ZENITH BANK (UK) LIMITED PILLAR 3 DISCLOSURES FOR THE YEAR ENDED 31 DECEMBER 2018
ZENITH BANK (UK) LIMITED
PILLAR 3 DISCLOSURES FOR THE YEAR ENDED
31 DECEMBER 2018
Contents
1. Introduction ....................................................................................................................... 4
1.1. Business Profile .................................................................................................................................... 4
1.2. ZBUK’s Parent ...................................................................................................................................... 4
1.3. Principal Activities ................................................................................................................................ 4
1.4. Risk Management Overview ................................................................................................................. 6
1.5. Basis of Disclosures .............................................................................................................................. 6
1.6. Frequency ............................................................................................................................................ 6
2. Risk Governance............................................................................................................... 6
2.1. Overview ............................................................................................................................................. 6
2.2. Board of Directors ................................................................................................................................ 6
2.3. Board Committees ................................................................................................................................ 7
2.4. Management Committees .................................................................................................................... 8
2.5. Oversight of Strategy, Policies and Procedures ..................................................................................... 10
2.6. Assurance .......................................................................................................................................... 11
Internal Audit Programme ................................................................................................................... 11
External Audit ..................................................................................................................................... 11
Compliance ......................................................................................................................................... 11
3. Risk Appetite and Risk Management Policies .............................................................. 11
3.1. Risk Appetite ...................................................................................................................................... 11
3.2. Credit Risk .......................................................................................................................................... 11
Management of Credit Risk ................................................................................................................ 12
3.3. Liquidity Risk ...................................................................................................................................... 12
Management of Liquidity Risk............................................................................................................. 12
3.4. Market Risk ........................................................................................................................................ 12
3.5. Interest Rate Risk ............................................................................................................................... 12
3.6. Operational Risk ................................................................................................................................. 12
3.7. Other Key Risks and Sensitivities ......................................................................................................... 13
4. Capital Adequacy Overview & Resources..................................................................... 13
4.1. Capital Management .......................................................................................................................... 13
4.2. Capital Resources ............................................................................................................................... 13
4.3. Capital Allocation ............................................................................................................................... 14
Pillar 1 Allocation ................................................................................................................................ 14
Pillar 1 Credit Risk .............................................................................................................................. 14
Pillar 1 Operational Risk ..................................................................................................................... 14
Pillar 1 Market Risk ............................................................................................................................. 15
4.4. Pillar 2 Assessment Process ................................................................................................................. 15
4.5. Leverage Ratio ................................................................................................................................... 15
5. Credit Risk ....................................................................................................................... 16
5.1. Definition of Credit Risk ...................................................................................................................... 16
5.2. Credit Exposure by residual maturity and exposure class ...................................................................... 16
Credit Exposure by Geographical distribution ................................................................................................. 17
5.3. Provisioning ....................................................................................................................................... 18
5.4. Credit Risk by credit quality steps ........................................................................................................ 18
Controls and Credit Risk Mitigation .................................................................................................... 18
5.5. Collateral ........................................................................................................................................... 19
6. Market Risk...................................................................................................................... 20
6.1. Definition of Market Risk .................................................................................................................... 20
6.2. Interest Rate Risk ............................................................................................................................... 20
6.3. Foreign Exchange Risk......................................................................................................................... 20
7. Operational Risk ............................................................................................................. 20
8. Concentration Risk ......................................................................................................... 21
9. Remuneration .................................................................................................................. 21
9.1. Remuneration Policy .......................................................................................................................... 21
9.2. Remuneration and Appointments Committee ...................................................................................... 21
9.3. Incentive Calculations ......................................................................................................................... 22
10. Notices ............................................................................................................................. 22
Pillar 3 Disclosures 31 December 2018 Page 4
1. Introduction
1.1. Business Profile
Zenith Bank (UK) Limited (‘ZBUK’ or ‘Zenith UK’ or ‘the Bank’) was incorporated on 13th February 2006. It is a
wholly owned subsidiary of Zenith Bank Plc. (‘ZBPLC’ or ‘Zenith Nigeria’) one of the leading financial services
groups in Nigeria.
ZBUK was authorised on 30th March 2007 at which date it commenced trading and is staffed with experienced,
professional bankers with extensive knowledge of Corporate and Correspondent Banking, Trade and Commodity
Finance, Wealth Management and Treasury.
The Bank markets and offers a range of banking products and services with its target market being West African
companies, international corporations, commodity traders, investment banks, institutional investors, governments
and supranational organisations as well as high net worth individuals.
The Bank generates revenues through the extension of credit to corporate customers and high net worth
individuals, participating in revolving credit facilities, syndicated structured trade finance facilities, the distribution
of government, bank and corporate securities and Eurobonds, processing of Letters of Credit and related trade
services and payments. The Bank also offers investment mortgages and advisory services to its wealth
management customers.
1.2. ZBUK’s Parent
Zenith Bank Plc. is one of the biggest and most profitable banks in Nigeria. The bank was established in May 1990
and started operations in July same year as a commercial bank.
It became a public limited company on June 17, 2004 and was listed on the Nigerian Stock Exchange on October
21, 2004 following a highly successful Initial Public Offering (IPO). The bank presently has a shareholder base of
639,403 (2017: 642,455).
In November 2007 Zenith Bank Plc. returned to the capital market to raise about N130 billion in a combined rights
issue and public offer. The rights issue and public offering were concluded in February 2008 after which date
Zenith Bank Plc.’s capital base stood at N300 bn. During 2013 Zenith Bank Plc. listed on the London Stock Exchange
with 125 million global depositary receipts for a total value of US$850 million. No new capital was raised as the
bank bought back shares in its home market before launching the GDRs in London. As at 31 December 2018, Zenith
Bank Plc’s capital base at group level stood at N815.8 billion (US$2.2 billion equivalent) (Dec-17 restated:
N812.1billion - US$2.3 billion equivalent) including non-controlling interests reflecting an annual increase of N3.7
billion in Naira capital base.
1.3. Principal Activities
ZBUK provides products and services to UK, European and other corporations trading with and investing in Nigeria,
Ghana and other West African countries.
ZBUK works with Nigerian, Ghanaian and other banks and corporations to facilitate trade and investment flows as
well as participating in Trade and Project financings for West African borrowers.
