npf 2017 annual report cover approve final final · npf microfinance bank plc 2017 annual report +...

2017 Annual Report + Accounts

Making Life

Microfinance Bank Plc

NPF

NPF Microfinance Bank Plc(Formerly NPF Community Bank Plc)

RC 220824

Better

NPF Microfinance Bank Plc 2017 Annual Report + Accounts 03

Co

nte

nts

Vision & Mission Statement 04

Financial Highlights 05

Directors, Officers & Professional Advisers 06

Notice Of Annual General Meeting 07

Chairman’s Statement 010

Managing Director’s Report 014

Board Of Directors 019

Directors’ Report 022

Corporate Governance Report 030

AML/CFI Frame Work 041

Statement Of Directors’ Responsibilities 042

Report On The Appraisal Of The Board 043

Report Of Audit Committee 045

Independent Auditor’s Report 046

051 Statement of Financial Position

052 Statement of Comprehensive Income

053 Statement of Changes In Equity

054 Statement of Cash Flows

055 Notes To The Financial Statement

100 Value Added Statement

101 Five-Year Financial Summary

102 Management Team

106 Branches

107 Proxy Form

109 Mandate For E-Dividend Payment

111 Mandate For E-Bonus

VisionTo be the clear leader in the provision of services

MissionTo create value and wealth for our stakeholders through the sustainable provision of microfinance products and services

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CORPORATE GOVERNANCE

FINANCIAL STATEMENTS

Financial Highlights As At 31 December, 2017

2017N'000

%Change

Increase/(Decrease)

2016N'000

- - - - -


Interest incomeInterest ExpenseNet Interest IncomeFee and Commission IncomeOther Income or LossNet impairment loss/write-back on financial and other assetsNet Operating IncomeTotal operating expensesProfit before taxationTax expenseProfit for the yearOther comprehensive income for the year, net of taxTotal comprehensive income for the year

Major financial position items:Loans and receivables from customers Deposit from customersOrdinary share capitalTotal EquityTotal Assets

Information per 50k Ordinary share in koboEarnings:BasicDividendNet AssetsTotal AssetsNumber of employeesNumber of branches

2,605,413 (318,898)

2,286,515 779,878 269,584

(184,927) 3,151,050

(2,516,158) 819,819

(187,929) 631,890

- 631,890

9,008,675 9,126,494 1,143,328 4,752,289

15,952,341

2817

208698314

28

1,997,486 (223,480)

1,774,006 716,876 210,867 (39,866)

2,661,883 (1,898,309)

803,440 (248,537)

554,903 -

554,903

9,095,801 6,792,391 1,143,328 4,463,398

12,361,872

2415

195541284

28

30.43 42.70 28.89

8.79 27.85

363.87 18.38 32.55

2.04 (24)

13.87 -

13.87

(0.96) 34.36

- 6.47

29.04

16.6713.33

6.6729.0210.56

0.00

DIRECTORS:

AUDITORS: REGISTRARS

Aliyu Atta HouseNo. 1, Ikoyi Road Obalende, Lagos P.O Box 53493Falomo Ikoyi, LagosTel: 08074550514, 08008008008Email:[email protected]

Mrs. Osaro J. IdemudiaAliyu Atta House1, Ikoyi Road, ObalendeLagos

COMPANY SECRETARY:

REGISTERED OFFICE

NPF Microfinance Bank Plc 2017 Annual Report + Accounts06

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Mr. Azubuko Joel Udah (Esq.)Mr. Akinwunmi M. LawalMr. Jude C. OhanehiMr. Francis C. NelsonPrince Jude Ifeanyi EkeMr. Mohammed D. SaeedMr. Olusholla B. DavidMr. Jibril G. Gane

Chairman Managing DirectorExecutive Director, OperationsExecutive Director, Finance & Admin.Non-Executive DirectorNon-Executive (Independent) DirectorNon-Executive DirectorNon-Executive Director

KPMG Professional ServicesKPMG Tower,Bishop Aboyade Cole Street,Victoria Island,Lagos

Cardinalstone Registrars Limited358, Herbert Macaulay WayYaba, LagosTel: 01-4405107, 01-7924462Email: [email protected]: www.cardinalstone.com

Corporate Information

Mr. Akinwunmi M. Lawal - Managing DirectorMr. Jude C. Ohanehi - Executive Director, OperationsMr. Francis Nelson - ED, Finance & AdministrationMrs. Osaro J. Idemudia - Company Secretary/Legal AdviserMr. Chima Wosu - Head, Credit/OperationsMr. Segun Osisanya - Head, ERMMr. Fidelis Omokhapue - Head, Internal AuditMr. Habeeb Yusuf - Head, AdministrationMrs. Hafsat Ekutti - Head, Information TechnologyMrs. Fatima Olajumoke - Head, Marketing Mr. John K. Tizhe - Regional Head, NorthMr. Solomon O. Komolafe - Regional Head, SouthMrs. Kate N. Ukah - Regional Head, East

MANAGEMENT

First Bank of Nigeria PlcMoloney Branch28, Berkley Street, Lagos.

Sterling Bank Plc198, Igbosere Road Lagos.

United Bank for Africa Plc1, St. Gregory Street Obalende, Lagos.

CORRESPONDENT BANKS

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Notice of Annual General Meeting

NOTICE IS HEREBY GIVEN that the Twenty-Fourth Annual General Meeting of NPF MICROFINANCE BANK PLC. will hold at Bristol Palace Hotel, 52-54 Guda Abdullahi Street, Nassarawa, Kano State on Thursday 28th June, 2018 at 11:00a.m. to transact the following business:

ORDINARY BUSINESS

1. To receive the Audited Financial Statements for the period ended December 31, 2017 together with the Reports of the Directors, Auditors and Statutory Audit Committee thereon,

2. To declare a dividend

3. To elect/re-electDirectors (i) To Elect the following Directors as Non-Executive Directors;

a. Mr. Salihu Argungu Hashimu b. Mr. Abdulrahman Satumari -Independent Director c. Mrs. Rakiya Edota Shehu -Independent Director

(ii) To Approve the appointment of the following Non-Executive Directors; a. Mr. Olusholla Babajide David b. Mr. Jibrin Garba Gane

(iii) To Approve the appointment of Mr. Francis Chukwuemeka Nelson as Executive Director

(iv) To Re-elect the following Directors retiring by rotation;

a. Prince Jude Ifeanyi Eke b. Mr. Mohammed Dantsoho Saeed

4. To authorise Directors to fix the remuneration of the Auditors

5. To elect members of the Audit Committee

SPECIAL BUSINESS

6. To fix the remuneration of the Directors


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PROXYA member of the Company entitled to attend and vote at any General Meeting is entitled to appoint a proxy to attend and vote in his stead. A proxy need not be a member of the Company. For the appointment to be valid, a completed and duly stamped proxy form must be deposited at the office of the Secretary, Aliyu Atta House, 1, Ikoyi Road, Obalende or the Registrar of the Company Cardinalstone Registrars Ltd, 358 Herbert Macaulay Way, Yaba, Lagos not less than 48 hours before the time fixed for the meeting.

BY ORDER OF THE BOARD

Mrs. Osaro J. IdemudiaCompany Secretary/Legal AdviserFRC/2013/NBA/000000023191, Ikoyi Road, Obalende, Lagos.26th April, 2018

NOTES

(1) PAYMENT OF DIVIDEND If the dividend recommended by the Directors is approved by members at the Annual General Meeting,

the dividend shall be paid on Thursday 28th June, 2018 to shareholders whose names are registered in the Register of Members at the close of business on 1st June, 2018.

(2) E-DIVIDEND MANDATE Shareholders are kindly requested to update their records and advise Cardinalstone Registrars Limited of

their updated records and relevant bank accounts for the payment of their dividends. Detachable forms in respect of mandate for e-dividend payment are attached to the Annual Report for Shareholders convenience. The forms can also be downloaded from the registrars website www.cardinalstone.com.

The duly completed form should be returned to Cardinalstone Registrars Limited, 358 Herbert Macaulay Way, Yaba, Lagos.

(3) E-ANNUAL REPORT The electronic version of the Annual Report is available at www.npfmicrofinance bank.com. Shareholders who have provided their addresses and mobile numbers to the Registrars will receive the

electronic version of the Annual Report via e-mail and text messages.

(4) CLOSURE OF REGISTER The Register of Members and Transfer Books will be closed from Monday 4h June to Friday 8th June, 2018 (both days inclusive) to enable the Registrar prepare for payment of dividend.

(5) UNCLAIMED DIVIDEND WARRANTSSome dividend warrants have remained unclaimed or are yet to be presented for payment or are in need of revalidation. Any member affected by this notice is advised to contact the Registrar. The list of unclaimed d i v i d e n d c a n b e a c c e s s e d a t t h e R e g i s t r a r ' s o f f i c e o r v i a t h e C o m p a n y ' s w e b s i t e www.npfmicrofinancebank.com

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(6) STATUTORY AUDIT COMMITTEEIn accordance with Section 359 (5) of the Companies and Allied Matters Act, 2004, a shareholder may nominate another shareholder for appointment to the Audit Committee. Such nomination should be in writing and must reach the Company Secretary not less than 21 days before the Annual General Meeting.

The Code of Corporate Governance of the Securities and Exchange Commission (SEC) and Central Bank of Nigeria (CBN) provides that members of the Audit Committee should have basic financial literacy and be knowledgeable in internal control process. We therefore request that nominations be accompanied by a copy of the nominee's curriculum vitae.

(7) ELECTION/ RE-ELECTION OF DIRECTORS

i. Election of Directors Mr. Salihu Argungu Hashimu, Mr. Abdulrahman Satumari and Mrs. Rakiya Edota Shehuare being proposed

as Non-Executive Directors. These proposed Directors will be presented for Shareholder's approval at the Annual General Meeting.

ii. Approval of Appointment of Directors Mr. Olusholla Babajide David and Mr. Jibrin Garba Gane were appointed as Non-Executive Directors on 26th

October, 2017 to fill the vacancies created by the exit of Mrs. Abiodun Ige and Mr. Joseph Daramola who represented the interest of the Police Cooperative Society Ltd.

Mr. Francis Chukwuemeka Nelson was also appointed by the Board on 1st August, 2017 to fill the vacant position of Executive Director Finance & Admin. The appointments of these Directors have been approved by the Central Bank of Nigeria and will be presented for shareholder's approval at the Annual General Meeting.

iii. Re-Election of Directors In accordance with the provision of the Companies and Allied Matters Act, the Directors to retire by rotation

at the Annual General Meeting are Prince Jude Ifeanyi Eke and Mr. Mohammed Dantsoho Saeed. The retiring Directors being eligible are offering themselves for re-election as Directors.

The profiles of these directors are contained in the Annual Report.

(8) RIGHT OF SHAREHOLDERS TO ASK QUESTIONS Shareholders have a right to ask questions not only at the Annual General Meeting, but also in writing prior to

the meeting in line with Rule 19.12© of the Listing Rules of the Nigeria Stock Exchange. Such questions should be addressed to the Company Secretary and reach the Company at its Head Office not later than 7 days prior to the date of the meeting.

Azubuko Joel Udah ESQ. NPM mni DIG (Rtd)Chairman

Ladies and Gentlemen, Fellow Shareholders, Members of the Board of Directors, welcome to the 24th Annual General Meeting of our Bank. It is my pleasure to once again present to you the Bank's annual results. But before I do that I will give an overview of the macro-economic environment and conclude with our outlook for 2018.

We began year 2017 with a resolve to pursue strong commitment and effective execution of our Strategic Plans. We took action to increase our outreach, improve our deposit base and our risk management framework. Although we carried out a review of our strategic plans with

regards to the number of accounts we had projected to be opened as a result of the economic realities and the challenges facing our industry, I am happy to report that we were able to diversify our business to ensure sustainable revenue generation. Our reach out to economically active poor improved our micro activities deepening financial inclusion.

The progress recorded was made possible with the support we continue to enjoy from our stakeholders as well as the hard work and commitment of all the personnel of our Bank.

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Chairman’s Statement


As part of CBN intervention policy for Microfinance banks "My Own Home" an offshoot o f t h e N i g e r i a H o u s i n g Finance Programme (NHFP) was implemented with the s u p p o r t o f W o r l d B a n k $300million loan and the extension of BVN enrolment to December 31, 2017 for MFBs instead of July 31, 2017 due to the various challenges encountered in the early stage of deployment of the joint CBN/NIBSS support to members of the National Association of Microfinance Banks (NAMB).

MACROECONOMIC REVIEWThe Nigerian macroeconomic environment in the year 2017 was defined by the recession and devaluation of 2016, pressing home the point that Nigeria's growth and exchange rate stability are entirely dependent on favourable global commodity cycles.

The implementation of policies, notably the Economic Recovery and Growth Plan (ERGP) for 2017-2020 which contains critical reforms aimed at diversifying the economy and setting it on a path towards sustained and inclusive growth over the medium to long-term was predicted to return the economy into positive territory in 2017. However, the contraction of the economy in 2016 continues in the first quarter 2017, putting pressure on the exchange rate of the naira, insecurity, bloated government recurrent expenditure, impose substantial welfare cost to households and untold hardship to businesses and increased unemployment and job losses, in an economy that is largely dominated by youths, thereby adversely affecting economic growth.

In 2017 the country's unemployment rate rose from 14.2% recorded in 2016 to 18.8% in December, 2017 while 4.4 million Nigerians lost their jobs in the year under review according to the National Bureau of Statistics (NBS).

In view of these head winds the Central Bank of Nigeria

(CBN) tightened the Foreign Exchange Market by introducing the Investors & Exporters (I&E) window in order to increase liquidity and boost confidence in the market. The value of naira in the inter-bank market fell from N281/USD 1.00 in December, 2016 to N359.99/USD 1.00 in December, 2017 while the value of Naira in the parallel Foreign Exchange Market appreciated from N490/USD 1.00 to N365/USD 1.00 in December, 2017. The resultant effect of the continuous naira weakness in the foreign market was the significant reduction in importation.

The second quarter of the year 2017 was remarkable as the economy technically exited recession after five consecutive quarters of contraction. The growth was at 0.55 per cent which was 2.04 per cent higher that the rate recorded in the corresponding quarter of

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2016 (-1.49%) and higher by 1.46 per cent point from rate recorded in the preceding quarter, which was revised to -0.91 % from -0.52% due to revision to crude output. The recovery was principally driven by the performance of four main economic activities comprising oil, agriculture, manufacturing and trade. The inflation consumer price index dropped from 18.6% in December, 2016 to 15.37% in December, 2017.

In the third quarter the economy was somehow flat with little or no change in the economic index.

The fourth quarter of 2017 however consolidated the positive economic growth recorded in the second quarter 2017. The growth rate was 0.83% which was higher that than the -1.58% recorded in the fourth quarter 2016, about 2.42% difference. This was attributed to growth in crop production, crude oil production and natural gas, metal ores, construction, transportation and storage, trade and electricity. The global oil price closed at $67 per barrel on the final trading day of the year, the first time since mid-2015 as the commodity ended 2017 with a 12% gain spurred by strong demand and declining global inventories.

In the banking sector, the CBN continued to monitor and regulate the system with various policies and interventions like: Implementation of IFRS 9 (financial instrument). Implementation of cashless policy. Continuous injection of Forex into the Nigeria inter- bank forex market.

The CBN further noted the concentration of non-performing loans in a few institutions but observed that the overall condition of the banking sector was stable as Deposit Money Banks balance sheet remained strong.

The Microfinance Bank sub sector was not left out in the year, as it also struggled to surmount the challenges presented to it by the economic recession that overwhelmed the country.

As part of CBN intervention policy for Microfinance banks "My Own Home" an offshoot of the Nigeria Housing Finance Programme (NHFP) was implemented with the support of World Bank $300million loan and the extension of BVN enrolment to December 31, 2017 for MFBs instead of July 31, 2017 due to the various challenges encountered in the early stage of deployment of the joint CBN/NIBSS support to members of the National Association of Microfinance Banks (NAMB).

FINANCIAL SCORECARDThe Bank's scorecard in the period under review showed strong performance across key financial indices despite the adverse market conditions, a testament to the tenacity of our management team and staff. Gross Earnings for the

year grew by 24.4% to N3.65billion from N2.93billion reported in December 2016. This was driven primarily by growth in interest income.Profit before Tax however stood at N819.8million representing a marginal growth of 2.04% over N803.4million recorded in the corresponding year ended December 2016 affected significantly by the increase in cost of operation, due to expansion. Loans and Advances dropped by 1% from N9.096billion recorded in December 2016 to N9.009billion in December 2017.The Bank's balance sheet however remained strong with 29.04% growth in Total Assets resulting in an Asset size of N15.95billion as at year end 2017. In terms of Asset quality, Non-performing loans ratio reduced to 2.7% in December 2017 from 3.2% in December 2016 which is below the regulatory threshold of 5% and the Internal benchmark of 3%. Capital also remains strong with capital Adequacy Ratio of 41%.

DIVIDENDThe Board recognises the importance of dividend to shareholders and believes in balancing returns on investment for shareholders. Given the bank performance in year 2017 the Directors recommend the payment of a dividend of 17k per share. This represent an increase of 13.33% over the 15k paid for three consecutive years (2014 to 2016) and amounts to dividend appropriation of N388,731,820 resulting in a pay-out ratio of 61% on Profit after Tax.

BOARD OF DIRECTORSSubsequent to the last Annual General Meeting, the Board appointed Mr. Francis Chukwuemeka Nelson as the Executive Director Finance and Administration, a position which had been vacant in the organisation of the bank until his appointment. Mr. Nelson headed the Finance department and before then he was the head of Internal Audit. The Board is confident in his ability to excel in his new position as an Executive Director.

Also in the year under review, Mr. Olushola B. David and Mr Jibrin Gane were appointed as Non-Executive Directors on 26th October 2017 to fill the vacancies created by the exit of Mrs Abiodun Ige and Mr. Joseph Daramola who both represented the Interest of the Nigerian Police Cooperative Society Ltd.

All the above appointments have been approved by the Central Bank of Nigeria.

Sadly the Board lost a Non-Executive Director in the person of Mr Audu Abubakar on 13th December 2017 to the cold hand of death after a brief illness.

I am pleased to report also that Mr Emmanuel Wabali

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retired from the Board in the early part of the current year successfully completing the maximum term of 9 years allowed by the Bank's Articles of Association.On behalf of the Board, I commend him for his commitments and contributions to the growth of the bank and wish him success in his future undertakings.

OUTLOOKAs we look forward to the last year of our current Strategic plans, we will continue to focus on ensuring operating efficiency as the core of our decisions. We intend to leverage on technology to drive our business by replacing our banking software with a more robust industry appropriate solution. This year we have taken steps to up our game on our service delivery by leveraging on partnership and collaboration with the Central Bank of Nigeria and other government agencies in deepening financial inclusion using technology not only to deliver service but also to transform our value proposition to meet our customer needs.

As the country's economy has improved, we will revisit our desire to increase the bank's capital to drive our expansion plans.

As we move to the next phase of our growth, the Board is positive that we will achieve our growth aspirations.

In conclusion, I would like to appreciate our customers who have stood by us and to thank you our shareholders for your loyalty and continued support.

Azubuko Joel Udah ESQ. NPM mni DIG(Rtd)Chairman

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Akinwunmi LawalManaging Director/Chief Executive Officer

Inspite of the recessional period prevailing in the greater part of 2017 coupled with unstable macroeconomic state of the e c o n o m y a n d i n c e s s a n t economic headwinds retarding the bank's momentum, the bank's turnover improved by 25% from a 2016 figure of N2.925billon to 2017 figure of N3.655billion.

Dear Shareholders,

It is with the greatest sense of respect and priviledge that I stand before you to deliver our 2017 scorecard at the 24th Annual General Meeting being held in the Ancient commercial city of Kano State. It is also with a deep sense of appreciation and gratitude to God that I remind you that our bank will mark her 25th Anniversary (Silver Jubilee) this year in her quest to reduce poverty and empower the active poor citizens who have entrusted trust and pledged their support to this institution that started modestly in 1993 with a unit branch in Obalende, Lagos. We have gone

through various stages of growth, witnessed several challenges. We promise to continue to be a beacon of hope to the active poor and a succor to some of our unemployed graduates throughout the Federation.

NIGERIAN ECONOMYAs we entered 2017 in the midst of worst depression in the last 24 years of our existence, rising inflationary trend and worsening exchange rate exacerbated with low oil price, vandalisaton of our economic mainstay - oil pipelines and loads of reported ethnic clashes across the federation, our bank's management ensured that the 3 year Strategic

Managing Director/Chief Executive Officer’s Report

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Plan in operation was carefully reviewed to reflect economic realities and to ensure economic fundamentals of the bank do not slide into depression. This we did with good dexterity, tenacity of purpose and adequate cost management policies which at the end have put smiles on all our faces today. With the technical exit of the country from depression in the second quarter of 2017, the economic fundamentals of the Bank steadily continues in a positive trend.

PRODUCTS AND SERVICESExisting Products were timely reviewed and new products introduced to meet the rising needs of our active customers who are very dear to us. In the course of the year we introduced Saturday Market Storm to further introduce our various products to our customers, get new customers and deepen the financial inclusion policy of the Central Bank of Nigeria.This exercise has reasonably paid off and the customer base of the Bank has significantly increased. The Bank has so much endeared herself to the teeming customers to the extent that we have constantly developed aptly modeled products that suit our customers' needs and at the end solve their financial and economic problems. We will continue in this light and promise to see that our customers are at the heart of our decisions.

STRATEGIC PLANWe are currently at the last lap of our 3 year (2016-2018) Strategic Plan and it is my pleasure to assure you of the gains of the audacious plan which are:

Increased number of branches Improved financial performance and fundamental Improved service delivery through deployment of a more

robust core banking application Increased number of customers Increased inflow of government intervention fund. As we are ending the plan this year, plans are already in top gear to start off a more hair raising audacious goals that will be anchored on our key business mantra which are 'safety, return and speed of transaction'. We shall engage a world class consultant that is not only knowledgeable in local economy but versatile in Microfinance Banking.The plan shall be developed together with our dedicated team of staff who have excelled in various human e n d e a v o u r s . W e s h a l l c o n t i n u e t o r e d u c e o u r concentration risk and increase the deposit base of the Bank at a reasonable opportunity cost of transaction. Due to the undulating economic landscape of the country you can see that it was a wise idea to have our strategic plan tailored within 3 years. It is our desire to see that the next

strategic plan will lift the Bank to the next level after 25 exceptional years of services to the active poor and Micro Small and Medium Enterprises outfits (MSME).

OPERATING RESULTInspite of the recessional period prevailing in the greater part of 2017 coupled with unstable macroeconomic state of the economy and incessant economic headwinds retarding the bank's momentum, the bank's turnover improved by 25% from a 2016 figure of N2.925billon to 2017 figure of N3.655billion. The interest income of N2.605billion constituted 71% in 2017 while a figure of N1.997billion in 2016 was 68% of N2.925billion. The operating expense increased by 32.55% from N1.898billion in 2016 to N2.516billion in 2017. This was due to increased inflationary cost, increased number of staff and branches and rising cost of asset maintenance due to age.

Management has put a lot of plans in place to curtail the rising cost effect and to optimize services. The profit before tax of the bank marginally increased from N803.4million in 2016 to N819.8million in 2017. This is as a result of the full cost of the 10 branches opened in 2016 which are still at tender age.

In line with our policy of being a good corporate citizen, the bank witnessed 2017 tax expense of N187.9million while in 2016 we paid a higher tax of N248.5million. This is a 24.39% tax reduction despite an increased turnover in 2017; due to the effective tax management system the bank embarked upon in the course of 2017 financial year. We shall continue

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in this light in ensuring value proposition to our Shareholders. The effect of all these efforts is that the profit after tax increased by 13.87% from N554.9million in 2016 to N631.89million in 2017.

In other major highlights of the financial position the asset improved from N12.36billion in 2016 to N15.95billion in 2017, reflecting a 29.04%. The bank supported her customers in the course of the year with a loan and other receivables of N9.008billion in 2017 compared to N9.095billion in 2016, a decline of 0.96%. The Deposit liabilities of the bank improved from N6.792billion in 2016 to N9.126billion in 2017 showing a 34.36% increment, attesting to management dogged marketing effort.

The Shareholders fund of the Bank increased from N4.463billion in 2016 to N4.752billion in 2017 after appropriation in line with existing rules and regulation.

In the final analysis, a unit of the bank's share has attracted earnings of 28k in 2017 as against 24k in 2016. Out of this the board is glad to propose an increased dividend of 17k in 2017 while we have been paying 15k in the successive 3 years.

It is gratifying to notify you that the bank has maintained a good record in almost all the Central Bank of Nigeria Prudential Guildlines. The Bank closed the year with higher than regulatory mark numbers in the ratios of capital adequacy and Liquidity. The bank maintained a very healthy risk asset quality as evidenced by a Portfolio at Risk (PAR ) of 2.7% even though the CBN benchmark is 5%.

We will continue to ensure that we put an eagle eye on the risk asset quality by lending at safest condition and maintaining best world practices in microfinance banking. Other diagnostic ratios of the bank e.g. return on asset and return on shareholder's fund are 3.96% and 13.30% respectively. This is quite comparable with best industry standard and quite above our peers in the economy.

These no doubt are the main reason our market share price hit an all-time high price of 2.12k during the year. We commend the investors that have continued to maintain an independent unbiased and objective analysis of our performance and have a solemn confidence in us.We promise not to fail them as we urge other prospective investors to come on board. The bank did not pay any penalty in the year under review.


