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Financial Highlights

UNION BANK UK plcAnnual Report & Financial Statements31st December 2012

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† Dividends are accounted for in the year in which they were declared.

# Including subordinated debt of $15.0m which was converted to Tier 1 Capital in 2010.

Financial statements are prepared under International Financial Reporting Standards asadopted by the European Union (IFRS).

Thousands of US dollars(unless otherwise stated)

2012 2011 2010 2009 2008/9

Reporting period (months) 12 12 12 9 12Reporting period ended 31st December 31st December 31st December 31st December 31st March

Operating Income 13,223 14,858 11,577 6,866 12,565Profit before tax 2,924 5,374 3,030 94 3,087Profit after tax 2,160 3,943 2,158 32 2,218

Dividends declared † 945 - - 1,107 1,278

Shareholders’ Funds # 73,856 72,131 68,349 66,191 67,266Total Assets 505,115 932,836 714,018 1,005,040 1,155,690

Capital / Risk Weighted Assets 43% 21% 27% 24% 23%Return on Equity 4% 7.7% 5% 0.2% 6%Cost Income Ratio 73% 64% 74% 99% 75%

Dollar / sterling exchange rateYear end $1.62 $1.55 $1.55 $1.62 $1.43Average $1.59 $1.61 $1.54 $1.61 $1.70

2010 2011 2012 2010 2011 2012

120%

80%

40%

0%

10%

7.5%

5.0%

2.5%

0.0%

Cost : Income Ratio Return on Equity

Union Bank serves you better

http://www.unionbankuk.com

I am delighted to present this my first statement as Chairmanof Union Bank UK plc – the international flagship of the UBNFinancial Group. My appointment to the Board of UBUK asGMD/CEO of a strong and revitalised Nigerian parent companyreflects the end of the beginning of our journey to transformthe Group into the African powerhouse it should be withimproved governance and risk management and a clear focuson client-centric service provision.

By contrast to the marked macro-economic weakness in the EU and the double dip recession inUBUK’s home market, the Nigerian economy continued to evidence robust growth in 2012.Despite the country’s acknowledged capacity constraints, the growth may have been higher had itnot been for deliberate efforts on the part of the Nigerian Government to reform the oil sectorand rationalise debt and sovereign wealth management arrangements.

These developments, coupled with the parent’s on-going restructuring did impact on the volumeof business undertaken by the Bank although I am pleased to report that results for 2012 wereabove those in 2010, even if they could not challenge the record earnings of 2011. These resultsremain satisfactory given the sustained low level of prevailing interest rates and the recent trend iscertainly one to be proud of with UBUK being ranked top of the Searchline Publishing BankLeague Tables 2013 for 4 year average pre-tax profit growth for the second year running.

The pace of regulatory change in the UK remains brisk, adding a disproportionate burden ofcompliance cost to smaller institutions such as UBUK. The Bank has nevertheless continued tofulfil requirements in a manner proportionate to its business model including completion of aninaugural Recovery and Resolution Plan. The Bank remains well positioned for forthcomingfinancial and regulatory reporting changes. Strengthening risk management, compliance andassociated controls remains at the core of our philosophy which is in keeping with the Bank’sbusiness orientation and future plans.

I take this opportunity to thank our customers for their steadfast support of our Bank. I also thankmy fellow directors and the Bank’s management and staff for working together to delivercreditable results in 2012. I would like to make particular mention of my predecessor Mrs FunkeOsibodu for her outstanding dedication and wise stewardship of the Board over the past threeyears. I have no doubt that given the continuing dedication and teamwork from our people aswell as the steadfast support of our existing, loyal, and prospective customers, UBUK can prosperfurther in the years ahead.

Emeka EmuwaChairman

Chairman’s Statement


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Please NoteThe financial statements information containedherein conforms to IFRS for the display offinancial data.

ContentsDirectors, Advisers and Principal Officers 06

Directors’ Report 08

Directors’ Responsibilities and Corporate Governance 14-15

Independent Auditor’s Report 16

Statement of Comprehensive Income 17

Statement of Financial Position 18

Statement of Changes in Equity 19

Statement of Cash Flows 20

Notes to the Financial Statements 21-50

Contact Details 51

Disclosures of information recommendedunder Basel II, Pillar 3 may be found on ourwebsite, www.unionbankuk.com

Union Bank UK plc

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Directors, Advisers and Principal Officers


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Emeka Emuwa

Non-executive Chairman andGroup Managing Director/Chief Executive of Union Bankof Nigeria Plc

Kaonen A Ali

Managing Director/Chief Executive

Marc X M G Biglia

Independent non-executive andChairman of the Credit &General Purposes Committee

Asuerinme A Ighodalo

Independent non-executive and Chairman of theEstablishment & Remuneration Committee

David W Keene

Secretary

Directors and Secretary

Registered Office: 14-18 Copthall Avenue, London EC2R 7BN



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Advisors

Solicitors: Hogan Lovells International LLP Atlantic House, London EC1A 2FG

Auditors: KPMG Audit Plc 15 Canada Square, London E14 5GL

Principal Officers

Management Committee: Kaonen A Ali Managing Director/Chief Executive

Tijjani Baba Director, Institutional & Commercial Banking

John H Denison Associate Director, Correspondent Banking and Corporate Lending

Farhood Hieydary Associate Director, Treasury

Stuart Hulme Associate Director, Retail Banking

David W Keene Associate Director, Finance and IT

Janet A Ntuk Associate Director, Corporate Resources

Christopher C Nwabuoku Associate Director, Internal Audit

John R Robin Associate Director, Compliance

Dora Tomé Associate Director, Risk Management

Martin Uzus Associate Director, Structured Trade Finance

Directors, Advisers and Principal OfficersContinued



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Principal ActivitiesUnion Bank UK plc (UBUK or the Bank) wasincorporated in England and Wales on 10thFebruary 2003 as a wholly owned subsidiaryof the Union Bank of Nigeria Plc (UBN).

The Bank is authorised by the UK FinancialServices Authority (FSA), pursuant to Part IV ofthe Financial Services and Markets Act 2000(FSMA 2000), to carry on regulated financialservices activities, including deposit-taking and

dealing in investments as principal. The business of the Bank includes the provision ofretail and commercial banking, treasury andtrade finance services.

The Bank, with the assistance of UBN, hasestablished and maintains the managementstructure, policies, systems and proceduresnecessary to enable full compliance with therules and regulations of the FSA.

Going Concern Basis of AccountingThe financial statements are prepared on agoing concern basis.

In keeping with the guidance issued by theFinancial Reporting Council in October 2009,the Board has considered formally whether itis appropriate to prepare the financialstatements on a going concern basis and hasconcluded that the Bank has sufficientresources to continue in business for theforeseeable future. In making this assessment,the Board has considered a wide range ofinformation relating to present and futureconditions, including that set out under theheadings ‘Business Review’, ‘Financial RiskManagement’ and ‘Developments in FinancialRegulation’ below.

The assessment has regard to the economicclimate in the major markets in which theBank participates, the financial position ofUBN, current and prospective regulatorydevelopments and their likely impact on theBank’s capital and liquidity requirements, andthe Bank’s approach to the management ofkey risks, as well as current budgets andfinancial forecasts for profitability, capital andliquidity requirements.

DirectorsThe directors of the Bank at the date of this report and those who served during the year ended31st December 2012, are as follows:

During the year, the Bank provided qualifying third party indemnity provision on behalf of the directors.

Directors’ Report

The directors have pleasure in presenting their report together with theaudited financial statements for the year ended 31st December 2012.

Mr AC Emuwa - Chairman – appointed 25th January 2013Mrs OI Osibodu - Chairman – resigned 9th January 2013Dr KA Ali - Managing Director/Chief ExecutiveMr MXMG Biglia - Non-executive Mr NR Forsyth - Non-executive – resigned 29th January 2013Mr DR Greenfield - Executive Director/Chief Operating Officer – resigned 31st March 2013Mr AA Ighodalo - Non-executive Mr PC Ikeazor - Non-executive – resigned 28th February 2013


Financial ResultsThe Bank’s financial statements are preparedunder International Financial ReportingStandards (IFRSs) as endorsed by the EuropeanUnion (EU). The functional currency of theBank for financial reporting purposes is the USdollar (US$), being the currency in which themajority of its assets, liabilities, capital andrevenues are denominated.

The financial statements for the year ended31st December 2012 are shown on pages 17to 50. The profit for the year after taxationamounted to US$2,160,000 (year ended 31stDecember 2011 – US$3,943,000).

A dividend of US$945,000 was paid in respectof the year ended 31st December 2011 (paidin respect of the year ended 31st December2010 - US$nil), leaving a retained profit forthe year of US$1,215,000 (year ended 31stDecember 2011 - US$3,943,000).

The directors do not propose the payment ofa final dividend for the year (year ended 31stDecember 2011 – US$945,000).

Business ReviewThe Bank had another successful year in 2012recording pre-tax earnings of US$2.924m. Thereduction in income compared with 2011,itself a record year for the Bank, aroseprincipally as a result of lower levels of oilindustry related business in Nigeria. The Bankcontinued to diversify its businessgeographically in both lending and fixedincome business which is in alignment with astrategy designed to enable UBUK to thrivewithout undue reliance on business securedfrom the parent company.

Fee and commission income was US$2.441mcompared with US$4.851m in the previousyear. Banking fees were lower reflecting mixedperformances, with payment fees ahead but alower contribution being recorded from tradefinance commissions, again impacted by thereduction in Nigerian oil-industry related

activity. Despite stubbornly low prevailingmarket interest rates and given higher marginsprevalent on Nigerian loans, net interestincome held up well at US$8.870m (2011:US$9.198m). By contrast, dealing andexchange profits were strongly ahead, morethan doubling in the year under review toalmost US$2.0m. Pending implementation ofIFRS13, Fair Value Measurement, which cameinto force on 1st January 2013, the Bankdecided to realise mark-to-market gainsshowing in its held-to-maturity investmentportfolio.

Costs were again maintained within budgetfor the year and with impairment chargesamounting to US$0.670m the Bank’s pre-taxearnings were 55% lower year on year.

The key indicators of the Bank’s performancemonitored by the Board are those relating toprofitability as measured by the pre-tax returnon equity (ROE) and return on risk weightedassets (RRWA).

The return on assets is also monitored, but isbelieved to be a less relevant performanceyardstick as the Bank is regularly thebeneficiary of large wholesale depositsrelating to the Nigerian oil sector. Thesedeposits are recycled into the short-terminterbank placings on terms that are broadlyprofit- and liquidity-neutral for the Bank. Theebb and flow of these deposits can give rise tosignificant swings in the Bank’s footings andwere the principal reason for the fall in totalassets from US$933m to US$505m in the yearunder review.

In the 12 months to 31st December 2012, theBank’s returns on equity and risk weightedassets were 4.0% (2011: 7.7%) and 2.20%(2011: 1.61%) respectively.