The current business profile is that of a wholesale banking institution covering Trade Services, Wealth
Management, Corporate Banking, Correspondent Banking and Financial Institutions, Treasury and Dubai Branch
with the following activities:
Pillar 3 Disclosures 31 December 2018 Page 5
Corporate Banking
ZBUK acts as banker to certain Nigerian and West
African corporate entities and European
manufacturing and trading companies. The range of
products in this area include:
- Deposit facilities / Business current and call
accounts
- Term loans, Participations in syndicated facilities &
Foreign exchange
Financial institutions
- Payments
- Trade Services, Foreign exchange, Eurobonds
- Money market loans and deposits
- Loan/Risk participations (primary/secondary)
- Secondary Market sales (loans and LCs)
Correspondent Banking - Correspondent bank accounts, Payments & Trade
Services
Trade Services
- Import / Export / Stand-by / Back-to-Back Letters
of Credit
- Discounting / Refinancing, Contract Guarantees
- Import and Export Collections
- LC advising and Documents Checking
Bond Investment
ZBUK invests in Sub-Saharan Africa Bonds as part of
its strategy to diversify its exposures across the
region. These investments mainly represent African
governments, financial institutions and multilateral
development banks with an acceptable credit
standing (in line with the approved Risk appetite).
Bond Trading
ZBUK acts as broker in Sub-Saharan Africa Bonds as
part of its strategy to establish itself as the leading
bank in the UK providing financial services within
Africa. It aims to become a gateway into Africa for
its non-African customers and a recognised
participant in the African Capital Markets.
Governments and parastatals
ZBUK acts as banker to the Government and
parastatals of Nigeria. The ZBUK Treasury is
responsible for this service.
Dubai Branch Office
Relationship management office, covering Trade
Services and other corporate banking issues, with all
input and documentation being processed in ZBUK
in London (the Dubai Branch is not a booking
centre).
Wealth Management
ZBUK provides Wealth Management and banking
services to private individuals primarily from West
Africa, with an emphasis on Nigeria, Ghana and the
diaspora. The range of products and services offered
in this area include:
- Current accounts, Saving and fixed term deposit
accounts
- Investment mortgages
- Investment services, including custodian services
and Sub-Saharan Africa Eurobonds
Online Retail Deposits Fixed rate online savings accounts – 1, 2 and 3 year
deposit accounts available to UK residents.
Pillar 3 Disclosures 31 December 2018 Page 6
1.4. Risk Management Overview
Disclosures in this document fall under Pillar 3 of the Basel III Capital Requirements Directive (CRD) which require
that ZBUK publishes certain information relating to its risk management and capital adequacy.
The disclosure requirements compliment the two other pillars of the CRD, the minimum capital requirements
(Pillar 1) and the supervisory review process (Pillar 2) which has been captured within ZBUK’s Internal Capital
Adequacy Assessment Process (ICAAP) report. In terms of the Pillar 1 requirements the Bank has adopted the
Standardised Approach for Credit and Market Risk and the Basic Indicator Approach for Operational Risk.
The aim of the disclosures is to encourage market discipline and allow market participants and stakeholders to
assess key pieces of information on risk exposures and the risk assessment process.
1.5. Basis of Disclosures
ZBUK’s disclosures have been prepared in accordance with the PRA Rulebook and relevant Supervisory Statements
and cover the qualitative and quantitative disclosure requirements therein. The disclosures should be read in
conjunction with the ZBUK Directors’ Report and Financial Statements for the corresponding financial year, which
are published each year.
1.6. Frequency
The Pillar 3 Disclosures Report will be made on an annual basis and will be published on the Bank’s website at
“www.zenith-bank.co.uk” together with or shortly after the Directors’ Report and Financial Statements. Before
publication this report will be formally presented to the Board of Directors for review and approval.
2. Risk Governance
2.1. Overview
ZBUK’s risk management focuses on major areas of strategic risk, business risk, credit risk, market risk (including
interest rate risk, counterparty risk and foreign exchange risk), liquidity and funding risk, operational risk (including
conduct risk and cyber risk), compliance risk, regulatory risk and reputational risk. The management of these risks
ultimately rests with the Board of Directors as the ultimate governing authority of the Bank.
2.2. Board of Directors
The Board of Directors of ZBUK is ultimately responsible for ensuring that the Bank’s capital (and liquidity) remains
adequate at all times. In performing these duties, The Board has approved the strategic direction and policies to
conduct the business within approved parameters and risk tolerance stated in the Risk Appetite Statement.
To this end, the Board will:
Approve the Strategy, monitor its implementation, approve changes and compare performance against the plan
Approve risk tolerance stated in the Risk Appetite Statement and any changes to these
Approve strategic level policies, framework and any recommended changes to these
Ensure that appropriate systems of internal controls are put in place and maintained to enforce conformity with
the provisions of the policy. This will include the existence of appropriate structures, segregation of duties and
delegation of responsibilities to relevant staff
Monitor ZBUK’s Balance sheet, credit and liquidity risk profile periodically to ensure its robustness for the Bank’s
operating activities.
The Board has allocated the responsibility for execution of the strategy to the Executive management and uses its
specialised committees to monitor and control the activities.
Pillar 3 Disclosures 31 December 2018 Page 7
The ‘Senior Managers and Certification Regimes’ (SMCR) have enhanced the individual responsibility and
accountability of the key functions of the bank. Affecting both senior and junior employees, the regime has
stipulated the expectations in terms of behaviour and duties. In line with this, various responsibilities have been
defined and allocated amongst the various Committees and Personnel.
In order to align to the PRA rules and improve the Bank’s governance, the Audit and Risk Committee has been
separated into the Board Risk Committee (which has assumed the responsibilities of the old Board Credit
Committee) and the Audit and Compliance Committee.
The Board is composed of the Non-Executive Chairman, five non-executive directors (includes three independent
directors), Chief Executive Officer and the Executive Director (Business Development).
The table below discloses the number of directorships held by respective directors as at 31st December 2018,
including those in Zenith Bank Group.
Director Name Role Directorships
Jim Ovia Chairman 4
Peter Amangbo Non-Executive Director 4
Jeffery Efeyini Non-Executive Director 2
Ian Ogilvie Non-Executive Director 2
David Somers Non-Executive Director 3
Andrew Gamble Non-Executive Director 5
Pamela Yough Chief Executive 1
Anthony Uzoebo Executive 1
ZBUK are committed to the principle of equal opportunities in employment for all employees, which is equally
applicable to the Board members.
2.3. Board Committees
The Board has established four sub-committees:
Composition and Responsibilities of Board Committees
Committee Members Responsibilities Frequency of
Meetings
Board Risk
Committee
(BRC)
5 Non-Executive Directors
Observers:
Chief Executive Officer
Executive Director
Chief Risk Officer
Head of Business
Development
Head of Internal Audit
The BRC supports the Board's Corporate
Governance responsibilities in relation to
risk management. The Committee
considers and recommends to the Board
the Bank's risk management framework
including policies relating to the
management of current and future risks.
BRC recommends the Internal Capital
Adequacy Assessment process (ICAAP),
the Internal Liquidity Adequacy
Assessment process (ILAAP), Recovery
Plan and Resolution Pack, the Risk
Appetite Statement (RAS) and others as
well as reviewing Credit Risk Management
and Risk Governance Framework.
