equity instruments held as available for sale."






51


The table below summarises the composition of regulatory capital and the ratios of the bank for the year ended 31 December, 2012. During the year, the bank complied with all of the externally imposed capital requirements to which it is subject.

31 December

Tier 1 capital 2012 N '000

Share capital 1,067,500 Share premium 2,180 Retained earnings 665,476 Other reserve 324 Statutory reserve 281,454

Total qualifying for tier 1 capital 2,016,934 Tier 2 capital

Revaluation reserve

Translation reserve

Other borrowings

Total qualifying for tier 2 capital

Total regulatory capital 2,016,934

Risk-weighted assets

On balance sheet 7,611,777 Off balance sheet - Total risk-weighted assets 7,611,777

Bank's Risk-weighted Capital Adequacy Ratio (CAR) 28%

Minimum Regulatory Requirement ratio 10%






52


2012 2011

N '000 N '000

5. Interest income

Bank core business sources:

Mortgage Loans and advances 1,526,964 845,248

1,526,964 845,248

1,526,964 845,248 Non-bank core business sources:

Placements with local banks 320,578 623,736

1,847,542 1,468,984

Interest income stated above relates to financial assets not carried at fair

value through profit or loss.

6. Interest expense

Deposits 418,265 40,674

Borrowings 688,321 932,396

1,106,586 973,071

7 Fee and commission income

Fees income 1,890 57,255

Commission income 24,974 13,317

26,864 70,573

8 Other operating income

Dividend income from equity 50 152

Legal fees 60 78

Write-back from over provisioning of tax - 95,451

Other income 41,051 13,120

Admin Rental Income 14,085 13,979

Increase in fair value of investment properties 452,582 -

Lease Income 4,591 2,756

512,419 125,536






53


2012 2011

N '000 N '000

9 Impairment charge for credit losses

The net impairment charge for credit losses comprises:

Impairment charge- Non Financial Asset (Specific) 28,409 636 Impairment charge- Financial Asset (Specific)

183,850 109,943

212,259 110,579

10 Depreciation and amortization

Property, plant and equipment

19,963

25,533

Intangible assets

2,353 -

22,316

25,533

Profit before taxation for the year is stated after charging/(crediting):

Amortisation of intangible asset 2,353 - Depreciation of property, plant and equipment 19,963 25,533

Directors remuneration 15,642 21,975

Auditors remuneration 8,500 5,500

11 Taxation

Per profit and loss account

Income tax 28,123 25,948

Education tax 2,188 2,064

30,311 28,012

Under/ (over) provision (24,022) -

Deferred tax 131,521 (2,376)

Income tax expense 137,810 25,636






54



2012 2011 2011

N '000 N '000 N '000

11.2 The movement in the current income tax liability is as follows:

At 1 January 34,075 143,937 93,990

Under/ (over) provision (24,022) (104,647) -

Tax effect of translation - - -

Charge for the year 30,311 28,012 (21,406)

Payments during the year (10,053) (33,227) 71,353

At 31 December 30,311 34,075 143,937

The charge for income tax in these financial statements is based on the provisions of the Companies Income

Tax Act, Cap C21 LFN 2004 as amended while Education tax charge is based on the provisions of the

Education Tax Act CAP E4 LFN 2004 as amended.

11.3 Deferred Taxation

At 1 January 8,311 10,687 8,533

Arising during the year 131,521 (2,376) 2,154

At the end of the period 139,832 8,311 10,687

11.4 Reconciliation of effective tax rate:

Profit before income tax 542,070

Income tax using the domestic corporation tax rate 162,621 30%

Effect of tax rates in foreign jurisdictions - 0.00%

Net Capital Allowance (15,656) -4.16%

Non-deductible expenses 19,963 16.97%

Education/NIDEF tax levy 2,188 2.34%

Tax exempt income (414,425) -0.05%

Current year deferred tax 131,521 142.15%

Write back of overprovision (24,022)

Total income tax expense in income statement 137,810 25.42%






55


12. Ea rnings per s hare

(a) Basic

Basic earnings per share has been calculated based on profit after taxation attributable to the

shareholders during the period and the weighted average number of issued share capital of 1,067,500

at 31st December of every year.

Profit after taxation attributable to the shareholders 404,260 117,458

Weighted average number of shares 1,067,500 1,067,500

37.87 11.0

(b) Diluted 404,260 117,458 Diluted EPS is calculated by dividing net income as adjusted by

interest paid, with the sum of the weighted average shares

outstanding and any additional common shares that would have

been outstanding if the dilutive potential common shares had been

issued.

1,067,500 1,067,500 37.87 11.0

There was no dilution of ordinary shares during the year.

13. Cash and cash equivalents

Cash at hand 11,198 7,473

CBN cash reserve 1,270 1,270

FMBN reserve 250 250

Bank balances 49,002 1,070

Fixed placements with banks 5,921,200 7,341,295

5,982,919 7,351,358

The bank has restricted cash balances with the Central Bank of Nigeria (CBN) and the Federal Mortgage Bank of Nigeria (FMBN). This balance is made up of CBN and FMBN cash reserve requirement. The cash reserve ratio represents a mandatory 2% cash deposit which should be held with the Central Bank of Nigeria as a regulatory requirement. Restricted deposits with Central Bank and Federal Mortgage Bank are not available for use in the bank's day-to-day operations. Cash and cash equivalen t s 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.






56


2012 2011 2010

N '000 N '000 N '000

14 Loans and advances

14.1 Loans and advances to customers

31 December

Mortgages 3,802,263 493,524 56,356

Real Estate Finance 538,162 3,809,241 3,286,533

Other Loans 1,182,229 1,104,279 1,510,041

5,522,653 5,407,043 4,852,930

Impairment allowance (740,536) (548,235) (433,313)

4,782,117 4,858,808 4,419,617

Classification of loans(gross) by Sector

Residential personal mortgage loans 1,077,824 493,524 56,356

Residential commercial mortgage loans 2,724,438 3,809,241 3,286,533

Real estate construction loans 538,162 - -

Other loans 1,155,807 1,079,795 1,484,294

Staff personal loans 14,168 9,718 7,016

Staff Car loans - - 375

Staff share loans 10,477 12,825 17,167

Staff rent loans 1,776 1,941 1,189

5,522,653 5,407,043 4,852,930

14.2 The movement on impairment loss was as follows:

Impairment

At 1 January 548,235 443,313 334,066

Charge for the year 192,301 104,922 99,247

At end of the year 740,536 548,235 433,313 14.3 Nature of security in respect of loans and advances:

Secured against real estate 4,098,182 4,372,690 3,617,716

Otherwise secured 935,124 777,989 1,118,031

Unsecured 492,127 256,364 117,183 Gross loans and advances to customers 5,525,433 5,407,043 4,852,930

The bank is not permitted to sell or repledge the collateral in the absence of default by the owner of the

Collateral.