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BRANCH NETWORKFollowing the earlier adjustment and review of our existing strategic plan ending this year we wish to notify you that the Bank will be opening 7 new branches in the following states of the Federation; Plateau, Akwa Ibom, Imo, Ekiti,Kwara, Benue and Niger.

Thus in keeping with our promise of bringing the Bank closer to our customers, we have commenced action to obtain regulatory approval.

FUTURE OUTLOOKIn the years ahead, the bank will be more exciting as we have lined up plans to cushion the effect of hard economy and reducing the excruciating pain of doing business in Nigeria via so many ways.

On our earlier stated public offer we shall notify the market our intended plan as we watch the financial landscape closely bearing in mind the long tenor nature of capital market investment.

As a way to position your bank for more competitive position the management has deployed an internationally acknowledged core banking application Temenos Microsuite(T24 Microsuite) which has the capability to provide the more desired services to existing and prospective customers. Services like Internet banking , USSD service, Mobile money, Agency banking, etc will soon be on board, we believe this application will open an endless business opportunities to the Bank and thus increase your returns on investment in the Bank. The bank is doing this in collaboration with Central Bank of Nigeria and by far reducing the envisaged cost of the deployment.

The Bank has further enlarged the number of reputable organization that we partner with in poverty alleviation by collaborating with so many multilateral Agencies like Development Bank of Nigeria DBN. We are currently involved with them in the National MSME Clinic tour in search of micro and SME customers and in deepening financial inclusion which is symbiotically rewarding.

As we mark our Silver Jubilee this year, we are poised to improve the feel and look of your bank by establishing a more beautiful and rosy branch building ambience. The sign boards and colours will be improved upon and attest to our determined mind to stay in business in the unforeseeable future, All these are encapsulated in our

rebranding effort in the pipeline. This will boost your pride and confidence in your bank.

In year 2017 virtually all the Directors passed the CBi/NSE (Convention on Business Integrity)/ (Nigerian Stock Exchange) organized CGRS (Corporate Governance Rating System) assessment. This is a validation of our awareness of the fiduciary responsibilities of the Directors. We shall in this year ensure that the bank as a corporate entity qualifies the same CGRS assessment by subjecting it to the required procedure. This will increase our market rating and it shall readily reflect in our share price.

In 2017 we recruited over 36 new staff and we shall continue in that light this year in view of the upcoming 7 new branches and increasing volume of branch business. Management will ensure that training of these over 312 staff as at close of 2017 and beefing up their capacity shall be paramount in our plan.

We have set a reasonable budget for training of staff in the on-going T.24 software and IFRS 9 which we have complied with in line with regulatory instruction. We are already compliant with IFRS 9 as required by CBN. The management will also train staff to build capacity in other areas of interest with respect to individual staff deficiency.

CORPORATE SOCIAL RESPONSIBILITYWe have reasonably funded various projects of mutual benefit within the Nigerian Police Force and civilian organizations. We part financed the IPPIS/REMITA Induction training for all officers in charge of the Police Mechanised Salary sections of the country to the tune of N5.54million. The bank spent N6.64million in all her corporate social responsibility.

AWARDSIn recognition of the value we bring to the communities we serve in terms of our core banking business and our CSR efforts, we received numerous awards. Some of the awards include:

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1. National Crimewatch Awards 2017 - MFB of the Year 2017

2. CIBN Lagos Branch - Most Supportive MFB Award3. CIBN - 1ST Runner up: Best Supportive MFB in the year 20174. National Ass. of MFB (Lagos chapter)- Excellence

Support Award5. Nigerian Microfinance Platform - NPF Microfinance

Bank Plc

CONCLUSIONIn all our decisions, the Stakeholders have always been at the centre. All our products will be customer centric and continually reviewed to meet the ever changing needs of the customers. We will also ensure that we maintain a healthy and purpose fulfilled workforce. All these major stakeholders will ultimately render loyal patronage and bespoke service that will further enhance both the topline and bottomline of our financial status thus enriching our dear Shareholders; whom we care so much about.Thank you for your continued support.

Akinwunmi Lawal Managing Director/Chief Executive Officer


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MR. AKINWUNMI LAWAL(Managing Director)

MR. AZUBUKO JOEL UDAH (Chairman)

Mr. Azubuko Joel Udah was born on 26th October, 1954 in Abia State. He is a retired Deputy Inspector General of Police. He holds a Bachelor's degree in Political Science (1978) from the Premier University, the University of Ibadan and also has a Bachelor of Laws degree from the University of Calabar. He attended the Nigeria Law School and was called to the Nigeria Bar in 2000.

He holds a Masters degree in Law from University of Jos and he is a graduate of the Prestigious National Institute of Policy and Strategic Studies (NIPPS) Kuru, Jos.

Mr. Udah is a prominent member of several professional bodies among which are Nigerian Bar Association (NBA), International Bar Association (IBA), the National Institute, the International Association of Chiefs of Police (IACP) and the National Organisation of Black Law Enforcement Executive (NOBLE).

He had served in different commands and formations of the Force and rose to the rank of Deputy Inspector General of Police in the year 2010 having headed several Police Commands. He was a member of the Presidential Planning Committee on the amnesty programme and a key member of the amnesty Implementation Committee.

A recipient of several awards, DIG Azubuko Udah NPM, mni (Rtd) is a practicing lawyer and Principal in the Law Firm of Azubuko Udah & Co. He is a farmer and the Chairman/ CEO of Idyllic Farms Ltd.He was appointed the Chairman, Board of Directors on 24th July, 2015.

Mr. Akinwunmi Lawal holds a Higher National Diploma in Business Administration from Yaba College of Technology (1996) and MBA in Financial Management Technology from the Federal University of Technology Owerri. He is a fellow of the Chartered Institute of Bankers of Nigeria and Microfinance Certified Banker. He is also a fellow of the Association of Enterprise Risk Management Professional and an Associate of Certified Pension Institute of Nigeria.

He has over thirty years of quality banking experience having previously worked with FSB International Bank Plc. (1987-1993) and United Commercial Bank (1993 -1994). He joined NPF Microfinance Bank Plc over twenty-two (22) years ago and has served the Bank in various capacities such as Head of Accounts, Head Abuja Liaison Office, Head of Treasury, Head Financial Control and Head Enterprise Risk Management.

Mr. Lawal has attended various local and international banking management and leadership programmes. He is a team player whose experience makes him well suited to play a leading role in repositioning the Bank as a leading Microfinance Bank in the Microfinance sub-sector of the Banking Industry.

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OVERVIEW

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PRINCE JUDE IFEANYI ANTHONY EKE

(Non-Executive Director)

MR. MOHAMMED DANTSOHO SAEED

(Independent Non-Executive Director)

(Executive Director)

MR. FRANCIS CHUKWUEMEKA NELSON

Prince Jude Ifeanyi Anthony Eke was born on 16th May 1968. He holds a degree in Economics from Nnamdi Azikiwe University, Awka. He is a business-man with wide interest in several companies. He is the Chairman of the Risk Management Committee and also a member of other Board Committees. He has been a Non-Executive Director of the Bank for six (6) years.

Mr. Mohammed Dantsoho Saeed is a graduate of the University of Sanford, Manchester as well as the University of Abuja from where he obtained a degree in Tech, Electrical and Economics respectively. He has vast experience in international Business Relations and Social Development Functions.

He is the Chairman of Siccon Group of Companies comprising of Southbridge Integrated Service Limited, Northgreen Services Limited, Westwood Motors Limited, Northgreen Bureau De Change and Siccons Limited. He is equally the founder of Tower Assets Management Company and a council member, Federal College of Education, Yola. He is the Chairman, Governance & Remuneration Committee and the Board Audit Committee as an Independent Non-Executive Director.

Mr. Francis Chukwuemek Nelson hails from Anambra State. He was born into the family of Ndefo Nelson on 10th March, 1964. He obtained a Post Graduate Diploma (PGD) and MBA in Accounting from Nnamdi Azikiwe University in year 2000 and became a Fellow of the Chartered Institute of Taxation in 2003.

He is also a fellow of the Institute of Chartered Accountants of Nigeria (2006) and a CBN Certified Microfinance Banker. Mr. Nelson has extensive working experience in both Manufacturing and Finance Company before joining the Bank. He worked as an Associate Consultant with FC & Associate (Financial Management Consultant) from 1996 - 1999, Assistant Manager (Audit) with Achike Emejulu & Co (Chartered Accountants) from 1994 - 1996, Manager (Accounts Department), Swiss-Nigeria Chemical Company Ltd 1988 - 1993 and Assistant Accountant John Holt (Teem/Mirinda Plant) 1986-1988.

Mr. Nelson Joined NPF Microfinance Bank Plc in 1999 and served as the Head Internal Audit and Head, Finance and Administration before his appointment on 1st August, 2017 as the Executive Director, Finance & Administration.

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Board of Directors




MR. OLUSHOLLA BABAJIDE DAVID

MR. JIBRIN GARBA GANE

Mr. Olusholla Babajide David was born on 29th August, 1962. He attended the University of Ibadan where he obtained a Bachelor of Science degree in Political Science in 1984. He also obtained a Postgraduate Diploma in Management in 2000 and a National Defence College certificate in 2016 from Abubakar Tafawa Balewa University, Bauchi and National Defence College Abuja respectively.

Mr. David has served in various commands and he is currently the Commissioner of Police in charge of the Nigeria Police Cooperative Multi-Purpose Society Ltd. He has undertaken several professional courses organised locally and internationally and he is a member of the International Association of Chiefs of Police -USA.

He was appointed as a Non-Executive Director to represent the Police Cooperative Society Ltd on 26th October, 2017 following the redeployment of Mrs. Abiodun Ige.

Mr. David enjoys travelling, watching Detective and Crime Movies, Playing football and Table Tennis.

Mr. Jibrin Garba Gane was born on 27th October, 1966 in Dass Local Government Area of Bauchi State. He obtained a Diploma in Accountancy (1997) and a Bachelor's degree in Banking and Finance, (2005) both from the University of Maiduguri.

Mr. Jibrin Gane enrolled into the Nigeria Police Force in 1990 as a Cadet Inspector and trained at the Police Academy, Kano. He is a thorough breed professional who has worked in different Police formations across the country from 1990-2017 before he was transferred to the Police Cooperative Society Ltd where he is currently the Financial Controller.

Mr. Jibrin Gane was appointed as a Non-Executive Director on 26th October, 2017 to replace Mr. Joseph Daramola on the Board of NPF Microfinance Bank Plc.

MR. JUDE C. OHANEHI (Executive Director, Operations)

Mr. Jude C. Ohanehi has a Bachelor of Science Honours Degree in Biochemistry from Imo State University in 1990. He has PGDM (2000) and MBA (2002) from University of Calabar. He is a fellow of the Chartered Institute of Stockbrokers (FCS) and Associate member of the Nigeria Institute of Management, Certified Pension Institute of Nigeria (CPIN).

Mr. Jude worked with DBL Beverages Ltd as Production Manager up to 1993 before joining the Bank. As one of the pioneer staff of NPF Microfinance Bank Plc, Mr. Ohanehi has worked in all the department of the Bank and has attended various local and foreign professional courses. He headed our Abuja Branch Office before becoming the Head of Finance & Administration Department. As a dealing Clerk of the Nigeria Stock Exchange, he was instrumental in listing the shares of the Bank at the exchange. He is a CBN certified Microfinance Banker and currently the Executive Director, Operations.

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The directors are pleased to submit their report on the affairs of the Bank together with the financial statements for the year ended 31 December 2017. 1) LEGAL FORM The Bank was incorporated in Nigeria as a Private Limited Liability Company on 19 May 1993 under the provisions of the Companies and Allied Matters Act CAP C20 LFN 2004 with RC No. 220824. It obtained a provisional license as a Community Bank from the Central Bank of Nigeria on 12 July 1993 with License No. FC 00200 and commenced operations on 20 August 1993. It obtained a final license from the Central Bank of Nigeria on 24 January 2002. It was registered as a Public Limited Company on 13 July 2006. The Bank was given approval-in-principle to operate as a Microfinance Bank on 10 May 2007 and obtained the final license on 4 December 2007. The shares of the Bank were listed on the Nigerian Stock Exchange on 1 December 2010. 2) PRINCIPAL ACTIVITIES The principal activity of the Bank is the provision of banking and other permissible financial services to poor and low income households and micro enterprises with emphasis on members of the Nigerian Police Community. Such services include retail banking, loans and advances and other allied services.

The Bank currently has 28 branches nationwide from which it operates.

3) OPERATING RESULTS The profit before tax recorded by the Bank for the year ended 31 December 2017 was N820 million (31 December 2016: N803 million). Highlights of the Bank’s operating results for the year ended 31 December 2017 are as follows:

In thousands of naira

Profit before taxTax charge for the yearProfit after tax

Total comprehensive income

Basic and diluted earnings per share (kobo)

Dec-17

819,819 (187,929)

631,890

631,890

28

Dec-16

803,440 (248,537)

554,903

554,903

24

4) DIVIDENDS The Board of Directors, subsequent to the reporting date, recommended the payment of a dividend of 17 kobo (2016: 15 kobo) per share on the issued share capital of 2,286,657,766 ordinary shares, amounting to N389 million (2016: N343 million). The dividend proposed is subject to the approval of shareholders at the next annual general meeting (AGM). Withholding tax will be deducted at the point of payment.

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*****Appointed on 26 October 2017 to replace Mrs. Abiodun Ige and represent the interest of the Nigeria Police Cooperative Society Limited. His appointment was approved by the CBN on 2 February 2018. ******Appointed on 26 October 2017 to replace Mr. Joseph Daramola and represent the interest of the Nigeria Police Cooperative Society Limited. His appointment was approved by the CBN on 2 February 2018. *******Appointed on 1 August 2017 to fill the position of Executive Director, Finance & Administration which had been vacant on the Bank's organogram. His appointment was approved by the CBN on 2 February 2018.

DIRECT INDIRECT DIRECT INDIRECT

(units) (units) (units) (units)

Mr. Azubuko Joel Udah (Esq.) 1,000,000 - 1,000,000 -

Mr. Emmanuel C. Wabali 2,080,000 - 2,080,000 -

Prince Jude Ifeanyi Eke 2,252,000 - 2,252,000 -

Mr. Audu Abubakar - - - -

Mr. Mohammed D. Saeed 1,580,000 - 1,580,000 -

Mr. Olusholla B. David * - 1,480,718,606 - 1,480,718,606

Mr. Jibril. G. Gane * - “ - “

Mr. Akinwunmi M. Lawal 5,025,861 - 5,025,861 -

Mr. Jude C. Ohanehi 3,870,456 - 3,870,456 -

Mr. Francis C. Nelson 160,796 - - -

NAME OF DIRECTOR

2017 2016

5) DIRECTORSThe following Directors served during the year under review:-

NAME Mr. Azubuko Joel Udah (Esq.)Mr. Emmanuel C. Wabali*Prince Jude Ifeanyi EkeMr. Audu Abubakar**Mr. Mohammed D. SaeedMrs. Adebola Abiodun Ige***Mr. Joseph Daramola****Mr. Olusholla B.David*****Mr. Jibril G. Gane ******Mr. Akinwunmi M. LawalMr. Jude C. OhanehiMr. Francis C. Nelson *******

DESIGNATIONChairmanNon-Executive DirectorNon-Executive DirectorNon-Executive DirectorNon-Executive (Independent) DirectorNon-Executive DirectorNon-Executive DirectorNon-Executive DirectorNon-Executive DirectorManaging DirectorExecutive Director, OperationsExecutive Director, Finance & Administration

DATE OF APPOINTMENT23 July 20152 January 200930 March 201010 March 201515 November 201226 September 201623 July 201526 October 201726 October 201726 June 201426 June 20141 August 2017

* Resigned from the Board in January 2018**Deceased (Died on 13 December 2017)***Resigned from the Board on 7 August 2017**** Resigned from the Board on 25 October 2017

6) DIRECTORS' INTEREST IN SHARES The interest of Directors in the issued share capital of the Bank as recorded in the Register of members as at 31 December 2017 were as follows:

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OVERVIEW

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Shareholding Shareholding

(%) (%)Nigeria Police Co-operative Society Limited 1,480,718,606 64.75 1,480,718,606 64.75

NPF Welfare Insurance Scheme 234,305,460 10.25 234,305,460 10.25

No. of Shares No. of Shares Shareholder

31 December 201631 December 2017

*Mr. Olusholla B. David and Mr. Jibril G. Gane currently represent the interest of the Nigerian Police Cooperative Society Limited, which owns 1,480,718,606 (2016: 1,480,718,606) ordinary shares of 50k each in the issued share capital of the Bank. Save as disclosed above, none of the directors has notified the Bank of any discloseable interest in the Bank’s share capital as at 31 December 2017.

7) DIRECTORS' INTEREST IN CONTRACTS None of the directors notified the Bank for the purpose of Section 277 of the Companies and Allied Matters Act, Cap C.20, Laws of the Federation of Nigeria, 2004 of any interest in contracts deliberated upon during the year in review.

8) RETIREMENT OF DIRECTORS In accordance with Article 25(a) of the Articles of Association, Mr. Emmanuel C. Wabali retired from the

Board in January 2018, having served the maximum period of nine (9) years. Also in accordance with S.259 (1) & (2) of the Companies and Allied Matters Act, Prince Ifeanyi Eke and

Mr. Mohammed D. Saeed will retire by rotation and being eligible offer themselves for re-election. The profile of all Directors, including the Directors to be presented for election/re-election is contained in the Annual Report.

9) CHANGES TO THE BOARD In the year under review, Mr. Olushola B. David and Mr. Jibril G. Gane were appointed as Non-Executive

Directors of the Bank on 26 October 2017 to fill the vacancies created by the exit of Mrs. Abiodun Ige and Mr. Jospeh Daramola. They represent the interest of the Nigerian Police Cooperative Society Ltd.

Following the approval of members at the last Annual General Meeting and that of the Central Bank of

Nigeria to increase the Board size, Mr. Francis C. Nelson was appointed on 1 August 2017 to the position of Executive Director, Finance & Administration which had been vacant on the organogram of the Bank.

All the above appointments were approved by the Central Bank of Nigeria on 2 February 2018. The Board on 13 December 2017 lost one of its Non-Executive Director (Mr. Audu Abubakar) after a brief

illness. He has since been buried according to islamic traditions. 10) SUBSTANTIAL INTEREST IN SHARES According to the register of members as at 31 December 2017, no shareholder held more than 5% of the

issued share capital of the Bank except the following:


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11) ANALYSIS OF SHAREHOLDING The shareholding structure of the Bank is as stated below:

As at 31 December 2017

5000 3,913 55.50 6,622,86710000 998 14.16 7,786,81950000 1,264 17.93 28,810,488100000 254 3.60 19,165,546500000 455 6.45 105,295,1271000000 73 1.04 52,783,42750000000 90 1.28 282,351,4532286657766 3 0.04 1,783,842,039

7,050 100 2,286,657,766

From To

50011000150001100001500001100000150000001

Holders % Units Range

As at 31 December 2016

1 5000 3,831 54.98 6,536,6695001 10000 997 14.31 7,781,32310001 50000 1,253 17.98 28,534,60650001 100000 254 3.65 19,433,107100001 500000 471 6.76 108,096,402500001 1000000 70 1.01 50,955,8931000001 50000000 89 1.28 281,477,72750000001 2286657766 3 0.04 1,783,842,039

6,968 100 2,286,657,766

From To

Holders % Units Range

1


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12 SHARE CAPITAL HISTORYThe following changes have taken place in the Bank’s authorised and issued capital since incorporation.

1993 500 500 - - 1.00CASH &

KIND1996 500 30,000 - 17,976 1.00 CASH1999 - 30,000 17,996 21,571 1.00 BONUS 1:42000 30,000 80,000 21,571 40,186 1.00 CASH2001 - 80,000 40,186 58,624 1.00 CASH2002 80,000 250,000 - 58,624 1.00 CASH2003 - 250,000 - 58,624 1.00 CASH

2004 - 250,000 58,624 239,958 1.00BONUS 1:10

& CASH

2005 250,000 500,000 239,958 239,958 1.00 -

2006 500,000 1,000,000 239,958 259,955 1.00 BONUS 1:12

2007 1,000,000 2,000,000 259,955 417,192 1.00 CASH2008 - 2,000,000 - 417,192 1.00 -2009 - 2,000,000 417,192 1,143,328 1.00 CASH

2010 - 2,000,000 1,143,328 - 50KSHARE-

SPLIT 1:2

2011 - 2,000,000 1,143,328 - 50KSHARE-

SPLIT 1:22012 - 2,000,000 1,143,328 - 50K -2013 - 2,000,000 1,143,328 - 50K -2014 2,000,000.00

3,000,000 1,143,328 - 50K -2015 - 3,000,000 1,143,328 - 50K -2016 - 3,000,000 1,143,328 - 50k -2017 - 3,000,000 1,143,328 - 50k -

FROM TO FROM TO�'000 �'000 �'000 �'000 �'000 �'000

AUTHORISEDREMARKS

DATE ISSUED ISSUED & FULLY PAID NOMINAL

VALUE

13) PROPERTY AND EQUIPMENT Information relating to changes in property and equipment is given in Note 19 of the financial

statements. 14) DONATIONS As part of our commitment to the development of our primary community and to identify with the

aspirations of various sections of the society, the Bank made contributions to charitable and non-political organisations amounting to N5,805,000 (2016: N4,103,000) during the year. This comprises contributions to educational organisations amongst others as listed below:


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Police Hospital FalomoPolice Officers' Wives' AssociationNational Association of Microfinance BanksPacelli School for the BlindPolice Colleges (Ikeja, Orita Challenge, Idimu & Minna)POWA International SchoolPolice Barracks ObalendeSt. Monica OrphanageForce Education Secondary SchoolMicrofinance Development Learning CentreThe Nigeria Police Cooperative Society - Recreational facilityPolice Children Schools (Ikeja, Idimu, Okota, Eleweran & Ijebu-ode)

N 500,000 500,000

50,000 25,000

655,000 30,000

600,000 100,000

25,000 2,000,000 1,000,000

320,000 5,805,000

15) EVENTS AFTER THE REPORTING PERIOD There were no post balance sheet events which could have a material effect on the state of affairs of the

Bank as at 31 December 2017 or the profit for the year ended on that date which have not been adequately provided for or disclosed.

16) HUMAN RESOURCES EMPLOYMENT OF DISABLED PERSONS The Bank operates a non-discriminatory policy on recruitment. Applications by physically challenged persons are always considered, bearing in mind the respective aptitudes and abilities of the applicants concerned. In the event of members of staff becoming physically challenged, every effort is made to ensure that their employment with the Bank continues and that appropriate training is arranged. It is the policy of the Bank that the training, career development and promotion of disabled persons should, as far as possible, be identical with those of other employees. Currently, the Bank has one physically challenged person in its employment. EMPLOYEE INVOLVEMENT AND TRAINING The Bank is committed to keeping employees fully informed as much as possible regarding the Bank's performance and progress and seeking their view wherever practicable on matters which particularly affect them as employees. As an institution committed to maintaining its competitve edge, NPF Microfinance Bank ensures that employees receive qualitative training through both in-house and external, local and international courses. Staff training plans are drawn up yearly and hinged on grade and job function specific programmes. These trainings are complemented by on-the-job training. HEALTH, SAFETY AND WELFARE OF EMPLOYEES The Bank continues to priortise staff health and welfare. Fire prevention and fire fighting equipments are installed in strategic locations within the Bank's premises. Health and safety rules and practices are in force at the work environment. In addition, the Bank provides medical facilities to its employees and their immediate families at its expense. These health facilities are actively enhanced with annual heatlh screening excercises that include eye screening, dental screening, cervical screening and Hepatatis B screening. The Bank operates a Group Life Assurance Scheme and a Contributory Pension Plan for the benefit of employees in line with the Pension Reform Act, 2014 (as amended) exists also for employees of the Bank.

17) EMPLOYEE AND DIRECTOR INFORMATION The number and percentage of men and women employed in the Bank during the year ended 31

December 2017 and the comparative year were as follows:


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Male Female Total Male FemaleEmployees (2017) 185 129 314 59% 41%

Employees (2016) 161 123 284 57% 43%

Top Management (2017) 14 4

18 78% 22%

Top Management (2016) 13 2

15 87% 13%

Board

Executive Directors (2017) 3 -

3 100% 0%

Executive Directors (2016) 2 -

2 100% 0%

Non -Executive Directors (2017) 6 -

6 100% 0%

Non -Executive Directors (2016) 6 1

7 86% 14%

PercentageNumber

18) AUDITOR Messrs. KPMG Professional Services, having satisfied the relevant corporate governance rules on

their tenure in office, have indicated their willingness to continue in office as auditor to the Bank. In accordance with Section 357(2) of the Companies and Allied Matters Act, Cap C.20, Laws of the Federation of Nigeria, 2004 therefore, the auditor will be re-appointed at the next general meeting of the Bank after a resolution has been passed.

19) POST AUDIT EVENT At the Board of Directors meeting held on 26th April, 2018 the Board upon the recommendation

of the Governance and Remuneration Committee approved the nomination for the appointment of three (3) Non-Executive Directors; Mr. Salihu Argungu Hashimu, Mr. Abdulrahman Satumari and Mrs. Rakiya Edota Shehu to fill the vacancy created by the resignation of Mr. Emmanuel C. Wabali, the death of Mr. Audu Abubakar and the need for additional Independent Directors.