Quarterly
and as
required
Pillar 3 Disclosures 31 December 2018 Page 8
Composition and Responsibilities of Board Committees
Committee Members Responsibilities Frequency of
Meetings
Audit &
Compliance
Committee
(ACC)
5 Non-Executive Directors
Observers:
Chief Executive Officer
Chief Financial Officer
Chief Operating Officer
Head of
Compliance/MLRO
Head of Internal Audit
The ACC supports the Board’s Corporate
Governance responsibilities in respect of
all aspects of Audit and Compliance.
Approves internal, external audit and
compliance arrangements including
monitoring of the operation of the Bank’s
Internal Audit and the internal control
framework. The ACC also recommends
the Financial Statements, approves
financial crime and general compliance
policies, governance controls and
procedures and reviews ‘whistleblowing’
arrangements.
Quarterly
and as
required
Remuneration &
Appointments
Committee
(RAC)
5 Non-Executive Directors
Chief Executive Officer
Head of HR
Determines the remuneration,
appointment and contractual
arrangements of individual executive
directors, non-executive directors and
senior staff, having regard to a general
policy framework for executive
remuneration established by the Board.
Quarterly
and as
required
Strategy
Committee
4 Non-Executive Directors
Observers:
EXCO members
To review the business and operational
strategy of ZBUK. Taking into account
results of capital planning (ICAAP).
Twice
annually
2.4. Management Committees
To support the work of these Committees the management have established the following Management
Committees:
Composition and Responsibilities of Management Committees
Committee Members Responsibilities Frequency of
Meetings
Executive
Committee
(EXCO)
Chief Executive Officer
Executive Director
Head of Business
Development
Chief Financial Officer
Chief Risk Officer
Chief Operating Officer
Head of
Compliance/MLRO
Head of Markets
Head of Correspondent
Banking and Financial
Institutions
Head of HR
Head of IT
Head of Legal
Head of Internal Audit
Formulates the strategy of the Bank, in
compliance with the Zenith Group’s
strategy.
Ensures the Bank is managed in
accordance with the agreed strategy;
and is managed in a sound, prudent
and ethical manner.
Approves on behalf of the Board the
Bank’s risk management framework,
other risk management policies and
arrangements and internal control
policies. Covers and implements AML
and compliance policies and approves
financial information, including
budgets and forecasts and considers
operational risk issues, within policies
and procedures.
Weekly
Pillar 3 Disclosures 31 December 2018 Page 9
Composition and Responsibilities of Management Committees
Committee Members Responsibilities Frequency of
Meetings
Asset & Liability
Committee
(ALCO)
Chief Executive Officer
Executive Director
Chief Financial Officer
Chief Risk Officer
Head of Markets
Chief Operating Officer
Head of Internal Audit
Liquidity Manager
Manager, Market Risk
Head of Business
Development and
Senior MM Dealer
(by invitation)
Manages the Bank’s balance sheet
within the defined risk appetite and
risk/return preferences set by the
Board. Provides the Bank with the
ability to continuously assess current
asset and liability management (ALM)
direction, liquidity management and
reporting and balance sheet structure.
Weekly
Market Risk
Committee
(MRC)
Chief Executive Officer
Executive Director
Chief Financial Officer
Chief Risk Officer
Head of Markets
Chief Operating Officer
Head of Internal Audit
Manager, Market Risk
Head of Business
Development and
Senior MM Dealer
(by invitation)
Monitors the Bank’s positions in terms
of interest and exchange rates,
assessing market volatility and key
market trends. Reviews market risk
strategy and sets key limits for all
market risks for foreign exchange and
other trading and the reporting
thereof. The committee reports to
ALCO.
Weekly
Management
Credit
Committee
(MCC)
Chief Executive Officer
Executive Director
Chief Financial Officer
Chief Risk Officer
Chief Operating Officer
Manager Credit Risk
(by invitation)
Responsible for reviewing and
approving all credit matters in line
with the approved policies. Establish
guidelines for pricing credit facilities
and review portfolio diversification.
All Credits approved to thereafter go
to ZPLC Global Credit Committee
(GCC) and BRC (if applicable) for final
approval
Weekly
New Products
Committee
(NPC)
Chief Executive Officer
Executive Director
Chief Financial Officer
Chief Risk Officer
Head of
Compliance/MLRO
Head of Markets
Chief Operating Officer
Head of IT
Approve plans for the introduction of
new products and their
implementation. Ensure that before
new products, activities, processes
and systems are introduced or
undertaken, the operational risk
inherent in them is subject to
adequate assessment procedures.
When
required
Security
Committee
(SC)
Chief Executive Officer
Chief Risk Officer Head of
Compliance/MLRO
Chief Operating Officer
Head of HR and Admin
Head of IT Head of IA
Responsible for the virtual and
physical security of the Bank’s systems
and infrastructure, including
monitoring and audit of security. Quarterly
Pillar 3 Disclosures 31 December 2018 Page 10
Composition and Responsibilities of Management Committees
Committee Members Responsibilities Frequency of
Meetings
IT Steering
Committee
(ITSC)
Chief Executive Officer
Chief Operating Officer
Head of IT
Head of
Compliance/MLRO
Chief Risk Officer
Senior Manager
Operations
Approves IT plans, policies, and major
IT expenditures and oversees all IT
activities.
Quarterly
HR Committee
(HRC)
Chief Executive Officer
Executive Director
Chief Operating Officer
Head of HR
Consider and recommend changes to
existing HR policies, propose new HR
policies.
Provide the RAC with remuneration
recommendations.
Discuss any HR matters that need
urgent consideration.
When
required
Marketing
Committee
Executive Director
Business Development
Head of Africa Desk
Head of International
Desk
Head of FI and
Correspondent Banking
Head of Markets
Marketing
Communications Manager
(by invitation)
The Committee is responsible for
planning, agreeing and effecting a
marketing plan to support the
marketing and business strategies.
Monthly
Tenders
Committee
Chief Executive Officer
Chief Operating Officer
Chief Financial Officer
Chief Risk Officer
Head of Internal Audit
To approve the List of Tenderers for
contracts of up to a de minimus
amount set out in its ToR, or such
agreements which are deemed crucial
to the operation of ZBUK and
recommend to EXCO any such
agreements in excess of this level.
When
required
2.5. Oversight of Strategy, Policies and Procedures
ZBUK’s risk management assurance and oversight ensures the following:
• Plans and budgets are formulated by the appropriate business units, which are recommended to the
Board for approval following review by the Executive Committee and ACC. Business strategy is reviewed
by the Executive Committee and Strategy Committee before approval by the Board.
• The Bank’s Risk Appetite Statement is produced and approved by the Board annually (refer to section 3.1
for more details).
• Credit risk and liquidity risk are monitored and controlled according to agreed policies and procedures.
• Internal control incorporates the identification and monitoring of risks by Risk Management using a Risk
Register, which is subject to regular review.