Repossessed properties are sold as soon as practicable, with the proceeds used to reduce the outstanding indebtedness.






57



2012 2011 2011

N '000 N '000 N '000

15. Other financial assets

15.1 Securities available for sale

– Listed 1,109 932 785

Allowance for impairment -

Total securities available for sale 1,109 932 785

Total investment securities 1,109 932 785

16. Other assets

Prepayments 36,063 37,097 32,179

Sundry debtors 30,055 597 1,201

Staff Trust 7,785 7,785 8,190

73,903 45,479 41,570

Less specific allowances for impairment - - -

73,903 45,479 41,570

17. Intangible assets

At 1 January

Acquisition cost - - -

Accumulated amortisation - - -

Net book amount - - -

Year ended 31 December

Opening net book value - - -

Additions 3,375 - -

Exchange differences - - -

Amortisation charge (2,353) - -

Closing net book amount 1,022 - -

Cost less total accumulated amortization

At 31 December

Acquisition cost 3,375 - -

Accumulated amortisation (2,353) - -

Net book amount 1,022 - -






58



2012 2011 2011

N '000 N '000 N '000

18 Investment properties

Opening carrying amount (cost) - - -

Additions 547,602 - -

Fair value gain/(loss) less cost to sale 452,582 - -

Closing carrying amount 1,000,184 - -

The bank's investment property is comprised of land which is acquired for the purposes of future development and capital appreciation and initially carried at historical cost. During the year ended 31 December 2012, investment property additions amounts to N547,601,920

In line with the Bank policy on investment properties a valuation of investment properties as at 31st December 2012 was carried out by Messrs Azuka Ihebunike & Partners (professional valuers). The market value of investment properties as at that date was N1,025,830,000, however the fair value stated above is less cost to sale of 2.5% of open market value.

During the year 2012 the Company did not recognise any impairment losses related to investment property balances.

In the opinion of the Directors the value of investment properties are not impaired for the year under

r eview.






59


19 Property, plant and

equipment

Furniture,

Leasehold office a nd Computer Motor Total

Improvement equipments Equipment Vehicles

N'000 N'000 N'000 N'000

Cost

At 1 January 2012 24,752 38,364 38,630 61,172 162,918

Additions - 1,216 1,092 537 2,845

At 31 December 2012 24,752 39,580 39,722 61,709 165,763

Accumulated depreciation

At 1 January 2012 14,302 19,247 35,403 49,286 118,238

Charge for the year 1,352 4,543 2,871 11,197 19,963

At 31 December 2012 15,654 23,790 38,274 60,483 138,201

Net book value at 31 December 2012 9,098 15,790 1,448 1,226 27,562


Cost

At 1 January 2011 24,752 33,623 37,576 61,172 157,123

Additions - 4,741 1,054 - 5,795

At 31 December 2011 24,752 38,364 38,630 61,172 162,918

Accumulated depreciation

At 1 January 2011 12,955 13,250 31,681 35,523 93,409

Charge for the year 1,347 5,997 3,722 13,763 24,829

At 31 December 2011 14,302 19,247 35,403 49,286 118,238





60






20 Deposits 2012 2011 2011

N '000 N '000 N '000

Deposits from customers

Demand Deposits 436,097 288,175 490,128

Term Deposits 481,470 489,219 109,455

Savings Deposits 53,088 51,167 548,516

970,655 828,560 1,148,099

Current 489,185 339,342 1,038,644

Non-current 481,470 489,219 109,455

970,655 828,560 1,148,099

21 Borrowings

Borrowing comprise:

Short Term 4,438,069 7,297,160 9,499,403

Long Term 1,500,000 - -

5,938,069 7,297,160 9,499,403

Current 4,438,069 7,297,160 9,499,403

Non-current 1,500,000 -

5,938,069 7,297,160 9,499,403

The bank has not had any defaults of principal, interest or other breaches with respect to their liabilities during the y e a r .

(i) The amount of N3.271 billion under current borrowings represents Bank taken from Unity Bank Plc

@ 6.0% which was being use as treasury transaction and this was equally invested at a premium of 1% with the same institutions. However the balance amount of N1.141billion after unity bank taken under current borrowing represent overdraft taken from Sterling Bank Plc and other takens from corpora t e i n s ti tutions

(ii) The amount of N1.5billion above under non-current borrowings represents project facilities finance

from Unity Bank Plc for a period of 24 months at 16% interest rate per annum while repayment of interest is on quarterly basis and principal annually.

Debt Securities in Issue

16% unsurbordinated Debenture

2,639,126

2,315,616

2,000,000

2,639,126

2,315,616

2,000,000






61


(i) This represents 16% nonconvertible unsubordinated debenture loan stock from Sterling Asset Management to finance development of mortgage housing scheme and this loan stock has a ten years tenor with 7 years moratorium period before principal redemption, and principal will be redeem in four (4) equal semi-annual instalments after the 7 years moratorium. The interest payment is semi-annually in arrears starting from the date of disbursement. Note that the Bank is yet to identified a viable mortgage housing finance development that could match the redemption of the debenture loan stock (ii) The above amount of N2billion was also re-invested with Sterling Capital Limited at 16% interest rate payable semi-annually in arrears, though the Bank could not earn a premium/margin on the investment because that was the best rate that can be gotten as at that time, however management is optimistic to earn a premium on the investment in the coming year if it has not invested the funds in housing mortgage d e v e l o p ments

22 Retirement benefit obligations 31 December 31 December 1 January

2012 2011 2011

Defined contribution scheme N '000 N '000 N '000

i Staff pension

At 1 January 397 1,723 1,291

Provision 5,427 4,833 4,507

Released to PFA (5,313) (6,159) (4,075)

At 31 December 511 397 1,723

23 Other liabilities

Accrued Rent 3,919 3,640 3,255

Accounts payable 54,920 66,479 29,528

Accrued Audit Fees 8,000 6,954 5,314

Accrued NDIC Premium - 4,049 0

Staff pension contribution 511 397 1,723

Productivity bonus 12,603 12,293 0

Information technology levy 12,026 10,892 9,785

Statutory deduction 19,843 12,141 50,841

111,822 116,845 100,446

Information Technology Levy This represents 1% of profit before tax in line with section 12(2) of the NITDA act which became effective in 2007. Staff contribution This represents contribution to the Nigeria Social Insurance Trust Fund 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. The bank's liabilities in respect of the defined contribution scheme are charged against the profit of the year in which they become payable. Payments are made to pension fund administration companies who are financially independent of the bank






62



2012 2011 2011

24 Deferred tax liability N '000 N '000 N '000

Deferred income taxes are calculated on all temporary differences under the liability method using an effective tax rate of 30% (2011: 30%).