Mr. Abdulrahman Satumari and Mrs. Rakiya Edota Shehu are to be appointed as Independent Non-Executive Directors.

Below are the profiles of the three (3) newly appointed Directors.

MR. SALIHU ARGUNGU HASHIMU Mr. Salihu Argungu Hashimu was born on 10th July 1957 and hails from Kebbi State in Argungu

Local government Area. He holds a Bachelor of Laws (LL.B) degree from the Usman Danfodio University, Sokoto and a Masters degree in Law (LL.M) from the University of Abuja. He was called to the Nigeria Bar in 2001.

He started his career with the Nigeria Police Force in 1986 as the Officer in Charge Anti-fraud, State Criminal Investigation Department Niger State Command. He thereafter held several

positions such as Deputy Commissioner of Police - Department of Research and Planning, Deputy Commissioner of Police - Legal/prosecution 'D' Department, DIG - Department of Training and Development amongst others.

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Mr. Salihu Argungu Hashimu in the course of his career attended various local and international courses. He retired as a Deputy Inspector General of Police in year 2016 after a meritorious service. He enjoys reading and travelling.He is happily married with children and he is being proposed as a Non-Executive Director.

MR. ABDULRAHMAN SATUMARIMr. Abdulrahman Satumari is a graduate of the University of Maiduguri with a Bsc. (Hons) in Business Management (Banking & Finance) 2004. He also obtained a Diploma in Accounting and a Post Graduate Diploma in Management both from the same university.

His working career includes Central Cashier (HMB) Borno State (2000-2003) and he became the Chief Accountant at the Ministry of Finance (HMB) Borno State in 2003. He was the Managing Director of Satus Hotel Limited (2007-2015) and he is currently the Chairman and CEO of Mo-Tex Engineering Services Ltd.

Mr. Abdulrahman Satumari's professional association includes; Doctorate fellow-International Certified Risk Professional United Kingdom. Fellow-National Institute of Risk Management of Nigeria, Fellow-American Academy of Project Managers and he is a member of the Nigeria Institute of Management.

He was born on 24th June, 1974and hails from Askira Uba Local Government Area, Borno State. He is being proposed for appointment as an Independent Non-Executive Director.

MRS. RAKIYA EDOTA SHEHUMrs. Rakiya Edota Shehu was born on 20th February, 1974. She hails from Niger State. She obtained a Bachelor's degree in Management Studies form the Usman Dan Fodio University Sokoto State in 1996. She began her career in Banking with the United Bank of Africa (UBA) in 1999 as a cash and teller officer. She served in various positions in UBA including customer service officer, Reconciliation and Control Officer, Funds transfer officer, head of operations, branch operations manager and team member cash management centre until 2016.

Mrs. Rakiya Edota Shehu is a member of the Chartered Institute of Purchasing and Supply Management of Nigeria and a fellow of the Chartered Institute of Operations Management of Nigeria.

Mrs. Rakiya Edota Shehu is happily married and enjoys reading and travelling. She is being proposed for appointment as an Independent Non-Executive Director.

BY ORDER OF THE BOARD Mrs. Osaro J. Idemudia Company Secretary/Legal Adviser FRC/2013/NBA/00000002319 9 March 2018

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INTRODUCTION This report is designed to update stakeholders on how NPF Microfinance Bank Plc ("the Bank") discharged its fiduciary responsibilities in relation to governance as well as its level of compliance with relevant statutory and regulatory requirements during the year under review. The Bank remians committed to promoting good corporate governance and best practices. It is mindful that best practice in corporate governance is essential for ensuring accountability, fairness and transparency in the Bank's relationship with all its stakeholders.

The Bank undertakes frequent internal assessment of its compliance with the Corporate Governance Codes/Rules and submits periodic returns to the Central Bank of Nigeria (CBN), Securities and Exchange Commission (SEC), Nigeria Stock Exchange (NSE), and the Nigerian Deposit Insurance Corporation (NDIC). GOVERNANCE STRUCTURES THE BOARD The Board of Directors is responsible for the governance of the Bank and is accountable to shareholders. The Board consist of persons with mixed skills having the requisite integrity and experience to bring independent judgement to bear on Board deliberations and discussions.

The Board plays a central role in conjunction with Management in ensuring that the Bank is financially strong. This synergy between the Board and Management fosters interactive dialogue in setting broad policy guidelines in the running of the Bank to enhance optimal performance and ensure that associated risk are well managed.

The Board of Directors currently consists of eight (8) members, five (5) Non-Executive Directors and three (3) Executive Directors. One of the Non-Executive Directors chairs the Board.

RESPONSIBILITIES The Board is accountable to the Shareholders and continues to play a key role in governance. It is the responsibility of the Board of Directors to endorse the Bank's organisational strategy, develop directional policy, appoint, supervise and remunerate senior executives and ensure accountability of the Bank to its stakeholders and regulatory authorities. The Board is responsible for providing stable and effective leadership for the Bank, to facilitate achievement of its corporate operating objectives. The Board has delegated the day to day management of the Bank to the Managing Director/Chief Executive Officer who is assisted by the Management Team. In line with best practices and relevant regulations, the roles of the Chairman of the Bank and the Managing Director/Chief Executive Officer are assumed by different individuals to ensure that the right balance of power and authority is maintained.

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Corporate Governance Report


DIRECTORS' REMUNERATION The Bank’s remuneration policy is structured taking into account the environment in which it operates and the results it achieves at the end of each financial year. It includes:

Reflects the industry competitive salary package and the extent to which the Bank's objectives have been met for the financial year.

Executive Directors only

Monthly

This is awarded based on the performance of the Bank and individual Directors.

Executive Directors only

Annually

Annual Payments approved at the Annual General Meeting

Non-Executive Directors only

Half yearly

Allowances paid for attending board and board committee meetings

Non-Executive Directors only

Paid at every sitting at board and board committee meetings

Basic Salary

Performance Incentive

Directors's fees

Sitting allowances

Description Entitled Directors TimingRemuneration class

ROLE OF THE BOARD The traditional role of the Bank’s Board is to provide the Bank with leadership within a framework of prudent and effective controls which enables risk to be assessed and managed while deploying the Bank’s resources to profitable use. The Board outlines the Bank’s strategic and corporate aims, ensures that the necessary financial and human resources are in place for the Bank to meet its objectives and reviews management performance on a continuous basis. The Board also sets the Bank’s values and standards and ensures that its obligations to its shareholders and others are understood and met.

BOARD MEETINGS To ensure the Board's effectiveness throughout the year, an annual meeting and task calendar is developed at the beginning of each year. These calendars do not only focus on the activities of the Board but also establish benchmarks against which its performance can be evaluated at the end of the year. The Board meets quarterly and additional meetings are convened as the need arises. In furtherance of its roles, the Board met six (6) times in the year under review on 6/3, 27/4, 5/7, 27/7, 26/10 and 7/12. Attendance at the Board meetings during the year were as follows:

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1 Mr. Azubuko Joel Udah (Esq.) Chairman 6 6

2 Mr. Emmanuel C. Wabali Non-Executive Director 6 6

3 Prince Jude Ifeanyi Eke Non-Executive Director 6 6

4 Mr. Mohammed D. Saeed Non-Executive Director (Indep) 6 3

5 Mr. Audu Abubakar Non-Executive Director 6 4

6 Mrs. Adebola A. Ige Non-Executive Director 6 3

7 Mr. Joseph Daramola Non-Executive Director 6 48 Mr. Olusholla B. David* Non-Executive Director 6 2

9 Mr. Jibril G. Gane** Non-Executive Director 6 2

10 Mr. Akinwunmi M. Lawal Managing Director 6 6

11 Mr. Jude C. Ohanehi Executive Director 6 6

12 Mr. Francis C. Nelson *** Executive Director 6 2

No Members Designation No. of Meetings Attendance

* Appointed on 26 October 2017 to replace Mrs. Adebola A. Ige. **Appointed on 26 October 2017 to replace Mr. Joseph Daramola. ***Appointed on 1 August 2017 to the position of Executive Director, Finance & Administration. BOARD APPRAISAL An effective Board is a critical factor in ensuring a well governed, well directed and successful Bank. A periodic evaluation of the effectiveness and performance of the Board of Directors and its committees, is consistent with good corporate governance. In compliance with the requirement of the Central Bank of Nigeria (CBN) Code of Corporate Governance, the Board commissioned the Society for Corporate Governance to carry out Board evaluation for the financial year ended 31 December 2017. Their report will be communicated to the shareholders at the Annual General Meeting. TENURE OF DIRECTORS In pursuance of the Bank’s drive to continually imbibe best Corporate Governance practices, the tenure of the Non-Executive Directors is limited to a maximum of three (3) terms of three (3) years each. This allows for the injection of fresh perspectives to the business of the Board. INDUCTION AND CONTINOUS TRAINING On appointment to the Board, all Directors receive an induction tailored to meet the requirement of their position as Directors. This induction which is arranged by the Company Secretary includes presentation by Senior Management staff to assist Directors in building a detailed understanding of the Bank’s operations, its strategic plan, Business environment and key issues faced by the Bank and to introduce directors to their fiduciary duties and responsibilities. Training and Education of Directors on issues pertaining to their oversight function is a continuous process in order to update their knowledge and skills and keep them informed of new developments in the Bank’s business and operating environment. These trainings are carried out through external, local and international courses.

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Risk Management and Board Effectiveness in a Challenging Nigerian Business Environment

22 February 2017

Corporate Governance Programme on Finance for Non-Finance Directors- Understanding and Interpreting Financial Statements in accordance to IFRS

22 March 2017

International Programme for Directors of Banks & Other Financial Institutions

8 - 12 May 2017

Improving the Performance of Audit Committee

14 - 15 June 2017

CBN-FITC Continuous Education Programme for Directors of Banks

19 - 20 September 2017

Sustainability & Social Impact Assessment Training

9 December 2017

IFRS technical update training 8 December 2017

All Directors attended at least one training course in the year under review. The training courses attended are indicated hereunder:

Mr. Azubuko J. Udah and

Mr. Mohammed D. Saeed

Mr. Azubuko J. Udah, Mr. E.C. Wabali, Prince Jude Ifeanyi Eke, Mr. Audu Abubakar, Mr. Mohammed Saeed, Mr. Olusholla B. David, Mr. Jibril G. Gane, Mr. Akinwunmi Lawal, Jude Ohanehi, Mr. Francis C. Nelson

Mr. Azubuko J. Udah, Mr. Emmanuel C. Wabali, Prince Ifeanyi Jude Eke, Mr. Audu Abubakar, Mr. Mohammed D. Saeed, Mr. Olusholla B. David, Mr. Jibril G. Gane, Mr. Akinwunmi Lawal, Jude Ohanehi, Mr. Francis C. Nelson

Mr. Lazarus Onwuka, Mr. Abdulquadri Sanni, Mr. Emmanuel C. Wabali, Mr. Audu Abubakar

Society for Corporate Governance

Society for Corporate Governance

FITC

DCSL Corporate Services Ltd

FITC

Lagos Business School

ADRAC Professional Services Consulting

Prince Jude Ifeanyi Eke

Mr. Azubuko J. Udah, Mr.Emmanuel C. Wabali, Mr. Audu Abubakar, Mr.Mohammed D. Saeed, Mr. Joseph Daramola, Mrs. Abiodun Ige

Prince Jude Ifeanyi Ekeand Mr. Audu Abubakar

Training DateFacilitator Participants

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BOARD COMMITTEES The responsibilities of the Board are further accomplished through four (4) standing Committees in addition to the Statutory Audit Committee. Through these commmittees, the Board is able to effectively deal with complex and specialised issues and fully utilise its expertise to formulate strategies for the Bank. These committees have clearly defined terms of reference setting out their roles, responsibilities, functions and reporting procedures to the Board. The Board committees in operation during the period under review were: - Board Finance and General Purpose Committee - Board Risk Management Committee - Board Audit Committee - Board Governance and Remuneration Committee The roles and responsibilities of these committees are discussed below: Finance and General Purpose Committee This Committee has the responsibility for monitoring all financial aspects of the Bank. Its responsibilities also include:- To formulate and shape the strategy of the Bank and make recommendations to the Board Review the budget of the Bank and make recommendations to the Board for approval Monitor performance of the Bank against the budget Consider and approve expenses above the limits of Management and make recommendations to the Board for approvals above its limits Consider and approve significance IT investment and expenditure to be made by the Bank Review the Assets and Liability Committee report Review the Bank’s investment portfolio annually Approve all policies relating to finance for the Bank Oversee the development and maintenance of IT Strategic Plan Review and approve within its approved limits the annual manpower plan for the Bank Approve compensation policy and review compensation for all officers of the Bank (excluding Executive and Non - Executive Directors). The Committee meets at least once in each quarter. However, additional meetings are convened as required. The Committee met four (4) times in the 2017 financial year on 23/2, 25/4, 18/7 and 17/10. Membership of the Committee and attendance at its meetings during the year were as follows:

Mr. Emmanuel C. Wabali Chairman 4 4

Prince Jude Ifeanyi Eke Member 4 3

Mr. Audu Abubakar Member 4 3

Mrs Adebola Abiodun Ige Member 4 2

Mr. Akinwunmi Lawal Member 4 4

Mr. Jude C. Ohanehi Member 4 4

1

2

3

4

5

6

Members Designation No. of Meetings AttendanceNo.


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Board Risk Management Committee

The responsibilities of this Committee are:- . Review and recommend risk management policies including risk strategy to the full Board for

approval . Review the adequacy and effectiveness of risk management and controls . Monitor the Bank’s compliance level with applicable laws and regulatory requirements . Periodic review of changes in the economic and business environment, including trends and other

factors relevant for the Bank’s risk profile . Review and recommend for approval of the Board risk management procedures and controls for new

products and services . Approve lending, investment decisions, credit products and new processes . Oversight of management's process for the identification of significant risks across the Bank and the

adequate prevention, detection and reporting mechanism . Review and approve the framework for the management of credit risk, market risk, liquidity risk,

operational risk, reputation risk and other risk types as appropriate . Review and oversee the development of loan loss provision policy and annually assess the

appropriateness and application of such policy in the light of the credit risk imbedded in the overall loan portfolio

. Review and monitor the effectiveness and application of credit risk management policies, related standards and procedures, and control environment with respect to credit decisions and review internal audit reports with respect thereto; and

. Review and approve or decline credit applications submitted by the Management’s Credit Committee for loans to new individual borrowers or additional requests for existing borrowers.

The Board Risk Management Committee meets quarterly, and additional meetings are convened as required. The Committee met four (4) times during the 2017 financial year on 19/1, 26/4, 19/7 and 18/10. Membership of the Committee and attendance at its meetings during the year were as follows:-

Attendance

1 Prince Jude Ifeanyi Eke Chairman 4 4

2 Mr. Emmanuel C. Wabali Member 4 4

3 Mr. Joseph Daramola Member 4 3

4 Mr. Mohammed D. Saeed Member 4 2

5 Mrs Adebola Abiodun Ige Member 4 2

6 Mr. Akinwunmi Lawal Member 4 3

7 Mr. Jude C. Ohanehi Member 4 4

No. Members Designation No. of Meetings

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Board Audit Committee The Audit Committee is responsible for maintaining oversight regarding the integrity of the Bank’s financial statements, ensuring compliance with legal and other regulatory requirements, assessment of qualification and independence of the external auditor, and assessment of performance of the Bank’s internal audit function as well as that of the external auditors. Its responsibilities also includes:

. Ensure the development of a comprehensive internal control framework for the Bank, obtain assurance and report the operating effectiveness of the Bank’s internal control framework to the Board

. Review and ensure that adequate whistle-blowing procedures are in place and that a summary of issues reported are highlighted to the Board

. Preserve auditor independence, and set clear hiring policies for employees and /or former employees of independent auditors

. Consider any related-party transactions that may arise within the Bank or any of its related companies

. Invoke its authority to investigate any matter within its terms of reference for which purpose the Bank must make available the resources to the internal auditors with which to carry out this functions including access to external advice when necessary

This Committee consist of only Non-Executive Directors and is required to meet quarterly in a year.The Committee met three (3) times during the 2017 financial year on 24/2, 28/4 and 25/7. Members of the Committee and attendance at its meetings during the year were as follows:-

Attendance

1 Mr. Mohammed D. Saeed Chairman 3 2

2 Prince Jude Ifeanyi Eke Member 3 3


4 Mr. Audu Abubakar Member 3 3

5 Mrs Adebola Abiodun Ige Member 3 3

No. Members Designation No. of Meetings

Board Governance and Remuneration Committee The responsibilities of the Committeee are: . Make recommendations on the appropriate compensation structure for the Managing Director

and other senior Executives . Make recommendations to the Board on the Bank’s policy framework of Executive remuneration

and its cost . Review and report to the Board on the succession planning process for the positions of chairman,

Chief Executive Officer/Managing Director, Executive Directors and any other key managerial position

. Periodically evaluate the skills, knowledge and experience required on the Board

. Establish the criteria for Board and Board committee membership, review candidates qualifications and any potential conflict of interest, assess the contributions of current Directors in

connection with their re-connection and make recommendation to the Board . Monitor the development, alignment, satisfaction and productivity of the Bank’s employees with a

view to competitive excellence


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Develop and constantly review and make recommendation to the Board on policies and proceduresto maintain high standard of management by the Bank

Monitor on a continuous basis and make recommendations to the Board concerning the corporate governance of the Bank

Perform other oversight functions as may from time to time be expressly requested by the Board The Board Governance and Remuneration Committee is required to meet as often as it deems necessary but not less than 3 times a year. The Committee met four (4) times in the 2017 financial year on 20/1, 4/5, 26/7 and 19/10. Membership of the Committee and attendance at its meetings during the year were as follows:

1 Mr. Mohammed D. Saeed Chairman 4 3

2 Prince Jude Ifeanyi Eke Member 4 4


4 Mr. Emmanuel C Wabali Member 4 4


No. Members Designation No. of Meetings Attendance

Statutory Audit Committee In compliance with section 359(6) of the Companies and Allied Matters Act, Cap C.20, Laws of the Federation of Nigeria, 2004, an audit committee comprising two (2) representatives of shareholders elected annually at the Annual General Meeting (AGM) and two (2) Non-Executive Directors is in place. The responsibilities of the Committee are as contained in the Companies and Allied Matters Act, Cap C.20, Laws of the Federation of Nigeria, 2004. The Statutory Audit Committee meets at least once in each quarter. However, additional meetings are conveyed as required. The Committee met five (5) times in 2017 financial year on 28/2, 7/3, 24/4, 2/8 and 16/10. Membership of the Committee and attendance at its meetings during the year were as follows:

1 Mr. Waheed A. Adegbite * Chairman 5 2

2 Mr. Lazarus Nnadozie Onwuka Chairman 5 3

3 Alhaji Abdulquadri Sanni Member 5 5

4 Mr. Emmanuel C.Wabali Member 5 3

5 Prince Jude Ifeanyi Eke ** Member 5 2


No. Members Designation No. of Meeting Attendance

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* Mr. Waheed A. Adegbite was elected by members at the Annual General Meeting on 6 July 2017 to replace Mr. L.N. Onwuka. ** Prince Jude Ifeanyi Eke was appointed to represent the Board at the AGM held on 6 July 2017 and replaced Mr. Emmanuel C. Wabali on the Committee MANAGEMENT COMMITTEES The committees comprise senior management staff of the Bank. These committees provide inputs for the respective Board committees of the Bank and ensure that recommendations of the Board committees are effectively and efficiently implemented. They meet as frequently as necessary to take action and decisions within the confines of their powers. The standing management committees are:- - Assets and Liabilities Committee - Enterprise Risk Management Committee - Finance and Expenditure Committee - IT Steering and Business Development Committee - Staff Committee - Management Credit Committee Assets and Liabilities Committee The Asset and Liability Committee meets weekly or as required to analyse and make recommendations on risks arising from day to day activities of the Bank. The Committee also establishes standards and policies covering the various components of market risk. It also ensures that the authority delegated by the Board and Management Risk Committees with regard to market risk is exercised effectively, and that market risk exposures are efficiently monitored and managed. The Committee is composed of all senior management staff. Enterprise Risk Management Committee The Committee is comprised of all senior management staff of the Bank. The Committee is responsible for the implementation of the Bank’s risk management strategy. The Committee also monitors overall regulatory and economic capital adequacy. It recommends to the Board for its approval, clear policies on standards for presentation of credit proposals, financial covenants, rating standards and benchmarks. The Committee is also saddled with the responsibility of reviewing asset quality results versus plan, portfolio management and the adequacy of the allowance for credit losses. Finance and Expenditure Committee The Finance and Expenditure Committee is responsible for recommending for approval to management the purchase of assets for new and existing branches. It also reviews the budget expenditure performance during the financial year. The Committee is comprised of the Company Secretary/Legal Adviser, Head Finance & Administration, Head Credit, Head Information Technology and Head Administration. Staff Committee The Committee considers all staff disciplinary issues for recommendation/ implementation to the management team. It also considers issues pertaining to staff welfare and performance appraisal.The members of the Committee include the Company Secretary/Legal Adviser, Head Finance & Administration, Head Internal Audit, Head Credit, Head Administration and Head Information Technology.


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IT Steering and Business Development Committee This Committee is responsible for amongst others, development of corporate information technology (IT) strategies and projects that ensure cost effective application and management of resources throughout the organisation. The Committee also reviews for management’s recommendation to the Board Risk Management committee, new and existing bank products and its features. The members of the Committee includes the Executive Director Operations, Head Information Technology, Head Credit, Head Administration, Head Internal Audit, Head Marketing and Head Finance & Administration. Management Credit Committee The Committee is responsible for ensuring that the Bank complies fully with the Credit Policy guidelines as laid down by the Board of Directors. The Committee also reviews and approves credit facilities not exceeding an aggregate sum to be determined by the Board from time to time. The Committee is saddled with the responsibility of ensuring that adequate monitoring and recovery of credit is carried out. WHISTLE-BLOWING PROCESS The Bank is committed to the highest standards of openness, probity and accountability hence the need for an effective and efficient whistle blowing process as a key element of good corporate governance and risk management. Whistle blowing process is a mechanism by which suspected breaches of the Bank’s internal policies, processes, procedure and unethical activities by any stakeholder (staff, customers, suppliers and applicants) are reported for necessary actions. It ensures a sound, clean and high degree of integrity and transparency in order to achieve efficiency and effectiveness in our operations.

The reputation of the Bank is of utmost importance and every staff of the Bank has a responsibility to protect the Bank from any person or act that might jeopardize its reputation. Staff are encouraged to speak up when faced with information that would help protect the Bank’s reputation. An essential attribute of the process is the guarantee of confidentiality and protection of the whistle blower’s identity and rights. It should be noted that the ultimate aim of this policy is to ensure efficient service to the customer, good corporate image and business continuity in an atmosphere compliant to best industry practice. The Bank has a Whistle Blowing channel via its website, dedicated telephone hotlines and e-mail address in compliance with Section 6.1.12 of the Central Bank of Nigeria (CBN) post-consolidation Code of Corporate Governance for Banks in Nigeria. The Bank’s Head of Internal Audit is responsible for monitoring and reporting on whistle blowing. SECURITIES TRADING BY INTERESTED PARTIES The Bank has in place a policy on trading in the Bank’s Securities on terms no less exciting than the required standard set out in the Nigeria Stock Exchange Listing Rules. The policy prevents employees, Directors and related individuals/Companies from insider dealings on the shares of NPF Microfinance Bank Plc and related parties. The essence of the policy is to prevent the abuse of confidential non-public information that may be gained during the execution of NPF Microfinance Bank’s Business.

All Directors of the Bank have complied with the listing rules of the Nigeria Stock Exchange regarding

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securities transactions by Directors. SHAREHOLDERS' PARTICIPATION The Annual General Meeting of the Bank is the highest decision-making forum. Shareholders are opportuned to express their opinions on the Bank’s financials and other issues affecting the Bank at such forum. The Bank encourages shareholders to partcipate in the affairs of the Bank. PROTECTION OF SHAREHOLDERS' RIGHTS The Board ensures the protection of the statutory and general rights of shareholders at all times, particularly voting rights at General Meetings of the Bank. All are treated equally, regardless of volume of shareholding or social status. SHAREHOLDERS' MEETING Shareholders’ meetings are duly convened and held in line with existing statutory and regulatory regime. The Bank’s General Meetings are conducted in a transparent and fair manner. Shareholders have the opportunity to express their opinions on the Bank’s financial results and other issues affecting the Bank. The Annual General Meetings are attended by representatives of regulators such as the Nigerian Stock Exchange as well as representatives of Shareholders' Associations. COMPLAINT MANAGEMENT In compliance with the Securities and Exchange Commission (SEC) rules of 2015, the Bank has in place a complaint management policy. The policy sets out the manner in which shareholders make enquiries or register their complaints and how the Bank responds/address shareholder’s complaints, issues and other matters that affects their shareholding. COMPLAINT CHANNELS To ensure an effective feedback process, the following channels have been provided for customers to enable them contact the Bank: Email: [email protected] Toll Free Line: 08008008008 BY ORDER OF THE BOARD

Mrs. Osaro J. Idemudia Company Secretary/Legal Adviser FRC/2013/NBA/00000002319 9 March 2018

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ANTI- MONEY LAUNDERING (AML)/ COMBATING THE FINANCING OF TERRORISM (CFT)NPF Microfinance Bank Plcis committed to fighting against financial crimes such as money laundering. Subsequent to that, the bank has adopted a framework issued by the regulatory bodies in Nigeria for anti-money laundering (AML) and combating the financing of terrorism (CFT). The Board of Directors and management ensure strict adherence to this regulatory requirement with zero tolerance for infraction. Therefore, the Board of Directors of the Bank has oversight responsibilities for the AML/CFT framework.