• Risk management strategy, policies and procedures are the responsibility of the Chief Risk Officer
reporting to the Chief Executive Officer and working in conjunction with the other members of EXCO and
are overseen by the Board and BRC.
Pillar 3 Disclosures 31 December 2018 Page 11
• The Bank adheres to the PRA’s ICAAP and ILAAP requirements in planning, policy setting and operational
management.
2.6. Assurance
Assurance evaluation is provided to the Board through the Audit and Compliance Committee which monitors
assurance, auditing, and compliance.
Internal Audit Programme
The Bank’s Internal Audit programme seeks the promotion of accuracy and efficiency in ZBUK’s operational,
financial, administrative and risk management controls.
The Head of Internal Audit, who reports to the Chairman of the Audit and Compliance Committee, prepares an
annual auditing programme, which is forwarded to the CEO for review. This plan is submitted by the Head of
Internal Audit to the Audit and Compliance Committee for approval. When this has been approved, a copy is
shared with the Bank's Auditors and the Group Chief Inspector. The Head of Internal Audit reports regularly to the
ACC on the progress of the Internal Audit plan.
External Audit
External audit is undertaken by the Bank’s appointed Auditors (currently KPMG L.L.P) to approve and issue their
opinion on the Bank’s financial statements and valuations and to provide feedback to the Audit and Compliance
Committee and the Board on the operation of the internal financial controls which are reviewed as part of the
annual audit.
Compliance
The Compliance function exists to monitor and assess the adequacy and effectiveness of the measures and
procedures to comply with the Bank’s regulatory obligations and to minimise associated risks. Compliance also
maintains the systems and controls to tackle risk that the Bank may be used to further financial crime.
The Bank operates a strict and comprehensive anti-money laundering policy. All members of staff receive AML
training to industry standards and have access to all relevant policies and procedures, specifically Financial Crime
Manual, KYC Procedures Manual and Compliance Manual. The Bank also operates a strict anti-bribery/ corruption
policy, with all departmental procedures having been adapted to cover the issue of Bribery and Corruption and all
members of staff have received anti-bribery/corruption training to industry standards.
3. Risk Appetite and Risk Management Policies
3.1. Risk Appetite
The Bank’s risk appetite is set out in its Risk Appetite Statement (“RAS”), which articulates the nature and extent of
the material risks that the Bank is prepared to accept in order to meet its strategic objectives, business plan and
regulatory obligations. ZBUK is well aware of the various risks associated with the business of banking globally and
particularly those risks to which ZBUK is exposed. The Bank is also aware that substantial franchise value may be
eroded if ZBUK is considered high risk and therefore risk management is of critical importance. The Bank has
therefore set its Risk Appetite limits at levels generally more conservative than those required by the PRA.
3.2. Credit Risk
ZBUK mainly lends to major West African corporates and financial institutions who are long established customers
of the Zenith Group, as well as UK and European trading companies against underlying trade transactions. Zenith
UK also invests in selected government and financial institution bonds. The majority of international interbank
lending is to Investment Grade rated organisations in line with the Bank’s credit policies. The Wealth Management
business is mainly with well-known and established customers of the Group in accordance with strict credit and
security parameters.
Pillar 3 Disclosures 31 December 2018 Page 12
Management of Credit Risk
The Bank’s objectives are:
• to have a high quality, diversified loan and bond portfolio which will generate profits commensurate with
the risks incurred and the Bank’s target return on investments, and
• to be able to identify potential problem loans and keep non-performing assets and impairments to a
minimum.
Responsibility for Credit Risk ultimately rests with the Board of Directors of the Bank, which has delegated this
responsibility to the Board Risk Committee chaired by an independent Non-Executive Director. In turn operational
responsibility for credit risk has been delegated to the MCC chaired by the Chief Executive Officer.
• The MCC is responsible for reviewing and approving all credit limits under its delegated authorities and is
supported in this process by Risk Management, who independently assess all credit applications
• All credit applications approved by MCC are forwarded to Group Credit Committee of Zenith Bank Plc in
Lagos for final approval. All such facilities in excess of significant limits are also approved by BRC.
• Daily management of credit limits and guidelines is the responsibility of business line departments, with
Risk Management responsible for monitoring compliance with these limits and guidelines
All credit limits in ZBUK are based on the Bank’s own capital resources, with limits covering all areas and types of
credit to which the Bank provides lending.
3.3. Liquidity Risk
Liquidity risk is a critical issue for the Bank. In mitigating this risk the Bank strives to:
• diversify its sources of deposits and minimise concentration,
• adopt prudent liquidity policies to manage liquidity requirements,
• minimise reliance on purchased funds,
• maintain an appropriate level of liquid assets,
• ensure effective management control over mismatching of assets and liabilities.
Management of Liquidity Risk
Liquidity Risk is managed by maintaining liquidity adequacy ratios and standards set out in the Bank’s RAS and best
practices (e.g. LCR, NSFR, Funding concentration), and as documented in the latest ILAAP report under the
Individual Liquidity Adequacy Standards (“ILAS”) set by the PRA.
3.4. Market Risk
As at 31 December 2018 the Bank’s total trading exposure was below the minimum requirements for regulatory
disclosures. The Bank operated a modest trading book in spot and forward foreign exchange and in the trading of
Eurobonds. It also executed foreign exchange contracts to manage its own inherent FX exposures and for customer
orders.
3.5. Interest Rate Risk
The structure of the Bank’s balance sheet is not complex. The deposit base is mainly from parastatals, corporate
customers and financial institutions using the Bank as a correspondent. Lending is predominantly in US dollars and
referenced to a margin over LIBOR.
3.6. Operational Risk
The Bank maintains an Operational Risk policy and further mitigates risk as follows:
• by recruiting experienced, professional and well qualified staff,
• adoption of industry best practice in its approach to operational risk,
• ongoing consultation with risk management experts to ensure processes remain robust, and
• by keeping up-to-date with market leading software to mitigate cyber and other emerging industry risks.
Pillar 3 Disclosures 31 December 2018 Page 13
3.7. Other Key Risks and Sensitivities
As well as the risks highlighted above, other key risks and sensitivities are covered within the capital assessment
process highlighted under the Pillar 2 process. These risks include:
• Credit concentration Risk
• Business Risk
• Conduct Risk
• Group Risk
These risks are regularly reviewed by Management and BRC and are all taken into account when conducting the
internal capital assessment, the results of which are included in the next section. Pension and Brexit risks are
considered minimal.
4. Capital Adequacy Overview & Resources
4.1. Capital Management
ZBUK measures and manages its Capital on a daily basis throughout the financial year. Regulatory Capital includes
Pillar 1 and Pillar 2A requirements. Pillar 2A Capital covers all material risks not assessed by Pillar 1.