At 1 January 8,311 10,687 8,533

Arising during the year 131,521 (2,376) 2,154

At 31 December 139,832 8,311 10,687

25 Share capital

Authorised

1,067,500,00 ordinary shares of N1 each 1,067,500 1,067,500 1,067,500

Issued and fully paid

1,067,500,00 ordinary shares of N1 each 1,067,500 1,067,500 1,067,500

The company did not purchase its own shares during the year

Movements during the year: Number Ordinary Ordinary

of shares shares shares

'000 '000 '000

At 1 January 1,067,500 1,067,500 1,067,500

Capitalised during the period - - -

Issue of new shares - - -

At 31 December 1,067,500 1,067,500 1,067,500

26 Share premium and reser v e s The nature and purpose of the reserves in equity are as follows: Share premium: Premiums from the issue of shares are reported in share premium.


2012 2011 2011

N '000 N '000 N '000

As at 31st December 2,180 2,180 2,180






63



2012 2011 2011

N '000 N '000 N '000

27 Retained earnings:

At 1 January 445,300 413,619 235,355 Dividends Paid - (53,375) (50,000)

445,300 360,244 185,355 Profit for the year from continuing operations 404,260

117,458

229,063

Transfer to Statutory Reserve (80,852) (23,492) (45,813) At 31 December 768,708 454,210 368,606 IFRS Transition Adjustment (82,383) (8,910) 45,013 Retained Earnings as at 31 December, 2012 686,325

445,300

413,618

27.1 Statutory reserve: Undistributable earnings required to be kept by the central bank in

accordance with national law.

At the beginning of the year 179,752 156,260 110,448

Transfer from profit and loss account 80,852 23,492 45,813

As at 31st December 260,604 179,752 156,261

27.2 Other Reserve: This is the fair value gains or loss on financial assets as shown in the statement of

comprehensive income and statement of changes in equity reconciliation.

At the beginning of the year 147 - - Fair value gains/(losses) on available-for-sale

Investment 177

147

-

As at 31st December 324 147 -

28 Contingent liabilities and commitments

The directors are of the opinion that all known commitments and liabilities which are relevant in

assessing the state of affairs of the company have been taken into account in the preparation of these financial stateme n t s .

28.1 Acceptances, bonds, guarantees and contingents The Bank does not have any Guarantees in the year under review.




Annual Report and Accounts for the year ended 31 December 2012

64


28.2 Pending Litigation s

The Primary Mortgage Institution in the ordinary course of business is presently involved in two (2)

litigation suits none of which may give rise to any material contingent liability.

The Directors are of the opinion that none of the afore-mentioned cases is likely to have a material adverse effect on the bank and are not aware of any other pending or threatened claims and litigations.

29 Related party transaction s

An analysis of insider related credit granted to companies and individuals with whom the Directors of the Company are related or in which the Directors have related interests are as stated below. Credit facilities were provided by the bank to related parties on commercial terms. Loans and advances to related parties at year end, which performing amounted to N1.017 billion (2011: N941 million) and non-performing amounted to N21.8 million (2011: N26.4 million).






65


29.1 Loans and advances to related parties

S/N Name of Borrower Relationship to Date Expiry Rate of

Cumulative Credit Status Perfected Security

Reporting Granted Date Interest Principal Performing

Nature

Institution % N' 000 N' 000

1 SIRIUS WIRELESS LIMITED OWNED BY SOME DIRECTORS OF THE BANK 30-Nov-06 30-Nov-07 22 778 9,023 Non-Performing N/A

2 ENOJI AGNES OMAKWU SALEH SISTER TO A DIRECTOR IN SSL 24-Apr-07 24-Apr-10 22 6,000 12,830 Non-Performing LEGAL MORTGAGE ON PROPERTY ACQUIRED

3 WALTERSIMTH PETROMAN OIL LTD MD IS A DIRECTOR IN SSL 24-Apr-12 24-Apr-13 18 300,000 127,606 Performing CORPORATE GUARANTEE OF WALTERSMITH & ASSOCIATES

4 INFOTEC SYSTEMS LIMITED RELATED DIRECTOR 31-Oct-09 31-Oct-11 22 110,000 241 Performing CORPORATE GUARANTEE OF WALTERSMITH & ASSOCIATES

5 ADASGUS SERVICES LIMITED WIFE OF A DIRECTOR IN SSL 21-Dec-09 20-Jan-10 22 11,600 11,605 Performing LIEN ON N50M FIXED DEPOSIT

6 SAFETRUST PROPERTIES LIMITED AFILLIATED COMPANY 6-Aug-10 6-Apr-13 22 300,000 198,904 Performing CHARGE OVER FINANCED PROPERTIES

7 PRIMEWATERVIEW LIMITED THE MD IS A DIRECTOR IN SSL 12-Jul-11 12-Jul-16 20 560,000 560,088 Performing LEGAL MORTGAGE ON PROPERTY

8 SAMUEL BAMIRO STAFF 28-Mar-12 27-Mar-13 17 200 52 Performing PERSONAL GUARANTEE OF MR AYODELE OLUWABUSOLA

9 NMA IDRIS ABDULKADIR STAFF 27-Mar-12 26-Mar-22 15 4,200 4,055 Performing LEGAL MORTGAGE ON PROPERTY & STAFF ENTITLEMENT

10 AKIN OPEODU THE CHAIRMAN OF SSL 4-Oct-11 29-Oct-21 13 28,000 26,660 Performing LEGAL MORTGAGE ON PROPERTY

11 GRAHAM GRANT & COMPANY LIMITED THE MD IS A DIRECTOR IN SSL 30-Oct-12 21-Jan-13 13 35,000 31,519 Performing LIEN ON N200M FIXED DEPOSIT

12 VT LEASING LIMITED THE MD IS A DIRECTOR IN SSL 8-Jan-12 28-Jan-13 22 30,000 26,425 Performing LEGAL MORTGAGE ON PROPERTY