1. KNOW YOUR CUSTOMERS

a) Our bank has a system of identifying our customers such as Know Your Customer (KYC). The

completion of the account opening form is the starting point to know our customers.

Documentations such as National Identity Card, passport and utility bills are used as our

customers' documentation.

b) As stipulated by the Central Bank of Nigeria (CBN), all customers of the bank are expected to

acquire a Bank Verification Number (BVN) which is for easier documentation.

c) The bank will continue to ensure compliance with applicable laws and regulations, while ensuring

that customers continue with their banking transactions.

2. MONITORING OF TRANSACTIONS

The daily transactions of the bank are been monitored by the staff of the bank who are cautioned to

look out for red flags in the system. Transaction monitoring is done on manual and automated basis.

Our bank has put in place systems and procedures for monitoring and reporting any suspicious

transactions relevant for the governing or instituted authorities.

3. REPORTING OF SUSPICIOUS TRANSACTIONS

The regulatory bodies such as Central Bank of Nigeria (CBN) and the Nigeria Financial Intelligent Unit

(NFIU) and other regulated bodies require that reports are turned in by our bank for any suspicious or

reasonable reasons to suspect any fraud regardless of the people or amount involved.

The bank reports to the NFIU in accordance with the provisions of sections 2, 6 and 10 of the AML Act

2011 as amended.

4. COMPLIANCE MANAGEMENTWith the escalation procedure for compliance risk in place, the Enterprise Risk Management Committee (ERMC), Internal Audit Department and the Board through the Board Risk Management Committee (BRMC) and Board Audit Committee (BAC) serves as a medium for reporting compliance risk.

5. TRAINING/AWARENESS

The bank does adequately well to train our compliance team on the requirements, procedure,

AMT/CFT, KYC principles, code of conduct and business ethics to make sure that the staff are familiar

with them. Awarenessis being created for new inductees as and when due.

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AML/CFT Frame Work


The directors accept responsibility for the preparation of the annual financial statements that give a true and fair view in accordance with International Financial Reporting Standards and in the manner required by the Companies and Allied Matters Act, Cap C.20, Laws of the Federation of Nigeria, 2004, the Financial Reporting Council of Nigeria Act, 2011, the Banks and Other Financial Institutions Act, Cap B.3, Laws of the Federation of Nigeria, 2004 and relevant Central Bank of Nigeria (CBN) guidelines and circulars. The directors further accept responsibility for maintaining adequate accounting records as required by the Companies and Allied Matters Act, Cap C.20, Laws of the Federation of Nigeria, 2004 and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement whether due to fraud or error. The directors have made assessment of the Bank’s ability to continue as a going concern and have no reason to believe that the Bank will not remain a going concern in the year ahead. SIGNED ON BEHALF OF THE BOARD OF DIRECTORS BY:

Mr. Akinwunmi Lawal Mr. Azubuko Joel Udah (Esq.)Managing Director/Chief Executive Officer ChairmanFRC/2014/CIBN/00000006345 FRC/2016/NBA/000000137759 March 2018 9 March 2018


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Statement Of Directors' Responsibilities In Relation To The Financial Statements For The Year Ended 31

December 2017

044 NPF Microfinance Bank Plc 2017 Annual Report + Accounts

In compliance with section 359(6) of the Companies and Allied Matters Act, Cap C.20, Laws of the Federation of Nigeria, 2004, we the members of the Audit Committee of NPF Microfinance Bank Plc report as follows: - We have reviewed the scope and planning of the audit requirements and we found them adequate. - We have reviewed the financial statements for the year ended 31 December 2017 and are satisfied

with the explanations obtained. - We reviewed the external auditor's Management Letter for the year ended 31 December 2017 and

management responses thereto and are satisfied that management is taking appropriate steps to address the issues raised.

- We have reviewed all insider related credits as defined by Section 20(2) of the Banks and Other

Financial Institutions Act, Cap B.3, Laws of the Federation of Nigeria, 2004 and confirm that the Bank disclosed all such credits and that they were reported in line with the Central Bank of Nigeria (CBN)’s guidelines. Specifically, we are satisfied that the Bank has complied with the provisions of the Central Bank of Nigeria circular BSD/1/2004 dated 18 February 2004 on “Disclosure of insider related credits in the financial statements of banks”. We hereby confirm that an aggregate amount of ?32,086,000 was outstanding as at 31 December 2017 (31 December 2016: ?24,236,000) of which none was non-performing (31 December 2016: Nil) (see note 26 to the financial statements).

- We ascertained that the accounting and reporting policies of the Bank for the year ended 31 December 2017 are in accordance with legal requirements and agreed ethical practices. - The external auditors confirmed having received full cooperation from management in the course of

their statutory audit.

Alhaji Waheed A. AdegbiteChairman, Audit CommitteeFRC/2013/ICAN/000000025328 March 2018

Other members of the Audit Committee:Alhaji Abdulquadri SanniPrince Ifeanyi Jude Eke

Mrs. O.J. Idemudia (Company Secretary) acted as Secretary to the Committee

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Report Of The Audit Committee To The Members Of NPF Microfinance Bank Plc

KPMG Professional ServicesKPMG TowerBishop Aboyade Cole Street,Victoria IslandPMB 40014, FalomoLagos.

Telephone 234 (1) 271 8955 234 (1) 271 8599Fax 234 (1) 271 0540Internet www.kpmg.com/ng

Independent Auditor’s Report

To the Shareholders of NPF Microfinance Bank Plc Report on the Audit of the Financial Statements Opinion We have audited the financial statements of NPF Microfinance Bank Plc (“the Bank”), which comprise the statement of financial position as at 31 December 2017, and the statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information, as set out on pages 21 to 64. In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Bank as at 31 December 2017, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs) and in the manner required by the Companies and Allied Matters Act, Cap C.20, Laws of the Federation of Nigeria, 2004, the Financial Reporting Council of Nigeria Act, 2011, the Banks and Other Financial Institutions Act, Cap B.3, Laws of the Federation of Nigeria, 2004 and relevant Central Bank of Nigeria (CBN) Guidelines and Circulars. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Bank in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the financial statements in Nigeria and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. The following key audit matter applies to the audit of these financial statements. Impairment of loans and advances The allowance for impairment of loans and advances to customers is an area of significance in our audit due to the significant judgment involved in estimating the recoverability of loan balances. The Bank identifies loans and advances for specific impairment assessment mainly based on past due status of the loans; and thereafter, determines its best estimate of the present value of the cash flows that are expected to be received on the loans. An impairment assessment is performed collectively on all other loans, with the key assumptions being the possibility of a loan becoming past due and subsequently defaulting, the rate of recovery on loans that are past due and in default and the estimated time for recoverability. For the purposes of a collective evaluation of impairment, loans are grouped on the basis of similar credit risk characteristics which considers the past due status of the loans. Collective impairment allowance is then established using statistical methods which considers historical loss rate experience adjusted for current circumstances.


Procedures Our audit procedures included but were not limited to the following: • We evaluated the key controls over the impairment determination process such as the credit

committee review of loan facilities. The key controls tested covered processes such as monitoring the performance of loans and advances including timely identification of impairment triggers.

• Regarding loans and advances specifically impaired by the Bank, we determined the loans with risk factors such as the current level of past due obligations and performed a recalculation of the specific impairment. We compared the outcome with the specific impairment recorded by the Bank.

• For collective impairment, we challenged the Bank’s model by evaluating the assumptions inherent in the Bank’s model against our understanding of the Bank and knowledge of the microfinance sector. We assessed the methodology used by the Bank to calculate the likelihood of loans and advances moving into default by recalculating these default rates using our cumulative knowledge of the Bank’s actual historical experience. We recalculated the recovery rates used in the collective impairment assessment and compared the outcome to the Bank’s history of actual recoveries on loans in default. We then applied these statistical rates to the outstanding balance on the loans in order to check the accuracy of the collective impairment recorded by the Bank.

The Bank’s accounting policy on impairment and related disclosures on credit risk are shown in note 3(f) (vii) and 4(b) respectively. Information Other than the Financial Statements and Audit Report thereon The Directors are responsible for the other information. The other information comprises the Directors’ Report; Corporate Governance Report; Statement of Directors’ Responsibilities; Report of the Audit Committee; and Other National Disclosures (but does not include the financial statements and our auditor’s report thereon) which we received prior to the date of the auditor’s report. It also includes the Vision & Mission Statements; Financial Highlights; Directors, Officers & Professional Advisers; Notice of Annual General Meeting; Chairman's Statement; Managing Director’s Report; Board of Directors’ Profiles; Report on the Appraisal of the Board; Profiles of the Management Team; Branches and their Addresses; Proxy Form; Mandate for e-Dividend Payment; Mandate for eBonus; and Personal Data Form (“the other reports”), which are expected to be made available after the date of the auditor’s report. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. When we read the other reports, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance.


The Directors are responsible for the preparation of financial statements that give a true and fair view in accordance with IFRSs and in the manner required by the Companies and Allied Matters Act, Cap C.20, Laws of the Federation of Nigeria, 2004, the Financial Reporting Council of Nigeria Act, 2011, the Banks and Other Financial Institutions Act, Cap B.3, Laws of the Federation of Nigeria, 2004 and relevant Central Bank of Nigeria (CBN) Guidelines and Circulars and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the Bank’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Bank or to cease operations, or have no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to

fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.

• Conclude on the appropriateness of directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Bank to cease to continue as a going concern.

Responsibilities of the Directors for the Financial Statements


• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with the Audit Committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with Audit Committee, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on Other Legal and Regulatory Requirements Compliance with the requirements of Schedule 6 of the Companies and Allied Matters Act, Cap C.20, Laws of the Federation of Nigeria, 2004 In our opinion, proper books of account have been kept by the Bank, so far as appears from our examination of those books and the Bank’s statement of financial position and statement of profit or loss and other comprehensive income are in agreement with the books of account. Compliance with Section 27(2) of the Banks and the Other Financial Institutions Act, Cap B.3, Laws of the Federation of Nigeria, 2004 and Central Bank of Nigeria circular BSD/1/2004

i The Bank did not pay any penalty in respect of contraventions of the Banks and Other Financial Institutions Act, Cap B.3, Laws of the Federation of Nigeria, 2004 during the year ended 31 December 2017.

ii Related party transactions and balances are disclosed in note 26 to the financial statements in compliance with the Central Bank of Nigeria circular BSD/1/2004.


Financial Statements

Statement Of Financial PositionAs At 31 December 2017

Mr. Akinwunmi LawalManaging Director/Chief Executive OfficerFRC/2014/CIBN/00000006345

Mr. Azubuko Joel Udah (Esq.)ChairmanFRC/2016/NBA/00000013775

F.C. NelsonChief Financial OfficerFRC/2014/ICAN/00000006856

2017 2016In thousands of naira Note

ASSETS

Cash and cash equivalents 14 5,752,469 1,889,881

Pledged assets 15 409,674 581,425

Loans and advances to customers 16 9,008,675 9,095,801

Investment securities 17 16,681 37,574

Trade and other receivables 18 172,878 257,545

Property and equipment 19 591,964 499,646

TOTAL ASSETS 12,361,872

LIABILITIES

Deposits from customers 20 9,126,494 6,792,391

Current tax liabilities 21(b) 146,270 199,571

Borrowings 23 1,550,468 349,249

Other liabilities 22 315,251 537,353

Deferred tax liabilities 21(c) 61,569 19,910

TOTAL LIABILITIES 11,200,052 7,898,474

CAPITAL AND RESERVES

Share capital 24 1,143,328 1,143,328

Share premium 25(a) 1,517,485 1,517,485

Retained earnings 25(b) 728,276 506,963

Other reserves 25(c) - (d) 1,363,200 1,295,622

TOTAL EQUITY 4,752,289 4,463,398

TOTAL LIABILITIES AND EQUITY 15,952,341 12,361,872

15,952,341

The financial statements were approved by the Board of Directors on 9 March 2018 and signed on its behalf by:

Additionally certified by:

The accompanying notes are an integral part of these financial statements.

N’000 N’000

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Statement Of Profit Or Loss And Other Comprehensive Income

As At 31 December 2017

2017N’000

2016N’000In thousands of naira Note

Gross earnings 3,654,875 2,925,229

Interest income 7 2,605,413 1,997,486Interest expense 8 (318,898) (223,480)

Net interest income 2,286,515 1,774,006

Fee and commission income 9 779,878

716,876

Other income 10 269,584 210,867

Net operating income 3,335,977 2,701,749

Net impairment loss on financial assets 11 (184,927) (39,866)Personnel expenses 12 (1,306,773) (1,008,055)Depreciation 19 (122,788)

(96,014)

Administration and general expenses 13 (901,670) (754,374)

Total operating expenses (2,516,158) (1,898,309)

Profit before tax 819,819 803,440

Tax charge for the year 21(a) (187,929) (248,537)

Profit for the year 631,890 554,903

Other comprehensive incomeItems that will never be reclassified to profit or loss - -

Items that are or may be reclassified to profit or loss - -

Other comprehensive income for the year, net of tax - -

TOTAL COMPREHENSIVE INCOME FOR THE YEAR 631,890 554,903

Basic and diluted earnings per share (kobo) 32 28 24



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Statement Of Changes In EquityFor The Year Ended 31 December 2017

Balance at 1 January 2017Profit for the periodOther comprehensive income, net of taxTotal comprehensive income

Contributions by and distributions to equity holdersDividend paid

Transfer to regulatory risk reserve

Balance as at 31 December 2017

STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2016

Share Share Retained Statutory Regulatory

Risk

Capital Premium Earnings Reserve Reserve

Balance at 1 January 2016 1,143,328 1,517,485 476,216 1,006,398 108,066

Profit for the year -

-

416,177 138,726 -

Other comprehensive income, net of tax - - - - -Total comprehensive income -

-

416,177 138,726 -

1,143,328 1,517,485 892,393 1,145,124 108,066

Contributions by and distributions to equity holders

Dividend paid - - (342,998) - -

Transfer to regulatory risk reserve - - (42,432) - 42,432

Balance at 31 December 2016 1,143,328 1,517,485 506,963 1,145,124 150,498


4,806,396

4,463,398

4,251,493

(342,998)

554,903

554,903

Total

Share Share Retained Statutory Regulatory

RiskCapital Premium Earnings Reserve Reserve

1,143,328 1,517,485 506,963 1,145,124 150,498 - - 552,904 78,986 --

-

-

-

--

-

552,904 78,986

-

1,143,328 1,517,485 1,059,867 1,224,110 150,498

-

-

(342,999)

-

-

-

-

11,408

-

(11,408)

1,143,328 1,517,485 728,276 1,224,110 139,090

5,095,288

4,752,289

4,463,398

(342,999)

631,890

631,890

Total

-

-

-

-

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Statement Of Cash FlowsFor The Year Ended 31 December 2017

2017 2016In thousands of naira Note

Cash flows from operating activitiesProfit for the year 631,890 554,903Adjustments for:Depreciation of property and equipment 19 122,788 96,014Net impairment loss on loans and advances to customers 11 186,251 35,178Net impairment write-back on investments 11 (157) 580Net impairment write-back on other receivables 11 (1,167) 4,108Net interest income 7, 8 (2,286,515) (1,774,006)Dividend income 10 (24) (153)Profit on disposal of available-for-sale financial assets 10 (15,274) -Profit on sale of property and equipment 13, 10 (1,228) (2,285)Tax expense 21(a) 187,929 248,537

(1,175,507)

(837,124)

Change in pledged assets 15 176,804 10,761Change in loans and advances 16 (83,122) (1,193,364)Change in trade and other receivables 18 85,834 85,315Change in deposits from customers 20 2,314,066

176,090

Change in other liabilities 33(c) (119,670) 56,846Change in borrowings 33(a) 1,630,030 (3,915)

2,828,435 (1,705,391)

Interest received 33( e) 2,584,357

1,932,242Interest paid 33( f) (273,075) (197,719)Tax paid 21(b) (199,571) (182,627)Retirement benefit obligations paid 22(b) (102,432) (172,130)Net cash from/(used in) operating activities 4,837,714 (325,625)

Cash flows from investing activitiesAcquisition of property and equipment 19 (267,539) (201,806)Proceeds from disposal of property and equipment 33(b) 53,661 2,501Dividends received 10 24 153Proceeds from disposal of investments 33(d) 36,324 -Net cash used in investing activities (177,530)

(199,152)

Cash flows from financing activitiesRepayment of borrowings 23(b) (454,597) (297,204)Dividend paid (342,999) (342,998)Net cash used in financing activities (797,596) (640,202)

Net increase in cash and cash equivalents 3,862,588 (1,164,979)Cash and cash equivalents as at 1 January 1,889,881 3,054,860Cash and cash equivalents as at 31 December 14 5,752,469 1,889,881



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Reporting entity

NPF Microfinance Bank Plc (""the Bank"") is a public limited liability company domiciled in Nigeria. The Bank's registered office is at Aliyu Atta House, 1 Ikoyi Road, Obalende, Lagos.The Bank is engaged in the provision of banking services to members of the police community, to poor and low income households and micro-enterprises of the public at large. Such services include retail banking, granting of loans, advances and allied services.The Bank currently operates from its registered office and has twenty-eight (28) branches located at Obalende, Ikeja, Garki-Abuja, Wuse-Abuja, Port-Harcourt, Kano, Osogbo, Benin, Akure, Onitsha, Sokoto, Lokoja, Lafia, Bauchi, Yola, Enugu, Kaduna, Oji River, Ibadan, Abeokuta, Ikorodu, Tejuosho, Asaba, Calabar, Aba, Aswani, Awka and Port Harcourt 2. Changes in accounting policies

The Bank has consistently applied the accounting policies as set out in note 3 to all periods presented in these financial statements.

There were new standards and amendments to standards that affect annual periods beginning 1 January 2017 as follows: Disclosure Initiative (Amendment to IAS 7) and Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to IAS 12) Disclosure Initiative (Amendment to IAS 7) provides for disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities. This includes providing a reconciliation between the opening and closing balances arising from financing activities. While the amendments to IAS 12 provide additional guidance on the existence of deductible temporary differences, which depend solely on a comparison of the carrying amount of an asset and its tax base at the end of the reporting period, and its not affected by possible future changes in the carrying amount or expected manner of recovery of the asset. The amendments also provide additional guidance on the methods used to calculate future

taxable profit to establish whether a deferred tax asset can be recognised. Guidance is provided whether an entity may assume that it will recover an asset more than its carrying amount, provided that there is sufficient evidence that it is probable that the entity will achieve this. The amendments did not have any significant impact on the Bank's financial statements. Annual improvements to IFRSs 2014 - 2016 Cycle (Amendment to IFRS 12 Disclosure of Interests in Other Entities) T h e I A S B i s s u e d v a r i o u s a m e n d m e n t s a n d clarifications to existing IFRS, none of which had a material impact on the Bank's financial statements. Significant Accounting Policies The Bank has consistently applied the following accounting policies to all periods presented in these financial statements, unless otherwise stated.The principal accounting policies adopted in the preparation of these financial statements are set out below.

Basis of preparation Statement of compliance The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as issued by International Accounting Standards Board (IASB) and in the manner required by the Companies and Allied Matters Act, Cap C20, Laws of the Federation of Nigeria, 2004, the Financial Reporting Council of Nigeria Act, 2011, the Banks and Other Financial Institutions Act, Cap B3, Laws of the Federation of Nigeria, 2004 and relevant Central Bank of Nigeria (CBN) guidelines and circulars. The IFRS accounting policies have been consistently applied to all periods presented. The financial statements were approved by the directors on 9 March 2018. Basis of measurement

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

1

2

3

(a)(i)

(ii)

Notes To The Financial StatementsFor The Year Ended 31 Decembr 2017

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Notes To The Financial StatementFor The Year Ended 31 December 2017

material items in the statement of financial position:

Investment securities (available-for-sale financial assets) measured at fair value Loans and receivables from customers measured at amortised cost Borrowings measured at amortised cost Functional and presentation currency

These financial statements are presented in Naira, which is the Bank’s functional currency. Except where indicated, financial information presented in Naira has been rounded to the nearest thousand. Use of estimates and judgments

The preparation of the financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and e x p e n s e s . T h e e s t i m a t e s a n d a s s o c i a t e d assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

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

Information about significant areas of estimation uncertainties and critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are described in note 5.

Interest

I n t e r e s t i n c o m e a n d e x p e n s e o n f i n a n c i a l instruments are recognised in profit or loss using the effective interest method.

The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability (or, where appropriate, the next repricing date) to the carrying amount of the financial asset or liability. When calculating the effective interest rate, the Bank estimates future cash flows considering all contractual terms of the financial instruments but not future credit losses.

The calculation of the effective interest rate includes contractual fees and points paid or received, transaction costs, and discounts or premiums that are an integral part of the effective interest rate. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or liability. Interest income and expense presented in the statement of comprehensive income include: - Interest income on financial assets measured at

amortised cost calculated on an effective interest rate basis

- Interest income on available-for-sale investment securities calculated on an effective interest rate basis

- Interest expense on deposits and borrowings on an effective interest rate basis

Fees and commission

Fees and commission income that are integral to the effective interest rate on a financial asset or liability are included in the measurement of the effective interest rate which is used in the computation of interest income.

Other fees and commission income, including loan account servicing fees, investment management fees, etc. are recognised as the related services are performed. Other revenue

The total sum includes revenue from income on salary administration, service fees and charges, profit on disposal of property and equipment and dividend income. They are recognised as the related services are performed.


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(iii)

(iv)

(b)

(d)

Tax expense

Tax expense comprises current and deferred tax. Current and deferred tax are recognised in profit or loss except to the extent that they relate to items r e c o g n i s e d d i r e c t l y i n e q u i t y o r i n o t h e r comprehensive income. (i) Current income tax Income tax payable is calculated on the basis of the applicable tax law in the respective jurisdiction and is recognised as an expense for the period and adjustments to past years except to the extent that current tax relates to items that are charged or credited in other comprehensive income or directly to equity.

In these circumstances, current tax is charged or credited to other comprehensive income or to equity (for example, current tax on available-for-sale investment).

Where the Bank has tax losses that can be relieved only by carry-forward against taxable profits of future periods, a deductible temporary difference arises. Those losses carried forward are set off against deferred tax liabilities carried in the statement of financial position.

The Bank evaluates positions stated in tax returns, ensuring information disclosed are in agreement with the underlying tax liability, which has been a d e q u a t e l y p r o v i d e d f o r i n t h e f i n a n c i a l statements. (ii) Deferred tax Deferred income tax is provided in full, using the liability method, on all temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. Deferred income tax is d e t e r m i n e d u s i n g t a x r a t e s e n a c t e d o r substantively enacted at the reporting date and are expected to apply when the related deferred tax liability is settled. Deferred tax is not recognised for the following temporary differences:

- temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither a c c o u n t i n g n o r t a x a b l e p r o f i t o r l o s s ; - temporary differences related to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future; and - taxable temporary differences arising on the initial recognition of goodwill.

The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Bank expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset them, and they relate to taxes levied by the same tax authority on the same taxable entity or on different tax entities, but they intend to settle deferred tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which it can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

(iii) Tax exposures In determining the amount of current and deferred tax, the Bank takes into account the impact of uncertain tax position and whether additional taxes and interest may be due. This assessment relies on estimates and assumptions and may involve a series of judgments about future events. New information may become available that causes the Bank to change its judgment regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact tax expense in the period t h a t s u c h a d e t e r m i n a t i o n i s m a d e .


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(e)

(iii) De-recognition Financial assets

The Bank derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or when it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Bank is recognised as a separate asset or liability. On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset transferred), and the sum of (i) the consideration received (including any new asset obtained less any new liability assumed) and (ii) any cumulative gain or l o s s t h a t h a d b e e n r e c o g n i s e d i n o t h e r comprehensive income is recognised in profit or loss. The Bank enters into transactions whereby it transfers assets recognised on its statement of f i n a n c i a l p o s i t i o n , b u t r e t a i n s e i t h e r a l l o r substantially all of the risks and rewards of the transferred assets or a portion of them. If all or substantially all risks and rewards are retained, then the transferred assets are not derecognised. Transfers of assets with retention of al l or substantially all risks and rewards include, for example, securities lending and repurchase transactions. In transactions in which the Bank neither retains nor transfers substantially all the risks and rewards of ownership of a financial asset and it retains control over the asset, the Bank continues to recognise the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes in the value of the transferred asset. Financial liabilities

The Bank derecognises a financial liability when its contractual obligations are discharged, cancelled or expire. (iv) Offsetting Financial assets and liabilities are set off and the net

The classification of financial instruments depends on the purpose and management’s intention for which the financial instruments were acquired and their characteristics. The Bank classifies its financial assets into one of the following categories:

- loans and receivables - held to maturity investments - available-for-sale financial assets - at fair value through profit or loss and within the

category as: - held for trading; or - designated at fair value through profit or loss. Please refer to Note 6. Financial liabilities The Bank classifies its financial liabilities, other than financial guarantees and loan commitments, as either financial liabilities at fair value through profit or loss or other financial liabilities measured at amortised cost. (ii) Recognition Initial recognition

The Bank initially recognises its financial instruments on the trade date at which the Bank becomes a party to the contractual provisions of the instrument. All financial assets or financial liabilities are measured initially at their fair value plus transaction costs, except in the case of financial assets and financial liabilities recorded at fair value through profit or loss. Subsequent recognition of financial assets and liabilities is at amortised cost or fair value, depending on the classification. Subsequent measurement

See accounting policies (h) - (k) for the Bank's accounting policies on subsequent measurement of financial assets. See accounting policy (n) for the Bank's accounting policies on subsequent measurement of financial liabilities.