ZBUK undertakes an Internal Capital Adequacy Assessment Process (ICAAP) which is an internal assessment of its
capital needs. The ICAAP is performed at least annually and is formally presented to the Board of Directors for
review and approval.
Capital requirement assessment
• Credit Risk: Pillar 1 minimum capital requirement for credit risk which is based on the Standardised
Approach is taken as the starting point. The internal capital assessment includes consideration as to
whether Pillar 1 capital calculation fully covers the credit risk faced by the Bank.
• Market Risk: The Bank’s own capital assessment covers foreign exchange rate risk, investment risk,
interest rate risk and currency valuation risk, including a Credit Valuation Adjustment for Counterparty
Risk.
• Operational Risk: ZBUK calculates this risk using the Basic Indicator Approach which is calculated as 15%
of the Bank’s average operating income over the last three years.
Pillar 2 Capital is the Bank’s internal capital assessment over and above Pillar 1 credit, market and
operational risk capital elements. Pillar 2A represents the Bank’s assessment of capital requirement for
other risks which includes inter-alia concentration risk, market risk capturing the market value losses of
long term assets, interest rate risk and a comprehensive list of operational risk items. Pillar 2B capital
represents the CRD IV buffers and PRA’s guided buffers.
4.2. Capital Resources
The Bank’s entire capital base qualifies as Common Equity Tier 1 capital (‘CET-1’) which consists of fully issued
ordinary shares and audited reserves.
CET-1 capital as at 31st December is as follows:
US$000's 2018 2017
Share capital 136,702 136,702
Profit and loss reserve 88,798 70,085
Regulatory adjustments 4,269 -
Total CET-1 capital 229,769 206,787
Pillar 3 Disclosures 31 December 2018 Page 14
4.3. Capital Allocation
Pillar 1 Allocation
The total capital requirements for Pillar 1 as at 31st December are detailed in the following table:
Pillar 1 Capital Requirements Pillar 1 Capital Requirements
US$000's US$000's
2018 2017
Credit Risk 43,903 38,948
Market Risk 483 1,206
Operational Risk 6,340 5,172
Total 50,726 45,326
Regulatory Available Capital 229,769 206,787
As previously indicated the calculations for Credit and Market Risk have been based on the standardised approach
for the Pillar 1 capital requirements, while Operational Risk has been based on the basic indicator approach. The
main calculations used in this assessment are provided below.
Pillar 1 Credit Risk
The following table details the Bank’s minimum capital requirement for credit risk under the standardised
approach, which is expressed as 8% of the risk weighted exposure amounts for each of the applicable risk
exposures as at each year end:
Capital requirements (8%) US$000's 2018 2017
Central governments & central banks 9,300 4,114
Multilateral development banks 2,154 1,891
Institutions 12,848 12,795
Corporates 19,171 20,137
Retail 10 11
Mortgages 38 0
Other items 382 0
Total credit risk capital requirement 43,903 38,948
Pillar 1 Operational Risk
The following table details the Bank’s minimum capital requirement for operational risk using the basic indicator
approach. This states that regulatory capital is calculated by taking a single risk-weighted multiple (15%) of the
Bank’s average gross operating income.
US$000's 2018 2017 2016
Interest income 44,011 32,593 37,726
Interest expense -5,389 -4,290 -9,027
Net interest income 38,621 28,303 28,699
Net fee and commission income 6,232 5,716 5,344
Net trading and other income 4,810 5,939 3,141
Non-interest income 11,041 11,655 8,485
Operating income 49,663 39,958 37,184
Average annual operating income 42,268
Capital requirements (15%) as at 31 December 2018 (2017: US$5,172) 6,340
Pillar 3 Disclosures 31 December 2018 Page 15
Pillar 1 Market Risk
The calculation for market risk covers the position risk requirement (PRR) for Foreign Currency risk, a small bond
trading position and the CVA for Counterparty Risk. As at 31 December 2018, the total regulatory capital cost
amounts to US$483,000 (2017: US$1,206,000).
4.4. Pillar 2 Assessment Process
Relevant methodology has been adopted by ZBUK to assist with the final allocation of capital for all risks identified.
ZBUK maintains a Risk Register for assessing risks, which is subject to regular review at a frequency reflecting the
nature and degree of threat to the business. Assessing these risks includes probability and impact assessment,
modelling and stress testing, the standardised approach for credit risk weightings, capital planning models and
materiality.
Pillar 2 Allocation
A summary of the Pillar 2 calculations detailing the overall internal capital requirements as at 31st December are
set out in the following tables:
(US$000's)
2018 2017
Pillar 1 Pillar 2A
assessment
Pillar 1 + 2A
assessment Pillar 1
Pillar 2A
assessment
Pillar 1 + 2A
assessment
Credit Risk 43,903 40,725 43,903 38,948 31,317 38,948
Market Risk Total 483 483 1,206 1,206
Interest Rate Risk Total 8,086 8,086 13,016 13,016
Operational Risk Total 6,340 2,976 6,340 5,172 3,105 5,172
Concentration Risk Total 23,885 23,885 22,848 22,848
Total Capital allocation 50,726 82,697 45,326 81,190
Capital Resources 229,769 206,787
Solvency Ratio against
Pillar 1 + Pillar 2A
(Required capital divided
by available capital)
278%
255%
The Pillar 1 amounts are as assessed based on regulatory standards as described earlier. The items detailed under
the Bank’s own assessment use the Risk Register assessments, Herfindahl Hirschman Index based methodology
and various other stress testing results.
4.5. Leverage Ratio
Zenith Bank UK’s Leverage ratio was 10.39% as at 31st December 2018. A summary reconciliation of accounting
assets and leverage ratio exposures:
Pillar 3 Disclosures 31 December 2018 Page 16
Summary reconciliation of accounting assets and leverage ratio exposures 2018 2017
$'000 $'000
Accounting assets as per published statutory accounts
Derivative financial instruments 0 1,330
Loans and advances and other assets 1,904,335 1,674,432
Total IFRS assets 1,904,335 1,675,762
Other statutory adjustments
Derivative financial instruments 4,516 423
Loans and advances and other assets 12,612 (115,693)
Total statutory adjustments 17,128 (115,270)
Accounting assets as per regulatory submission
Derivative financial instruments 4,516 1,753
Loans and advances and other assets 1,916,947 1,558,739
Total IFRS assets 1,921,463 1,560,492
Derivatives adjustments
Add-on under the mark-to-market method 9,333 0
Total derivatives adjustments 9,333 0
Weighted off balance sheet commitments 35,367 132,114
Other regulatory adjustments
Asset amount deducted - Tier 1 capital - fully phased-in definition (2,720) 0
Asset amount deducted - Tier 1 capital - transitional definition (4,812) 0
Total Leverage Ratio exposure - using a fully phased-in definition of Tier 1 capital 1,963,443 1,692,606
Total Leverage Ratio exposure - using a fully transitional definition of Tier 1 capital 1,961,351 1,692,606
CET 1 capital - fully phased-in definition 203,915 204,567
CET 1 capital - transitional definition 201,823 204,567
Leverage Ratio - using a fully phased-in definition of Tier 1 capital 10.39% 12.09%
Leverage Ratio - using a fully transitional definition of Tier 1 capital 10.29% 12.09%
5. Credit Risk
5.1. Definition of Credit Risk
Credit risk is defined as the risk of a financial loss resulting from counterparty’s inability, for whatever reason, to
meet fully its financial obligations and/or contractual obligations when they fall due. It includes and consists of
country risk, counterparty/borrower risk and delivery/settlement risk.