13 DANJUMA SALEH THE MD IS A DIRECTOR IN SSL 28-Aug-12 27-Aug-13 22 1,000 786 Performing PERSONAL GUARANTEE OF THE MD

14 HOAD LIMITED THE MD IS A DIRECTOR IN SSL 22 255 Performing PERSONAL GUARANTEE OF THE MD

15 STAFF LOANS STAFF 2 29,201 Performing STAFF GUARANTOR & ENTITLEMENT 1,386,778

1,039,249






66


30 Employees The average number of persons employed by the Bank during the period was as follows:

2012 2011

Number Number

Management 12 11

Senior 14 14

Junior 31 30

57 55

The number of employees of the bank, other than directors, who received emoluments in the following ranges (excluding pension contributions and certain benefits) were:

400,000 - 500,000 16 16

500,001 - 600,000 15 15

600,001 - 700,000 10 10

700,001 - 800,000 5 4

800,001 and 1,500,000 7 7

Above N1,500,000 4 3

57 55

31 Directors' emoluments

Remuneration paid to the Bank's directors (excluding certain allowances) was:

2012 2011

N '000 N '000

Fees

- Chairman 1,625 1,625

- Other Directors 11,350 11,350

Other emoluments

- Executive Director 15,000 9,000

- -

27,975 21,975

Highest paid director 9,000 9,000

The number of directors excluding the chairman whose emoluments were within the following ranges were:

2012 2011

Number Number

N499,001-N1,000,000 - -

N1,000,001 and above 9 9

9 9

32 Compliance with banking regulatio n The bank did not contravene any regulation of the Banks and Other Financial Institutions Act 1991 or

relevant circulars issued by the Central Bank of Nigeria.






67

NOTES TO THE FINANCIAL STATEMENTS 2012 2011 33 Operating expenses N '000 N '000

Personnel Cost Wages and salaries 59,218 68,195 Contributions to defined contribution plans 5,427 4,833 Defined benefit costs-Interest on Staff Loans 3,523 3,523 Directors fees 15,642 14,865

83,810 91,416

Administrative Expenses

Stationery and postage 17,279 18,067 Business travel expenses 12,478 12,624 Advert, promotion and corporate gifts 2,714 2,202 Rent and Rates 32,921 34,483 Bank charges 158,252 76,192 General expenses 132,678 83,838 IT Levy 1,134 1,106 Internet subscription 5,775 5,972

363,231 234,484

Other operating expenses

Repairs & maintenance expenses 45,165 40,736 Insurance Premium - 19,589 Consulting and auditing fees 11,388 26,591

56,553 86,916

Total 503,594 412,816






68

NOTES TO THE FINANCIAL STATEMENTS 34. Effect of IFRS adoption for the statement of cash flows

Effect of transition

to

NGAAP IFRSs IFRSs

N'000 N'000 N'000

Net cash flows from operating activities (3,326,692) 3,116,522 (210,170)

Net cashflows from investing activities (5,796) 152 (5,644)

(3,332,488) 3,116,567 (215,814)

Net cashflows form financing activities (53,383) (2,156,775) (2,210,158)

Net increase / decrease in cash and cash equivalent (3,385,871) 959,900 (2,425,971)

Cash and cash equivalents at the beginning of the period 9,777,329 - 9,777,329

Cash and cash equivalents at the end of the period 6,391,458 959,900 7,351,358






69


35 Reconciliation of the statement of financial position

Company

2011 2011

IFRS Effect of IFRS NGAAP

Note N'000 Adjustment N'000

ASSETS

Cash and Cash equivalent 7,351,358 7,343,885 7,473

Reclassification of Interest bearing placement to Cash & bank ii 6,937,503

Reclassification of Interest receivables on placement to Cash &

bank

ii 406,382

Mortgage and Real Estate Loan to customers 4,028,897 (248,783) 3,780,114

Derecognition of all loan provisions iii (597,283)

Recognition of impairment on mortgage loans iv 273,868

Reclassification of account receivable -Other Asset to mortgage

loans

v 88,069

Adjustment reclassification made on mortgage loans vi (13,437)

Other Loans & Advances to customers 829,911 454,334 375,577

Reclassification of commercial papers to other loans vii 566,000

Adjustment reclassification made on Other loans viii (111,666)

Interest bearing placements with banks - 6,937,503 6,937,503

Reclassification of Interest bearing placement to Cash & bank ix 6,937,503

Investment in securities-Available for sales 932 147 785

Adjustment made after match to market (Fair value gain-IAS 39) x 147

Other Asset 45,479 (495,077) 540,566

Reclassification of account receivable Other Asset to mortgage

loans

xi (88,695)

Reclassification of Interest receivables on placement to Cash &

cash equivalent

xii (406,382)

Property Plant & Equipment 44,680 - 44,680

TOTAL ASSETS 12,301,257 614,559 11,686,698

Reclassification of Contingent liability/commercial papers to

borrowings

- 566,000

Total assets and contingencies 12,301,257 48,559 12,252,698






70


Company 2011 2011



LIABILITIES

Deposit from Customers

828,560 - 828,560

Borrowing 7,297,160 1,297,160 6,000,000 Reclassification of commercial papers Liabilities xiii 566,000

Reclassification of Bank Overdraft xiv 553,980

Reclassification of interest payable deposit liabilities xv 177,180

Debt Securities in Issue 2,315,616 2,315,616 - Reclassification of unconvertible Debenture xvi 2,000,000

Reclassification of interest payable debenture liabilities xvii 315,616

Other Liabilities 116,845 519,857 636,700

Derecognition of provisions not in line with IAS 37 xviii 21,247

Reclassification of interest payable deposit liabilities xix 177,180

Reclassification of interest payable debenture liabilities xx 315,616

Due to National Housing Fund xxi 5,811

Due to National Housing Fund 5,811 5,811 -

Reclassification of Due to National Housing Fund xxii 5,811

Bank Overdraft - - 553,980

Current Income Tax xxiii 34,075 - 34,077

Deferred Taxation xxiv 8,311 - 8,312

TOTAL LIABILITIES 10,606,378 2,544,751 8,061,629

EQUITY Ordinary share capital 1,067,500 1,067,500 Share premium account 2,180 2,180 Statutory Reserve 179,752 6,172 173,040 Retained Earnings 445,300 69,659 382,349

Adjustment made as a result of recognition, and de-recognition: xxv 69,659 De-recognition of provisions in the current transition year 24,345

De-recognition of general provisions in the previous transition

year 2010 brought forward

45,314

Other reserves 147 147 -

Adjustment as a result of match to market (Fair Value gain-IAS

39)

xxvi 147

Tier 2 Capital-Unconvertible Debenture-(This is not supported by

IFRS Standards) now reclassified as Debt securities in issue - 2,000,000 Total equity attributable to holders of the bank 1,694,879 3,625,069