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(f) Financial assets and financial liabilities ( i ) Classification Financial assets

amount presented in the statement of financial position when, and only when, the Bank has a legal right to set off the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously. Income and expenses are presented on a net basis only when permitted under IFRS, or for gains and losses arising from a group of similar transactions.

(v) Amortised cost measurement The amortised cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment. (vi) Fair value ‘Fair value’ is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Bank has access at that date. The fair value of a liability reflects its non-performance risk.

When available, the Bank measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. If there is no quoted price in an active market, then the Bank uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction. The best evidence of the fair value of a financial instrument at initial recognition is normally the transaction price – i.e. the fair value of the consideration given or received. If the Bank determines that the fair value at initial recognition

differs from the transaction price and the fair value is evidenced neither by a quoted price in an active market for an identical asset or liability nor based on a valuation technique that uses only data from observable markets, then the financial instrument is initially measured at fair value, adjusted to defer the difference between the fair value at initial r e c o g n i t i o n a n d t h e t r a n s a c t i o n p r i c e . Subsequently, that difference is recognised in profit or loss on an appropriate basis over the life of the instrument but no later than when the valuation is wholly supported by observable market data or the transaction is closed out. Portfolios of financial assets and financial liabilities that are exposed to market risk and credit risk that are managed by the Bank on the basis of the net exposure to either market or credit risk are measured on the basis of a price that would be received to sell a net long position (or paid to transfer a net short position) for a particular risk exposure. Those portfolio level adjustments are allocated to the individual assets and liabilities on the basis of the relative risk adjustment of each of the individual instruments in the portfolio. The fair value of a demand deposit is not less than the amount payable on demand, discounted from the first date on which the amount could be required to be paid. The Bank recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which the change has occurred. ( v i i ) I d e n t i f i c a t i o n a n d m e a s u r e m e n t o f impairment At each reporting date, the Bank assesses whether there is objective evidence that financial assets not carried at fair value through profit or loss are impaired. A financial asset or a group of financial assets is impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the asset(s), and that the loss event has an impact on the future cash flows of the asset(s) that can be estimated reliably. Objective evidence that financial assets are impaired can include;


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or continues to be recognised are not included in a collective assessment of impairment. The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Bank may measure impairment on the basis of an instrument’s fair value using an observable market price. For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics (that is, on the basis of the Bank’s grading process that considers asset type, collateral type, past-due status and other relevant factors). Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated. Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the Bank and historical loss experience for assets with credit risk characteristics similar to those in the Bank. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exist. Estimates of changes in future cash flows for groups of assets should reflect and be directionally consistent with changes in related observable data from period to period (for example, changes in unemployment rates, property prices, payment status, or other factors indicative of changes in the p r o b a b i l i t y o f l o s s e s i n t h e B a n k a n d t h e i r



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(a) a breach of contract, such as a default or delinquency in interest or principal payments;

(b) significant financial difficulty of the issuer or obligor;

the lender,f or economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider;

(d) it becomes probable that the borrower will enter bankruptcy or other financial reorganisation;

(e) the disappearance of an active market for that financial asset because of financial difficulties; or

(f) observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio, including:

(i) adverse changes in the payment status of borrowers in the portfolio; and

(ii) national economic conditions that correlate with defaults on the assets in the portfolio.

(g) In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

The estimated period between a loss occurring and its identification is determined by management for each identified portfolio. In general, the periods used vary between one month and three months; in exceptional cases, longer periods are warranted. Assets classified as loans and receivables and held-to-maturity investment securities

The Bank first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of f i n a n c i a l a s s e t s w i t h s i m i l a r c r e d i t r i s k characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is

(c)

magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Bank to reduce any differences between loss estimates and actual loss experience. When a loan is uncollectible, it is written off against the related allowance for loan impairment or to profit or loss. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. I m p a i r m e n t c h a r g e s a r e c l a s s i f i e d i n ‘ N e t impairment loss on financial and other assets’. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the i m p a i r m e n t w a s r e c o g n i s e d ( s u c h a s a n improvement in the debtor’s credit rating), the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the statement of comprehensive income. Assets classified as available-for-sale The Bank assesses at each date of the statement of financial position whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is objective evidence of impairment resulting in the recognition of an impairment loss. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in the statement of comprehensive income. Impairment losses recognised in the statement of comprehensive income on equity instruments are not reversed through profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through the statement of comprehensive income.

Cash and cash equivalents

Cash and cash equivalents include bank notes and coins on hand, unrestricted balances held with central groups and highly liquid financial assets with original maturities of less t h a n t h r e e m o n t h s , w h i c h a r e s u b j e c t t o insignificant risk of changes in their fair value, and are used by the Bank in the management of its short-term commitments. Cash and cash equivalents are carried at amortised cost in the statement of financial position. The reconciliation of the opening cash and cash equivalents to the closing cash and cash equivalents in the statement of cash flows is done using the indirect method." Financial assets and financial liabilities at fair value through profit or loss This category comprises two sub-categories: financial instruments classified as held for trading, and financial assets designated by the Bank at fair value through profit or loss upon initial recognition. (i) Trading assets and liabilities Trading assets and liabilities are those assets and liabilities that the Bank acquires or incurs principally for the purpose of selling or repurchasing in the near term, or holds as part of a portfolio that is managed together for short-term profit. Trading assets and liabilities are initially recognised and subsequently measured at fair value in the statement of financial position with transaction costs recognised in profit or loss. All changes in fair value are recognised as part of net trading income in the statement of comprehensive income. (ii) Designation at fair value through profit or loss The Bank designates certain financial assets upon initial recognition at fair value through profit or loss (fair value option). This designation cannot subsequently be changed. According to IAS 39, the fair value option is only applied when the following conditions are met:


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(g)

(h)

- the application of the fair value option reduces or eliminates an accounting mismatch that would otherwise arise or

- the financial assets are part of a portfolio of

financial instruments which is risk managed and reported to management on a fair value basis

(iii) Reclassification of financial assets and liabilities

The Bank may choose to reclassify a non-derivative financial asset held for trading out of the held-for-trading category if the financial asset is no longer held for the purpose of selling it in the near-term. Financial assets other than loans and receivables are permitted to be reclassified out of the held for trading category only in rare circumstances arising from a single event that is unusual and highly unlikely to recur in the near-term. In addition, the Bank may choose to reclassify financial assets that would meet the definition of loans and receivables out of the held-for-trading or available-for-sale categories if the Bank has the intention and ability to hold these financial assets for the foreseeable future or until maturity at the date of reclassification.

Reclassifications are made at fair value as of the reclassification date. Fair value becomes the new cost or amortised cost as applicable, and no reversals of fair value gains or losses recorded before reclassification date are subsequently made. Effective interest rates for financial assets reclassified to loans and receivables and held-to-maturity categories are determined at the reclassification date. Further increases in estimates of cash flows adjust effective interest rates prospectively.

Pledged assets

Financial assets transferred to external parties that do not qualify for de-recognition are reclassified in the statement of financial position from their original class held-for-trading to assets pledged as collateral, if the transferee has received the right to sell or re-pledge them in the event of default from agreed terms. Initial measurement of assets pledged as collateral is at fair value while

subsequent measure is at amortized cost. Loans and receivables

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

Investment securities are initially measured at fair value plus, in case of investment securities not at fair value through profit or loss, incremental direct transaction costs and subsequently accounted for depending on their classification as either held-to-maturity, fair value through profit or loss or available-for-sale.

( i ) Held-to-maturity Held-to-maturity investments are non-derivative assets with fixed or determinable payments and fixed maturity that the Bank has the positive intent and ability to hold to maturity, and which are not designated at fair value through profit or loss or available-for-sale.



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( i )

( j )

(k)


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Held-to-maturity investments are carried at amortised cost using the effective interest method. A sale or reclassification of a significant amount of held-to-maturity investments would result in the reclassification of all held-to-maturity investments as available-for-sale, and prevent the Bank from classifying investment securities as held-to-maturity for the current and the following two financial years. However, sales and reclassifications in any of the following circumstances would not trigger a reclassification to available-for-sale: - Sales or reclassifications that are so close to

maturity that changes in the market rate of interest would not have a significant effect on the financial asset’s fair value

- Sales or reclassifications after the Bank has collected substantially all the asset’s original principal.

- Sales or reclassification attributable to non-recurring isolated events beyond the Bank’s control that could not have been reasonably anticipated.

(ii) Fair value through profit or loss

The Bank does not currently have any investment securities (or other financial assets) as at fair value through profit or loss. (iii) Available-for-sale Available-for-sale investments are non-derivative investments that are not designated as another category of financial assets. Unquoted equity securities whose fair value cannot be reliably measured are carried at cost. All other available-for-sale investments are carried at fair value.

Interest income is recognised in profit or loss using the effective interest method. Dividend income is recognised in profit or loss when the Bank becomes entitled to the dividend.

Other fair value changes are recognised directly in other comprehensive income until the investment is sold or impaired whereupon the cumulative gains a n d l o s s e s p r e v i o u s l y r e c o g n i s e d i n o t h e r comprehensive income are recognised to profit or loss as a reclassification adjustment. A non-derivative financial asset may be reclassified from the available-for-sale category to the loans and

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

Property and equipment (i) Recognition and measurement Items of property and equipment are measured at cost less accumulated depreciation and impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. When parts of an item of property or equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment. The gain or loss on disposal of an item of property and equipment is determined by comparing the proceeds from disposal with the carrying amount of the item of property and equipment and are recognized net within other income in profit or loss. The assets’ carrying values and useful lives are reviewed, and written down if appropriate, at each date of the statement of financial position. Assets are impaired whenever events or changes in circumstances indicate that the carrying amount is less than the recoverable amount; see note (m) on impairment of non-financial assets.

(ii) Subsequent costs

The cost of replacing part of an item of property or equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Bank and its cost can be measured reliably. The c a r r y i n g a m o u n t o f t h e r e p l a c e d p a r t i s derecognised. The costs of the day-to-day servicing of property and equipment are recognised in profit or loss as incurred.

(iii) Depreciation Depreciation is recognised in profit or loss on a straight-line basis to write down the cost of each asset, to their residual values over the estimated

(l)



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useful lives of each part of an item of property and equipment. Depreciation begins when an asset is available for use and ceases at the earlier of the date that the asset is derecognised or classified as held for sale in accordance with IFRS 5. A non-current asset or disposal group is not depreciated while it is classified as held for sale.

The estimated useful lives for the current and comparative periods of significant items of property and equipment are as follows: Land and buildings 50 years Computer and office equipment 3 years Furniture and fittings 5 years Motor vehicles 4 years Depreciation methods, useful lives and residual values are reassessed at each reporting date and adjusted if appropriate.

(iv) De-recognition

An item of property and equipment is derecognised on disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the year the asset is derecognised. Impairment of non-financial assets The Bank’s non-financial assets with carrying amounts other than investment property and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated. For goodwill and intangible assets that have indefinite useful lives or that are available for use, the recoverable amount is estimated each year at the same time.

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. A cash-generating unit is the smallest identifiable asset of the Bank that

generates cash flows that largely are independent from other assets and groups. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

Deposits and borrowings Deposits and borrowings are the Bank’s sources of funding. When the Bank sells a financial asset and simultaneously enters into a “repo” or “lending” agreement to repurchase the asset (or a similar asset) at a fixed price on a future date, the arrangement is accounted for as a deposit, and the underlying asset continues to be recognised in the Bank’s financial statements. Deposits and borrowings are initially measured at fair value plus transaction costs, and subsequently measured at their amortised cost using the effective interest method, except where the Bank chooses to carry the liabilities at fair value through profit or loss. Trade and other receivables Prepayments include costs paid in relation to

(m)

(n)

(o)


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subsequent financial periods and are measured at cost less amortization for the period. The Bank recognises prepaid expense in the accounting period in which it is paid. Other assets comprise other recoverables. Provisions Provisions for restructuring costs and legal claims are recognised when: the Bank has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. The Bank recognises no provisions for future operating losses. Expenditure Expenses are recognised in the profit or loss as they are incurred unless they create an asset from which future economic benefits will flow to the Bank. An e x p e c t e d l o s s o n a c o n t r a c t i s r e c o g n i s e d immediately in profit or loss.

Employee benefits (i) Defined contribution plan A defined contribution plan is a post-employment benefits plan under which an entity pays fixed contributions into a separate entity and has no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognised as personnel expenses in profit or loss in the period during which related services are rendered. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. (ii) Short-term employee benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Bank has a present legal or constructive obligation to pay this amount as a result of past service provided by the employees and the obligation can be estimated reliably.

(p)

(q)

( r )

Share capital and reserves (i) Share issue costs Incremental costs directly attributable to the issue of an equity instrument are deducted from the initial

measurement of the equity instrument. (ii) Dividend on the Bank’s ordinary shares Dividends on ordinary shares are recognised in equity in the period in which they are approved by the Bank’s shareholders. Dividends for the year that are declared after the date of the statement of financial position are dealt with in the subsequent events note. Dividends proposed by the Directors but not yet approved by members are disclosed in the financial statements in accordance with the requirements of the Companies and Allied Matters Act of Nigeria. Earnings per share The Bank presents basic earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Bank by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares.

Segment reporting Segment information is provided on the basis of operating and reportable segments in the manner the Bank manages its business. The financial statements of the Bank reflect the management structure of the Bank and the way in which the Bank's management reviews business performance. Invariably, management considers its retail banking operations, whose results are shown in the statement of financial position and statement of comprehensive income, as its only operating segment.

(s)

(t)

(u)

Those Standards, Amendments to Standards, and Interpretations which may be relevant to the Bank are set out below:

Standard not yet effective Summary of the requirements and impact assessment Effective Date

IFRS 9 - Financial instruments

1 January 2018 Early adoption is permitted

On 24 July 2014, the IASB issued IFRS 9 Financial Instruments, which addresses impairment, classification, measurement and hedge accounting. IFRS 9 is effective for the Bank for the financial year begining 1 January 2018.

The Bank has performed a preliminary assessment of the potential impact of adoption of IFRS 9 using its 31 December 2017 balances and estimated that the adoption of IFRS 9 will lead to an additional impairment of approximately ?115 million before tax, driven by the impairment requirements of IFRS 9. The above assesment is preliminary because the transition work has not been finalised. The actual impact of adoption of IFRS 9 on 1 January 2018 may change because: - IFRS 9 will require the Bank to revise its accounting processes and internal controls and these changes are not yet completed; - the new accounting policies, assumptions, judgements and estimation techniques employed are subject to change until the Bank finalizes its first financial statements that include the date of initial application; - the Bank is still refining its models for expected credit loss (ECL) calculations.

Classification and measurement IFRS 9 contains three principal measurement categories for financial assets, namely: Amortised Cost, Fair Value through Other Comprehensive Income (FVOCI), and Fair Value through Profit or Loss (FVTPL). The assessment as to how an asset should be classified is made on the basis of both the Company’s business model for managing the financial asset and the contractual cash flow characteristics of the financial asset.

A financial asset that does not meet the SPPI criterion is always measured at FVTPL, unless it is an equity instrument for which an entity applies the FVOCI election. This work stream focuses on identifying and analyzing the contractual terms of selected loan portfolio and investment securities with a view to determining if they are consistent with the SPPI criterion and the Company’s Business Models for generating cash flows from its lending arrangements.

Impairment of financial assets IFRS 9 introduces a new expected credit loss (ECL) impairment framework for all financial assets. The new ECL framework will result in an allowance for expected credit losses being recorded on financial assets regardless of whether there has been an actual loss event. This differs from the current approach where the allowance recorded on performing loans is designed to capture only losses that have been incurred.

IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with a forward-looking ‘expected credit loss’ (ECL) model. This will require considerable judgement over how changes in economic factors affect ECLs, which will be determined on a probability-weighted basis.

The assessment of whether credit risk on financial asset has increased significantly will be on critical judgements in implementing the impairment model of IFRS 9. Loss allowance for lease receivables will always be measured at an amount equal to lifetime ECL. 12-months ECL are the portion of ECL that results from default events on a financial instrument that are possible within the 12 months after the reporting date.

Notes To The Financial StatementsFor The Year Ended 31 December 2017


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(v) New standards and interpretations not yet adopted A number of new Standards, Amendments to Standards, and Interpretations are effective for annual periods beginning after 1 January 2018 and early application is permitted; however, the Bank has applied the new or amended standards in preparing these financial statements.

Measurement of ECL ECLs are a possibility-weighted estimate of credit losses and will be measured as follows: - Financial assets that are not credit-impaired at the reporting date: the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Company expects to receive);

- Financial assets that are credit-impaired at the reporting date: the difference between the gross carrying amount and the present value of estimated future cash flows;

IFRS 9 Impairment model uses a three stage approach based on the extent of credit deterioration since origination: - Stage 1 – 12-month ECL applies to all financial assets that have not experienced a Significant Increase in Credit Risk (SIR) since origination and are not credit impaired The ECL will be computed using a 12-month PD that represents the probability of default occurring over the next 12 months. For those assets with a remaining maturity of less than 12 months, a PD is used that corresponds to remaining maturity. This Stage 1 approach is different from the incurred loss approach, which estimates a collective allowance to recognize losses that have been incurred but not reported on performing loans. We always will see less impairment than before based on the PD curve over 12 months, always starting with 0%

- Stage 2 – Financial assets that have an objective evidence of impairment will be included in this stage. Similar to Stage 2, the allowance for credit losses will continue to capture the lifetime expected credit losses. The impairment requirements of IFRS 9 are complex and require management judgments, estimates and assumptions, particularly in the areas of assessing whether the credit risk of an instrument has increased significantly since initial recognition and incorporating forward-looking information into the measurement of ECLs. The calculation is similar to what it was before.

Under IFRS 9, the Bank will consider a financial asset to be in default when: (i) the borrower is unlikely to pay its credit obligations to the Bank in full; (ii) the borrower is more than 90 days past due on any credit obligation to the Bank.

Impact on Governance and Control The Bank has applied its existing governance framework to ensure that appropriate controls and validations are in place over key processes and judgments to determine the ECL. As part of the implementation, the Bank is in the process of sanitizing the existing internal controls and implementing new controls where required in areas that are impacted by IFRS 9, including controls over the determination of a significant increase in credit risk.

Impact on Capital Planning IFRS 9 will impact the reported capital as a result of the adjustment recorded in shareholders’ equity on adoption of the standard; this impact is not expected to be significant.

This standard replaces IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfer of Assets from Customers and SIC-31 Revenue – Barter of Transactions Involving Advertising Services. IFRS 15 establishes a comprehensive framework for determining whether, how much and when the revenue is recognised. It replaces existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 construction contracts and IFRIC 13 customer loyalty programmes.

IFRS 15 is effective for annual periods beginning on or after 1 January 2018, with early adoption permitted.

IFRS 15 Revenue from Contracts withCustomers

1 January 2018 Early adoption is permitted


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The Bank has completed an initial assessment of the potential impact of the adoption of IFRS 15 on its financial statements. (i) The Bank is involved in providing financial services, as well as performing related services. If the services under a single arrangement are rendered in different reporting periods, the consideration is allocated on a relative fair value basis between the different services. Revenue is currently recognised using the stage-of- completion method.

Under IFRS 15, the total consideration in the service contract will be allocated to all services based on their stand-alone selling prices. The stand-alone selling prices will be determined based on the list prices at which the Bank sells the services in separate transactions. The Bank has performed an initial comparison of the fair value and the stand-alone selling prices of the services. Since these amounts are broadly similar, the Bank does not expect significant differences in the timing of revenue recognition for these services.

IFRS 16 replaces existing leases guidance, including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases - Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Leagal Form of a Lease.

The standard is effective for annual periods beginning on or after 1 January 2019. Early adoption is permited for entities that apply IFRS 15 at or before the date of initial application of IFRS 16.

IFRS 16 introduces a single, on-balance sheet lease accounting model for lessees. A lessee recognises a right-of-use asset representing its right to use the underlying asset and a liability representing its obligation to make lease payments. There are recognition exemptions for short-term leases and leases of low-value items. Lessor accounting remains similar to the current standard - i.e. lessors continue to classify lesses as finance or operating leases. The standard is not expected to have any significant impact on the Bank.

IFRS 16 Leases 1 January 2019 Early adoption is permitted.

The following new or amended standards are not expected to have a significant impact on the Bank's financial statements:• Annual Improvements to IFRSs 2014-2016 Cycle - Amendments to IFRS 1 and IAS 28.• Classification and Measurement of Share-based Payment Transactions (Amendments to IFRS 2).• Transfer of Investment Property (Amendments to IAS 40).• Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28).• IFRIC 22 Foreign Currency Transactions and Advance Consideration.• IFRIC 23 Uncertainty over Income tax Treatments.

Financial risk management (a) Introduction and overview The Board of Directors has overall responsibility for the establishment and oversight of the Bank's risk management framework. The Bank's risk management policies are established to identify and analyze the risks faced by the Bank, to set appropriate limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect the changes in market conditions and the Bank's activities. The Bank, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. The Board also oversees how management monitors compliance with the risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Bank. The Board is assisted in its oversight role by the Board Risk Management Committee, which undertakes both regular and ad-hoc reviews of risk management controls and procedures. The risk management framework of the Bank identifies risk culture as the foundation upon which the pillars of risk and control processes and extreme events management lie.

4



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The Board of Directors are responsible for developing and monitoring the Bank's risk management policies.

The Bank's approach to risk The Bank addresses the challenge of risks comprehensively through an enterprise-wide risk management framework by applying leading practices that is supported by a governance structure consisting of the board and executive management committees. The Board drives the risk governance and compliance process through management. The audit committee provides oversight on the systems of internal control, financial reporting and compliance. The Board also sets the risk philosophy, policies and strategies as well as provides guidance on the various risk elements and their management. Executive management drives the management of the financial risks (market, liquidity and credit risk), operational risks as well as strategic and reputational risks.

( i )

The general organisational structure can be seen below:

Credit andInvestment Risk

Management

Operational Risk

Management

Head of ERM

Market Risk and ALM

Board

Managing Director

Board Risk Management

Committee

Board AuditCommittee

ERM UnitInternal Audit(Risk Based)

EnterpriseRisk

Management Committee

ALCO

Credit & Investment Risk

Management Operational

Risk Marketing & ALM Risk Management

The Bank’s risk management governance structure is as shown below


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The key features of the Bank’s risk management framework are:• The Board of Directors provide overall risk

management direction and oversight.• The Bank’s risk appetite is approved by the Board

of Directors.• Risk management is embedded in the Bank as an

intrinsic process and is a core competency of all its employees.

• The Bank manages its credit, market, operational and liquidity risks in a co-ordinated manner within the organization.

• The Bank’s risk management function is independent of the business divisions.

• The Bank’s internal audit function reports to the Board; providing independent validation of the business units’ compliance with risk policies and procedures and the adequacy and effectiveness of the risk management framework on an enterprise-wide basis.

The Board of Directors is committed to managing c o m p l i a n c e w i t h a f r a m e w o r k t o e n f o r c e compliance with applicable laws, rules and standards issued by the industry regulators and o t h e r l a w e n f o r c e m e n t a g e n c i e s , m a r k e t conventions, codes of practices promoted by industry associations and internal policies.

The compliance function, under the leadership of the Head of Internal audit of the Bank has put in place a compliance framework, which includes:• Comprehensive compliance manual, the manual

details the roles and responsibilities of all stakeholders in the compliance process,

• Review and analysis of all relevant laws and regulations, which are adopted into policy statements to ensure business is conducted professionally.

Risk Appetite

The Bank's risk appetite is reviewed by the Board of Directors annually, at a level that minimizes erosion of earnings or capital due to avoidable losses or from frauds and operational inefficiencies. This reflects the conservative nature of the Bank as far as risk taking is concerned. The Bank employs a range of quantitative indicators to monitor the risk profile. Specific limits

(ii)

(iii)

have been set in line with the Bank’s risk appetite. Risk Management Philosophy, Culture and Objectives

The Bank considers effective risk management to be the foundation of a long lasting institution.• The Bank continues to adopt a holistic and

integrated approach to risk management and therefore, brings all risks together under one or a limited number of oversight functions.

• Risk management is a shared responsibility. Therefore the Bank aims to build a shared p e r s p e c t i v e o n r i s k s t h a t i s g r o u n d e d i n consensus.

• There is clear segregation of duties between m a r k e t f a c i n g b u s i n e s s u n i t s a n d r i s k management functions.

• Risk Management is governed by well defined policies which are clearly communicated within the Bank.

• Risk related issues are taken into consideration in all business decisions. The Bank shall continually strive to maintain a

conservative balance between risk and revenue consideration. The Bank has exposure to the following risks from its financial instruments: - Credit risk - Liquidity risk - Market risk Credit risk Credit risk is the risk of financial loss to the Bank if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Bank's loans and receivables from customers. The Bank has exposure to credit risk as it routinely executes transactions with counterparties which comprise mainly of public service employers and employees as well as private sector employees. Credit risk limits The Bank applies credit risk limits, among other techniques in managing credit risk. This is the practice of stipulating a maximum amount that the individual or counterparty can obtain as loan.