The key indicator of efficiency monitored bythe Board is the cost/income ratio which rosefrom 63.7% to 72.8% in 2012. The directorsexpect this ratio to move closer to 50% by 2015.

Directors’ ReportContinued


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The Bank’s continued profitability is reflectedin the improved financial position shown inthe statement of financial position on page18, with shareholders’ funds increasing toUS$73.9m (31st December 2011 -US$72.1m).

Future ProspectsOverall, performance remains closely linked todevelopments in Nigeria, including thefinancial strength and performance of theparent bank, and elsewhere in Africa wheretraditional correspondent banking and trade-related lending is expected to provide themainstay of earnings. Business is increasinglybeing sought and undertaken in other sub-Saharan African markets either in asset-backed transactions or co-financing withestablished international banks andmultilateral development agencies.

In the UK, the Bank continues to serve a retailclient base sourced from the large number ofNigerian nationals resident in the UK andincreasingly via the efforts of theRepresentative Office maintained in Lagos.Current plans are to expand the provision ofbuy-to-let mortgages.

Notwithstanding this and similar initiatives toincrease further the resilience of UBUK as arobust stand-alone business, the parent bankremains one of Nigeria’s most importantfinancial services companies. The wider UnionBank Group provides invaluable marketintelligence and access to clients of increasingsignificance as Nigeria benefits from sustainedhigh oil prices and relative regional politicalstability.

The parent bank was recapitalised inSeptember 2011 by a consortium of local andinternational investors and a new Board wasappointed in March 2012. UBN’s capital ratiowas 19% following recapitalisation comparedwith a local minimum regulatory requirementof 10% ensuring that the Bank has theresources to capitalise on a buoyant domesticmarket in which it is one of the principalbanking participants. Accounts publishedunder IFRS for the quarter ended 30thSeptember 2012 revealed that the Group hadreturned to strong profitability. These

developments are expected to bring ancillarybenefit to the Bank as the only internationalsubsidiary of the UBN Financial Group.

Financial Risk ManagementThe principal risks associated with the businessof the Bank are credit risk, liquidity risk,market rate risk and operational risk.

The Bank has established a comprehensive riskmanagement framework to manage theserisks, guided by the Basel Committee’sprinciples for sound risk management andcompliance with Basel II and FSA prudentialregulations, including those in respect ofliquidity risk. The Board establishes the riskgovernance structure and sets the overall riskappetite and tolerance for both risks to thecapital and the liquidity position of the Bank,together with key risk management policies,including limits relating to credit, market andliquidity risks. The framework provides forindependent oversight of business units, riskidentification, assessment and measurement,as well as stress testing of key risks andvarious other risk mitigation and monitoringtechniques.

Financial and other risks are assessed anddocumented as part of the Bank's InternalCapital Adequacy Assessment Process (ICAAP)whereby 'treated risk' after mitigation isconsidered and internal capital allocatedaccordingly. The assessment of risks andallocation of capital recognises the Bank'scommitment to the Nigerian and Africanmarkets. These include political, infrastructureand concentration risks, including dependenceon industry sectors such as oil and gas. Theserisks are significantly mitigated by virtue of thespecialised knowledge and experience of theBank and UBN, which permits the taking ofinformed decisions as to risk assumption andmitigation. The latest ICAAP as at 31stDecember 2012 reveals a sizeable capitalbuffer in keeping with the lower level offootings of the bank at that date.

The Bank has a clearly defined risk appetiteincluding policies for the identification of keyrisks and also has in place Credit Grading andKey Risk Indicator tools.



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As required by the UK regulatory authorities,the Bank prepares an Individual LiquidityAdequacy Assessment (ILAA) with the latestdocument as at 30th June 2012. Theframework is designed to assess whether theBank is able to survive liquidity stresses ofvarying magnitude and duration, including theprovision to build up a liquidity asset buffer(LAB) of UK Government or similar qualitysecurities to be used in a liquidity stress event.

The results of this first ILAA, which has beenreviewed and approved by the Board and theBank’s Internal Auditor, indicated that as at30th June 2012, there was a positive overallnet cumulative gap within the three-monthstress period and that the LAB requirementwas US$20m. The Bank currently meets thebackstop requirements communicated to allbanks that had yet to undergo regulatoryreview of their ILAA.

Further information concerning the Bank’spolicies for managing risks associated withfinancial assets and liabilities is set out in note31 to the financial statements.

The Bank has completed modules 1 to 4under the Recovery and Resolution planningframework introduced in the UK inanticipation of wider EU legislation in thisarea. The process (often referred to aspreparing a “living will”), includes identifyingevents and triggers thereto which would forcethe Bank to need to recover from an actual orimminent failure of all or part of its businessand agreeing, in consultation with the twinpeaks regulatory authorities, the criticaleconomic functions undertaken by the Bankfor which a Resolution Pack will be put inplace to be used by those authorities or theirappointed agents. Following initial review bythe FSA of the Bank’s inaugural RRP document(submitted in July 2012), a revised RRP hasbeen prepared as at 31st December 2012 forsubmission to the UK Prudential RegulatoryAuthority (PRA).

Developments in Financial RegulationThe Bank continues to monitor developmentsin relation to Basel III. In addition to traditional

capital requirements, banks will also berequired to build up a Capital ConservationBuffer of 2.5% of RWA between 1st January2016 and 1st January 2019 and aCountercyclical Capital Buffer of between 0 to2.5% of RWA, although a degree ofuncertainty remains over the specificimplementation measures and types of capitalinstrument (other than common equity) whichmay count towards these requirements. Alsounder the current Basel proposals, the Bankwill be required to meet two new liquidityratios being the Liquidity Coverage Ratio (LCR)and a Net Stable Funding Ratio (NSFR) due tobe implemented in 2015 and 2018respectively. In response to Basel III and CRDIV, the European Banking Authority (EBA), isintroducing standardised European reportingrequirements to establish a central repositoryfor European banking data. The aim is toreduce the impact on firms from multipledifferent reporting requirements, to enableimproved risk identification and managementfor cross-border institutions and to facilitatepeer reviews and easy data sharing betweenNational Supervisory Authorities. Theimplementation date for reporting has beenput back from 1st January 2013 but havinginvested in new software to facilitate dataproduction, the Bank is well placed to complywith the requirements.

In the UK, the FSA has specifically focused onfirm resolution as well as progressing theimplementation in the UK of changes to theregulation of financial institutions throughamendments to the Capital RequirementsDirective (CRD). There is some evidence thatreporting is being synchronised, for examplewith the Contingency Funding Plan preparedby regulated firms now incorporated withinRecovery and Resolution planning.Significant changes to financial servicesregulation in the UK have now beenconcluded with the transfer of prudentialregulation for banks, including UBUK, insurersand major investment firms from the FinancialServices Authority (FSA) to a subsidiary of theBank of England to be known as ThePrudential Regulation Authority (PRA), whilstconsumer protection and market regulation



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has been transferred to the Financial ConductAuthority (FCA). The practical impact for theBank is that in future it will be subject toscrutiny by two independent groups ofsupervisors.

The results of the Bank’s initial ILAA andongoing work on Recovery and Resolutionplanning have been discussed in the FinancialRisk Management section above.

Information ManagementThe Bank seeks to ensure that expenditure onIT and Communications remains appropriateto meet all regulatory and business needs. Inthe year under review work was undertakento improve both the speed and resilience ofUBUK’s network infrastructure. During thecoming year, there are plans to upgrade theBank’s core FLEXCUBE banking system and tocomplete virtualisation of both servers anddesktops. In addition, new applications eitherhave or will be installed to support the Bank’sextension of retail banking services to includedebit cards and mobile banking, subject tomaterial outsourcing notification requirementsas appropriate. Any such IT infrastructure willalso be replicated at the Bank’s DisasterRecovery site.

The Bank recognises the importance ofsafeguarding client data and has developedpolicies and physical and logical accesscontrols which, coupled with staff awarenesstraining, are designed to protect against data loss.

Employee MattersThe Bank recognises that its performance isdependent on the quality of its work forceand the investment it makes in training anddevelopment. It is the Bank's policy that itsstaff should have the opportunity to developto their full potential, promote its business in amanner consistent with the highest standardsand recognise its environmental and otherresponsibilities as a corporate citizen. Staffcompetencies, training and development areplanned consistently with corporateobjectives, including the management of risks, and staff are appraised and rewardedaccordingly.

Property and Equipment, IntangibleAssets and Capital CommitmentsChanges in property and equipment andintangible assets are set out in notes 22 and23 to the financial statements.

The directors have authorised capitalexpenditure relating to refurbishment of theBank’s premises and enhancements toinformation technology systems of up toUS$1.7m as set out in note 32. At 31stDecember 2012, amounts so authorised butnot yet expended amounted to US$1.3m.

Political and Charitable ContributionsThe Bank made no political contributions.Charitable donations during the yearamounted to US$19,906 (year ended 31stDecember 2011 - US$10,005).

Payments to CreditorsIt is the Bank’s policy to settle all of its tradecreditors in accordance with the relevantcontractual terms. At 31st December 2012,the amount owed to trade creditors,expressed as a proportion of the amountinvoiced by suppliers during the year thenended, was 11 days (31st December 2011 -12 days).




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Directors’ RepresentationThe directors who held office at the date ofapproval of this Directors’ Report confirm that,so far as they are each aware, there is norelevant audit information of which the Bank’sauditor is unaware; and each of the directorshas taken all the steps that they ought to havetaken as a director to make themselves awareof any relevant audit information and toestablish that the Bank’s auditor is aware ofthat information.

AuditorsKPMG Audit Plc has indicated its willingnessto continue in office and a resolutionconcerning their re-appointment will beproposed at the forthcoming Annual General Meeting.

By order of the Board

DW KeeneCompany Secretary

14 - 18 Copthall AvenueLondon EC2R 7BN

23rd April 2013


The directors are responsible for preparing theDirectors’ Report and the financial statementsin accordance with applicable law andregulations.

Company law requires the directors to prepare financial statements for each financialyear. Under that law they have elected toprepare the financial statements in accordancewith IFRSs as adopted by the EU andapplicable law.

Under company law the directors must notapprove the financial statements unless theyare satisfied that they give a true and fair viewof the state of affairs of the company and ofthe profit or loss of the company for thatperiod. In preparing these financialstatements, the directors are required to:

• select suitable accounting policies and thenapply them consistently;

• make judgements and estimates that arereasonable and prudent;

• state whether they have been prepared inaccordance with IFRSs as adopted by theEU; and

• prepare the financial statements on thegoing concern basis unless it isinappropriate to presume that thecompany will continue in business.

The directors are responsible for keepingadequate accounting records that aresufficient to show and explain the company’stransactions and disclose with reasonableaccuracy at any time the financial position ofthe company and enable them to ensure thatthe financial statements comply with theCompanies Act 2006. They have generalresponsibility for taking such steps as arereasonably open to them to safeguard theassets of the company and to prevent anddetect fraud and other irregularities.