5.2. Credit Exposure by residual maturity and exposure class
Credit exposure before and after credit risk mitigation as at each year end 31 December:
Residual maturity breakdown under the
Standardised Approach by Expsoure
Classes (31-Dec-2018)
On demand Less than 3 months Between 3 & 12 months 1 to 5 years Greater than 5 years Total
Central Governments 1,467 296,145 47,064 33,272 17,209 395,157
Multilateral Development Banks - 68,568 158,951 277,794 196 505,508
Institutions 144,807 573,190 13,280 9,530 - 740,807
Corporates 74,302 144,743 29,608 144,717 - 393,369
Retail - 4 57 104 - 165
Mortgages 1,367 - - - - 1,367
Other 2,956 - - - - 2,956
Total 224,898 1,082,649 248,960 465,418 17,405 2,039,329
Exposures before Credit Risk Mitigation
Pillar 3 Disclosures 31 December 2018 Page 17
Residual maturity breakdown under the
Standardised Approach by Expsoure
Classes (31-Dec-2018)
On demand Less than 3 months Between 3 & 12 months 1 to 5 years Greater than 5 years Total
Central Governments - 296,145 47,064 33,272 17,209 393,690
Multilateral Development Banks - 71,319 158,951 277,794 196 508,260
Institutions 144,807 573,190 13,280 16,246 - 747,523
Corporates 14,125 78,502 20,323 88,146 - 201,095
Retail - 4 57 104 - 165
Mortgages 1,367 - - - - 1,367
Other 13,636 44,418 5,806 49,855 - 113,715
Total 173,935 1,063,578 245,481 465,418 17,405 1,965,815
Exposures after Credit Risk Mitigation
Residual maturity breakdown under the
Standardised Approach by Expsoure
Classes (31-Dec-2017)
On demand Less than 3 months Between 3 & 12 months 1 to 5 years Greater than 5 years Total
Central Governments - 232,866 69,054 6,873 9,467 318,260
Multilateral Development Banks - 45,271 66,694 109,727 - 221,692
Institutions 209,103 546,773 509 5,258 - 761,643
Corporates 195,816 180,337 71,384 90,691 - 538,228
Retail 0 9 90 84 - 182
Mortgages - - - - - -
Other 5,931 - - - - 5,931
Total 410,849 1,005,255 207,730 212,633 9,467 1,845,935
Exposures before Credit Risk Mitigation
Residual maturity breakdown under the
Standardised Approach by Expsoure
Classes (31-Dec-2017)
On demand Less than 3 months Between 3 & 12 months 1 to 5 years Greater than 5 years Total
Central Governments - 232,866 69,054 6,873 9,467 318,260
Multilateral Development Banks - 45,271 66,694 109,727 - 221,692
Institutions 209,103 546,773 509 5,258 - 761,643
Corporates 43,155 22,318 62,158 90,541 - 218,172
Retail - 9 90 84 - 182
Mortgages - - - - - -
Other 5,931 - - - - 5,931
Total 258,189 847,237 198,504 212,483 9,467 1,525,880
Exposures after Credit Risk Mitigation
Credit Exposure by Geographical distribution
Below summarises maximum exposure to credit risk as at statement of financial position date by geographical
area:
Geographical distribution under the
Standardised Approach by Exposure
Classes (31-Dec-2018)
Europe Nigeria Rest of AfricaUnited States of
AmericaRest of World Total
Central Governments - 70,189 46,058 277,442 - 393,690
Multilateral Development Banks - 2,752 - 10,084 495,425 508,260
Institutions 179,597 6,716 30,412 123,260 407,538 747,523
Corporates - 123,230 44,761 - 50,928 218,919
Retail - 42 3 - 120 165
Mortgages - 1,367 - - - 1,367
Other 2,956 159,727 - - 6,723 169,405
Total 182,552 364,022 121,235 410,786 960,735 2,039,329
Exposures before Credit Risk Mitigation
Pillar 3 Disclosures 31 December 2018 Page 18
Geographical distribution under the
Standardised Approach by Exposure
Classes (31-Dec-2017)
Europe Nigeria Rest of AfricaUnited States of
AmericaRest of World Total
Central Governments 224,576 3,635 - 90,049 - 318,260
Multilateral Development Banks 18,508 51,116 - 75,503 76,564 221,692
Institutions 153,261 95,602 99,185 362,709 50,885 761,643
Corporates 264,867 102,805 3,667 127,900 38,988 538,228
Retail 26 59 6 91 - 182
Mortgages - - - - - -
Other 5,931 - - - - 5,931
Total 667,171 253,217 102,858 656,252 166,438 1,845,935
Exposures before Credit Risk Mitigation
5.3. Provisioning
The Bank’s credit portfolio and other assets are subject to regular comprehensive impairment reviews by both
Finance and Risk Management departments, with a view to determining any deterioration in quality and value.
Impairment provisions are assessed in line with IFRS 9 requirements and are based on Expected Credit Loss model.
All provisions are approved by the Audit and Compliance Committee and the Board.
All credit facilities are classified into performing and non-performing categories. A credit facility is non-performing
(NPL) when payment of interest or principal is past due by 90 days or more. Non-performing and overdue loans are
managed in accordance with the Bank’s policies for such accounts and are monitored daily by Risk Management.
The status of all overdue and non-performing accounts is reported to the Management Credit Committee on a
monthly basis, with a quarterly report being provided to the Board Risk Committee.
As at 31 December 2018, ZBUK’s non-performing loans resulted in a total cumulative provision of nil (2017: US$29
million).
5.4. Credit Risk by credit quality steps
The Bank uses its own internal credit rating system, with grades being assigned to the counterparty on the basis of
business risk, financial risk and structural risk. Where external agency ratings are available for the counterparty,
these are also mapped into the internal credit grades. ZBUK utilises ratings available from Fitch Ratings (“Fitch”),
Moody’s and Standard and Poor’s as appropriate.