TOTAL LIABILITIES AND EQUITY 12,301,257 11,686,698

Reclassification of Contingent liability/commercial papers to

borrowings

xxvii - 566,000

Total assets and contingencies 12,301,257 12,252,698






71

NOTES TO THE FINANCIAL STATEMENTS 36. Reconciliation of statement of comprehensive income

2011 2011 IFRS Effect of IFRS NGAAP

PROFIT OR LOSS Note N'000 Adjustment N'000

Gross Income 1,665,092 1,532,239

Interest Income 1,468,984 132,854 1,336,130

Reclassification suspended interest charge i 132,854

Interest Expense (973,071) - (973,071)

Net Interest Income 495,913 363,059

Fee Income 70,573 - 70,573

Other Income 125,536 - 125,536

Total Operating Income 692,022 559,168

Net Impairment loss charge on Financial Asset 110,579 115,558 (4,979)

Recognition of impairment Adjustment ii 115,558

Net operating Income after impairment charge on 581,443 564,147

Personnel Expenses 73,028 73,028

Other Operating Expenses 339,788 (16,264) 356,052

Derecognition of provision into the expense iii (16,264)

Depreciation and Amortizations 25,533 25,533

Total Expenses 438,350 454,614

Profit before income tax 143,094 109,533

Income tax expense 25,636 - 25,636

Profit for the period from continuing operation 117,458 232,148 83,897

OTHER COMPREHENSIVE INCOME:

Fair value gains/(losses) on available-for-sale Investment 147 147 -

Adjustment on increase on available for sale investment iv 147

Fair value gains/(losses) on Investment Property - -

Other comprehensive income for the period net of tax 147 147 -

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 117,605 83,897

PROFIT FROM CONTINUING OPERATIONS

OWNERS OF THE BANK 117,458 83,897

NON-CONTROLLING INTERESTS - -

RETAINED PROFIT FOR THE PERIOD 117,458 83,897

TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO:

OWNERS OF THE BANK 117,605 83,897

NON-CONTROLLING INTERESTS

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 117,605 83,897




72


37. 2011 Explanatory notes for reconciling IFRS adjustments i-ii Reclassification of Other cash Equivalen t Under NGAAP other cash equivalent are classified as due from banks while IFRS classified cash and

other cash equivalent such as placement and interest receivable with maximum tenor of 90days as a single line in the statement of financial posit i o n

iii Derecognition of all loan provisions NGAAP required provisions to be made as regards regulatory guidelines without considering whether

there is any objective evidence of impairment. Under IFRS this was reconsidered by the management that all loans should be subject to impairment test in line with the IFRS standard under IAS 39-Financial

assets

iv Recognition of impairment on mortgage loans This is supported by IAS 39 under IFRS as against the provisioning under NGAAP without considering

whether there is any objective evidence. The impairment test was carried out in line with standard impairment test model and risk as regards to IFRS 7

v Reclassification of account receivable in other asset to mortgage loans Under NGAAP, the Bank recognizes the treatment as other asset but looking at the substance & nature

of the transactions which is interest bearing financial instrument under IFRS, hence there is need to reclassified the ass e t .

vi Adjustment reclassification made on mortgage loans This are loans classified under NGAAP now reclassified under IFRS

vii Reclassification of commercial papers to other loans Under NGAAP, the Bank recognizes the treatment as contingent but looking at the substance & nature

of the transactions under IFRS, hence there is need to reclassified the transaction as financial asset because it is an interest bearing asset to the bank which to be carry at an amortised cost.

viii Adjustment reclassification made on Other loans Refer to note viii ab o v e

ix Interest bearing placements with b a nks This represent placement with banks and other financial institutions which they are under 90days tenor

are now reclassified to cash and cash equivalent above in line with IFRS definition of cash and cash equivalent

x Adjustment made after mark to market (Fair value gain-IAS 39) This is subject to mark to market as required under IAS 39 which deals with financial instrument

classification and measurem e n t

xi Reclassification of account receivable in other asset to mortgage loans Refer to note v abo v e

xii Reclassification of Interest receivables on placement to Cash & cash equivalent NGAAP required this under other asset while IFRS derecognise it and this was reclassified in line with

definition and criteria of the financial asset category. However this fall under cash & cash equivalent category as a result of its tenor which is very short in nature and as well to state the fair value of financial instrument in line with the standard.

xiii Reclassification of commercial papers Liabilities Refer to note vii above






73

NOTES TO THE FINANCIAL STATEMENTS 37. 2011 Explanatory notes for reconciling IFRS adjustments (continue)

xiv Reclassification of Bank Overdra f t This has a separate line under NGAAP on the face of the balance sheet but recognised as borrowing

under IFRS on the face of statement of financial position, however, this should be reclassified under financial liabilities accordingly in line with IFRS 1

xv Reclassification of interest payable to deposit liabilities NGAAP required this under other liabilities while IFRS derecognise it and this was reclassified in line

with definition and criteria of the financial liabilities category. However this fall under borrowing category as a result of its tenor which is very short in nature and as well to measure and carry the financial liabilities at amortised cost

xvi Reclassification of uncovertable Debentu r e Under NGAAP, the Bank recognizes the treatment as Tier 2 capital, but looking at the substance of the

transactions under IFRS, hence there is need to reclassified as a financial liabilities under securities in issue.

xvii Reclassification of interest payable debenture liabilities NGAAP required this under other liabilities while IFRS derecognise it and this was reclassified in line

with definition and criteria of the financial liabilities category. However this fall under long term borrowing which has a separate line as Debt security in issue in the face of the financial position category as a result of its tenor which fall under long term in nature and as well to measure and carry the financial liabilities at amortis e d cost

xviii Derecognition of provisions not in line with IAS 37 NGAAP allowed provisions but under IFRS provision has to follow lay down criteria in line with IAS 37

and this does not meet the criteria in line with IAS 37, hence this was to be derecognised.

xIx Reclassification of interest payable deposit liabilities Refer to note xv above

xx Reclassification of interest payable debenture liabilities Refer to note xvii above

xxi Due to National Housing Fund This was included as part of other liabilities under NGAAP and because its nature needs to be disclose

on the face of statement of financial position for disclosure purposes

xxii Reclassification of Due to National Housing Fund Refer to note xxi above

xxiii Current Income Ta x There was no change in the computation of income tax as reported on the face of statement of financial

position because the resultant increase in profit or loss account are recognised into retained earnings as recommended by IFRS which does not involved new business and are not cash related adjustments.

xxiv Deferred Taxation There was no change in the computation of deferred tax as reported on the face of statement of

financial position because there was no temporary difference that arises in the cause of transition for 201 1 .