The directors are responsible for themaintenance and integrity of the corporateand financial information included on thecompany’s website. Legislation in the UKgoverning the preparation and disseminationof financial statements may differ fromlegislation in other jurisdictions.

Corporate GovernanceThe Board of directors of the Bank comprisestwo executive directors, non-executivedirectors appointed by UBN, one of whom isthe chairman of the Board, and independentnon-executive directors. The Board meets atleast quarterly and has defined responsibilitiesfor the overall direction, supervision andcontrol of the Bank, including assessment ofthe Bank’s competitive position, approval ofstrategic and financial plans and review ofperformance and financial status. It reviewsand approves significant changes in the Bank’s structure and organisation andestablishes the risk framework, overall riskappetite and key policies in relation to credit,large exposures, impairment, liquidity andoperational risk. The Board also approves andmonitors the Bank’s policies, procedures andprocesses in connection with the fight againstfinancial crime.

The Board has three standing committees: theCredit & General Purposes Committee(C&GPC), the Establishment & RemunerationCommittee (E&RC) and the Audit Committee.Each of these standing committees is chairedby an independent non-executive director, haswritten terms of reference and, with theexception of the Audit Committee, definedlimits of authority. The C&GPC meets as oftenas required but at least quarterly, the AuditCommittee and the E&RC meets quarterly.

The primary functions of the C&GPC are toconsider credit proposals in excess of the limitsof authority of the executive Assets &Liabilities and Credit Committees of the Bank,to review financial plans and actualperformance against plan, to consider, and


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Statement of Directors' Responsibilities in respect of the Directors' Reportand the Financial Statements

Directors’ Responsibilities andCorporate Governance



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check the progress of, major IT initiatives andto monitor compliance with the Bank’s credit,large exposure, impairment, liquidity andmarket risk policies and financial regulationsgenerally.

The Audit Committee comprises solely non-executive directors and is chaired by afinancially qualified individual. Meetings areattended by the Bank’s Associate Directorsfrom Internal Audit and Compliance, byexecutive directors when requested and by theindependent external auditors. The primaryfunctions of the Audit Committee are to assistthe Board in fulfilling its oversightresponsibilities by monitoring and assessingthe integrity of financial statements, thequalifications, independence and performanceof external auditors, compliance with legaland regulatory requirements and theadequacy of systems of internal accountingand financial controls. Its assessment of theinternal control environment is made byreviewing and approving the plans of InternalAudit and considering and questioningmanagement on operational audit reports.The Audit Committee also approves theappointment of, and fees paid to, the externalauditors for all audit and non-audit work. It isalso responsible for the recruitment or removalof the heads of Internal Audit and Complianceand for appraisal of the performance of thosefunctions.

The E&RC has responsibility for consideringmatters related to human resource policy,including compensation arrangements. Inparticular, it reviews and recommends to theBoard both overall compensation pools andthe remuneration of executive directors andcertain other members of senior management.It has responsibility also for certain mattersrelating to the infrastructure of the Bank,including premises, the working environmentof staff and insurance arrangements.

Directors’ Responsibilities andCorporate GovernanceContinued



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We have audited the financial statements ofUnion Bank UK plc for the year ended 31December 2012 set out on pages 17 to 50.The financial reporting framework that hasbeen applied in their preparation is applicablelaw and International Financial ReportingStandards (IFRSs) as adopted by the EU.

This report is made solely to the company’smembers, as a body, in accordance withChapter 3 of Part 16 of the Companies Act2006. Our audit work has been undertaken sothat we might state to the company’smembers those matters we are required tostate to them in an auditor’s report and for noother purpose. To the fullest extent permittedby law, we do not accept or assumeresponsibility to anyone other than thecompany and the company’s members, as abody, for our audit work, for this report, or forthe opinions we have formed.

Respective responsibilities of directors and auditorAs explained more fully in the Directors’Responsibilities Statement set out on page 14,the directors are responsible for thepreparation of the financial statements andfor being satisfied that they give a true andfair view. Our responsibility is to audit, andexpress an opinion on, the financialstatements in accordance with applicable lawand International Standards on Auditing (UKand Ireland). Those standards require us tocomply with the Auditing Practices Board’sEthical Standards for Auditors.

Scope of the audit of the financialstatementsA description of the scope of an audit offinancial statements is provided on theFinancial Reporting Council’s website atwww.frc.org.uk/auditscopeukprivate.

Opinion on financial statementsIn our opinion the financial statements:

• give a true and fair view of the state of thecompany’s affairs as at 31 December 2012and of its profit for the year then ended;

• have been properly prepared in accordancewith IFRSs as adopted by the EU; and

• have been prepared in accordance with therequirements of the Companies Act 2006.

Opinion on other matters prescribed bythe Companies Act 2006In our opinion the information given in theDirectors’ Report for the financial year forwhich the financial statements are prepared isconsistent with the financial statements.

Matters on which we are required toreport by exceptionWe have nothing to report in respect of thefollowing matters where the Companies Act2006 requires us to report to you if, in ouropinion: • adequate accounting records have notbeen kept, or returns adequate for ouraudit have not been received frombranches not visited by us; or

• the financial statements are not inagreement with the accounting recordsand returns; or

• certain disclosures of directors’remuneration specified by law are notmade; or

• we have not received all the informationand explanations we require for our audit.

Paul Furneaux Senior Statutory Auditorfor and on behalf of KPMG Audit Plc,Statutory AuditorChartered Accountants15 Canada SquareCanary WharfLondon E14 5GLEngland

23rd April 2013

Independent Auditor’s Report

Independent Auditor’s Report to the Members of Union Bank UK plc


Statement of Comprehensive IncomeFor the year ended 31st December 2012


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Year Ended Year Ended31 December 2012 31 December 2011

Note US$'000 US$’000

Interest income 6 10,584 10,888Interest expense 7 (1,714) (1,690)

Net interest income 8,870 9,198

Fees and commission income 8 2,441 4,851Dealing and exchange profit 9 1,999 874Other operating expense 10 (87) (65)

Operating income 13,223 14,858

Administrative expenses 11 (9,342) (9,003)Depreciation and amortisation 22/23 (287) (459)Net impairment loss on financial assets 19 (670) (22)

Profit on ordinary activities before tax 2,924 5,374

Tax on profit on ordinary activities 15 (764) (1,431)

Profit on ordinary activities after tax 2,160 3,943

Other comprehensive income, net of income tax 510 (161)

Total comprehensive income for the year 2,670 3,782

The result for the year is derived entirely from continuing activities.

The notes on pages 21 to 50 form part of these financial statements

Company Registration Number 4661188



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Statement of Financial PositionAs at 31st December 2012

2012 2011Note US$'000 US$’000

Assets

Cash at bank and in hand 16 13,538 5,139Financial assets - derivatives 500 -Loans and advances to banks 17 423,725 796,508Loans and advances to customers 18 32,919 58,599Financial assets held-to-maturity 20 - 53,043Financial assets available-for-sale 21 31,901 17,563Property and equipment 22 419 258Intangible assets 23 716 694Other assets 652 379Prepayments 587 437Deferred tax assets 15 158 216

Total Assets 505,115 932,836

Liabilities

Deposits by banks 24 262,074 315,062Customer accounts 25 165,713 541,661Financial liabilities - derivatives 500 -Other liabilities 26 2,459 3,431Accruals and deferred income 27 513 551

Total Liabilities 431,259 860,705

Equity

Called up share capital 28 60,090 60,090Available-for-sale reserves 349 (161)Retained earnings 13,417 12,202Equity shareholders’ funds 73,856 72,131

Total Liabilities and Equity 505,115 932,836

These financial statements were approved by the Board of Directors and authorised for issue on 23rd April 2013.

Signed on behalf of the Board of Directors:

Dr KA AliManaging Director / Chief Executive

The notes on pages 21 to 50 form part of these financial statements



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Statement of Changes in Equity

Share Available-for Retained TotalCapital -Sale Reserves Earnings EquityUS$'000 US$'000 US$'000 US$'000

Balance as at 1st January 2011 60,090 - 8,259 68,349

Change in fair value of assets classified as available-for-sale - (219) - (219)

Tax recognised on fair value loss on assets classified as available-for-sale - 58 - 58

Profit for the year - - 3,943 3,943

Balance attributable to equity shareholders as at 31st December 2011 60,090 (161) 12,202 72,131

Change in fair value of assets classified as available-for-sale - 675 - 675

Tax recognised on fair value gain on assets classified as available-for-sale - (165) - (165)

Profit for the year - - 2,160 2,160

Dividend paid - - (945) (945)

Balance attributable to equity shareholders as at 31st December 2012 60,090 349 13,417 73,856



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Statement of Cash Flows

2012 2011Note US$'000 US$’000

Profit before tax 2,924 5,374

Adjustments for:

Depreciation and amortisation 288 459

Impairment of financial assets 670 22

3,882 5,855

Change in loans and advances to banks 372,783 (290,007)Change in loans and advances to customers 25,010 (532)Change in financial assets held-to-maturity 53,043 84,606Change in financial assets available-for-sale (13,663) (17,782)Change in other assets (274) (16)Change in prepayments (150) (97)Change in deposits by banks (52,988) (105,501)Change in customer accounts (375,948) 320,141Change in other liabilities (339) 382Change in accruals and deferred income (38) (377)Income tax paid (1,504) (1,027)

Net cash flow generated from operating activities 5,932 (10,210)

Acquisition of tangible and intangible assets (470) (272)

Net cash flow used in investing activities (470) (272)

Dividends paid (945) -

Net cash flow used in financing activities (945) -

Net increase/(decrease) in cash and equivalents 8,399 (4,627)Cash and cash equivalents at 1st January 5,139 9,766

Cash and cash equivalents at 31st December 16 13,538 5,139



21

1. Reporting entity

Union Bank UK plc (the Bank) is acompany incorporated in the UnitedKingdom under the Companies Act 2006.The address of the Company’s registeredoffice is given on page 6.

Information concerning the principalactivities and operations of the Bank andits regulatory status is set out in theDirectors’ Report and in the notes to thefinancial statements.

2. Basis of presentation

(a) Statement of compliance

The financial statements of the Bank havebeen prepared in accordance withInternational Financial ReportingStandards (IFRSs) as issued by theInternational Accounting Standards Board(IASB) and as endorsed by the EuropeanUnion (EU). EU-endorsed IFRSs may differfrom IFRSs as issued by the IASB if, at thispoint in time, new or amended IFRSs havenot been endorsed by the EU.