(b)

( i )



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These internal approval limits are set and approved by the Bank's Board and are reviewed regularly as the state of affairs of the Bank and the wider financial environment demands. However, approval of Micro credits resides with Regional Heads and Head Office.

Internal and regulatory limits are strictly adhered to. Through this, the Bank not only protects itself, but also in a sense, protects the counterparty from borrowing more than they are capable of paying. The Bank continues to focus on its concentration and intrinsic risks and further manage them to a more comfortable level. This is very important due to the serious risk implications that intrinsic and concentration risk pose to the Bank. A thorough analysis of economic factors, market forecasting and prediction based on historical evidence is used to mitigate the crystallization of these risks. T h e B a n k h a s i n p l a c e v a r i o u s p o r t f o l i o concentration limits (which is subject to periodic review).

These limits are closely monitored and reported on from time to time.

The Bank’s internal credit approval limits for the various authority levels are as indicated below.

Officer 1Assistant ManagerDeputy ManagerManagerSenior ManagerRegional ManagerAGM/GMExecutive DirectorManaging Director (MD)Management Risk Committee/ Managing Director.

Board Risk Management Committee

Full Board

Rank

Approval Limit

MICRO MACRO

N100,000N200,000N200,000N200,000N200,000N500,000N200,000N350,000

N400,000 & Above

N500,000& Above

NIL

NIL

N200,000N300,000N400,000N500,000N650,000

N1,500,000N1,000,00

N1,800,000N2,000,000

N2,000,000

AboveN2 million to

N10 million Above

N10 million

Exposure to credit risk

The Bank's exposure to credit risk is influenced mainly by the characteristics of the counterparties. Management considers the default risk of the industry in which the counterparty operates based on economic factors as this may have an influence on credit risk. The Bank is exposed to credit risk on its loans and receivables balances due from its customers in the public and private sectors .

The Bank has credit standards, policies and procedures to control and monitor intrinsic and concentration risks through all credit levels of selection, underwriting, administration and control. This include: • Utilization of the services of portfolio managers

whom are educated on the risk appetite of the Bank and thus ensure that all investments are in low risk grade securities.

• Ensuring that all investments entered are of a low to medium duration and thus minimising the risk of default.

• All treasury investments undergo a formal credit analysis process that would ensure the proper appraisal of the facility.

• The consequences for non-compliance with the c r e d i t p o l i c y a n d c r e d i t i n d i s c i p l i n e a r e communicated to all staff and implemented.

• All conflict of interest situations must be avoided.

Held to maturity investments (HTM) The Bank via its portfolio managers limits its exposure to credit risk by investing only in highly l i q u i d m o n e y m a r k e t i n s t r u m e n t s w i t h counterparties that have a good credit rating. The portfolio managers actively monitors credit ratings and ensures that the Bank has only made investment in line with the Bank's investment policy as approved by Board which approves investment in short term fixed deposit, placement with local banks and Federal Government Treasury Bills. The Bank did not have any held to maturity investments that were impaired as at 31 December 2017.

(ii)

(iii)


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(viii) Maximum exposure to credit risk

In thousands of naira Note 31-Dec-17 31-Dec-16

Cash and cash equivalents 14 5,752,469 1,889,881

Pledged assets 15 409,674 581,425

169,008,675 9,095,801

Investment securities 17 16,681 37,574

Trade and other receivables

(excluding prepayments and other assets) 18 55,193 85,357

Loans and advances to customers

The carrying amount of the Bank's financial assets, which represents the maximum exposure to credit risk at the reporting date was as follows:

Cash and cash equivalents The Bank held cash and cash equivalents with maturity profile of less than 3 months, held with local banks and assessed to have good credit ratings based on the Bank's policy. Loans and advances to customers and other receivables The Bank has classified loans and advances to customers, staff loans and other receivables warehoused in other assets as loans and receivables. These are evaluated periodically for impairment in line with its accounting policy as disclosed in note 3(f)(vii). Impairment losses have been recognized in profit or loss and reflected in an allowance account against loans and receivables. The total impairment allowance during the period ended 31 December 2 0 1 7 w a s a p p r o x i m a t e l y N 3 4 2 m i l l i o n ( 3 1 December 2016: N159 million). These figures are inclusive of impairment allowance on other receivables. Collateral security

All financial assets held by the Bank are normally unsecured. Our comfort on the Treasury Bills is the issuer's credit rating, which is the Federal Government of Nigeria, while for the loans and advances, we obtain comfort from the fact that the

loans are mostly backed by the salary accounts of serving officers domiciled with the Bank. Staff loans are also recovered through salary deductions and staff mortgage loans are secured against the property purchased. Write-off policy The Bank writes off a loan balance when the Bank's Credit Department determines that the loan is uncollectible and had been declared delinquent and subsequently classified as lost. The write-off process is a critical component of the Bank's credit management activities. The policy requires a periodic review and identification of classified loans deemed to be uncollectible with long outstanding b a l a n c e s o f p r i n c i p a l a n d i n t e r e s t . T h e d e t e r m i n a t i o n i s m a d e a f t e r c o n s i d e r i n g information such as the continuous deterioration in the customer's financial position, such that the customer can no longer pay the obligation, or that the proceeds from the collateral will not be sufficient to pay back the entire exposure. Board approval is required for such write-off. The loan recovery department continues with its recovery efforts and any loan subsequently recovered is treated as other income.

(iv)

(v)

(vi)

(vii)

15,242,692 11,690,038



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BUSINESS REVIEW



Geographical Sectors

The following table breaks down the Bank’s main credit exposure at their gross amounts (Loans and advances to customers and due from banks) as categorised by geographical region. ''Due from banks'' here represents current account balances with other banks, money market placements and investments in treasury bills. For this table, the Bank has allocated exposures to regions based on the region of domicile of the Bank's counterparties.


Due from Banks

Loans and advances to

customersTotal

Due from Banks


customersTotal

South South 305,404 815,756

1,121,160

97,174

807,233

904,407South West 3,832,734 3,811,745

7,644,479

1,220,040 3,771,921

4,991,961

South East 73,807 496,705 570,512 23,484 491,515 514,999North Central 1,048,465 2,505,268 3,553,733 333,602 2,479,094 2,812,696North West 288,662 1,249,387

1,538,049

91,847

1,236,334

1,328,181

North East 84,496 432,568

517,064

26,885

428,022

454,907

5,633,568 9,311,429

14,944,997

1,793,032 9,214,119

11,007,151

31 December 2017 31 December 2016


Due from Banks


customersTotal

Due from Banks


customersTotal

Credit Quality

The following table breaks down the Bank’s main credit exposure at their gross amounts ("Due from banks" at carrying amount), as categorised by performance as at 31 December 2017 and 31 December 2016 respectively.

Neither past due nor impaired 5,633,568 9,008,675 14,642,243 1,793,032 9,095,801 10,888,833ImpairedIndividually impaired -

205,501

205,501

-

43,510 43,510Collectively impaired -

97,253

97,253

- 74,808 74,808Gross 5,633,568 9,311,429

14,944,997

1,793,032 9,214,119

11,007,151Impairment allowanceSpecific impairment -

(205,501)

(205,501)

-

(43,510)

(43,510)Collective impairment -

(97,253)

(97,253)

-

(74,808)

(74,808)5,633,568 9,008,675

14,642,243

1,793,032 9,095,801

10,888,833

(I)

( )c

(viii)

(vii)

31 December 2017 31 December 2016

Liquidity risk Liquidity risk is the potential loss arising from the Bank’s inability to meet its obligations as they fall due or to fund increases in assets without incurring unacceptable cost or losses. Liquidity risk is not viewed in isolation, because financial risks are not mutually exclusive and liquidity risk is often triggered by consequences of other Bank's risks such as credit, market and operational risks.

Liquidity risk management process The Bank has a sound and robust liquidity risk management framework that ensures that sufficient liquidity, including a cushion of unencumbered and high quality liquid assets, are maintained at all times to enable the Bank withstand a range of stress events, including those that might involve loss or impairment of funding sources.

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The Bank’s liquidity risk exposure is monitored and managed by senior management on a regular basis. This process includes: - Projecting cash flows and considering the level of liquid assets necessary in relation thereto - Monitoring balance sheet liquidity ratios against internal and regulatory requirements; - Managing the concentration and profile of debt maturities; - Maintaining liquidity and funding contingency plans. These plans identify early indicators of stress

conditions and describe actions to be taken in the event of difficulties arising from systemic or other crises while minimizing any adverse long-term implications for the business.

- Regular conduct of stress testing, coupled with testing of contingency funding plans from time to time. The Bank maintains adequate liquid assets sufficient to manage any liquidity stress situation. The liquidity ratio remains one of the best among its peer companies.

(ii) Maturity analysis for financial liabilities The following are the remaining maturities of financial liabilities at the reporting date. These are the carrying amounts which includes interest payments and exclude the impact of netting agreements.

In thousands of naira NoteCarrying amount Total

Up to 3 months

3 - 6 months

6 months - 1 year Over 1 year

Non-derivative financial liabilities

Deposits from customers 20 9,126,494 (9,176,959) (9,000,678) (150,930) (25,351) -

22 99,317

(128,010)

(23,113)

(23,113)

(21,335) (60,449)

Borrowings 23 1,550,468 (1,565,115) (1,135,776) (60,000) (45,205) (324,134)

10,776,279 (10,870,084) (10,159,567) (234,043) (91,891) (384,583)

Other liabilities (excluding accounts payable, sundry creditors, accruals, other payables, unearned income & productivity bonus)

Expected cash flows31 December 2017


31 December 2016

Non-derivative financial liabilities

20 6,792,391 (6,803,321) (6,771,817) (24,146) (7,358) -

22 180,208 (216,249)

(39,045)

(39,045)

(36,041)

(102,118)

Borrowings 23 349,249 (371,022)

(319,573)

(6,490)

-

(44,959)

7,321,848 (7,390,592)

(7,130,435)

(69,681)

(43,399)

(147,077)

Deposits from customers

Other liabilities (excluding accounts payable, sundry creditors, accruals, other payables, pension payable & productivity bonus)

NoteCarrying amount Total

Up to 3 months Over 1 year

Expected cash flows

3 - 6 months

6 months - 1 year

Notes To The Financial Statements


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BUSINESS REVIEW



For The Year Ended 31 December 2017

The above analysis is based on the Bank's expected cash flows on the financial liabilities, which do not vary significantly from the contractual cash flows.

As part of the management of its liquidity risk, the Bank holds liquid assets comprising cash and cash equivalents and other financial assets to meet its liquidity requirements. Exposure to liquidity risk The key measure used by the Bank for managing liquidity risk is the ratio of net liquid assets to deposits from customers. For this purpose, 'net liquid assets' includes cash and cash equivalents and investment-grade debt securities for which there is an active and liquid market less any deposits from banks, debt securities issued, other borrowings and commitments maturing within the next month.

Details of the reported ratio of net liquid assets to deposits from customers at the reporting date and during the reporting period were as follows:

(iii)

In thousands of naira 2017 2016

At 31 December 63% 28%

Average for the period 48% 37%

Maximum for the period 63% 47%

Minimum for the period 28% 28%

Market risk Market risk is the risk that changes in market prices such as foreign exchange rates and interest rate will affect the Bank's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing returns.

The Bank's portfolio managers assess, monitor, manage and report on market risk taking activities within the Bank. The Bank has continued to develop its market risk management framework. The operations of the fund managers in connection with the management of market risk is guided by the Bank's culture of reducing the risk of losses associated with market risk-taking activities, and optimizing risk-reward trade-off. The Bank's market risk objectives, policies and processes are aimed at instituting a model that objectively identifies, measures and manages market risks in the Bank and ensure that: The individuals who take or manage risk clearly understand it. The Bank's risk exposure is within established limits. Risk taking decisions are in line with business strategy and objectives set by the Board of Directors. The expected payoffs compensate for the risks taken. Sufficient capital, as a buffer, is available to take risk. Our market risks exposures are broadly categorised into:(i) Trading market risks - These are risks that arise primarily through trading activities and market making activities. These include position taking in fixed income securities (Bonds and Treasury Bills).(ii) Non trading market risks - These are risks that arise from assets and liabilities that are usually on our books for a longer period of time, but where the intrinsic value is a function of the movement of financial market parameters.

(d)

1 2 3 4 5

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Up to 3 months

3 - 6 months

6 months - 1 year

Over 1 year

Contractual cash flows31 December 2017

Assets

Cash and cash equivalents 14 5,752,469 5,758,587 5,758,587 -- -Pledged assets 15 409,674 413,470 413,470 -- -Loans and advances to customers 16 9,008,675

10,771,094 1,918,315 1,403,597 2,524,037 4,925,145 15,170,818

16,943,151

8,090,372

1,403,597

2,524,037

4,925,145Liabilities

Deposits from customers 20 (9,126,494)

(9,176,959)

(9,000,678)

(150,930)

(25,351)

-

Other liabilities (excluding accounts payable, sundry creditors, accruals, other payables, unearned income & productivity bonus)

22 (99,317)

(128,010)

(23,113)

(23,113)

(21,335)

(60,449)

Borrowings 23 1,550,468

(1,565,115)

(1,135,776)

(60,000)

(45,205)

(324,134)(7,675,343)

(10,870,084)

(10,159,567)

(234,043)

(91,891)

(384,583)

7,495,475 6,073,067 (2,069,195) 1,169,554 2,432,146 4,540,562

The table below summarizes the Bank's interest rate gap position:

Measurement of market risk The Bank currently adopts non-VAR (Value At Risk) approach for quantitative measurement and control of market risks in both trading and non trading books. The measurements includes: Duration and Stress Testing. The measured risks using these two methods are monitored against the pre-set limits on a monthly and weekly basis respectively. All exceptions are investigated and reported in line with the Bank's internal policies and guidelines." Limits are sets to reflect the risk appetite that is approved by the Board of Directors. These limits are reviewed at least annually or at a more frequent intervals. Some of the limits include: Aggregate Control Limits (for Securities); Management Action Trigger (MAT) and Duration. Exposure to foreign exchange risk Foreign Exchange risk is the exposure of the Bank’s financial condition to adverse movements in exchange rates. The Bank can be exposed to foreign exchange risk through any asset, investment and bank balance domiciled in foreign currency. Currently, the Bank does not have transactions in any other currency except the Bank's reporting currency i.e. Naira. Hence, it is not exposed to foreign exchange risk. Exposure to interest rate risk The Bank is exposed to a considerable level of interest rate risk (i.e. the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates). Similar to the last financial year, interest rate was fairly volatile. These changes could have a negative impact on the net interest income, if not properly managed. The Bank however, has a significant portion of its loans and advances to customers in non-rate sensitive assets. This greatly assists it in managing its exposure to interest rate risks.Sensitivity analyses are carried out from time to time to evaluate the impact of rate changes on the net interest income. The assessed impact has not been significant on the capital or earnings of the Bank.

(i)

(ii)

(iii)



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The management of interest rate risk against interest rate gap limits is supplemented by monitoring the sensitivity of the Bank’s financial assets and liabilities to various standard and non standard interest rate scenarios. Standard scenarios that are considered on a monthly basis include a 200 basis point (BP) parallel fall or rise in all yield curves. An analysis of the Bank's sensitivity to an increase or decrease in market interest rates, assuming no asymmetrical movement in yield curves and a constant financial position, is as follows. The Bank's sensitivity to an increase or decrease in interest rates by 200 basis points:

31-Dec-17In thousands of nairaIncrease in interest rate by 200 basis points (+2%) 79,970 Decrease in interest rate by 200 basis point (-2%) (79,970)

Interest rate movement affects reported income by causing an increase or decrease in net interest income and fair value changes.

31-Dec-16

25,074 (25,074)


Up to 3 months

3 - 6 months

6 months - 1 year

Over 1 year

Contractual cash flows31 December 2016

AssetsCash and cash equivalents 14 1,889,881 1,889,936 1,889,936 - - -Pledged assets 15 581,425 581,298 581,298 - - -Loans and advances to customers 16 9,095,801 10,592,073 1,736,251

1,377,091

2,540,399 4,938,332

11,567,107 13,063,307 4,207,485 1,377,091 2,540,399 4,938,332

Liabilities

Deposits from customers 20 (6,792,391) (6,803,321) (6,771,817) (24,146) (7,358) -

Other liabilities (excluding accounts payable, sundry creditors, accruals, other payables, pension payable & productivity bonus)

22 (180,208) (216,249) (39,045) (39,045) (36,041) (102,118)

Borrowings 23 349,249 (371,022) (319,573) (6,490) - (44,959)

(6,623,350) (7,390,592) (7,130,435) (69,681) (43,399) (147,077)

4,943,757 5,672,715 (2,922,950) 1,307,410 2,497,000 4,791,255

Capital management The strategy for assessing and managing the impact of our business plans on present and future regulatory capital forms an integral part of the Bank’s strategic plan. Specifically, the Bank considers how the present and future capital requirements will be managed and met against projected capital requirements. This is based on the Bank's assessment and against the supervisory/regulatory capital requirements taking account of the Bank business strategy and value creation to all its stakeholders. Capital adequacy The Capital Adequacy Ratio is the quotient of the capital base of the Bank and the Bank's risk weighted asset base. In accordance with Central Bank of Nigeria regulations, the regulatory capital of a national Microfinance Bank is N2 billion, while a minimum ratio of 10% is to be maintained.

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(I) The Bank strives to maintain a Capital Adequacy Ratio above the regulatory minimum of 10%. Capital levels are determined either based on internal assessments or regulatory requirements.

(ii) The capital adequacy of the Bank is reviewed regularly to meet regulatory requirements and standard of international best practices in order to adopt and implement the decisions necessary to maintain the capital at a level that ensures the realization of the business plan with a certain safety margin.

(iii) The Bank undertakes a regular monitoring of capital adequacy. The Bank has consistently met and surpassed the minimum capital adequacy requirements applicable in all areas of operations.

(iv) The Bank’s capital plan is linked to its business expansion strategy which anticipates the need for growth and expansion in its branch network and IT infrastructure. The capital plan sufficiently meets regulatory requirements as well as providing adequate cover for the Bank’s risk profile. The Bank's capital adequacy remains strong and the capacity to generate and retain reserves continues to grow.

In thousands of naira Note 31-Dec-17 31-Dec-16

Tier 1 capitalOrdinary share capital 24 1,143,328 1,143,328Share premium 25 1,517,485 1,517,485Retained earnings 25 728,276 506,963Regulatory risk reserves 25 139,090 150,498Statutory reserves 25 1,224,110 1,145,124

Total regulatory capital (Tier 1) 4,752,289 4,463,398

Tier 2 capitalCollective impairment 16(c) 97,253 68,693Total tier 2 capital 97,253 68,693

Total regulatory capital 4,849,542 4,532,091

Risk-weighted assets 9,872,133 10,006,851

Capital ratiosTotal regulatory capital expressed as a percentage of total risk-weighted assets 49% 45%Total tier 1 capital as a percentage of total risk-weighted assets 48% 45%

Use of estimates and judgments The preparation of the financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

Management discusses the development, selection and disclosure of the Bank’s critical accounting policies and their application and assumptions made relating to major estimation uncertainties with the Bank Audit Committee. Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year and about critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements is disclosed below. These disclosures supplement the commentary on financial risk management (see note 4).

5



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Key sources of estimation uncertainty Impairment Financial assets accounted for at amortised cost are evaluated for impairment on a basis described in the significant accounting policy. The specific component of the total allowances for impairment applies to financial assets evaluated individually for impairment and is based upon management’s best estimate of the present value of the cash flows that are expected to be received. In estimating these cash flows, management makes judgements about a debtor’s financial situation and the net realisable value of any underlying collateral. Each impaired asset is assessed on its merits, and the workout strategy and estimate of cash flows considered recoverable are independently approved by the credit risk function. The Bank identifies loans and advances for specific impairment assessment mainly based on past due status of the loans; and thereafter, determines its best estimate of the present value of the cash flows that are expected to be received on the loans. An impairment assessment is performed collectively on all other loans, with the key assumptions being the possibility of a loan becoming past due and subsequently defaulting, the rate of recovery on loans that are past due and in default and the estimated time for recoverability. For the purposes of a collective evaluation of impairment, loans are grouped on the basis of similar credit risk characteristics which considers the past due status of the loans. Collective impairment allowance is then established using statistical methods which considers historical loss rate experience adjusted for current circumstances. In assessing the need for collective loss allowances, management considers factors such as credit quality, portfolio size, concentrations and economic factors. In order to estimate the required allowance, assumptions are made to define the way inherent losses are modelled and to determine the required input parameters, based on historical experience and current economic conditions. The accuracy of the allowances depends on the estimates of future cash flows for specific counterparty allowances and the model assumptions and parameters used in determining collective allowances. Investments in equity securities are evaluated for impairment on the basis described in note 3. For an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment. In this respect, the Bank regards a decline in fair value in excess of 20 percent to be significant and a decline in a quoted market price that persists for 9 months or longer to be prolonged. An assessment as to whether an investment in debt securities is impaired may be complex. In making such an assessment, the Bank considers the following factors: - The market’s assessment of credit worthiness as reflected in the instrument yields. - The rating agencies’ assessments of the creditworthiness. - The ability of the country to access the capital market for new debt issuance. - The probability of debt being restructured resulting in holders suffering losses through voluntary

or mandatory debt forgiveness.

(a)

Fair value The determination of fair value for financial assets and financial liabilities for which there is no observable market price requires the use of valuation techniques. For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgment depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument.

The Bank's accounting policy on fair value measurement is discussed in Note 3 (f)(vi).

(b)

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The Bank measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the requirements. - Level 1: Quoted market price in an active market for an identical instrument.

- Level 2: Valuation techniques based on observable inputs. This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data.

- Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instruments valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments, the Bank determines fair value using valuation techniques. Valuation techniques include net present value and discounted cash flow models, comparison to similar instruments for which market observable prices exist, Black-Scholes and polynomial option pricing models and other valuation models. Assumptions and inputs used in valuation techniques include risk-free and benchmark interest rates, credit spreads and other premia used in estimating discount rates, bond and equity prices, foreign currency exchange rates, equity and equity index prices and expected price volatilities and correlations. The objective of valuation techniques is to arrive at a fair value determination that reflects the price of the financial instrument at the reporting date, that would have been determined by market participants acting at arm's length. Availability of observable market prices and model inputs reduces the need for management judgment and estimation and also reduces the uncertainty associated with determination of fair values. Availability of observable market prices and inputs varies depending on the products and markets and is prone to changes based on specific events and general conditions in the financial markets. Valuation models that employ significant unobservable inputs require a higher degree of management judgment and estimation in the determination of fair value. Management judgment and estimation are usually required for selection of the appropriate valuation model to be used, determination of expected future cash flows on the financial instrument being valued, determination of probability of counterparty default and prepayments and selection of appropriate discount rates. The following table shows the carrying amounts and fair values of financial assets and financial liabilities carried at fair value, including their levels in the fair value hierarchy.

In thousands of naira Note Level 1 Level 2 Level 3 Total2017ASSETSInvestment securities 17 5,281 11,400

-

16,6815,281 11,400

-

16,6812016ASSETSInvestment securities 17 26,174 11,400 -

37,57426,174 11,400 - 37,574



OVERVIEW

BUSINESS REVIEW




There was no financial instrument measured in Level 3 of the fair value hierarchy, hence there is no table to show a reconciliation from the beginning balance to the ending balances for fair value measurements in level 3 of the fair value hierarchy. Financial instruments not measured at fair value The table below sets out the fair value of financial instruments not measured at fair value and analysed by level in the value hierarchy into which each fair value measurement is categorised.

31 December 2017

In thousands of naira Note Level 1 Level 2 Level 3Total fair

valueTotal carrying

amount

ASSETSCash and cash equivalents 14 539,595 5,216,146 - 5,755,741 5,752,469 Pledged assets 15 51,135 358,391 - 409,526 409,674 Loans and advances to customers 16 - -

10,080,985 10,080,985 9,008,675 Trade and other receivables (excluding prepayments and other assets)

18 - - 55,193 55,193 55,193

590,730 5,574,537 10,136,178 16,301,445 15,226,011 LIABILITIESDeposits from customers 20 - 9,126,494 - 9,126,494 9,126,494 Other liabilities 22 - 99,317 - 99,317 99,317 Borrowings 23 - 1,290,622 - 1,290,622 1,550,468

- 10,516,433 - 10,516,433 10,776,279

In thousands of naira Note Level 1 Level 2 Level 3 Total fair

value Total carrying

amount

ASSETSCash and cash equivalents 14 572,277 1,499,307 - 2,071,584 1,889,881 Pledged assets 15 - 582,488 - 582,488 581,425 Loans and advances to customers 16 - -

9,148,899 9,148,899 9,095,801 Trade and other receivables (excluding prepayments and other assets)

18 - -

85,357 85,357 85,357

572,277 2,081,795 9,234,256 11,888,328 11,652,464 LIABILITIESDeposits from customers 20 - 6,792,391 - 6,792,391 6,792,391 Other liabilities 22 - 180,208 - 180,208 180,208 Borrowings 23 349,249 348,006 349,249

- 7,321,848 - 7,320,605 7,321,848

31 December 2016

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BUSINESS REVIEW





The estimation of the useful lives of assets is based on management’s judgement. Any material adjustment to the estimated useful lives of items of property and equipment will have an impact on the carrying value of these items. Determination of impairment of property and equipment, and other non-financial assets Management is required to make judgements concerning the cause, timing and amount of impairment. In the identification of impairment indicators, management considers the impact of changes in current competitive conditions, cost of capital, availability of funding, technological obsolescence, discontinuance of services and other circumstances that could indicate that impairment exists. The Bank applies the impairment assessment to its separate cash generating units. This requires management to make significant judgements and estimates concerning the existence of impairment indicators, separate cash generating units, remaining useful lives of assets, projected cash flows and net realisable values. Management’s judgement is also required when assessing whether a previously recognised impairment loss should be reversed.