xxv Adjustment made as a result of recognition, de-recognition, reclassification and remeasurement This is the effect of transition of NGAAP to IFRS on Equity and Reserve which includes previous

adjustment b/f from 2010 and some derecognition of provisions in 2011 which does not supported by IFRS






74


xxvi Adjustment as a result of match to market (Fair Value gain-IAS 39) This adjustment arises as a result of match to market of available for sales-investment securities under

financial asset which is in line with IAS 39 and the Bank accounting policies

xxvii Reclassification of Contingent liability/commercial papers to other loans Refer to note vii above 38. 2011 Explanatory notes for reconciling IFRS adjustments on Statement of comprehensive income i Reclassification suspended interest charge Under NGAAP and in line with CBN guidelines, the Bank recognizes the treatment of non-performing

loans interest to be accrued for and suspended which means its should not be recognise into income until the affected loan start performing and such interest recognition should be based on cash basis. However, IFRS frown at this and states that such interest should form part of interest income while all loans should be subject to impairment test in which both principal and interest if impaired an allowance should be created and charge to profit or loss accordingly. Also note that, in doing such, a standard impairment model should be adopted and the basis for such model should be disclose in the financial

state ments.

ii Recognition of impairment Adjustme n t Since the de-recognition of interest in suspense Under NGAAP as it is been prescribed by CBN

Guidelines, the Bank now recognizes impairment allowance in line with the best standard of impairment model testing as it is been prescribed by IFRS recognise such allowance charge to profit or loss account understatement of comprehensive income

iii Derecognition of provision into the expense NGAAP allowed provisions but under IFRS-IAS 37, provision has to follow lay down criteria in line with

IAS 37 and this does not meet the criteria in line with IAS 37, hence this has to be derecognised and resultant effect of this is its decreases the operating expense where such provision was initially debited when creating such provisio n s .






75


39. Reconciliation of the bank's statement of financial position

Company

2010 2010



ASSETS

Cash and Cash equivalent 10,023,056 10,011,865 11,191 Reclassification of Interest bearing placement to Cash & cash

equivalent i 9,909,226 Reclassification of Interest receivables to cash & cash

equivalent ii 102,638

Mortgage and Real Estate Loan to customers (net) 3,173,358 518,640 2,654,717

Derecognition of all loan provisions (general & specific) iii 469,644

Recognition of impairment on mortgage loans iv 169,531

Reclassification adjustment of other loans to mortgage loans v (120,535)

Other Loans & Advances to customers (net) 1,246,259 304,190 942,069

Reclassification of commercial papers to other loans vi 786,500

Recognition of impairment on Other loans vii (263,782)

Reclassification adjustment of mortgage loans to other loans viii (218,528)

Interest bearing placements with banks - - 9,909,226 Reclassification of Interest bearing placement to Cash & cash

equivalent ix -

Investment securities-Available for sales x 785 - 785

Other Asset 41,572 93,654 135,224

Derecognition of provisions for Other Asset xi (59,045)

Derecognition of unsubstantiated Other Asset/Impairment xii 50,061

Reclassification of Interest receivables on interest bearing placement to cash & cash equivalent xiii 102,638

Property Plant & Equipment xiv 63,713 - 63,713

TOTAL ASSETS 14,548,742 831,816 13,716,925

Contingent Asset - 786,500

TOTAL ASSETS 14,548,742 45,316 14,503,425




Annual Report and

Accounts


76


39. Reconciliation of the bank's statement of financial position (Continued)

Company

2010 2010



LIABILITIES

Deposit from Customers 1,148,099 - 1,148,099

Borrowing 9,499,403 1,072,002 8,427,401

Reclassification of commercial papers Liabilities xv 786,500

Reclassification of Bank Overdraft xvi 143,088

Reclassification of interest payable deposit liabilities xvii 142,414

Debt Securities in Issue 2,000,000 2,000,000 -

Reclassification of unconvertible Debenture xviii 2,000,000

-

Other Liabilities 100,447 148,722 249,165

Derecognition of debit withholding tax accrual xix (301)

Reclassification of interest payable deposit liabilities xx 142,414

Reclassification of Due to National Housing Fund xxi 6,609

Due to National Housing Fund 6,609 -

6,609

Bank Overdraft - - 143,088

Current Income Tax 143,937 - 143,937

Deferred Taxation 10,687 - 10,687

TOTAL LIABILITIES 12,909,182 2,786,801 10,122,379

EQUITY Ordinary share capital 1,067,500 1,067,500

Share premium account 2,180 2,180

Statutory Reserve 156,261 156,260

Retained Earnings 413,618 45,014 368,606

Adjustment made as a result of de-recognition of general provision

under NGAAP

xxii 45,014

Tier 2 Capital-Unconvertible Debenture-(This is not supported by

IFRS Standards)

- 2,000,000

Total equity attributable to holders of the bank 1,639,559 3,594,546

TOTAL LIABILITIES AND EQUITY 14,548,742 13,716,925

Contingent liability - 786,500

Total assets and contingencies 14,548,742 14,503,425






77


40. 2010 Explanatory notes for reconciling IFRS adjustments i-ii Reclassification of Other cash Equivalen t Under NGAAP other cash equivalent are reclassified as due from banks while IFRS classified cash and

other cash equivalent such as placement and interest receivable with maximum tenor of 90days as a single line in the statement of financial posit i o n

iii Derecognition of all loan provisions NGAAP required provisions to be made as regards regulatory guidelines without considering whether

there is any objective evidence of impairment. Under IFRS this was reconsidered by the management that all loans should be subject to impairment test in line with the IFRS standard under IAS 39-Financial

assets

iv Recognition of impairment on mortgage loans This is supported by IAS 39 under IFRS as against the provisioning under NGAAP without considering

whether there is any objective evidence. The impairment test was carried out in line with standard impairment testing model and risk as regards to IFRS 7

v Reclassification adjustment of other loans to mortgage loans These are loans classified under NGAAP as other loans now reclassified to mortgage loans when

transiting to I F RS

vi Reclassification of commercial papers to other loans Under NGAAP, the Bank recognizes the treatment as contingent but looking at the substance & nature

of the transactions under IFRS, hence there is need to reclassified the transaction as financial asset because it is an interest bearing asset to the bank which to be carry at an amortised cost.

vii Recognition of impairment on Other loans Refer to comment iv above

viii Reclassification adjustment of mortgage loans to other loans These are loans classified under NGAAP as mortgage loans now reclassified to other loans when

transiting to I F RS

ix Reclassification of Interest bearing placement to Cash & cash equivalent This represent placement with banks and other financial institutions which they are under 90days tenor

are now reclassified to cash and cash equivalent above in line with IFRS definition of cash and cash equivalent

xi Derecognition of provisions for Other Asset NGAAP required provisions to be made as regards regulatory guidelines without considering whether

there is any objective evidence of impairment. Under IFRS this consideration is made and management believes that all unsubstantiated balance which does not meet the definition of an asset should be subjected to impairment in line with the IFRS standard

xii Derecognition of unsubstantiated Other Asset/Impairment This was being carried at stated value under NGAAP while its does not fall in line with the definition of

an asset under IFRS, hence this cannot but substantiated and subject to derecognition in the account

xiii Reclassification of Interest receivables on interest bearing placement to cash & cash equivalent NGAAP required this under other asset while IFRS derecognise it and this was reclassified in line with

definition and criteria of the financial asset category. However this fall under cash & cash equivalent category as a result of its tenor which is very short in nature and as well to state the fair value of financial instrument in line with the standard.