Controls and Credit Risk Mitigation
Credit limits are allocated for all countries (sovereigns), banks, corporate counterparties and personal customers in
accordance with the ZBUK’s credit policies. As such the Bank uses various ways to minimise its credit risk exposure,
with formal assessments signed off by the MCC, GCC and the BRC when appropriate. Such assessments will
consider the ability of the counterparty to service the proposed debt, and where necessary security will be
obtained to mitigate the risk further.
Where the Bank uses credit risk mitigation it relies on guarantees provided by investment grade supranational
financial institutions. The Bank has no significant credit or market risk concentrations within credit mitigation
taken.
The Bank’s credit Risk Exposure including on & off-balance sheet mitigation as at 31st December 2018:
Pillar 3 Disclosures 31 December 2018 Page 19
Guarantees Collateral
Central Governments 393,690 - - 393,690 116,247 9,300
Multilateral Development Banks 505,508 - - 508,260 26,923 2,154
Institutions 732,112 - - 732,112 150,769 12,062
Corporates 281,150 2,752 87,585 190,813 225,879 18,070
Retail 165 - - 165 124 10
Mortgages 1,367 - - 1,367 478 38
Other 2,956 - - 90,541 2,927 234
Central Governments 1,467 - 1,467 - - -
Institutions - - - 6,716 6,716 537
Corporates 107,066 6,716 77,398 5,128 6,046 484
Other - - - 23,174 1,850 148
Institutions 8,695 - - 8,695 3,112 249
Corporates 5,154 - - 5,154 7,708 617
Total 2,039,329 9,468 166,450 1,965,815 548,780 43,902
On Balance Sheet
Off Balance Sheet
Derivatives
Breakdown of Expsoure Classes / Expsosure Types (31-Dec-2018) Expsoure ValueTotal Mitigation
Net Expsoure Value Risk Weighted Assets Capital Requirement
Credit Quality Steps
ZBUK’s internal credit risk grade (ICR) rating system is designed with a combination of qualitative and quantitative
measures, in addition to weights attached to external rating grades. The breakdown of credit exposures in terms of
external ratings are as follows in US$000’s:
2018 (Fitch Rating)
Central
governments &
central banks
Multilateral
development
banks
Institutions Corporates Retail Mortgages Other items Total
AAA 277,442 400,928 0 0 0 0 0 678,370
AA+ 0 0 1,072 0 0 0 0 1,072
AA- 0 0 96,780 3,876 0 0 0 100,656
A+ 0 0 25,467 50 0 0 0 25,517
A 0 0 173,587 0 0 0 0 173,587
A- 0 0 139,509 0 0 0 0 139,509
BBB+ 0 0 119,372 0 0 0 0 119,372
BBB 0 196 0 0 0 0 0 196
BBB- 6,144 21,272 60,313 0 0 0 0 87,729
BB+ 0 0 228 0 0 0 0 228
BB 0 6,007 0 0 0 0 0 6,007
B+ 85,895 0 0 220,539 0 0 0 306,434
B 17,686 0 0 31,236 0 0 0 48,922
B- 0 0 0 766 0 0 0 766
Unrated 7,990 77,105 124,479 136,902 165 1,367 2,956 350,964
Total 395,157 505,508 740,807 393,369 165 1,367 2,956 2,039,329
2017 (Fitch Rating)
Central
governments &
central banks
Multilateral
development
banks
Institutions Corporates Retail Mortgages Other items Total
AAA 195,139 197,609 0 0 0 0 0 392,748
AA+ 71,692 0 18,769 0 0 0 0 90,461
AA- 0 0 54,108 58 0 0 0 54,166
A+ 0 0 55,752 66 0 0 0 55,818
A 0 0 148,862 0 0 0 0 148,862
A- 0 0 218,125 0 0 0 0 218,125
BBB+ 0 0 50,355 0 0 0 0 50,355
BBB 0 444 0 0 0 0 0 444
BBB- 0 10,702 70,159 10,013 0 0 0 90,874
BB 0 0 25,018 0 0 0 0 25,018
BB- 0 12,937 0 0 0 0 0 12,937
B+ 40,257 0 0 186,620 0 0 0 226,877
B 8,196 0 0 23,581 0 0 0 31,777
B- 0 0 0 40,418 0 0 0 40,418
Unrated 2,976 0 120,495 277,472 182 0 5,931 407,056
Total 318,260 221,692 761,643 538,228 182 0 5,931 1,845,936
Specific mapping of external ratings to credit quality steps (CQS) is detailed in the notes to the financial statements
of Zenith Bank (UK) Limited as of 31st December 2018.
5.5. Collateral
Collateral forms that are accepted by the Bank are Cash, Marketable securities, Property and Vessels.
The Bank has adequate processes and procedures in place to identify at any point what assets are held as
collateral. If due to market volatility the value of underlying assets has declined, additional security shall be
provided by the borrower or credit exposure shall be reduced accordingly through partial repayment of the loan.
Valuation of Property and Vessels to determine their resalable market value for collection purposes is carried out
by independent registered valuers selected from a panel of valuers approved by the Bank.
Pillar 3 Disclosures 31 December 2018 Page 20
6. Market Risk
6.1. Definition of Market Risk
Market risk is the risk that changes in financial market prices and interest and exchange rates will (adversely)
impact the Bank’s financial condition. Market risk, as it pertains to the Bank, consists of foreign exchange risk, the
counterparty risk as measured by Credit Value Adjustment (“CVA”) and interest rate risk. ZBUK’s total trading book
falls below the regulatory limit of EUR 20 million.
6.2. Interest Rate Risk
Interest rate risk is the risk that arises due to the possibility of a change in rates, and how that impacts on pricing
structure of the Bank’s assets and liabilities. The Bank’s ALCO (Asset and Liability Committee), which is assisted by
Risk Management, meets weekly to monitor these issues and changes in interest rates in various currencies arising
from gaps in the future dates of repricing of assets, liabilities and derivative instruments.
The table below details the impact of a 200 basis point increase or reduction in interest rates for all exposures as at
31 December:
US$000's 200 basis points
increase
200 basis points
decrease
31 December 2018 (7,409) 8,086
31 December 2017 (12,147) 13,016
Assessing the potential impact on “economic value” for regulatory purposes, the Bank’s capital base has been
chosen to provide a very conservative determinant of the “economic value”. As at 31st December 2018, the
modelled decline in pre-tax profit is 3.2% (2017: 5.9%) of capital.
6.3. Foreign Exchange Risk
The Bank operates primarily in US dollars, with Sterling and Euros as the other main currencies. As at 31st
December 2018, US dollars accounted for 86% (2017: 89%) of the Bank’s balance sheet. The foreign currency
position is managed by the Bank’s Treasury Department operating within defined foreign exchange limits as
agreed by ALCO. ZBUK generally maintains a square or near square position in all currencies, and if any overnight
position is taken, these are always against an agreed stop loss. Customer positions are usually matched with the
market, with deals agreed and then covered prior to execution. The overall position is monitored by Risk
Management throughout the day.