At 31st December 2012, the followingstandards and interpretations which havenot been applied to these financialstatements were in issue but not yeteffective:

• Amendments to IFRS 10, IFRS 12 andIAS 27 (Oct. 2012) Investment Entities

• Annual Improvements to IFRSs: 2009 –2011 Cycle (May 2012)

• Amendments to IFRS 1 (Mar. 2012)Government Loans

• Amendments to IFRS 32 (Dec. 2011)Offsetting Financial Assets andFinancial Liabilities

• IFRS 13 Fair Value Measurement

• IFRS 12 Disclosure of Interests in OtherEntities

• IFRS 11 Joint Arrangements

• IFRS 10 Consolidated FinancialStatements

• IFRS 9 Financial Instruments

• IAS 19 (revised June 2011) EmployeeBenefits

• IAS 28 (revised May 2011) Investmentin Associates and Joint Ventures

• IAS 27 (revised May 2011) SeparateFinancial Statements

The impact of IFRS 9 on the annualfinancial statements has not yet been fullydetermined. The standard is expected tobe effective for annual periods beginningon or after 1st January 2015. With theexception of IFRS 9 the above standardswould have had no significant impact onthe reported results of the Bank.

IFRSs comprise accounting standardsissued by the IASB and its predecessorbody and interpretations issued by theInternational Financial ReportingInterpretations Committee (IFRIC) and itspredecessor body.

(b) Going concern basis of accounting

The financial statements have beenprepared on a going concern basis as thedirectors continue to be of the opinionthat the Bank has sufficient resources tocontinue in business for the foreseeablefuture.

In forming this opinion, the directors havehad due regard to the guidance issued bythe Financial Reporting Council in October2009 entitled ‘Going Concern andLiquidity Risk: Guidance for Directors ofUK Companies 2009’. The assessmentenabling the directors to form this opinionhas included a wide range of informationrelating to present and future conditions,as well as obtaining satisfaction as to theBank’s own current and prospective capitaladequacy and liquidity and the policies inplace to manage and control the risksinherent in the markets in which the Bank operates.

Notes to the Financial Statements


(c) Basis of measurement

The financial statements have beenprepared on the historical cost basis,except for the revaluation of certainfinancial instruments as required underIFRSs.

(d) Functional and presentation currency

The directors are of the opinion that thefunctional currency of the Bank is the USdollar (US$), being the currency in whichthe majority of the assets, liabilities andrevenues are denominated. Therefore,these financial statements are expressed in US$ and all financial information ispresented in US$, rounded to the nearest thousand.

(e) Use of estimates and judgement

The preparation of financial information inaccordance with IFRS requires the use ofcertain accounting estimates. It alsorequires management to exercisejudgement in the process of applying theaccounting policies.

In this regard, management believes thatthe critical accounting policies wherejudgement is necessarily applied are thosewhich relate to loan impairment.

Further information about keyassumptions concerning the future, andother key sources of estimationuncertainty, are set out in these notes tothe financial statements.

(f) Comparative information

These financial statements include twelvemonths of comparative information forthe statement of comprehensive income,statement of financial position, statementof changes in equity, statement of cashflows and related notes on the financialstatements.

3. Summary of significant accounting policies

(a) Interest income and expense

Interest income on financial assets that areclassified as loans and receivables, held-to-maturity or available-for-sale and interestexpense on financial liabilities arerecognised in the statement ofcomprehensive income using the effectiveinterest rate method. The effective interestrate is the rate that exactly discounts theestimated future cash receipts andpayments through the expected life of thefinancial asset or liability (or, whereappropriate, a shorter period) to thecarrying amount of the financial asset or liability.

The calculation of the effective interestrate includes all fees, transaction costs,and discounts or premiums that are anintegral part of the effective interest rate.Transaction costs are incremental coststhat are directly attributable to theacquisition, issue or disposal of a financialasset or liability.

Interest on impaired financial assets iscalculated by applying the originaleffective interest rate of the financial assetto the carrying amount as reduced by anyallowance for impairment.

Interest income and expense presented inthe statement of comprehensive incomeinclude interest on financial assets andliabilities held at amortised cost on aneffective interest rate basis.

(b) Fees and commission

Fees and commission are accounted fordepending on the services to which theincome relates as follows:

- income earned on the execution of asignificant act is recognised in ‘feesand commission income’ when the actis completed (for example, a feearising from arranging a loan facility);

- income earned from the provision ofservices is recognised in ‘fees andcommission income’ as the servicesare provided (for example, charges

Notes to the Financial StatementsContinued


22


made for servicing customer accountsand the provision of trade financeservices ); and

- income which forms an integral partof the effective interest rate (forexample, certain loan commitmentfees) of a financial instrument isrecognised as an adjustment to theeffective interest rate and recorded in‘Interest income’.

(c) Foreign currency

A foreign currency transaction is recordedin the functional currency by applying tothe foreign currency amount the spotexchange rate between the functionalcurrency and the foreign currency at thedate of the transaction.

At the end of each reporting period,foreign currency monetary items aretranslated using the closing rate, andresulting gains and losses on translationare included in the statement ofcomprehensive income.

Exchange profits on foreign exchangetransactions with customers are recordedas income during the period.

(d) Financial instruments

Recognition

The Bank recognises financial assets andfinancial liabilities in its statement offinancial position when it becomes a partyto the contractual provisions of theinstrument.

Management classifies financial assets andliabilities into the following categories atthe time of initial recognition:

- ‘loans and receivables’

- ‘financial assets held-to-maturity’

- ‘financial assets available-for-sale’

- ‘financial assets fair value throughprofit & loss’

- ‘other financial liabilities’

Initial measurement

When a financial asset or financial liabilityis recognised initially, the Bank measures itat its fair value plus (in the case of a

financial asset or financial liability not atfair value through the statement ofcomprehensive income) transaction coststhat are directly attributable to theacquisition or issue of the financial assetor financial liability.

Subsequent measurement

Financial assets classified as loans andreceivables or as financial assets held tomaturity are subsequently measured atamortised cost. Financial assets availablefor sale are measured at fair value.

Measurement bases

(i) Amortised cost measurement

The amortised cost of a financial assetor liability is the amount at which thefinancial asset or liability is measuredat initial recognition, less principalrepayments to date, plus or minus thecumulative amortisation using theeffective interest rate method of anydifference between the initial amountrecognised and the maturity amount,less any reduction for impairment.

(ii) Fair value measurement

The determination of fair values offinancial assets and financial liabilitiesquoted in an active market is based onobserved bid and offer prices forassets and liabilities respectively. For allother financial instruments, fair valueis determined by using valuationtechniques. Valuation techniquesinclude comparison to similarinstruments for which marketobservable prices exist, discountingfuture cash flows, option pricing andother valuation models and methodswidely used by market participants. Asthe Bank does not presently use morecomplex financial instruments, all theinputs to these valuation models andtechniques are market-observable.

Where the fair value cannot be reliablydetermined for an investment in anequity instrument, the instrument ismeasured at cost.



23


(e) Loans and receivables

Loans and receivables are non-derivativefinancial assets with fixed or determinablepayments that are not quoted in an activemarket and which are not classified uponinitial recognition as available-for-sale or atfair value through the statement ofcomprehensive income.

Loans and receivables are recognisedinitially at fair value, including directlyattributable transaction costs, and aresubsequently measured at amortised cost,using the effective interest rate method,less any impairment losses.

Loans and advances to banks andcustomers are classified as loans andreceivables.

(f) Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed ordeterminable payments and fixed maturitythat the Bank has the positive intentionand ability to hold to maturity and whichare not classified or designated uponinitial recognition as at fair value throughthe statement of comprehensive income.

Held-to-maturity investments arerecognised initially at fair value, includingdirectly attributable transaction costs, andsubsequently measured at amortised cost,using the effective interest rate method,less any impairment losses.

UBUK holds treasury bills, certificates ofdeposit, and bonds for non-tradingpurposes which are classified as held-to-maturity.

(g) Available-for-sale investments

Available-for-sale investments are thoseintended to be held for an indefiniteperiod of time, which may be sold inresponse to needs for liquidity or changesin interest rates, exchange rates or equity prices.

Available-for-sale financial assets arerecognised on settlement date and aresubsequently carried at fair value. Gainsand losses arising from changes in the fair

value of available-for-sale financial assetsare generally recognised directly in equityuntil the financial assets are derecognisedor impaired at which time the cumulativegain or loss previously recognised in equityis recognised in profit and loss.

(h) Financial assets and liabilities at fairvalue through profit and loss

Financial assets and liabilities at fair valuethrough the profit and loss comprisederivatives designated as such bymanagement recognised initially at fairvalue with transaction costs recognised inthe statement of income. Gains and lossesarising from changes in fair value arerecognised as they occur in the statementof income.

(i) Capital instruments and other financial liabilities

The Bank classifies financial instrumentsthat it issues as an equity instrument orfinancial liability in accordance with thesubstance of the contractual terms of theinstrument. An instrument is classified asequity if it evidences a residual interest inthe assets of the Bank after deduction ofliabilities. An instrument is classified as aliability if it represents a contractualobligation to deliver cash, or anotherfinancial asset or to exchange financialassets or financial liabilities on potentiallyunfavourable terms.

Other financial liabilities, not classified asfair value through profit and loss, areinitially recognised at fair value, includingdirectly attributable transaction costs and are subsequently measured atamortised cost, using the effective interestrate method.

Deposits, customer accounts andsubordinated liabilities are classified asother liabilities.

(j) Offsetting financial assets andfinancial liabilities

Financial assets and financial liabilities areoffset and the net amount reported in thestatement of financial position when thereis a legally enforceable right to offset the



24


recognised amounts and there is anintention to settle on a net basis, or realisethe asset and settle the liabilitysimultaneously.

(k) Impairment of financial assets

The Bank assesses whether there isobjective evidence that a financial asset ora group of financial assets, not carried atfair value through the statement ofcomprehensive income, is impaired.Financial assets or portfolios of financialassets are impaired when objectiveevidence demonstrates that a loss eventhas occurred after the initial recognition ofthe asset, and that the loss event has anadverse impact on the amount and/ortiming of future cash flows from the assetthat can be estimated reliably.

The Bank considers evidence ofimpairment at both a specific asset andcollective level. All individually significantfinancial assets are assessed for specificimpairment. Assets that are notindividually significant are then collectivelyassessed for impairment by groupingtogether financial assets (carried atamortised cost) with similar credit riskcharacteristics, taking into account assettype, industry, geographic location,collateral type, past-due status, historicalloss experience and other relevant factors.

Impairment losses on assets carried atamortised cost are measured as thedifference between the carrying amountof the financial assets and the presentvalue of estimated cash flows discountedat the assets’ original effective interestrate. Losses are recognised in thestatement of comprehensive income andreflected in an allowance account againstloans and advances or against the carrying

value of held-to-maturity investments asappropriate.

When a subsequent event causes theamount of impairment loss to decrease,the impairment loss is reversed throughthe statement of comprehensive income.

(l) Property and equipment

Recognition and measurement

Items of property and equipment aremeasured at cost less accumulateddepreciation and impairment losses. Costincludes expenditures that are directlyattributable to the acquisition of the asset.

When parts of an item of property orequipment have different useful lives, theyare accounted for as separate items (majorcomponents) of property and equipment.

Subsequent costs

The cost of replacing part of an item ofproperty or equipment is recognised in thecarrying amount of the item if it isprobable that the future economicbenefits embodied within the part willflow to the Bank and its cost can bemeasured reliably. The costs of the day-to-day servicing of property and equipmentare recognised in the statement ofcomprehensive income as incurred.