Income taxes The Bank is subject to income taxes in numerous jurisdictions. Significant estimates are required in determining the Bank wide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Bank recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. For recognition of deferred tax assets, judgment is exercised to assess the availability of future taxable profit against which tax losses carried forward can be used. Determination of regulatory risk reserves Provisions under prudential guidelines are determined using the time based provisioning regime prescribed by Central Bank of Nigeria's (CBN) Amended Regulatory and Supervisory Guidelines for Microfinance Banks. This is at variance with the incurred loss model required by IFRS under IAS 39. As a result of the differences in the methodology/provision regime, there will be variances in the impairments allowances required under the two methodologies. Paragraph 12.4 of the revised Prudential Guidelines for Deposit Money Banks in Nigeria stipulates that Banks would be required to make provisions for loans as prescribed in the relevant IFRS Standards when IFRS is adopted. However, Banks would be required to comply with the following:

Provisions for loans recognised in the profit and loss account should be determined based on the requirements of IFRS. However, the IFRS provision should be compared with provisions determined under prudential guidelines and the expected impact/changes in general reserves should be treated as follows:

• Prudential provisions is greater than IFRS provisions: the excess provision resulting should be transferred from the retained reserve account to a "regulatory risk reserve".

• Prudential provisions is less than IFRS provisions: IFRS determined provision is charged to the statement of comprehensive income. The cumulative balance in the regulatory risk reserve is thereafter reversed to the retained reserve account.

The non-distributable reserve should be classified under Tier 1 as part of the core capital.

(d)

(e)

(ii)

(i)

( )c



OVERVIEW

BUSINESS REVIEW




In thousands of naira Note

Loans & advances:Specific impairment allowances on loans to customers 16 (c) 205,501

Collective impairment allowances on loans to customers 16 (c) 97,253

Total impairment allowances on loans (a) 302,754

Total regulatory impairment based on prudential guidelines (b) 441,844

Required balance in regulatory risk reserves (c = b - a) 139,090

Balance, 1 January 2017 150,498

Reduction during the year (11,408)

Balance, 31 December 2017 139,090

Prudential adjustments for the year ended 31 December 2016

In thousands of naira Note

Loans & advances:Specific impairment allowances on loans to customers 16 (c) 43,510Collective impairment allowances on loans to customers 16 (c) 74,808

Total impairment allowances on loans (a) 118,318

Total regulatory impairment based on prudential guidelines (b) 268,816

Required balance in regulatory risk reserves (c = b - a) 150,498

Balance, 1 January 2016 108,066

Addition during the year 42,432

Balance, 31 December 2016 150,498

Prudential adjustments for the year ended 31 December 2017

The Bank has complied with the requirements of the guidelines as follows:

OVERVIEW

BUSINESS REVIEW





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OVERVIEW

BUSINESS REVIEW




Interest incomeLoans and advancesBankers acceptancesPlacements with local banks

7

In thousands of naira 2017

2,125,01858,500

421,8952,605,413

2016

1,913,16015,69768,629

1,997,486

Included in the interest income above is a N16 million with respect to impaired financial assets for the year ended 31 December 2017 (2016: N10.90 million).

Interest expenseTerm depositsCurrent accountsSavingsBorrowings

Fees and commission incomeCredit-related fees and commissionDeposit-related fees and commission

Other revenueIncome on salary administrationProfit on disposal of available-for-sale financial assetsService fees and chargesProfit on disposal of property and equipmentDividend income

Net impairment loss on financial assetsImpairment loss on loans and advances to customers: Charge/(Write-back) on specific impairment (see 16(c)) Charge on collective impairment (see 16(c))

Impairment (write-back)/loss on investments (see note 17(b))Impairment (write-back)/loss on other receivables (see note 18(a))

Personnel expensesShort term employee benefitsPost-employment benefits: Defined benefit plan Defined contribution plan - pension cost Other staff cost

8

9

10

11

12

243,5108,704

10,80355,881

318,898

635,198144,680779,878

202,46915,27450,589

1,22824

269,584

163,80622,445

186,251 (157)

(1,167)184,927

1,146,948

- 46,967

112,858

1,306,773

188,9498,0599,570

16,902223,480

599,610117,266716,876

171,552 -

36,8772,285

153210,867

(17,511) 52,689 35,178

5804,108

39,866

876,821

(60)36,04795,247

1,008,055

OVERVIEW

BUSINESS REVIEW





Administration and general expensesRepairs and maintenance costVehicle and generator running costOffice expensesComputer expensesTravel expensesAGM and year-end expensesDirectors' remunerationBank chargesMarketing/publicity expensesProfessional feesSubscription feesCharges and leviesInsurance costNDIC premiumRent and ratesCorporate social responsibilityAuditor's remunerationLoss on sale of property and equipmentOther expenses (see note a)

Other expenses includes the following:DonationsElectricity expensesRecruitment expensesDamaged ATM cardsLoan recovery expensesFinesStamp duties Legal expensesSMS alertsBad debts written offPre-operational expensesShare listing expensesWHT expenseMiscellaneous expenses

Cash and cash equivalentsCash-in-handCurrent account balances with other banksMoney market placementsTreasury Bills

13

(a)

14

90,54780,19292,19259,20939,64348,538

116,56335,524

113,28721,315

3,52531,75126,57530,37431,784

6,64217,000

- 57,009

901,670

5,80516,790

3,48638

618 - -

5,72315,557

763 -

1,9854,2192,025

57,009

118,9011,635,0733,462,172

536,3235,752,469


105,76159,61877,32554,77233,72743,212

111,33432,67057,25930,967

2,78221,68120,53529,44822,253

86015,000

- 35,170

754,374

4,1039,6963,487

14149

2,4531,9453,6886,957

3782,300

- -

35,170

96,849539,345863,113390,574

1,889,881

Cash and cash equivalents comprise balances with less than three months' maturity from the date of acquisition, including cash-in-hand, deposits held at call with other banks, other short-term highly liquid investments with original maturities less than three months. The current balances with other banks also includes ATM working capital accounts and the suspense accounts used to manage settlement of ATM transactions with Sterling Bank to be refunded to the Head office by branches. For financial reporting purposes, the balances in the ATM related accounts were combined in order to have a net position.



OVERVIEW

BUSINESS REVIEW




Pledged assets Pledged assets represent placements and Treasury Bills with banks that serve as collateral for the Bank's borrowings, use of NIBSS platform and ATM transactions as analysed below:

15

Underlying transaction Counterparty Asset descriptionBOI concessionary loan Sterling Bank Plc Treasury Bills 51,284 236,198BOI concessionary loan Sterling Bank Plc Fixed placement 263,408 -CBN concessionary loan Zenith Bank Plc Fixed placement - 152,933CBN concessionary loan First City Monument Bank Fixed placement - 101,955NIBSS Platform First Bank of Nigeria Plc Fixed placement 74,982

70,339ATM Transactions Sterling Bank Plc Call placement 20,000

20,000

409,674 581,425

Current 409,674 581,425Non-current - -

409,674

581,425

16 Loans and advances to customers(a) Loans and advances to customers comprise:

Loan and advances to customers at amortised cost 9,008,675 9,095,801

9,008,675 9,095,801

Current 3,162,726 3,442,060Non-current 5,845,949 5,653,741

9,008,675 9,095,801

(b) Loans and advances to customers at amortised cost:

ImpairmentAllowance

Carrying Amount

Gross Amount

Impairment Allowance

Carrying Amount

Term loans 8,894,640 (187,047) 8,707,593 8,837,988 (63,172) 8,774,816Overdrafts 416,789 (115,707)

301,082 376,131 (55,146)

320,985

9,311,429 (302,754)

9,008,675 9,214,119 (118,318)

9,095,801

(c ) Movement in allowances for impairment 2017 2016

Specific allowances for impairmentBalance at 1 January 43,510 139,715Write-offs during the year (1,815)

(78,694)Impairment loss for the year: Charge/(Write-back) during the year (see note 11) 163,806 (17,511)

Balance at 31 December 205,501 43,510

Collective allowances for impairmentBalance at 1 January 74,808 22,119Impairment loss for the year: Charge during the year (see note 11) 22,445 52,689Balance at 31 December 97,253 74,808

302,754 118,318

Gross Amount

2017 2016

OVERVIEW

BUSINESS REVIEW





17 Investment securities(a) Investment securities comprise:

Available-for-sale equities:Listed equities 227,094 354,522Unlisted equities 22,499 22,499

249,593 377,021Specific impairment allowance (see note (b) below) (232,912)

(339,447)

16,681 37,574

Current -

-

Non-current 16,681 37,57416,681 37,574

(b) Movement in specific allowances for impairment:

Balance at 1 January 339,448 338,868Impairment loss for the year: (Write-back)/charge during the year (see note 11) (157)

580Write-off during the year (106,379)

-

Balance at 31 December 232,912 339,448

18 Trade and other receivables

Prepayments 133,477 164,262Other assets (see note (a) below) 23,803 48,687Other receivables (see note (b) below) 55,193 85,357

212,473 298,306Impairment allowance on other receivables (see note (c ) below) (39,595)

(40,762)

172,878 257,544

Current 85,165 169,588Non-current 87,713 87,957

172,878 257,544

(a)

(b)

(c)

Balance, beginning of year 40,762 36,655

(Write-back)/charge during the year (see note 11) (1,167) 4,108

Balance, end of year 39,595 40,762

Other assets comprise inventories such as stock of debit cards, stock of credit cards, stock of cheques, books/journals/CDs, stock of office stationeries, stock of micr cheques and non micr cheques.

Other receivables includes staff cash advance, sundry debtors, discount instrument maturity suspense, consumer loan suspense and fraud & forgery account.

Movement in specific allowances for impairment:



OVERVIEW

BUSINESS REVIEW





19 Property and Equipment

Land and Building

Furniture and

FittingsMotor

Vehicles

Computer and office

Equipment Total

Cost:

Balance as at 1 January 2016 234,609 72,835

188,610

187,302

683,356

Additions during the year 28,314 19,239 47,283 106,970 201,806

Disposals - (2,999) - (15,414) (18,413)

Balance at 31 December 2016 262,923 89,075

235,893

278,858

866,749

Balance as at 1 January 2017 262,923 89,075 235,893 278,858 866,749

Additions during the year 3,205

12,675

117,497

134,162

267,539

Disposals - (41,762) (75,116) (158,831) (275,709)

Balance at 31 December 2017 266,128 59,988 278,274 254,189 858,579

Accumulated Depreciation:

Balance at 1 January 2016 25,107 53,691 92,289 118,199 289,286

Charge for the year 4,787 9,820 43,138 38,269 96,014

Disposals - (2,999) - (15,198) (18,197)

Balance at 31 December 2016 29,894 60,512 135,427 141,270 367,103

Balance at 1 January 2017 29,894

60,512

135,427

141,270

367,103 Charge for the year 5,833

10,720

49,060

57,175

122,788

Disposals (3,278)

(42,171)

(73,915)

(103,912)

(223,276)

Balance at 31 December 2017 32,449

29,061

110,572

94,533

266,615

Carrying Value: 31 December 2016 233,029 28,563

100,466

137,588

499,646

Net Book Value: 31 December 2017 233,679 30,927

167,702

159,656

591,964

- There were no capitalised borrowing costs related to the acquisition of property and equipment during the period (2016: Nil).

- There were no impairment losses on any class of property and equipment during the period (2016: Nil).

- There were no property and equipment pledged as securities for liabilities (2016: Nil).

- There were no contractual commitment for the acquisition of property and equipment (2016: Nil).

2017 2016

Current - -

Non-current 591,964 499,646

591,964 499,646

OVERVIEW

BUSINESS REVIEW






20 Deposits from customersCurrent 3,266,736 2,250,146Savings 2,090,106 1,816,956Term 3,470,848 2,659,449Sundry deposits 298,804 65,840.00

9,126,494 6,792,391

Current 9,126,494 6,792,391Non-current - -

9,126,494 6,792,391

21 Income taxes(a) Amounts recognized in profit or loss

Current tax expenseCompany income tax 125,019 170,412Education tax 13,134 14,848National Information Technology Development Agency (NITDA) levy 8,117 7,955

146,270 193,215

Deferred tax expenseOrigination and reversal of temporary differences - Charge/(Credit) 41,659 55,322

41,659 55,322

Tax expense 187,929 248,537

(b) Movement in current tax liabilitiesBeginning of the year 199,571

188,983

Income tax expense (see note (a) above) 146,270

193,215

Tax paid (199,571) (182,627)

End of the year 146,270 199,571

The Bank believes that its accrual for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax laws and prior experience.


(c) Movement in deferred tax balances

2017

Net balance at 1 January

Recognized in profit or

loss (see (a))Recognized

in OCIBalance as at 31 December

Property and equipment 86,721 17,663 - 104,384Loans and advances (22,443) (6,734) - (29,177)Employee benefits (44,368) 30,730 - (13,638)Deferred tax (assets)/liabilities 19,910 41,659 - 61,569



OVERVIEW

BUSINESS REVIEW




2016

Net balance at 1 January

Recognized in profit or

loss (see (a))Recognized

in OCIBalance as at 31 December

Property and equipment 67,232 19,489 - 86,721Loans and advances (6,636) (15,807) - (22,443)Employee benefits (96,007) 51,639 - (44,368)Deferred tax (assets)/liabilities (35,411) 55,321 - 19,910

(d) Reconciliation of effective tax rate


Profit before tax 819,819 803,440

Tax using the Company's domestic tax rate 30.00% 245,946

30.00% 241,032Non-deductible expenses 7.80% 63,957 5.77% 46,349Tax-exempt items -17.47% (143,225) -7.67% (61,648)Tertiary Education Tax 1.60% 13,134 1.85% 14,848NITDA Levy 0.99% 8,117 0.99% 7,955

22.92% 187,929 30.93% 248,536

2017 2016


22 Other liabilitiesAccounts payable 5,202 88,386 Productivity bonus (see note (a) below) 100,066 150,000 Sundry creditors 53,838 71,295 Staff benefits payable (see note (b) below) 99,317 180,208 Accruals 54,023 46,432 Other payables 411 132 Unearned income 2,394 -

Pension payable - 900 315,251 537,353

Current 315,251 356,245 Non-current - 181,108

315,251 537,353

(a) This amounts represents provision made at the end of the year for payment of productivity bonus to employees of the Bank. It is linked to the performance of the Bank.

(b) Staff benefits payable comprise the outstanding liabilities on the staff defined benefits plan discontinued on 30 June

2015 and reclassified from retirement benefit obligations. It is repayable at 10% interest rate per annum over three years.

The movement in the staff benefits payable during the year was as follows:

OVERVIEW

BUSINESS REVIEW





2017 2016

Balance, beginning of year 180,208 331,669 Addition during the period - - Interest accrued during the period 32,003 32,003 Liability repayment during the period (102,432) (172,130)Interest repayment during the period (10,462) (11,334)Balance, end of period 99,317 180,208

23 Borrowings(a) Borrowings comprise:

BOI concessionary loan (see note (i) below) 456,040 42,749 CBN concessionary (see note (ii) below) 1,000,242 306,500

DBN concessionary loan (see note (iii) below) 94,186 -

1,550,468 349,249

Current - - Non-current 1,550,468 349,249

1,550,468 349,249

(i) The Bank of Industry (BOI) loan was availed the Bank on 10 March 2017. The amount availed was N500 million at a rate of 12 percent per annum for a duration of 3 years. This loan is for on-lending to the Bank's customers. It is for the benefit of small and medium sized enterprises to grow their businesses and to become financially independent.

(ii) The Central Bank of Nigeria (CBN), Micro Small and Medium sized Enterprises Development Fund (MSMEDF) loan of

N1 billion was granted to the bank on 22 December 2017 at a rate of 2% per annum. The loan tenor is 2 year and it is for for on-lending to the Bank's customers for the benefit of small and medium sized enterprises to help grow their businesses and become financially independent.

(iii) The Development Bank of Nigeria (DBN) loan of N?100 million was granted to the Bank on 3 November 2017. The loan

is for a durationof 2 years at an interest rate of 16.2%. The loan is for on-lending to micro, small and medium enterprises to grow their businesses.

The facility is callable, cancellable and renewable and is to be reviewed twelve (12) months after the first draw down and every six (6) months subsequently.

(b) The movement in borrowings during the year was as follows:

Balance, beginning of yearAddition during the periodInterest accrued during the yearRepayment during the yearBalance, end of year

24 Share capital

Authorised:

6,000,000,000 units of ordinary shares of 50 kobo each

Issued and fully paid:

2,286,657,766 units of ordinary shares of 50 kobo each

2017 2016

349,249 630,795 1,600,000 -

55,816 15,658 (454,597) (297,204)

1,550,468 349,249

3,000,000

3,000,000

1,143,328 1,143,328



OVERVIEW

BUSINESS REVIEW




25 Share premium and reserves The nature and purpose of the share premium and reserve accounts in equity are as follows: (a) Share premium The share premium warehouses the excess paid by shareholders over the nominal value for their shares. Premiums

from the issue of shares are reported in share premium. (b) Retained earnings Retained earnings comprise the undistributed profits from previous years, which have not been reclassified to the

other reserves noted below. (c) Statutory reserve . The Nigerian banking regulations require the Bank to make an annual appropriation to a statutory reserve. As

stipulated by S.8.1.7 of the Amended Regulatory and Supervisory Guidelines for Microfinance Banks issued by the Central Bank of Nigeria (CBN), an appropriation of 50% of profit after tax is made if the statutory reserve is less than 50% of its paid?up share capital, 25% of profit after tax if the statutory reserve is greater than 50% but less than 100% of its paid-up share capital and 12.5% of profit after tax if the statutory reserve is greater than the paid up share capital.

In line with the CBN requirement, the Bank transferred 12.5% of its profit after tax to statutory reserves as at year-end . (d) Regulatory risk reserve The regulatory risk reserve warehouses the excess of the impairment allowance on loans and advances computed

based on the Central Bank of Nigeria prudential guidelines over that computed based on the incurred loss model under IFRS.

26 Related party transactions NPF Microfinance Bank Plc neither has a parent company nor subsidiaries. (a) Transactions with key management personnel (i) Key management compensation for the year comprised:


Salaries and other short-term benefitsRetirement benefits

2017 2016

71,001 45,76725,350 9,800

96,351 55,567

(ii) Loans and advances In addition to their salaries, the Bank also provides non-cash benefits to its executive directors. Loans to key

management personnel include housing loans and other personal loans which are given under terms that are no more favorable than those given to other staff. The housing loans are secured by property of the respective borrowers. All other loans are unsecured and interest rates charged on the related parties are at arm's length .

The movement in the loans and receivables to key management personnel during the year was:

At start of the year 24,236 27,827Granted during the year 15,846 5,355Repayment during the year (7,996) (8,946)At end of the year 32,086 24,236

Interest earned 716 644

OVERVIEW

BUSINESS REVIEW





Loans and advances outstanding:


Name Relationship Facility typeAmount granted

31 Dec. 2017 31 Dec. 2016 Status Security

Mr. Akinwunmi LawalManaging Director

Housing loan 11,800 6,834 7,424 PerformingCertificate of occupancy

Mr. Jude OhanehiExecutive Director

Housing loan 12,095 8,114 8,718 PerformingCertificate of occupancy

Mr. Akinwunmi LawalManaging Director

Vehicle loan 8,500 1,653 3,069 Performing Unsecured


Vehicle loan 7,500 1,667 2,917 Performing Unsecured


Personal loan 2,300 958 2,108 Performing Unsecured

Mr. Francis NelsonExecutive Director

Housing loan 11,631 7,173 - PerformingCertificate of occupancy


Vehicle loan 8,900 1,731 - Performing Unsecured


Personal loan 1,500 1,312 - Performing Unsecured

Prince Eke IfeanyiNon-Executive Director

Overdraft 3,500 2,644 Performing Unsecured

67,726 32,086 24,236

The amounts granted and their balances as at 31 December 2017 were as follows:

All loans granted to key management personnel are performing as at 31 December 2017 (2016: Performing).

(iii) Deposits(a) The following directors had deposits with the Bank as at year ended:


Name RelationshipType of deposit

31 December 2017

31 December 2016

Mr Joel Udah Chairman Current deposit 1,135 949 Mrs Gimba Dorothy Non-Executive Current deposit 241 1,610 Mr Wabali Emmanuel Non-Executive Current deposit 1,898 888 Mr Daramola Joseph Non-Executive Current deposit 970 768 Prince Eke Ifeanyi Non-Executive Current deposit - 603 Mr Abubakar Audu Non-Executive Current deposit 2,351 939

Mrs Florence Adebanjo Former Chairperson

Current deposit - 26

Mr Saeed Dantsoho Non-Executive Current deposit 5,990 4,522

Mr Ohanehi JudeExecutive-Director Current deposit 6,783 7,084

Mr Lawal AkinwunmiManaging Director

Current deposit 7,040 6,648

Mr Francis NelsonExecutive-Director Current deposit 4,072 -

Mr Jibrin G. Gane Non-Executive Current deposit 1,147 - Mr Olusholla B. David Non-Executive Current deposit 3,785 -

35,412 24,037



OVERVIEW

BUSINESS REVIEW




27 EMPLOYEES AND DIRECTORS EMPLOYEES 2017 2016

(a) The average number of persons employed during the year by category:Executive directors 3 2

Management 43 40

Non-management 268 242

314 284

(b )

Less than N500,000 - - 11 13

213 232 40 16 13 9 20 2 17 12

314 284

The number of employees of the Bank, including executive directors, who received emoluments in the following ranges were:

N500,001 - N1,000,000N1,000,001 - N2,500,000N2,500,001 - N3,500,000N3,500,001 - N4,500,001N4,500,0001 - N5,500,000N5,500,001 and above

(c) Diversity in Employment i). A total of 129 women were employed by the Bank during the year ended 31 December 2017 (2016: 123), which

represents 41% of the total workforce (2016: 43%). ii). A total of 4 women were in top management positions as at the year ended 31 December 2017 (2016: 2), which

represents 22% of the total top management workforce (2016: 13%). There was no woman on the Board of Directors as executive director. See note (iii) below.

iii). The analysis by grade is as shown below:

(b) Deposits of other related parties

Included in deposits is an amount of 1.91 billion (31 December 2016: 1.83 billion), representing deposits from major shareholders. The balances as at 31 December 2016 were as follows:


31 December 2017

31 December 2016

2,873 2,761

1,311,093 1,132,373

45,345 172,143

Name of company/individual

Relationship Type of deposit

NPF Cooperative Society Limited

Major shareholder

Current deposit

NPF Cooperative Society Limited

Major shareholder

Term deposit

NPF Welfare Insurance Scheme

Major shareholder

Current deposit

NPF Welfare Insurance Scheme

Major shareholder

Term deposit 551,697 525,291

1,911,008 1,832,568

(iv) Transaction with related parties Mr. Udah owns the property in Aba leased by the Bank for use as a branch. The leased property was inspected and found

suitable for the proposed branch and the offer price was also competitive. The property was leased to the Bank for a 3-year duration at a cost of N5,610,000. (31 December 2016: N5,610,000)

OVERVIEW

BUSINESS REVIEW





The directors' remuneration shown above includes:

The Chairman 12,510 6,200

Highest paid director 26,977 18,906

Below N1,000,000

N1,000,001 - N5,000,000

N5,000,001 - N10,000,000

N10,000,001 and above

- 6

1 16 2

3 -

10 9

The number of directors who received fees and other emoluments (excluding pension contributions and reimbursable expenses) in the following ranges were:

GRADE LEVEL Male Female Total Male Female Total

Manager (M) 7 2 9 6 - 6

Senior Manager (SM) 1 - 1 3 - 3

Assistant General Manager (AGM) 3 3 2 1 3

Deputy General Manager (DGM) 3 1 4 1 - 1

General Manager (GM) 1 1 1 1 2

TOTAL 14 4 18 13 2 15

December 2017 December 2016

iv). The Bank is committed to maintaining a positive work environment and to conduct business in a positive, professional manner and will ensure equal employment opportunity.

(d) DIRECTORS

Analysis of directors by gender:Male Female Total Male Female Total

Managing Director 1 - 1 1 - 1

Executive Director 2 - 2 1 1

Non - Executive Directors 6 - 6 6 1 7

TOTAL 9 9 8 1 9

The remuneration paid to the directors of the Bank (excluding pension and certain allowances) was:


Fees and sitting allowances 46,658 28,860Other directors' expenses 69,905 82,474

116,563 111,334Executive compensation (see note 26(a)(i)) 71,001 45,767

187,564 157,101

December 2017 December 2016

-



OVERVIEW

BUSINESS REVIEW




28 Compliance with banking and other regulations During the year, the Bank did not pay any penalties. In 2016, the following penalties were paid: N1.35million to the

Securities and Exchange Commission in respect of delay in submission of the 2015 audited financial statements and N1.095 million to the Federal Inland Revenue for non-rendition of VAT returns.

29 Events after the reporting period There were no events which could have a material effect on the financial position of the Bank as at 31 December 2017

or the profit for the year then ended on that date, that have not been adequately provided for or disclosed in the financial statements.