78


xv Reclassification of commercial papers Liabilities Refer to comment vi above

xvi Reclassification of Bank Overdra f t This has a separate line under NGAAP on the face of the balance sheet but recognised as borrowing

under IFRS on the face of statement of financial position, however, this should be reclassified under financial liabilities accordingly in line with IFRS 1

xvii Reclassification of interest payable deposit liabi l i t i e s NGAAP required this under other liabilities while IFRS derecognise it and this was reclassified in line

with definition and criteria of the financial liabilities category. However this fall under borrowing category as a result of its tenor which is very short in nature and as well to measure and carry the financial liabilities at amortise d c ost

xviii Reclassification of uncovertable Debentu r e Under NGAAP, the Bank recognizes the treatment as Tier 2 capital, but looking at the substance of the

transactions under IFRS, hence there is need to reclassified as a financial liabilities under securities in issue.

xx Reclassification of interest payable debenture liabilities

NGAAP required this under other liabilities while IFRS derecognise it and this was reclassified in line

with definition and criteria of the financial liabilities category. However this fall under long term borrowing which has a separate line as Debt security in issue in the face of the financial position category as a result of its tenor which fall under long term in nature and as well to measure and carry the financial liabilities at amortis e d cost

xxi Due to National Housing F u n d This was included as part of other liabilities under NGAAP and because if its nature needs to be

disclose on the face of statement of financial position for disclosure purposes because it’s a government regulatory funds funded by tax payers money

xxii Adjustment made as a result of de-recognition of general provision under NGAAP This is the effect of transition of NGAAP to IFRS on Equity and Reserve as a result of derecognition of

general provision under NGAAP where there is no objective evidence on such provisions The transition to IFRSs has resulted to the following changes in accounting policies:

(a) Reclassification of mortgage fees and charges "Under Nigerian GAAP, mortgage fees and charges are treated as part of other income. However,

under IFRS, effective interest rate method is used to calculate interest income over the relevant period. The calculation includes all fees 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. These mortgage fees and charges are considered integral to the effective interest rate hence, the reclassification.

(b) Mortgage fees and charges earne d These fees and charges are recognised upfront under Nigerian GAAP. IFRS amortises these fees over

the life of the financial asset. This amount represents the portion of fees earned during the year.

(c) Interest on impaired financial ass e t s This represents interest on impaired loans and advances. Under Nigerian GAAP, interest on impaired

loans and advances are suspended ('interest in suspense'). IFRS allows the recognition of interest on impaired loans and advances.






79


(d) Recoveries These were recognised as part of other operating income under Nigerian GAAP. Recoveries have been

derecognised under IFRS and no longer forms part of other operating income.

(e) Fair value increase of investment property This represents fair value increase of investment properties. Under Nigerian GAAP, the cost model was

used to account for investment properties at initial recognition and at the adoption of IFRS, fair value recognition is adopted by the Bank in line with its Accounting policies which is supported by IAS 40 by recognising fair value gains into other reserve and loss into profit or loss while subsequent measurement of Investments properties are to be reviewed annually to reflect fair value gains or loss which will be recognise to profit or loss statement.

(f) Impairment of loans and advance s This represents the difference between the Nigerian GAAP provisions computed in accordance with

prudential guidelines and impairment of loans computed in accordance with the 'incurred loss model' under IFRS. The result is a de-recognition of Nigerian GAAP provision as shown in the statement of reconciliation at transition date. However, IFRS treatment recognises to be taken to reserves.

(g) Reclassification of prepaid intere s t . Under Nigerian GAAP, prepaid interest on borrowing deposits, and fixed placements liabilities are

recognized separately in other assets. Under IFRS, borrowing balances from customers, banks and other corporate institutions are financial liabilities in the borrowing and payables category and it is measured at amortized cost. Thus prepaid interests such on deposits are reclassified to borrowing balances to carry them at amortized cost.

N' 000

Prepaid interest on Unit Bank Taken 1,756 Prepaid interest on other corporate institutions Taken 8,791

-

10,547

The transition to IFRSs has resulted to the following changes in accounting policies: (h) Income tax expens e This represents deferred tax implication on IFRS adjustments.

(i) Reclassification of interest receivab l e . Under Nigerian GAAP, interest receivable on call deposits and fixed placements investment are

recognized separately in other assets. Under IFRS, cash balances with banks are financial assets in the loans and receivable category and it is measured at amortized cost. Thus interests receivable on deposits are reclassified to cash and bank balances to carry them at amortized cost.

N' 000 -

Interest receivable on fixed placements- Banks & Other Institutions 650,914

-

650,914






80


(j) Amortization of mortgage fe e s . This is an adjustment to reflect the effect of amortized mortgage fees and charges initially recognized

upfront by the bank. These fees are charged as a percentage of the loans disbursed. They include management fees, processing fees, legal fees and commissions. The effective interest rates of the loans were used to amortize these fees and charges over the period of the loans.

(k) Employee benefit c o s t . This adjustment relates to staff loans granted at rates below the market interest rate. Under IFRS, loans

given to staff at concessionary rate are to be adjusted as they form part of employee compensation cost. These loans were fair valued using the average market rates obtainable for the respective categories of staff l o a n .

N' 000

Employee benefit cost

3,523 (l) Interest receivable on mortgage and other loans & advances. Under Nigerian GAAP, fees receivable on loans and advances are recognized separately in other

assets. Under IFRS, mortgage loans and advances are financial assets in the loans and receivable category and it is measured at amortized cost. Thus management fees receivable on loans are reclassified to loans and advances to carry them at amortized cost.