Depreciation

Depreciation is recognised in thestatement of comprehensive income on astraight-line basis over the estimateduseful lives of each part of an item ofproperty and equipment. Leased assets aredepreciated over the shorter of the leaseterm and their useful lives.

The estimated useful lives for the currentand comparative periods are as follows:



25

Leasehold improvements - 5 years or remaining life of lease, whichever is the shorter

Office equipment and furniture - 5 years

Computer hardware - 3-5 years

Motor vehicles - 4 years

Depreciation methods, useful lives and residual values are reassessed at the reporting date.


(m)Intangible assets - Software

Software acquired by the Bank is stated atcost less accumulated amortisation andaccumulated impairment losses.

Amortisation is recognised in thestatement of comprehensive income on astraight-line basis over the estimateduseful life of the software, from the datethat it is available for use. The estimateduseful life of software is three to fiveyears.

(n) Impairment of non-financial assets

The carrying amounts of the Bank’s non-financial assets, including any deferred taxassets, are reviewed at each reporting dateto determine whether there is anyindication of impairment. If any suchindication exists then the asset’srecoverable amount is estimated.

An impairment loss is recognised if thecarrying amount of an asset exceeds itsrecoverable amount. Impairment lossesare recognised in the statement ofcomprehensive income.

The recoverable amount of an asset is thegreater of its value in use and its fair valueless costs to sell. In assessing value in use,the estimated future cash flows arediscounted to their present value using apre-tax discount rate that reflects currentmarket assessments of the time value ofmoney and the risks specific to the asset.

Impairment losses recognised in priorperiods are assessed at each reportingdate for any indications that the loss hasdecreased or no longer exists. Animpairment loss is reversed if there hasbeen a change in the estimates used todetermine the recoverable amount. Animpairment loss is reversed only to theextent that the asset’s carrying amountdoes not exceed the carrying amount thatwould have been determined, net ofdepreciation or amortisation, if noimpairment loss had been recognised.

(o) Leases

A lease is classified as a finance lease if ittransfers substantially all the risks andrewards incidental to ownership. A lease isclassified as an operating lease if it doesnot transfer substantially all the risks andrewards incidental to ownership.

Lease payments made (operating andfinance leases)

Payments made under operating leasesare recognised in the statement ofcomprehensive income on a straight-linebasis over the term of the lease. Leaseincentives received are recognised as anintegral part of the total lease expense,over the term of the lease.

Finance lease - lessor

When the Bank is the lessor in a leaseagreement that transfers substantially allof the risks and rewards incidental toownership of an asset to the lessee, thearrangement is presented within loans and advances.

(p) Provisions

Provisions are recognised when it isprobable that an outflow of economicbenefits will be required to settle a currentlegal or constructive obligation as a resultof past events, and a reliable estimate canbe made of the amount of the obligation.

(q) Income tax

Income tax comprises current tax anddeferred tax. Income tax is recognised inthe statement of comprehensive incomeexcept to the extent that it relates to itemsrecognised directly in equity, in which caseit is recognised in equity.

Current tax is the tax expected to bepayable on the taxable profit for the year,calculated using tax rates enacted orsubstantively enacted by the reportingdate, and any adjustment to tax payable inrespect of previous years. Current taxassets and liabilities are offset when theBank intends to settle on a net basis andthe legal right to offset exists.



26


Deferred tax is recognised on temporarydifferences between the carrying amountsof assets and liabilities in the statement offinancial position and the amountsattributed to such assets and liabilities fortax purposes. Deferred tax liabilities aregenerally recognised for all taxabletemporary differences and deferred taxassets are recognised to the extent that itis probable that future taxable profits willbe available against which deductibletemporary differences can be utilised.

Deferred tax is calculated using the taxrates expected to apply in the periods inwhich the assets will be realised or theliabilities settled, based on tax rates andlaws enacted, or substantively enacted, bythe reporting date. Deferred tax assetsand liabilities are offset when a legal rightto offset exists in the entity.

(r) Cash and cash equivalents

For the purpose of the statement of cashflows, cash and cash equivalents aredeemed to comprise cash in hand, cash atother banks repayable on demand andtreasury bills maturing within threemonths.

Cash and cash equivalents are carried atamortised cost in the statement offinancial position.

(s) Pension costs

The Bank operates a defined contributionpension scheme and the amount chargedto the statement of comprehensiveincome in respect of pension costs andother post-retirement benefits is thecontribution payable in the year.Differences between contributions payablein the year and contributions actually paidare shown as accruals or prepayments inthe statement of financial position.

(t) Sale and repurchase agreements

When the Bank sells a financial asset andsimultaneously enters into a “repo” or“stock lending” agreement to repurchasethe asset (or a similar asset) at a fixed price on a future date, the arrangement isaccounted for as a deposit, and theunderlying asset continues to berecognised in the Bank’s financialstatements.

4. Segmental reporting

Segmental analysis of income has notbeen prepared as, in the opinion of thedirectors, all of the Bank’s income derivesfrom one main activity, commercialbanking, which is carried out in the United Kingdom.



27




28

2012

US$’000 Financial assets Designated at Held-to- Loans and and liabilities at

Note fair value maturity receivables amortised cost Total

Cash at bank and in hand 16 - - 13,538 - 13,538Financial assets - derivatives 500 - - - 500Loans and advances to banks 17 - - 423,725 - 423,725Loans and advances to customers 18 - - 32,919 - 32,919Financial assets held-to-maturity 20 - - - - -Financial assets available-for-sale 21 31,901 - - - 31,901Deposits by banks 24 - - - 262,074 262,074Customer accounts 25 - - - 165,713 165,713Financial liabilities - derivatives 500 - - - 500Other liabilities 26 - - - 2,459 2,459

2011

US$’000 Financial assets Designated at Held-to- Loans and and liabilities at

Note fair value maturity receivables amortised cost Total

Cash at bank and in hand 16 - - 5,139 - 5,139Financial assets - derivatives - - - - -Loans and advances to banks 17 - - 796,508 - 796,508Loans and advances to customers 18 - - 58,599 - 58,599Financial assets held-to-maturity 20 - 53,043 - - 53,043Financial assets available-for-sale 21 17,563 - - - 17,563Deposits by banks 24 - - - 315,062 315,062Customer accounts 25 - - - 541,661 541,661Financial liabilities - derivatives - - - - -Other liabilities 26 - - - 3,431 3,431

6. Interest income 2012 2011US$’000 US$’000

Interest income on securities held-to-maturity 961 1,134Interest income on securities available-for-sale 821 657Interest income on loans and advances (‘classified as loans and receivables’) 8,802 9,097

10,584 10,888

5. Financial assets and liabilities

The table below sets out the Bank’sclassification of each class of financialasset and liability:




29

7. Interest expense 2012 2011US$’000 US$’000

Interest expense to banks (1,002) (1,048)Interest expense on customer accounts (712) (642)

(1,714) (1,690)

8. Fees and commission income 2012 2011US$’000 US$’000

Letters of credit 1,503 3,729Funds transfer 544 469Others 394 653

2,441 4,851

9. Dealing and exchange profit

Dealing and exchange profit relates to foreign exchange income derived from customerfacilitation, including transactions on behalf of the UBN, and the revaluation of assets andliabilities denominated in currencies other than the US Dollar.

10. Other operating expense 2012 2011US$’000 US$’000

Other operating charges and brokerage (87) (65)

(87) (65)

11. Administrative expenses 2012 2011US$’000 US$’000

Wages and salaries, including directors (5,016) (5,347)Social security costs (553) (574)Pension costs (385) (356)Other staff costs (436) (464)

Total staff costs (6,390) (6,741)Other recurring administrative expenses (2,952) (2,262)

(9,342) (9,003)

2012 2011Average number of employees, including executive directors: No. No.

Banking 25 23Operations 20 20Administration 5 5

50 48




30

12. Pension costs

The Bank makes contributions to the personal pension funds of employees under GroupPersonal Pension arrangements. During the year to 31st December 2012, the Bank madecontributions totalling US$385,000 (2011 - US$356,000).

Contributions accrued at the reporting date amounted to US$2,000 (2011 - US$11,000).There were no outstanding pre-paid contributions at the reporting date.

13. Directors’ emoluments 2012 2011US$’000 US$’000

Executive directors’ emoluments (638) (549)Non-executive directors’ fees (214) (308)

(852) (857)

The emoluments of the highest paid director, excluding pension contributions, wereUS$337,071 (2011 - US$281,924). Pension contributions were made during the yearamounting to US$4,842 (2011 - US$22,343). No benefits in kind were paid during the year(2011 - US$nil).

Retirement benefits are accruing to one director under Group Personal Pension arrangements(see Note 12) and another director under the Union Bank of Nigeria Plc Staff Pension Fund, adefined benefit scheme.

14. Profit on ordinary activities before taxation 2012 2011US$’000 US$’000

Operating profit is stated after charging:Amounts receivable by the Auditor and its associates in respect of:Audit of the financial statements (168) (144)Other services pursuant to legislation (12) (11)Other services relating to taxation (41) (40)All other services (104) -Rental of premises held under an operating lease (238) (232)Other operating lease and similar rentals (132) (198)




31

15. Taxation

Tax on profit on ordinary activities in the statement of comprehensive income:

(a) Analysis of tax charge on ordinary activities 2012 2011US$’000 US$’000

Current tax:

United Kingdom corporation tax based on the profit for the year (606) (1,501)

Adjustment in respect of prior year (76) -

Exchange differences (24) 25

Total current tax (706) (1,476)

Deferred tax:

Timing differences, origination and reversal (110) 71Prior year deferred tax adjustment 78 (24)Change in tax rate (26) (2)Total deferred tax (58) 45

Tax expense on profit on ordinary activities (764) (1,431)

(b) Reconciliation of the total tax charge

The tax assessed for the year is higher (2011 - higher) than that resulting from applying thestandard rate of corporation tax in the UK. The differences are explained below:

2012 2011US$’000 US$’000

Profit on ordinary activities before tax 2,923 5,374

Tax at 24.5% (2011 - 26.5%) thereon (716) (1,424)

Effects of:

Expenses not deductible for tax purposes (7) (8)Exchange differences (24) 25Difference on standard tax rate 7 2Adjustments in respect of prior year (24) (26)

Tax expense (764) (1,431)

The UK corporation tax rate reduced from 26% to 24% effective from 1st April 2012 and a further change to 23% effective from 1st April 2013 was substantively enacted during the period.



32


2012US$’000

2011US$’000

15. Taxation (continued)

(c) Analysis of deferred tax asset

The following is an analysis of the major deferred tax assets and liabilities recognised by the Bank:

2012 2011US$’000 US$’000

Depreciation in excess of capital allowances 126 136Short term timing differences 32 80

158 216

(d) Factors that may affect future tax charges

A reduction in the UK corporation tax rate from 26% to 25% (effective from 1 April 2012)was substantively enacted on 5 July 2011, and further reductions to 24% (effective from 1April 2012) and 23% (effective from 1 April 2013) were substantively enacted on 26 March2012 and 3 July 2012 respectively. This will reduce the company's future current tax chargeaccordingly. The deferred tax asset at 31 December 2012 has been calculated based on therate of 23% substantively enacted at the balance sheet date.