30 Litigations and claims The Bank in its ordinary course of business was involved in 12 cases as at 31 December 2017 (31 December 2016: 12) as

a co-defendant. The directors of the Bank are of the opinion that none of the aforementioned cases is likely to have material adverse effect on the Bank and are not aware of any other pending and/or threatened claims or litigations which may be material to the financial statements. However, the total amount that may be claimed against the Bank is estimated at N636 million (2016:N552.4 million).

31 Operating segments Segment information is provided on the basis of operating and reportable segments in the manner the Bank manages

its business. The financial statements of the Bank as presented reflects the management structure of the Bank and the way in which the Bank's management reviews business performance. Invariably, management considers its retail banking operations, whose results are shown in the statement of financial position and statement of comprehensive income, as its only operating segment.

32 Earnings per share Basic earnings per share (EPS) is calculated by dividing the net profit attributable to shareholders by the weighted

average number of ordinary shares in issue during the year.

2017 2016

Net profit attributable to shareholders ( in thousands of naira) 631,890 554,903Number of shares in issue (in thousands) 2,286,656 2,286,656Weighted average number of shares in issue (in thousands) 2,286,656 2,286,656Basic earnings per share (kobo) 28 24

The Bank did not have potential dilutive shares as at 31 December 2017 (31 December 2016: Nil).

33 Statement of cash flows notes

(a) Change in borrowings (see note 23(b))

2017 2016

Additions during the year 1,600,000 - Interest accrued during the year 55,816 15,658 Interest payable on borrowings (25,786) (10,492)

1,630,030 5,166

OVERVIEW

BUSINESS REVIEW





(b) Proceeds from disposal of property and equipment

Cost of property and equipment disposed during the year 275,709 18,413

Accumulated deperciation on disposals of property and equipment (223,276) (18,197)

52,433

216

Profit on sales of property and equipment 1,228 2,285

Proceeds from disposal of property and equipment 53,661

2,501

(c) Change in other liabilities

Balance in other liabilities at 31 December 2017 315,251 537,353

Balance in other liabilities at 31 December 2016 (537,353) (652,637)

(222,102) (115,284)

Retirement benefit obligations paid 102,432 172,130

(119,670) 56,846

(d) Proceeds from disposal of investments

Balance on investment securities at 31 December 2017 16,681 -

Balance on investment securities at 31 December 2016 37,574 -

20,893 Profit on disposal of available-for-sale financial assets (see note 10) 15,274 Impairment (write-back)/loss on investments (see note 11) 157

-

36,324 -

(e) Interest received

Interest income (see note 7) 2,605,413 1,997,486

Interest receivable on pledged assets (5,053) (49,673)

Interest receivable on loans (16,003) (15,571)

Interest received 2,584,357 1,932,242

(f) Interest paid

Interest expenses (see note 8) (318,898) (223,480)

Interest payable on borrowings 25,786 10,492

Interest payable on deposits 20,037 15,269

Interest paid (273,075) (197,719)

34 Unclaimed dividends Unclaimed dividends summed up to N63,896,101.91 as at 31 December 2017 (2016: N44,537,224.57). This amount is

made up ofN59,079,612.93 (2016:N35,769,790.30) invested with Stanbic IBTC Asset Management Limited in fixed income mutual funds and N4,816,488.98 (2016: N8,767,434.27) in the custody of CardinalStone Registrars Limited.

N'000 N'000Net investible balance 1 October - 31 December 2017 57,646 34,573Net income earned 1,433 1,196

59,079 35,769

The investment balance of N59,079,612.93 is analysed

35 Fees for non-audit servicesKPMG Professional services rendered the following non-audit services to the Bank:

Service description Fee amount Fee amountN'000 N'000

Tax compliance services 1,210 1,100

1,210 1,100



OVERVIEW

BUSINESS REVIEW




OTHER NATIONAL DISCLOSURES

Value Added StatementsFor The Year Ended 31 December 2017

N'000 % N'000 %Gross earnings 3,654,875 2,925,229

Bought-in-materials and services - local (1,086,597) (794,240)

Value added 2,568,278 100 2,130,989 100

Distribution of value added:To employees- As salaries and other benefits 1,306,773 51 1,008,055 47

To providers of finance - As interests 318,898 12 223,480 10

To the Government - As taxes 187,929 7 248,537 12

Retained in the business - Asset replacement (depreciation) 122,788 5 96,014 5 - Profit to augment reserves 631,890 25 554,903 26

Value added 2,568,278 100 2,130,989 100

2017 2016

This statement represents the distribution of the wealth created with the Bank's assets through its own and its employees' efforts.


OVERVIEW

BUSINESS REVIEW



Financial SummaryAs At 31 December 2017

2017 2016 2015 2014 2013In thousands of naira

Statement Of Financial Position

AssetsCash and cash equivalents 5,752,469 1,889,881 3,054,860 3,054,787 2,477,012Pledged assets 409,674 581,425 583,038 635,090 20,000Loans and advances to customers 9,008,675 9,095,801 7,881,519 6,527,210 5,559,453Investment securities 16,681 37,574 38,154 47,265 61,268Trade and other receivables 172,878 257,545 346,969 194,773 207,530Property and equipment 591,964 499,646 394,070 371,331 355,375Deferred tax assets -

- 35,411

34,733

-

Total Assets 15,952,341

12,361,872 12,334,021 10,865,189 8,680,638

LiabilitiesDeposits from customers 9,126,494 6,792,391 6,610,113 4,803,374 3,858,052Current tax liabilities 146,270 199,571 630,795 213,434 135,024Retirement benefit obligations - - 188,983 282,010 106,449Deferred tax liabilities 61,569 19,910 - - 62,196 Other liabilities 315,251 537,353 - 813,502 602,023Borrowings 1,550,468 349,249 652,637 672,976 - Total Liabilities 11,200,052 7,898,474 8,082,528 6,785,296 4,763,744

Capital And ReservesShare capital 1,143,328 1,143,328 1,143,328 1,143,328 1,143,328Share premium 1,517,485 1,517,485 1,517,485 1,517,485 1,517,485Retained earnings 728,276

506,963

476,216

407,801

301,138

Other reserves 1,363,200 1,295,622 1,114,464 1,011,279 954,943

Total Equity 4,752,289 4,463,398 4,251,493 4,079,893 3,916,894

Total Liabilities And Equity 15,952,341 12,361,872 12,334,021 10,865,189 8,680,638

Statement Of Comprehensive Income

Gross income 3,654,875 2,925,229 2,592,694 1,934,059 1,631,284Profit before taxation 819,819

803,440

688,899

512,076

630,529

Profit after taxation 631,890 554,903 514,598 391,320 475,837

Dividend - 342,998 342,998 342,998 228,666

Basic and diluted earnings per share (kobo) 28 24 23 21 17Dividend per share (kobo) - 15 15 15 10Net assets per share (kobo) 208 195 186 178 171

OVERVIEW

BUSINESS REVIEW




MR. AKINWUNMI LAWAL(Managing Director)

Mr. Akinwunmi Lawal holds a Higher National Diploma in Business Administration from Yaba College of Technology (1996) and MBA in Financial Management Technology from the Federal University of Technology Owerri. He is a fellow of the Chartered Institute of Bankers of Nigeria and Microfinance Certified Banker. He is also a fellow of the Association of Enterprise Risk Management Professional and an Associate of Certified Pension Institute of Nigeria.

He has over twenty-eight years of quality banking experience having previously worked with FSB International Bank Plc. (1987-1993) and United Commercial Bank (1993 -1994). He joined NPF Microfinance Bank Plc over twenty (20) years ago and has served the Bank in various capacities such as Head of Accounts, Head Abuja Liaison Office, Head of Treasury, Head Financial Control and Head Enterprise Risk Management.

Mr. Lawal has attended various local and international banking management and leadership programmes. He is a team player whose experience makes him well suited to play a leading role in repositioning the Bank as a leading Microfinance Bank in the Microfinance sub-sector of the Banking Industry.

Mr. Ohanehi has a Bachelor of Science Honours Degree in Biochemistry from Imo State University in 1990. He has PGDM (2000) and MBA (2002) from University of Calabar. He is a fellow of the Chartered Institute of Stockbrokers (FCS) and Associate member of the Nigeria Institute of Management, Certified Pension Institute of Nigeria (CPIN).

Mr. Jude worked with DBL Beverages Ltd as Production Manager up to 1993 before joining the Bank. As one of the pioneer staff of NPF Microfinance Bank Plc, Mr. Ohanehi has worked in all the department of the Bank and has attended various local and foreign professional courses. He headed our Abuja Branch Office before becoming the Head of Finance & Administration Department. As a dealing Clerk of the Nigeria Stock Exchange, he was instrumental in listing the shares of the Bank at the exchange. He is a CBN certified Microfinance Banker and currently the Executive Director, Operations.

Mrs. Osaro Idemudia holds an LLB degree obtained from the University of Benin in 1990 and was conferred with a BL certificate in 1991, having passes her Law School examinations. An Experienced and versatile corporate Lawyer, Mrs. Idemudia has trained with Thomas & Co (Legal Practitioners). She has 25 years working experience beginning with her national youth service at the Corporate Affairs Commission, Abuja (1992) and NPF Microfinance Bank (1993 to date) where she has served as the Head, General Services overseeing the Administration and Personnel Department of the Bank, the Secretary to the Board and Legal Adviser to the Bank.

Before joining the Bank in 1993, she was a legal/ Credit Officer at Falcon Mortgage Bank Limited, Ikeja. Mrs. Idemudia is a member of the Nigeria Bar Association (NBA), Society for Corporate Governance, Nigeria Institute of Management, a fellow of the Association of Enterprise Risk Management Professionals and also a CBN Certified Microfinance Banker. She is currently the Company Secretary/ Legal Adviser.

MR. JUDE C. OHANEHI(Executive Director, Operations)

MRS. OSARO JOSEPHINE IDEMUDIA

(Company Secretary)

Management Team


OVERVIEW

BUSINESS REVIEW



Mr. Nelson obtained a Post Graduate Diploma (PGD) and MBA in Accounting from Nnamdi Azikiwe University in year 2000 and became a Fellow of the Chartered Institute of Taxation in 2006. He is a fellow of the Institute of Chartered Accountants of Nigeria and a CBN Certified Microfinance Banker. Mr. Nelson has extensive working experience in both Manufacturing and Finance Company. He worked as Associate Consultant with FC & Associate (Financial Management Consultant) from 1996 – 1999, Assistant Manager (Audit) with Achike Emejulu & Co (Chartered Accountants) from 1994 – 1996 and Assistant Manager (Accounts Department), Occidental Finance & Securities Limited 1993 – 1994. He Joined NPF Microfinance Bank Plc in 1999. He is currently the Executive Director Finance & Administration Department of the Bank.

MR. FRANCIS C. NELSON(Executive Director Finance & Administration)

Mr. Wosu holds a Higher National Diploma in Business Administration from Yaba College of Technology in 1996 and a post Graduate Diploma in Banking and Finance from University of Ado Ekiti in 1999. He also obtained a Masters Degree in Economics from Lagos State University in 2006. He is an Associate member of the Chartered Institute of Bankers of Nigeria, Nigeria Institute of Management (Chartered), Certified Pension Institute of Nigeria (CIPN), Nigeria Institute of Cost Management and he is a CBN Certified Microfinance Banker.

Mr. Wosu started his banking career in Crystal Bank of Africa Limited in 1992. He joined NPF Microfinance Bank Plc in 1999. He is currently the Head of Credit/ Operations Department

MR CHIMA WOSU(Head, Credit/Operations)

MR. OLUSEGUN OSISANYA(Head, Enterprise Risk Management)

Management Team OVERVIEW

BUSINESS REVIEW




He is a graduate of Business Administration (1996) from Yaba College of Technology as well as holder of Masters of Business Administration Degree (2012). Mr. Osisanya is an Associate member of the Institute of Cost Management, Associate Business Continuity Professional. He is a member of Global Association of Risk Management Professional, Doctoral Fellow- International Certified Risk Management Professionals United Kingdom, Fellow - Chartered Institute of Loan & Risk Management of Nigeria and Fellow- Association of Risk Management professional Nigeria. He is also a Certified Microfinance Banker.

Mr Osisanya acquired his banking experience from the National Bank of Nigeria Limited (1984 - 1990) and Broad Bank of Nigeria Limited (1990-1997) where he worked for six (6) years and seven (7) years respectively. He has also worked for Kenadeb Ventures Limited (1997-2002) as a senior consultant before joining the Bank in 2002. He is currently the Head, Enterprise Risk Management Department.

Management Team

MR. HABEEB YUSUF(Head, Administration)

MR. FIDELIS OMOKHAPUE (Head, Internal Audit)

Mr. Omokhapue is a graduate of Banking and Finance from Olabisi Onabajo University, Ago-Iwoye, Ogun State and also holds M.Sc. Degree in Management from the University of Lagos. He is a fellow of the Chartered Institute of Accountants of Nigeria and an Associate member of the Chartered Institute of Bankers of Nigeria. He is also an Associate of the Chartered Institute of Taxation of Nigeria and a Certified Microfinance Banker.

Mr. Omokhapue worked in the Banking and Financial service industry for a period spanning over 8 years before joining the Bank in 2005. He is currently the Head of Internal Audit Department.

Mrs. Hasfat Ekutti holds a B.sc in Computer Science from University of Ilorin in 1999 and also a PGD in Education from University of Lagos. She also has certifications in ITIL and COBIT5. She has attended various courses on Microsoft server & Exchange as well as SQL Database Administration.

She previously worked as a Computer Instructor in Nigeria Military School, Zaria (1999) as well as in the Nigeria Police Force Education Unit (2001- 2005) Prior to joining NPF Microfinance Bank Plc 12 Years ago. She has served the Bank majorly in the Information Technology Department. She is currently the Head of Information Technology Department.

MRS. HAFSAT EKUTTI (Head, Information Technology)

Mrs Fatima Olajumoke attended the prestigious Secondary School Queen's College Yaba Lagos. She holds a B.SC degree in Accounting from the university of Jos ,Plateau state in 1998,and an MBA in Finance from Ladoke Akintola university of Technology in 2010.

She is a CBN Certified Microfinance Banker and an Associate Member of the Nigerian Institute of Management. She is also a Fellow Member of the National Institute of Marketing of Nigeria and Association of Economists and Statisticians of Nigeria.

Mrs Fatima Olajumoke has over 17 years working experience beginning with her National Youth Service at Akintola Williams Adetona /Isichie and co. and thereafter worked with Basic Komputers before joining the Bank in 2002.

She was the former Branch Manager at Ikeja branch and presently the Head, Marketing Department of the bank. She has attended various Managerial and Marketing Courses amongst which are trainings organised by CBN/AFOS/MicroSave on Savings Mobilisation and Digital Financial Services, and Lagos Business School on Executive Sustainability and Social Impact Assessment training. She has been in the fore Front Promoting and Coordinating the Financial Inclusion policy of CBN and the Government in the bank

MRS. FATIMA OLAJUMOKE (Head, Marketing)

He is a graduate of Banking & Finance from Kwara State Polytechnic, Ilorin (1995). He is an Associate member of the Institute of Chartered Accountant of Nigeria (ICAN) and a CBN Certified Microfinance Banker. He is also an Associate member of Nigeria Institute of Management.

Mr. Habeeb joined the service of the bank in 1998 as an Assistant Officer and rose through the ranks. He was Branch Manager of Abuja Main branch and Kano branch at various times. He is currently, the Head of Administration.


OVERVIEW

BUSINESS REVIEW



MR. JOHN KWABE TIZHE (Regional Head, North)

Mr. John Kwabe Tizhe graduated from the Federal University of Technology, Yola with a Bachelor of Technology Degree in Operations Research in 1992. An Associate of the Chartered Institute of Administration (1998) and a CBN Certified Microfinance Banker. Mr. Tizhe also passed the Certified Information Systems Auditors (CISA) AND Certified Information Technology Infrastructure Library in 2007. He has worked as Superintendent of Insurance at First Continental Insurance Co. Limited (1996-1997) before joining the Bank in 1999. He is currently the Regional Head, North.

Mrs. Kate Nkechi Ukak is a holder of the Higher National Diploma in Agriculture from the Federal soil Conservation School, Jos (1990). She joined NPF Microfinance Bank Plc in 1993 as a Management Trainee from which level, she has had a remarkable development and growth. She also holds a (PGD) in Business Management as well as an (MBA) in Human Relations Management. She is the Regional Head, East.

MRS KATE NKECHI UKAH(Regional Head, East)

(Regional Head, South)

Mr. Komolafe, before joining NPF Microfinance Bank Plc as Officer in 1999, had over thirteen (13) years working experience in commercial Banking. He is a Fellow of the Chartered Institute of Bankers and a CBN Certified Microfinance Banker. He has a MBA degree and has worked at various capacities. He is currently the Regional Head, South.

MR. KOMOLAFE SOLOMON OLADAPO

Management Team OVERVIEW

BUSINESS REVIEW





Branches

OBALENDE1B Ikoyi Road Obalende -Lagos Tel:08074550527Branch Manager:Mr. Mathew Adejugba

IKEJA Police CollegeOba Akinjobi Road Ikeja - Lagos Tel: 08074550262 08074550294Branch Manager:Mrs. Agnes Ogini

ABUJA MAINPLOT 1469 Ahmadu Bello WayGarki - AbujaTel: 08074550554 08074550565Branch Manager:Mr. Sunday Zovoe

ABUJA 2Powa Shopping ComplexLadoke Akintola Boluevard AbujaTel: 0807-4550-512 0807-4550-510Branch Manager:Mrs. Nafisat Bello

PORT HARCOURTOld Aba Road Beside Mini Okoro Police Station Rumuogba Rivers StateTel: 08074550307 08074550331Branch Manager:Mr. Andrew Diji

KANOMission Road Beside Bompai Police StationBompai - Kano StateTel: 08074550354 08074550366Branch Manager:Mr. Kabir Audi

OSOGBOOsogbo-Ilobu Road OkefiaBeside Fire Service Osogbo- Osun StateTel: 08074550372 08074550374Branch Manager:Mr. Sunday Ibitoye

BENINArea Command Sapele Road Benin City -Edo StateTel: 08074550408 08074550415Branch Manager:Mrs. Betty Omonhigbo

SOKOTOSultan Abubakar Road Old Police Command Sokoto StateTel: 08074550419 08074550429Branch Manager:Mr. Isah Ahme

ONITSHAEnugu RoadBy Area Commander Office Opposite Court Road Onitsha - Anambra StateTel: 08074550443 08074550439Branch Manager:Mr. Dominic Enudi

AKUREOpposite Government HouseBeside Police Officers' Mess Adekunle Ajasin Road Akure - Ondo StateTel: 08074550469 08074550476Branch Manager:Mr. Williams Ogun

LOKOJACity Plaza Along Ibrahim Taiwo Road Opposite Bishop Delisle College Lokoja - Kogi StateTel: 08074550480 08074550495Branch Manager:Mr. Isiaka Ameh

YOLAPowa Shopping Complex Galadima-Aminu Way JimetaYola - Adamawa StateTel: 08074550387 08074550598Branch Manager:Mr. Haruna Yusuf

BAUCHIPowa Shopping ComplexYandoka Road BauchiTel: 08074550879 08074550966Branch Manager:Mr. Jibrin Tijani

LAFIABaba Ajuji HouseJos RoadLafia - Nassarawa StateTel: 08074604394 08074604089Branch Manager: Mr. Stanley Aligbe

ENUGUSuite A6B Bethel Plaza Garden AvenueEnugu - Enugu StateTel: 08074550966Branch Manager:Mr. Ben Iwebi

KADUNAIndependence WayPolice College Kaduna StateTel: 08033203644Branch Manager:Mr. Aminu Abdulmalik

OJI RIVERPolice College Oji RiverTel: 08077603201Branch Manager:Mr. Chukwudi Jonas

ABEOKUTA40 Isabo Road Kuto MarketGreat Grace Building Near Oba Lipede Ultra-Modern Market Abeokuta Ogun StateTel: 08077410877Branch Manager:Mr. Abiodun Olajuwon

IBADAN125 Magazine RoadJerichoIbadanTel: 08077410630Branch Manager:Mrs. Biodun Philips

IKORODUNO.2 Ayangburn Road IkoroduTel: 08077411184Branch Manager:Mrs. Elizabeth Idenyenmin

TEJUOSHOSHOP S-152, Tejuosho Ultra Modern Shopping Centre Ojuelegba Road Opposite Diamond Bank Yaba-Lagos.Tel: 08077410700Branch Manager:Mrs. Yetunde Babarinde

ABANO.105 Jubilee Road AbaTel: 08077411103Branch Manager:Mr. Godson Eke

ASABA"A" Division Police Area Command Asaba-Delta StateTel: 08077411114Branch Manager:Mr. Abani Samuel

CALABARNO.123 Goldie StreetOff AmikautuCalabar- Cross RiverTel: 08077411272Branch Manager:Mr. Monday Essien

ASWANIGestric Plaza 42 Osolo Way Isolo - Lagos StateTel: 08077411077Branch Manager:Mrs. Grace Egho

PORT HARCOURT 2NO.11B, East-West Road Port Harcourt- River StateTel: 08077411112Branch Manager:Mr. Samson Ojiaku

ONITSHA 2Okey Nwosu Lane Off Okpuno Road (OLD INEC ROAD) Awka-Anambra StateTel: 08077411198Branch Manager:Mr. Toby Ekwere

To receive the Audited Financial Statements for the period ended December 31, 2018, and the Reports of the Directors, Auditors and Audit Committee thereon.

To declare a dividend.

To authorize Directors to fix the remuneration of the Auditors.

To elect members of the Audit Committee.

NPF Microfinance Bank PlcRC 220824

I/We...................................................................................................................

of.......................................................................................................................

...........................................................................................................................

Being a member of NPF Microfinance Bank Plc, hereby appoints

...........................................................................................................................

...........................................................................................................................

of.......................................................................................................................

Or failing him the Chairman of the meeting as my/our proxy to act and

vote for me/us or on my/our behalf at the Annual General Meeting of

the bank to be held on Thursday 28th June, 2018 or at any adjournment

thereof.

Dated this ...............................................Day of .....................................2018

Shareholder’s Signature..................................................................................

(Affix 10k stamp here and sign across)

Address.............................................................................................................

...........................................................................................................................

Proxy Form

24TH ANNUAL GENERAL MEETINGPLEASE ADMIT ONLY SHAREHOLDER NAMED ON THIS CARD OR HIS DULY APPOINTED PROXY TO THE 24TH ANNUAL GENERAL

MEETING BEING HELD AT BRISTOL PALACE HOTEL, 52-54 GUDA ABDULLAHI STREET,NASSARAWA KANO STATE ON THURSDAY 28TH JUNE, 2018 AT 11.00AM

NAME OF SHAREHOLDER/PROXY:..................................................................................................SIGNATURE..............................................ADDRESS..............................................................................................................................................................................................................

THIS CARD IS TO BE SIGNED AT THE VENUE IN THE PRESENCE OF THE REGISTRAR

This proxy form should be completed and sent to the

company’s registrars: Cardinal Stone Registrars Limited,

358 Herbert Macaulay way,Yaba,Lagos, If the member

will not be attending the meeting the manner in which the

proxy is to be voted should be indicated by inserting ‘x’ in the

appropriate square.

BEFORE POSTING THE ABOVE CARD, TEAR OFF THIS PART AND RETAIN IT ADMISSION CARD

NPF MICROFINANCE BANK PLC (formerly NPF community Bank plc)

1.

2.

3.

4.

5.

RESOLUTIONS FOR AGAINSTTwenty-fourth Annual General Meeting of NPF MICROFINANCE BANK PLC. holding at Bristol Palace Hotel, 52-54 Guda Abdullahi Street,Nassarawa Kano State on Thursday 28th June, 2018 at 11.00am


(I) To Elect the following Directors as Non-Executive Directors;

a. Mr. Salihu Argungu Hashimu b. Mr. Abdulrahman Satumari -Independent Director c. Mrs. Rakiya Edota Shehu -Independent Director

(ii) To Approve the appointment of the following Non-Executive Directors; a. Mr. Olusholla Babajide David b. Mr. Jibrin Garba Gane

(iii)To Approve the appointment of Mr. Francis Chukwuemeka Nelson as Executive Director

(iv)To Re-elect the following Directors retiring by rotation; a. Prince Ifeanyi Eke b. Mr. Mohammed Dantsoho Saeed

Special Business 6. To fix the remuneration of the Directors

REGISTRARCARDINAL STONE REGISTRARS LIMITED358 HERBERT MACAULEY WAY,YABALAGOS.


SHAREHOLDER’S FULL NAME:

(Surename First)

ADDRESS

SIGNATURE: (1) ______________________ (2) ______

STOCKBROKING FIRM

CSCS ACCOUNT NO (CHN)

GSM NUMBER:

ADDRESS

For Stockbrocker Use Only

____________Official Stamp and Authorised Signatures

We agree to the customer’s request as stated above

Passport photograph

Mandate For e-BonusNPF Microfinance Bank Plc

RC 220824

.................................................................................................................................................................................................................................................................................................................................................................................................................................

TO:

The Registrar

Cardinal Stone Registrars Limited.

358 Herbert Macauley Way,

Yaba,

Lagos.

Please credit my account in Central Securities and Clearing System (CSCS)

with the bonus due to me from my holdings in NPF Microfinance Bank Plc

using the information below:

E-MAIL ADDRESS


npf 2017 annual report cover approve final final · npf microfinance bank plc 2017 annual report +...

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