The currency of the Bank’s share capital and the base currency of the Bank’s financials is US dollars. The “valuation
risk” has been assessed as part of the Pillar 2 process, and this shows the effect that theoretical exchange rate
movements would have had on the balance sheet as at 31 December.
7. Operational Risk
As previously indicated the Bank has adopted the basic indicator approach for operational risk and the Pillar 1
calculations are set out in section 4.3 above. However, the Bank faces a number of risks and has an Operational
Risk policy in place. As part of this policy a Risk Register is maintained and various risks have been assessed using
the Risk Register. The various risks covered are aligned to the Basel definitions:
• Internal fraud
• External fraud
• Employment practises and workplace safety
• Clients, products and business practises
• Damage to physical assets
• Business disruption and system failures
Pillar 3 Disclosures 31 December 2018 Page 21
• Execution, delivery and process failures
Risk is first assessed on its probability (likelihood) and impacts by the use of a heat map. The purpose of this initial
assessment is to shortlist those threats which are significant. In some instances, threats of a similar nature are
combined. During this analysis, previous loss events are discussed and noted. Risk mitigants are considered as part
of the analysis in order to arrive at residual risks post mitigation.
For assessing each threat within ZBUK’s Risk Register, the probability score is multiplied by the impact score. The
result of this assessment is provided in the Pillar 2 assessment above.
8. Concentration Risk
Credit concentration risk is defined as the risk of losses arising as a result of excessive exposures to individual asset
classes or a very high levels of concentration to a sector. This can also be described as an excessive exposure to a
specific credit rating category. Concentration risk can arise due to the size of the Bank’s portfolio relative to the
minimum ticket size required for participating in a transaction or asset class. Zenith Bank UK in its Credit Risk
Appetite Statement has established concentration risk limits as percentages of total credit exposure across
industry sectors, geographies and internal credit risk ratings. The Bank’s Risk Appetite Statement sets out limits for
net single obligor exposures, which are more prudent than 25% of the Bank’s Capital Resources as required by EBA
framework established under Capital Resource Requirements of the European Union.
For the Pillar 2A analysis the Bank has assessed concentration risk in terms of lending by industry sector,
geography and by single name applying Herfindahl Hirschman Index based methodology. Capital allocation based
on this process amounted to US$6.2 million (2017: US$4.9 million) for sector concentration risk, US$0.5 million
(2017: US$1 million) for geographic (international) concentration and US$17.2 million (2017: US$17 million) for
single name obligor concentration risk.
9. Remuneration
9.1. Remuneration Policy
ZBUK is committed to building a leading emerging markets bank that attracts and retains top quality staff. We aim
to develop a depth and calibre of human resource that is capable of delivering sustainable growth, within an
acceptable risk tolerance:
• The Bank's remuneration policy (“the policy”) specifically supports our business strategy within our agreed
risk management framework. The policy is designed to ensure that cost effective packages are provided
which attract and retain staff of the highest calibre and which will motivate them to perform to the highest
standards;
• The objective is to align individual rewards with ZBUK’s performance, the interests of its shareholders, and
a prudent approach to risk management. In this way we balance the requirements of our various
stakeholders: customers, shareholders, employees, and regulators. The policy seeks to reward long-term
value creation whilst not encouraging excessive risk taking;
• Where practical we aim to ensure that the totality of remuneration for executives is competitive against
our benchmark banks (other small/medium sized emerging market banks operating in the UK). We aim to
be competitively, but conservatively, positioned against the market;
• The annual incentive for executives is linked to four key performance areas (“KPAs”) and their performance
against the targets set for these KPAs;
• In accordance with the PRA/FCA Remuneration Code, we ensure that contract notice provisions are limited
for executives to a maximum of six months.
9.2. Remuneration and Appointments Committee
The Bank has a robust governance framework with an independent Remuneration & Appointments Committee
(“RAC”) which reviews all compensation decisions. It consists of three Independent Non-Executive Directors and a
Non-Executive Director who chairs the Committee. The Chief Executive Officer and the Head of Human Resources
attend the committee meetings and have the right to speak, but do not vote.
Pillar 3 Disclosures 31 December 2018 Page 22
• The RAC is responsible for the Bank’s remuneration philosophies, structures and practices, giving particular
attention to:
o Reward strategies and remuneration to enable the Bank, in a highly competitive environment, to
attract, motivate and retain high-calibre people at all levels within the organisation;
o Remuneration designs must motivate strong and sustained performance in teams, but also
promote risk management in line with the Bank's stated strategy and risk tolerance;
o Consideration is given to the appropriate balance between fixed and variable pay for all employees,
depending on seniority and roles, and particularly within risk and control areas; and
o Transparency on remuneration designs and processes is maintained with employees and the Bank’s
shareholder;
• Members of RAC have unrestricted access to all information that forms their independent judgements of
the possible effects that remuneration may have on compliance with risk, regulatory and behavioural
controls across the Bank;
• Within such guidelines and financial parameters as may be set by the Board and giving due regard to the
contents of the Bank’s Governance Code, the FCA’s Remuneration Code and associated guidance, the RAC
considers and recommends to the Board approval of:
o the appointment and individual remuneration packages for each of the Executive Directors
(including any individual performance related bonus scheme);
o departmental and Bank level incentive schemes;
o the policy for and scope of pension arrangements;
o compensation payments for loss of office;
o severance payments; and
o the terms and conditions of the Non-Executive Directors' contracts.
• RAC recommends and monitors the level and structure of remuneration for senior management and
advises on any major changes to the employee benefit structures in the Bank.
9.3. Incentive Calculations
• The Bank’s net profit is a key measure by which the Bank manages its performance.
• ZBUK also have non-financial measures of performance against risk objectives in the performance areas for
Executives, which enables a more rounded assessment of risk-taking behaviour to be made.
• The Bank’s incentive plan targets are directly linked to the business strategy which has been prepared
within the Bank’s risk appetite. This not only ensures alignment with the Bank’s performance, but also
means that the targets are meaningful and also motivating for staff.
• Incentive pools are allocated to business areas based on their performance. These pools are shaped by a
combination of departmental profitability and Bank level net profit and an evaluation of the business area's
future development and growth prospects.
• Individual performance is measured according to a number of absolute and relative levels, including the
person's quantitative delivery against specific criteria, qualitative individual behaviour and competitive
performance through the KPA mechanism. This measurement is integral to our remuneration practice.
10. Notices
The disclosures herein are based on the Annual Report and Financial Statements of the Bank for the year ended 31
December 2018, as well as the latest ICAAP report, where more detailed information is available. The disclosures
are subject to periodic review, update and audit and will reflect any changes or updates to the ICAAP. The
information contained in this Pillar 3 disclosure has not been audited by the Bank’s external auditors.
For further information on any aspect of this report please contact the Bank at [email protected]