The March 2013 Budget announced that the rate will further reduce to 20% by 2015 inaddition to the planned reduction to 21% by 2014 previously announced in the December2012 Autumn Statement. It has not yet been possible to quantify the full anticipated effectof the announced further 3% rate reduction, although this will further reduce the company'sfuture current tax charge and reduce the company's deferred tax asset accordingly.

16. Cash at bank and in hand 2012 2011US$’000 US$’000

Cash 213 289Short term placements with other banks 13,325 4,850

13,538 5,13917. Loans and advances to banks

Gross Impairment Gross Impairmentamount allowance Total amount allowance Total

Bank overdrafts - - - 5,729 - 5,729Bank loans 423,725 - 423,725 790,779 - 790,779

423,725 - 423,725 796,508 - 796,508


Performing Impaired Total Performing Impaired Total

Repayable on demand or at short notice 1,089 - 1,089 31,848 - 31,848

Remaining maturity:- 3 months or less excl. above 403,451 - 403,451 761,679 - 761,679- 1 year or less but over 3 months 19,185 - 19,185 2,981 - 2,981

Less: Allowances for impairment (note 19) - - - - - -

423,725 - 423,725 796,508 - 796,508

Amounts repayable on demand or at short notice include monies pledged to banks in respectof trade finance transactions of US$1,089,000 (31st December 2011 - US$26,101,000).



33

2012US$’000

2011US$’000

Loans and advances to banks are categorised as ‘loans and receivables’ in accordance withIAS 39.

The fair value of the cash collateral held in respect of the loans and advances to banks at 31stDecember 2012 is US$28,101,000 (31st December 2011 - US$48,720,000). This collateralcan be used in the event of default by the borrower.

Out of the total collateral, US$945,000 (31st December 2011 – US$2,699,000) is for loansand advances to banks that are past due, but not impaired.

The following table shows the remaining maturity of the loans and advances to banks:

18. Loans and advances to customers

Gross Impairment Gross Impairmentamount allowance Total amount allowance Total

Commercial loans & advances 8,143 (1,179) 6,964 8,634 (539) 8,095Personal loans & advances 4,879 (24) 4,855 5,457 (21) 5,436Syndicated loans 21,100 - 21,100 45,068 - 45,068

34,122 (1,203) 32,919 59,159 (560) 58,599

2012US$’000

2011US$’000

Loans and advances to customers are categorised as ‘loans and receivables’ in accordancewith IAS 39.

The fair value of the collateral held in respect of the loans and advances to customers isUS$19,574,000 as at 31st December 2012 (31st December 2011 - US$13,754,000). Thiscollateral can be used in the event of default by the borrower.

Out of the total collateral, US$nil is for impaired loans and advances to customers (31stDecember 2011 - US$7,000) and US$870,000 (31st December 2011 – US$861,000) is forloans and advances to customers that are past due, but not impaired.




34

Performing Impaired Total Performing Impaired Total

Repayable on demand or at short notice 7,393 1,011 8,404 7,794 343 8,137

Remaining maturity:- 3 months or less excl. above 18,572 - 18,572 32,313 - 32,313- 1 year or less but over 3 months 1,350 - 1,350 11,614 - 11,614- 5 years or less but over 1 year 5,796 - 5,796 7,095 - 7,095

Less: Allowances for impairment (note 19) (219) (984) (1,203) (217) (343) (560)

32,892 27 32,919 58,599 - 58,599

2012US$’000

2011US$’000

The following table shows the remaining maturity of the loans and advances to customers:

18. Loans and advances to customers (continued)

Of the US$1,203,000 impairment provision (31st December 2011 – US$560,000),US$219,000 represents the collective impairment provision (31st December 2011 –US$217,000).

19. Net impairment loss for financial assets

2012 2011US$’000 US$’000

At beginning of the year (560) (546)Charge to statement of comprehensive income (670) (22)Exchange differences (8) 8Amount written off 35 -

At the end of the year (1,203) (560)

Loans and advances to banks - -Loans and advances to customers (1,203) (560)

(1,203) (560)

During the year, the Bank has had defaults on loans and advances to customers amounting toUS$685,000 (31st December 2011 - US$nil).

The carrying amount of the loans and advances to customers in default at the end of thereporting period is US$15,000 (31st December 2011 - US$nil).




35

20. Financial assets held-to-maturity2012 2011

US$’000 US$’000At beginning of the year 53,043 139,649Securities purchased during the year 23,455 268,502Sales and maturities during the year (55,106) (355,108)Reclassification to available-for-sale (21,392) -

- 53,043

2012 2011US$’000 US$’000

Financial assets held-to-maturity at amortised costTreasury bills - 7,496Certificates of deposit - 30,012Bank bonds - 15,535

- 53,043

Maturity- 3 months or less - 39,358- 1 year or less but over 3 months - 7,496- 5 years or less but over 1 year - 6,189

The Bank has reclassified its financial assets from the held-to-maturity to available-for-sale.The Bank’s intention at initial recognition was to hold these financial assets to maturity.However, as a result of the Bank’s decision to sell some of the assets prior to maturity theremainder of the portfolio became tainted in accordance with IAS 39.51 and IAS 39.55 (b).Consequently the financial assets were reclassified to the available-for-sale portfolio at theirfair value at the date of reclassification being 20th December 2012.

21. Financial assets available-for-sale2012 2011

US$’000 US$’000Financial assets available-for-sale at fair value

Treasury Bills 9,994 -Government bonds 7,632 7,546Bank bonds 14,275 10,017

31,901 17,563

Maturity- 3 months or less 5,000 -- 1 year or less but over 3 months 4,994 -- 5 years or less but over 1 year 14,275 10,017- Over 5 years 7,632 7,546

The Bank measures fair values using the fair value hierarchy that reflects the significance ofinputs used in making the measurements. The financial assets of the Bank fall within thecategory of Level 1 where valuation is based upon quoted prices in an active market for thesame or identical instrument.




36

22. Property and equipment

2012

Office Equipment

and FurnitureLeasehold & Computer Motor

US$’000 Improvements Hardware Vehicles Total

Cost:At beginning of the year 639 684 99 1,422Additions 240 68 - 308Re-classification of asset 59 (59) - -

At end of the year 938 693 99 1,730

Depreciation:At beginning of the year (603) (473) (88) (1,164)Charge for the year (88) (54) (5) (147)

At end of the year (691) (527) (93) (1,311)

Net book value at 31st December 2012 247 166 6 419

2011

Office Equipment

and FurnitureLeasehold & Computer Motor

US$’000 Improvements Hardware Vehicles Total

Cost:At beginning of the year 639 545 99 1,283Additions - 139 - 139

At end of the year 639 684 99 1,422

Depreciation:At beginning of the year (511) (418) (68) (997)Charge for the year (92) (55) (20) (167)

At end of the year (603) (473) (88) (1,164)

Net book value at 31st December 2011 36 211 11 258




37

23. Intangible assets 2012 2011Software SoftwareUS$’000 US$’000

Cost:At beginning of the year 2,970 2,837Additions 162 133

At end of the year 3,132 2,970

Amortisation:At beginning of the year (2,276) (1,984)Charge for the year (140) (292)

At end of the year (2,416) (2,276)

Net book value at 31st December 2012 / 31st December 2011 716 694

24. Deposits by banks 2012 2011US$’000 US$’000

Repayable on demand 60,168 109,790

Remaining maturity:- 3 months or less excluding above 201,906 205,272

262,074 315,062

Deposits by banks include amounts totalling US$34,648,000 (31st December 2011 –US$82,720,000) charged to the Bank to secure actual and contingent liabilities in respect ofletters of credit.

25. Customer accounts 2012 2011US$’000 US$’000

Repayable on demand 128,540 505,733

Remaining maturity:- 3 months or less excluding above 6,687 18,707- 1 year or less but over 3 months 30,486 17,152- 5 years or less but over 1 year - 69

165,713 541,661

Customer accounts include amounts totalling US$358,000 (31st December 2011 –US$618,000) charged to the Bank to secure actual and contingent liabilities in respect ofletters of credit.




38

26. Other liabilities 2012 2011US$’000 US$’000

Taxation and social security 563 1,152Accounts payable 1,258 1,900Customers’ unclaimed balances 638 379

2,459 3,431

27. Accruals and deferred income 2012 2011US$’000 US$’000

Other accruals 412 348Deferred income 101 203

513 551

28. Called up share capital

2012 2011Allotted, called up and fully paid US$’000 US$’000

50,000 deferred shares of £1 each 90 9060,000,000 ordinary shares of US$1 each 60,000 60,000

60,090 60,090

29. Related party transactions

During the year, the Bank undertook commercial arm’s length transactions with UBN and itssubsidiaries (the UBN Group) in the normal course of business. These include loans anddeposits and foreign currency transactions. Loans and advances to banks are cash secured toa maximum of US$28m (year ended 31st December 2011 - US$28m). Balances and relatedincome and expense included in these financial statements in respect of the UBN Group areas follows:




39

Highest Highestbalance during Closing balance during Closing

US$’000 year balance year balance

Holding company

AssetsCash at bank and in hand 30 18 59 30Loans and advances to banks 29,364 28,901 39,000 22,188

LiabilitiesDeposits by banks 310,808 69,397 539,044 105,752

IncomeFrom holding company 1,234 933

ExpenseTo holding company 212 300

Fellow subsidiaries

LiabilitiesDeposits by banks 61 50 248 40Customer accounts 280 61 281 280

IncomeFrom fellow subsidiaries - 5

2012 2011

The disclosure of the year-end balance and highest balance during the year is considered themost meaningful information to represent transactions during the year.

Mortgage advances to two (31st December 2011 – two) former directors of the parent bankwere repaid during the year (outstanding 31st December 2011 – US$146,871). Theseindividuals ceased to be directors of the parent bank during 2009.

In addition, at 31st December 2012 loans made to one executive director of the Bank duringthe year, on terms generally available to staff, remained outstanding in the amount ofUS$88,281 (31st December 2011 – nil).

30. Contingent liabilities and commitments 2012 2011US$’000 US$’000

Letters of credit 19,402 89,565Guarantees given to third parties 2,479 1,877




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31. Financial risk management

(a) Risk management

The Bank holds and issues financialinstruments for the purposes of:

- earning interest margins, fees andcommission;

- financing its operations; and

- managing the interest rate andcurrency risks inherent in itsoperations.

The Bank does not actively trade infinancial instruments and, therefore, doesnot have a trading book. Its operations arefinanced from a mixture of shareholders’funds and deposits. Deposits are raisedprimarily in US dollars and to a lesserextent sterling and euros at both fixed andvariable rates and lending is similarlydistributed. Longer term lending is partlyfinanced by shareholders’ funds but isotherwise generally matched to depositsboth in terms of maturity and re-pricing.