N' 000

Interest receivable on mortgage and other loans & advances 17,709

(m) Reclassification of intangible assets . Under Nigerian GAAP, intangible assets like computer software are classified under property plant and

equipment. Under IFRS computer software would generally be classified as intangible assets unless it can be considered to be an integral part of the property plant and equipment. As a result computer software has been classified as intangible assets.

N' 000

Cost of computer software re-classified 0

Accumulated depreciation/amortisation on computer software 0

0

The transition to IFRSs has resulted to the following changes in accounting policies:

(n) Reclassification of interest payable on debt securities in issue

Under Nigerian GAAP, the bank recognizes interest payable separately as part of other liabilities. Deposits and borrowings are carried at amortized cost under IFRS, hence there is need for reclassifica t i o n .

Debenture loan stock liabilities was adjusted to reflect the interest payable as follows:

N' 000

Sterling Asset Management Ltd 632,993

632,993






81

NOTES TO THE FINANCIAL STATEMENTS (o) Reclassification of interest payable on Short-term borrowings

Under Nigerian GAAP, the bank recognizes interest payable separately as part of other liabilities.

Deposits and borrowings are carried at amortized cost under IFRS, hence there is need for reclassifica t i o n .

Short term borrowing liabilities was adjusted to reflect the interest payable as follows:

FSDH 18,375 (p) Reclassification of interest payable on customer deposits i Under Nigerian GAAP, the bank recognizes interest payable separately as part of other liabilities.

Deposits and borrowings are carried at amortized cost under IFRS, hence there is need for reclassifica t i o n .

Deposit liabilities was adjusted to reflect the interest payable as follows:

N' 000

Demand deposits 436,097

Term deposits 481,470

Savings deposits 53,088

970,655

(q) Reclassification of interest payable on long-term borrowings

The interest payables on long-term loans were also re-classified from other liabilities as follows:

N' 000

Unity Bank Plc

18,493

18,493






82



STATEMENT OF VALUE ADDED

2012 2011

Gross Income

Interest paid

Bought in services - local

N'000

2,386,825

(1,106,586)

1,280,239

(646,551)

% N'000

1,665,093

(973,071)

692,022

(445,738)

%

Value added

Applied as follows:

To pay employees:

633,688

100 246,284 100

Salaries and wages

Pensions and gratuity

To pay Government:

- Taxation

- Information technology levy

For future replacement of

assets, expansion of business and

payment of dividend to shareholders:

- Deferred taxation

- Depreciation and amortization

- Profit for the year

62,741

5,427

6,289

1,134

131,521

22,316

404,260

10

1

1

0.2

21

3

64

71,718

4,833

28,012

1,106

(2,376)

25,533

117,458

29

2

11

0.4

(1)

11

48

633,688 100

246,284 100

Value-added represents additional wealth which the Company has been able to create through its own and employees' efforts. This statement shows the application of that wealth amongst the employees, government

and that retained for future creation of more wealth.

83




FINANCIAL SUMMARY

STATEMENT OF FINANCIAL POSITION

ASSETS

Cash & Cash Equivalents

Mortgage Loans and other receivables

Other financial Assets

Other assets

Intangible assets

Investment property

Property, plant and equipment

Total assets

LIABILITIES

Deposits from customers

Due to National Housing Fund

Borrowings

Debt Securities in Issue

Current income tax liability

Other liabilities

Deferred tax

Total liabilities

EQUITY

Share capital

Share premium

Statutory reserves

Retained earnings

Other reserves

Total equity

Total equity and liabilities

STATEMENT OF PROFT OR LOSS AND OTHER COMPREHENSIVE INCOME

Operating Income

Profit before taxation

Profit after taxation

PER N1 SHARE DATA (KOBO)

Earnings - basic (kobo)

Net asset per share (kobo)

31 Dec

2012

N'000

5,982,919

4,782,117

1,109

73,903

1,022

1,000,184

27,562

11,868,816

970,655

22,068

5,938,069

2,639,126

30,311

111,822

139,832

9,851,883

1,067,500

2,180

260,604

686,325

324

2,016,933

11,868,816

1,067,980

542,070

404,260

37.87

188.94

31 Dec

2011

N'000

7,351,358

4,858,808

932

45,479

-

-

44,680

12,301,257

828,560

5,811

7,297,160

2,315,616

34,075

116,845

8,311

10,606,378

1,067,500

2,180

179,752

445,300

147

1,694,879

12,301,257

581,443

143,094

117,458

11.00

158.77

1 Jan

2011

N'000

10,023,056

4,419,617

785

41,570

-

-

63,714

14,548,742

1,148,099

6,609

9,499,403

2,000,000

143,937

100,447

10,687

12,909,183

1,067,500

2,180

156,261

413,618

-

1,639,559

14,548,742

Basic Earnings per share are based on profit after tax and the number of issued share capital at the end of

each period.



84




Annual General Meeting to be held at 12noon on Thursday, 27th of June, 2013 at Colonades, 3rd

Floor, 21 Alfred Rewane Road (Formerly Kingsway Road), Ikoyi, Lagos.

X I/We ___________________

of ______________________

being a member/members of

Safetrust Savings & Loans Ltd.

hereby appoint

X ________________________

Or failing him/her, the Chairman of the

Meeting as my/our proxy at the Annual

General Meeting of the Company to be

held on the 27th of June, 2013 and at any

adjournment thereof.

Dated this ---day of ----------------2013

Please indicate with an “X” in the appropriate

Box how you wish your vote to be ca st on the

resolutions set out above. Unless otherwise

instructed, the Proxy will vote or abstain from

voting at his/her discretion.

Signature________________________

No. of Shares

Resolution

For

Against 1

2

3

4

5




Annual Report and

Accounts


85

Notes:

A member who is unable to attend an Annual General Meeting is allowed by law to vote by proxy. A proxy form has been prepared to enable you exercise your right in case you cannot personally attend the meeting. The proxy form should not be completed if the member will be attending the meeting.

If your are unable to attend the meeting, read the following instructions carefully:

Write your name in BLOCK CAPITALS on the proxy form where marked “^”

Write the name of your proxy where marked “X” and ensure the proxy form is dated and signed by you.

Before posting the above proxy form please tear off this part and retain it for admission to the meeting

ADMISSION CARD

Annual General Meeting to be held at 12:00noon on Thursday, 27th of June, 2013 at Colonades, 3

rd Floor,

21 Alfred Rewane Road (Formerly Kingsway Road), Ikoyi, Lagos.

Name of Shareholder:_____________________________

Signature of Person attending:_______________________

* This admission card must be produced by the shareholder or his/her proxy in order to be admitted to the

meeting.


Company Secretary

4th of June, 2013



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