The Bank’s functional currency is the USdollar. It does not actively speculate inforeign currencies and the majority of itsforeign exchange transactions are carriedout in the spot market for customerfacilitation purposes. Forward foreignexchange transactions are undertaken forthe purposes of hedging the US$ value ofthe Bank's estimated £sterling expenses.

The main risks arising from the Bank’sfinancial instruments are credit risk,liquidity risk, interest rate risk and foreigncurrency risk. Management has developedpolicies for managing each of these risks,which are reviewed and approved by theBoard on an annual basis. Significantfeatures of these policies are summarisedbelow.

(b) Credit risk

Credit risk is the risk that a customer orcounterparty is unable or unwilling tomeet a commitment that it has enteredinto with the Bank and arises mainly fromlending and trade finance activities. Tomitigate this risk, the Bank has adoptedpolicies that minimise significantunsecured credit exposures other than tofinancial institutions and to avoidconcentrations of unsecured credit risk tocounterparty groups, industry sectors andcountries, which do not carry investmentgrade credit ratings. All credit exposuresare subject to continuous assessment bythe Assets & Liabilities Committee and theCredit & General Purposes Committee ofthe Board. It is the policy of the Bank tomake adequate impairment allowanceswhere real or probable problems in assetrecovery are identified and to makeadequate collective impairmentallowances for those as yet unidentifiedcredit problems that are inherent in anyportfolio of banking assets. Details ofimpairment allowances are summarised inNotes 17 to 19.

(i) Age analysis of past due but notimpaired assets

Impairment assessment takes into accountknown recoveries after the reporting datein respect of assets past due at that dateas well as collateral held in the form ofcash and property and chattel mortgages.The table below shows the age analysis ofpast due but not impaired assets togetherwith collateral held.




41

The above sector and geographicalanalyses only include cash at bank and inhand, loans and advances to banks and tocustomers, financial assets held-to-maturity, financial assets available-for-saleand financial assets - derivatives.

The Bank had no direct exposure to thecountries impacted by crises in theEuropean zone and in particular there wasno exposure to Ireland, Greece, Portugalor Spain, nor were any of the Bank’sexposures subject to credit events arisingfrom the consequence of the Eurozonecrisis.

The Bank extends credit facilities to qualityrated and unrated counterparties. Allrated counterparties must have a Fitch (orequivalent) rating of no less than B. Alarge percentage (71%) (31st December2011 – 77%) of the Bank’s total financialassets represent treasury assets with highquality financial institutions, the majorityof which had ratings of A to AAA.

As at 31st December 2012, the Bank’smaximum exposure to credit wasUS$526.4m (31st December 2011 –US$1,064m), of which US$1,011,000(31st December 2011 – US$343,000) wasdeemed to be impaired or doubtful. Theseamounts include all financial assets andundrawn irrevocable loan and tradecommitments.

Total trade related exposure wasUS$21.9m (31st December 2011 –US$91.4m) against which the Bank heldcash collateral of US$2.0m (31stDecember 2011 – US$34.6m). In addition,the Bank had collateral of US$28.5m (31stDecember 2011 – US$48.7m) in respect ofother credit exposures.

Gross Grossamount Collateral Net amount Collateral Net

Within 3 months 1,815 1,815 - 3,560 3,560 -

1,815 1,815 - 3,560 3,560 -

(ii) Credit exposure by sector 2012 2011US$’000 US$’000

Banks 451,848 872,253 Corporate 45,870 53,163Individuals 4,865 5,436

502,583 930,852

(iii) Credit exposure by location 2012 2011US$’000 US$’000

Europe 263,731 634,983Africa 105,630 128,877Others (mainly Canada, Japan and Australia) 133,222 166,992

502,583 930,852

2012US$’000

2011US$’000


Less than 3 3 - 6 6 - 12 1 - 5 OverMonths Months Months Years 5 Years Total

Liabilities

Deposits by banks 315,062 - - - - 315,062Customer accounts 524,440 6,631 10,521 69 - 541,661Financial liabilities - derivatives - - - - - -Other liabilities 3,431 - - - - 3,431Off balance sheet – undrawn loan commitments 7,918 - - - - 7,918

Total liabilities 850,851 6,631 10,521 69 - 868,072



42

Less than 3 3 - 6 6 - 12 1 - 5 OverMonths Months Months Years 5 Years Total

Liabilities

Deposits by banks 262,074 - - - - 262,074Customer accounts 135,227 13,625 16,861 - - 165,713Financial liabilities - derivatives 500 - - - - 500Other liabilities 2,972 - - - - 2,972Off balance sheet – undrawn loan commitments 1,974 - - - - 1,974

Total liabilities 402,747 13,625 16,861 - - 433,233

US$’000 Time Band

2012

US$’000 Time Band

2011

(c) Liquidity risk

Liquidity risk is the risk that the Bank is notable to meet its commitments tocustomers and counterparties as they falldue as a result of mismatch in cash flowsarising from liabilities and assets. Tomitigate this risk, the liquidity structure ofassets, liabilities and commitments ismanaged so that resultant cash flows areappropriately balanced, within approvedlimits and mismatch parameters set by theFSA, to ensure that all obligations can be

met when due. Generally, it is the policyof the Bank to match the currency andmaturity of all liabilities and assets as faras practicable and to maintain a store ofliquidity in the form of readily realisabledebt securities, including prime bankcertificates of deposit. Also, wherepossible, the Bank enters into depositnetting agreements with those banks withwhich it makes placements in order toretain access to funds at short notice.

An analysis of the Bank’s liabilities and commitments by maturity is as follows:




43

(d) Interest rate risk

Interest rate risk is the risk of loss arisingfrom differences in the re-pricing dates ofliabilities and assets. The Bank’s policy is tolimit re-pricing risk by setting re-pricinggap limits and by regularly reviewing its re-pricing risk by reference to assumedadverse movements in interest rates toensure that the risk of loss remains withinacceptable limits. Therefore, the Bank’streasury and lending functions seek toprice assets at floating rates or at fixedrates for fixed periods at appropriate roll-over dates that allow for matching withcustomer and market liabilities.

The table below summarises the Bank’sassets and liabilities by re-pricing timeband and demonstrates the extent towhich these are matched, save in respectof equity shareholders’ funds, which arepresently invested short term.

(i) Interest rate gap analysis

Assets and liabilities are analysed in timebands according to the earlier of theperiod to the next interest rate re-pricingand maturity date as follows:

Non-Less than 3 3 - 6 6 - 12 1 - 5 Over interest

Months Months Months Years 5 Years bearing Total

Total assets 455,461 18,780 5,040 14,310 7,519 4,005 505,115Total liabilities and capital (392,361) (15,274) (16,773) (3,159) - (77,548) (505,115)Interest rate sensitivity gap 63,100 3,506 (11,733) 11,151 7,519 (73,543) -

Cumulative gap 63,100 66,606 54,873 66,024 73,543

US$’000 Time Band

2012

Non-Less than 3 3 - 6 6 - 12 1 - 5 Over interest

Months Months Months Years 5 Years bearing Total

Total assets 892,841 6,970 3,532 20,241 7,268 1,984 932,836Total liabilities and capital (838,736) (6,715) (10,135) (1,137) - (76,113) (932,836)Interest rate sensitivity gap 54,105 255 (6,603) 19,104 7,268 (74,129) -

Cumulative gap 54,105 54,360 47,757 66,861 74,129

US$’000 Time Band

2011




44

(ii) Interest rate sensitivity analysis

Interest rate sensitivity analysis has beenperformed on the net cash flow interestrate risk exposures as at the reportingdates. A range of possibleupward/downward movements inLibor/Euribor of 100bps has been assumed

for the different currencies. If all othervariables are held constant, the tablesbelow present the likely impact on theBank’s statement of comprehensiveincome:

US dollar £ Sterling Euro Other Total

Total Financial assets 440,794 53,155 7,555 1,079 502,583Less: fixed rate assets (227,965) (993) (360) - (229,318)

Total Variable rate assets 212,829 52,162 7,195 1,079 273,265

Total Financial liabilities 367,566 52,090 7,564 1,067 428,287Less: fixed rate liabilities (182,269) (24,457) (1,600) - (208,326)

Total Variable rate liabilities 185,297 27,633 5,964 1,067 219,961

Net cash flow interest Rate Risk exposure 27,532 24,529 1,231 12 53,304

Possible movement in Libor/Euribor (bps) 100 100 100 100

Possible impact of increase in Libor/Euribor on profit/loss before tax 275 245 12 - 532

Tax charge-24.5% (67) (60) (3) - (130)

Possible impact of increase in Libor/Euriboron profit/loss after tax 208 185 9 - 402

Possible impact of decrease in Libor/Euribor on profit/loss before tax (275) (245) (12) - (532)

Tax charge-24.5% 67 60 3 - 130

Possible impact of decrease in Libor/Euriboron profit/loss after tax (208) (185) (9) - (402)

US$’000 Currencies

2012




45


Total Financial assets 866,763 50,211 11,455 2,423 930,852Less: fixed rate assets (275,337) (234) (380) (8) (275,959)

Total Variable rate assets 591,426 49,977 11,075 2,415 654,893

Total Financial liabilities 794,085 48,826 11,436 2,376 856,723Less: fixed rate liabilities (184,753) (22,712) (3,541) - (211,006)

Total Variable rate liabilities 609,332 26,114 7,895 2,376 645,717

Net cash flow interest Rate Risk exposure (17,906) 23,863 3,180 39 9,176

Possible movement in Libor/Euribor (bps) 100 100 100 100

Possible impact of increase in Libor/Euriboron profit/loss before tax (179) 239 32 - 92

Tax charge-28% 47 (63) (8) - (24)

Possible impact of increase in Libor/Euriboron profit/loss after tax (132) 176 24 - 68

Possible impact of decrease in Libor/Euribor on profit/loss before tax 179 (239) (32) - (92)

Tax charge-28% (47) 63 8 - 24

Possible impact of decrease in Libor/Euriboron profit/loss after tax 132 (176) (24) - (68)


2011

(e) Currency risk

Limited foreign exchange exposure arisesfrom the facilitation of customer ordersand from profits and losses in currenciesother than the functional currency. TheBank does not actively speculate in foreigncurrencies and does not deal in forwardforeign exchange, foreign exchangeoptions, futures or options thereon exceptto the limited extent necessary to hedgecash flows arising from its own and itscustomers’ activities. Foreign exchange

exposures are subject to limits as topositions in individual currencies and as tothe ‘overall net open position’.

Details of the Bank’s assets and liabilitiesby currency of denomination aresummarised in US dollars in table (i) belowso as to demonstrate the extent to whichforeign currency exposures are matched.




46

(ii) Foreign currency sensitivity analysis

Foreign currency sensitivity analysis hasbeen performed on the foreign currencyexposures inherent in the Bank’s financialassets and financial liabilities at thereporting dates. The sensitivity analysisprovides an indication of the impact onthe Bank’s statement of comprehensiveincome of reasonably possible changes inthe currency exposures embedded withinthe functional currency environment inwhich the Bank operates. Reasonablypossible changes are based on an analysisof historical currency volatility, togetherwith any relevant assumptions regardingnear-term future volatility.

The Bank believes that for each foreigncurrency net exposure it is reasonable toassume a 5% appreciation/depreciationagainst the Bank’s functional currency. Ifall other variables are held constant, thetables below present the impacts on theBank’s statement of comprehensiveincome if these currency movements had occurred.

(i) Net currency position analysis

Assets and liabilities, expressed in US$ butanalysed according to the currency inwhich they were denominated, aftertaking into account the accounting policyfor foreign currencies as set out in Note3(c), were as follows:


Total assets 442,710 53,771 7,555 1,079 505,115Total liabilities and capital (442,146) (54,323) (7,579) (1,067) (505,115)Unsettled spot foreign exchange (500) 500 - - -

Currency position 64 (52) (24) 12 -


2012


Total assets 867,054 51,895 11,464 2,423 932,836Total liabilities and capital (867,361) (51,650) (11,448) (2,377) (932,836)Unsettled spot foreign exchange - - - - -

Currency position (307) 245 16 46 -


2011




47

2012

US$’000 Currencies (FC)

£ Sterling Euro Other

Net foreign currency exposures (52) (24) 12

Impact of 5% increase in FC:USD rate 3 1 (1)Impact of 5% decrease in FC:USD rate (3) (1) 1

2011

US$’000 Currencies (FC)

£ Sterling Euro Other

Net foreign currency exposures 245 16 46

Impact of 5% increase in FC:USD rate (12) (1) (2)Impact of 5% decrease in FC:USD rate 12 1 2




48

(f) Capital adequacy

The Bank is subject to minimum capitalrequirements imposed by the FSA, followingguidelines developed by the BaselCommittee on Banking Supervision andimplemented in the UK via European UnionDirectives. The revised framework, known asBasel II, became effective on 1st January2008 and includes a more risk-sensitivemethodology for the calculation of capitalrequirements for Credit Risk as well as acapital requirement for Operational Risk.

Minimum capital requirements under theFSA’s rules are calculated by summing thecapital requirements for Credit Risk,Operational Risk, Market Risk andCounterparty Credit Risk. For the purposesof computing these requirements the Bankhas elected to adopt the StandardisedApproach to Credit Risk and the BasicIndicator Approach to Operational Risk.Market Risk is determined using thestandard Position Risk Requirement (PRR)rules and Counterparty Credit Risk (CCR) iscalculated using the CCR mark to marketmethod. The Market Risk and CounterpartyCredit Risk components of the capitalrequirement are small because the Bank hasno trading book.

The minimum capital requirement for CreditRisk under Pillar 1 of Basel II is calculated bymultiplying risk weighted assets by 8%, theinternationally agreed minimum ratio. Riskweighted assets are determined by applyingrisk weights, which vary according to thecredit rating of the obligor, to the Bank’sassets, including off balance sheetengagements that are subject also to givencredit risk conversion factors. Under Pillar 2of Basel II, the Bank undertakes anassessment (the ICAAP process) of theamount of capital that is required to supportits activities using the Pillar 1 plus approach.

This assessment has identified a number ofrisks that either do not attract capital underPillar 1 or where the Pillar 1 requirementdoes not fully capture the risks faced by theBank. Additional capital is set aside underPillar 2 for these risks, which includeexposure concentrations and interest raterisk in the non-trading book. The Bank’s totalcapital requirement is then the sum of theamounts calculated under Pillar 1 and Pillar2. Furthermore, the Bank is subject toIndividual Capital Guidance (ICG) providedby the FSA whereby the Pillar 2 requirementis computed by applying a formula to thePillar 1 requirement. This results in a Pillar 2requirement that is somewhat higher thanthat determined through the ICAAP process.

The Bank calculates its capital adequacy on adaily basis by comparing the total capitalrequirement in accordance with the ICG tocapital available to meet this requirement(Regulatory Capital). A capital buffer is alsoincorporated, which is based on a level oftolerance to unexpected losses that isconsidered and agreed by the Board as partof the ICAAP process. At 31st December2012 and throughout the year, the Bankmaintained Regulatory Capital in excess ofthe total capital requirement calculated inaccordance with the ICG.

The following table is an analysis of thoseitems which comprise the Regulatory Capital base for the purposes of reporting tothe FSA.




49

2012 2011US$’000 US$’000

Statement of financial position:Share Capital 60,090 60,090 Profit & Loss Reserve 13,417 12,202

Total Tier 1 Capital 73,507 72,292

Upper Tier 2 Capital - Collective impairment allowance 219 217Available-for-Sale Reserve 349 (161)

Total Tier 2 Capital 568 56

Total Regulatory Capital 74,075 72,348

The Regulatory Capital shown above differs from that reported to the FSA because retainedprofits cannot be included until such time as the Financial Statements for the relevant periodhave been audited and approved.

(g) Lending commitments 2012 2011US$’000 US$’000

Undrawn formal standby facilities, credit lines and other commitments to lend:

Contract amount 1,974 7,918Credit equivalent amount 987 3,959Risk weighted amount 987 3,959

Under the Basel agreement, credit equivalent amounts, obtained by applying creditconversion factors, are risk weighted according to counterparty.

32. Capital commitments

The directors have authorised capital expenditure relating to refurbishment of the Bank’spremises and enhancements to information technology systems of up to US$1.7m. At 31stDecember 2012, amounts so authorised but not yet expended amounted to US$1.3m.

33. Dividends

A dividend payment of US$945,000 was made during the year ended 31st December 2012 inrespect of the year ended 31st December 2011 (made during the year ended 31st December2011 in respect of the year ended 31st December 2010 - nil).

The directors do not propose a final dividend in respect of year ended 31st December 2012(in respect of year ended 31st December 2011 – US$945,000).




50

35. Ultimate parent company and controlling party

The Bank is a directly wholly-owned subsidiary of its parent and ultimate holding undertaking,Union Bank of Nigeria Plc, a company incorporated in Nigeria and listed on the Nigerian StockExchange. The smallest and largest group in which the Bank is consolidated is Union Bank ofNigeria Plc.

Copies of the Group financial statements of Union Bank of Nigeria Plc can be obtained from:

Corporate Affairs Department Union Bank of Nigeria PlcStallion Plaza36 MarinaLagos Nigeria

36. Subsequent events

There are no material adjusting or non-adjusting events after the accounting date.

34. Fair values of financial instruments

Set out below is a year-end comparison of fair and book values of all the Bank’s financialinstruments by type. Market values are used to determine fair values. In the absence of readilyascertainable market values, directors’ estimation is used to determine fair values.

Book Fair Book FairValue Value Value Value

US$’000 US$’000 US$’000 US$’000

AssetsCash at bank and in hand 13,538 13,538 5,139 5,139Financial assets - derivatives 500 500 - -Loans and advances to banks 423,725 423,725 796,508 796,508Loans and advances to customers 32,919 32,043 58,599 58,599Financial assets held-to-maturity - - 53,043 51,823Financial assets available-for-sale 31,901 31,901 17,563 17,563

LiabilitiesDeposits by banks 262,074 262,074 315,062 315,062Customer accounts 165,713 165,713 541,661 541,661Financial assets - derivatives 500 500 - -Other liabilities 2,459 2,459 3,431 3,431

2012 2011


Group Contact Information


51

Companies Business Contact

Union Bank of Nigeria Plc Retail, commercial and investment banking Stallion Plaza, 36 Marina, Lagos, NigeriaTel: +234 (0) 1 263 0361/263 1430(+234 (0) 1 266 3594 – International Banking)

Union Homes Savings Mortgage lending 153 Ikorodu Road, Onipanu, PMB 041 & Loans Limited Shomolu, Lagos, Nigeria

Tel: +234 (0) 1 740 0840

Union Capital Investment and financial advisory services Plot 97, Ahmadu Bello WayMarkets Limited Victoria Island, Lagos, Nigeria

Tel: +234 (0) 1 266 7313

Union Assurance Life and general insurance Stallion Plaza (13th Floor)Company Limited 36 Marina, Lagos, Nigeria

Tel: +234 (0) 1 264 0277

Union Registrars Limited Share registration 2 Burma Road, Apapa, Lagos, NigeriaTel: +234 (0) 1 279 3161

Union Trustees Limited Trust and custody services 2 Davies Street, PZ BuildingPMB 2027 Marina, Lagos, NigeriaTel: +234 (0) 1 270 5307

UBN Property Company Ltd Property development and management Stallion Plaza, (3rd Floor), 36 Marina Lagos, NigeriaTel: +234 (0) 1 903 2180/1

HFC Bank (Ghana) Limited Retail and commercial banking and 35 Sixth Avenue, North Ridge mortgage lending P.O. Box CT4603

Cantonments, Accra, Ghana, Tel: +233 21 242 090-4

Banque Internationale Retail and commercial banking BP 03-2098, Carrefour Desdu Benin 3 Avenue Giran, Cotonou, Benin

Tel: +212 (0) 2 222 4142

Consolidated Discount Ltd Bill and acceptances 38/39 Marina, Lagos, Nigeria. Tel: +234 (0) 1 270 2640-2

Unique Venture Capital Venture capital 40 Marina, (5th Floor), Lagos, Nigeria Management Tel: +234 (0) 1 891 2071

Union Bank of Nigeria Plc Representation 8th Floor, 13 Fredman Drive, SandtonSouth African Johannesburg 2199, Republic of South AfricaRepresentative Office Tel: +27 11 883 3313



52

Union Bank UK plc14 - 18 Copthall AvenueLondon EC2R 7BNTelephone: +44 (0)20 7920 6100Dealers: +44 (0)20 7638 9826-8Facsimile: +44 (0)20 7638 7642Swift Code: UBNIGB2LWebsite: www.unionbankuk.comEmail: [email protected]

Nigeria Representative Office:2nd Floor, 1668 B, Oyin-jolayemi Street,Victoria Island, Lagos, Nigeria.Telephone: +234 (0)1 2799347

+234 (0)9 4611640

Contact Details

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Union Bank serves you better

Union Bank UK plc

14 - 18 Copthall AvenueLondon EC2R 7BN

Telephone: +44 (0)20 7920 6100Dealers: +44 (0)20 7638 9826-8Facsimile: +44 (0)20 7638 7642Swift Code: UBNIGB2LWebsite: www.unionbankuk.comEmail: [email protected]

Representative Office:2nd Floor, 1668 BOyin-jolayemi StreetVictoria IslandLagos, Nigeria

A member of the Union Bank of Nigeria Plc Financial Group

Authorised by the Prudential Regulation Authority and Regulated bythe Financial Conduct Authority and the Prudential RegulationAuthority

Company Registration No. 4661188

financial highlights - union bank uk plc...2012/12/31 · financial highlights union bank uk plc...

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