npf microfinance bank plc 2018 annual report & accounts · npf microfinance bank plc 2018...

NPF Microfinance Bank Plc 2018 Annual Report & Accounts 03

Board Of Directors 019

Directors’ Report 023

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

04-014

030-044

050-054

112-122

019-023Corporate Governance Report 030

AML/CFI Frame Work 040

Statement Of Directors’ Responsibilities 041

Board Evaluation Report 042

Report Of Audit Committee 043

Independent Auditor’s Report 044

Statement of Financial Position 050

Statement of Comprehensive Income 051

Statement of Changes In Equity 052

Statement of Cash Flows 053

Notes To The Financial Statement 054

Value Added Statement 112

Five-Year Financial Summary 113

Management Team 114

Branches 118

Proxy Form 120

Mandate For E-Dividend Payment 122

O N T E N T S

Vision

Mission

BRAND PLATFORM

04 2018 Annual Report & Accounts NPF Microfinance Bank Plc

To be the clear leader in the provision of microfinance services.

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


FINANCIAL HIGHLIGHTS As At 31 December, 2018

2018N'000

%Change

Increase/(Decrease)

2017N'000

- - - - -

Interest incomeInterest ExpenseNet Interest IncomeFee and Commnission incomeOther income or LossNet impairment loss/write -back on financial and other assetsNet Operating IncomeTotal operating ExpensessProfit before taxationTax ExpenseProfit for the yearOtherComprehensive income for the year, net of TaxTotal Comprehensive income for the year

Major Financial Position itemsLoans and receivables fromcustomersDeposits from customersOrdinary Share CapitalTotal EquityTotal Assets

Information per 50K Ordinary Share in KoboEarnings;BasicDividend Net AssetsTotal AssetsNumber of employeesNumber of branches

2,960,525 (430,021)

2,530,504 733,560 256,292

(446,749) 3,520,356

(3,233,201) 287,155 (91,406) 195,749

(2,405) 193,344

10,593,635 10,465,119

1,143,328 4,646,591

17,597,552

95

203770374

28

2,605,413 (318,898)

2,286,515 779,878 269,584

(184,927) 3,335,977

(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

13.6334.8510.67-5.94-4.93

141.585.53

28.50-64.97-51.36-69.02

-100.00-69.40

17.5914.67

0.00-2.2210.31

-67.86-70.59

-2.4010.3219.11

0.00

CORPORATE INFORMATION


DIRECTORS:

--------

-

MANAGEMENT

AUDITORS: REGISTRARSCOMPANY SECRETARY:

Mr. Azubuko Joel Udah (Esq.)Mr. Akinwunmi M. LawalMr. Jude C. OhanehiMr. Francis C. NelsonMr. Mohammed D. SaeedMr. Jibrin G. GaneMr. Abdulrahman SatumariMr. Salihu Argungu HashimuMrs. Rakiya Edota ShehuMr. Usman Isa babaMr. Dasuki D. Galadanchi

Chairman Managing DirectorExecutive DirectorExecutive DirectorNon-Executive (Independent) DirectorNon-Executive DirectorNon-Executive (Independent) DirectorNon-Executive DirectorNon-Executive (Independent) DirectorNon-Executive DirectorNon-Executive Director

Mr. Akinwunmi M. LawalMr. Jude C. OhanehiMr. Francis C. Nelson Mrs. Osaro J. IdemudiaMr. Chima WosuMr. Segun Osisanya Mr. Fidelis OmokhapueMrs. Yetunde BabarindeMrs. Hafsat Ekutti Mrs. Fatima OlajumokeMr. John K. Tizhe Mr. Solomon O. KomolafeMrs. Kate N. Ukah

Managing DirectorExecutive Director, OperationsExecutive Director, Finance & AdministrationCompany Secretary/Legal AdviserHead, Credit/OperationsHead, Enterprise Risk ManagementHead, Internal AuditHead, AdministrationHead, Information TechnologyHead, Marketing Regional Head, NorthRegional Head, SouthRegional Head, East

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

REGISTERED OFFICE CORRESPONDENT BANKS

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

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

First Bank of Nigeria PlcMoloney Branch28 Berkley StreetLagos.

Sterling Bank Plc198 Igbosere Road Lagos.

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

United Bank for Africa Plc1 St. Gregory StreetObalendeLagos.

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NOTICE OF ANNUAL GENERAL MEETING


NOTICE IS HEREBY GIVEN that the Twenty-Fifth Annual General Meeting of NPF MICROFINANCE BANK PLC. will hold at Ibom Hotel and Golf Resort, Nwaniba Road, Uyo, Akwa Ibom State on Thursday 25th July, 2019 at 11:00a.m. to transact the following business:

ORDINARY BUSINESS

1. To receive the Audited Financial Statements for the period ended December 31, 2018 together with the Reports of the Directors, Auditors and Statutory Audit Committee thereon,

2. To declare a dividend

3. (i) To re-elect the following retiring Directors;

Mr. Mohammed D. Saeed Mr. Azubuko Joel Udah Mr. Jibrin Garba Gane

(ii) To approve the appointment of the following Directors; Mr. Dasuki D. Galadanchi Mr. Usman Isa Baba

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

5. To elect members of the Audit Committee

SPECIAL BUSINESS

6. To consider and if thought fit pass the following as an ordinary resolution: ‘’That the directors' annual fees for the year ending 31 December 2019 be and is hereby fixed at N25,000,000.00’’.

7. To consider and if thought fit pass the following as an ordinary resolutions:a. ‘’That the Directors of the Company be authorised to offer to the general public and any other investor

3,000,000,000 units of its authorised share capital by a combination of Rights Issue and Public Offer on a date and at a price to be determined by them, subject to the approval of the Regulatory authorities’’.

b. ‘’That the Directors of the Company be and are hereby authorised to allot the shares on offer in line with regulatory requirement’’.

c. ’’That the Directors of the Company be and are hereby authorised to take all necessary steps and do all that is required to list the new shares of the Company on the floor of the Nigeria Stock Exchange at a date to be determined by them’’.

8. To consider and if thought fit pass the following as Special Resolution:- That Clause 28(a) of the Bank's Articles of Association be amended by deleting that clause and replacing it as

follows;

‘’The quorum necessary for the transaction of the business of the Board shall be seven (7)’’.

9. To consider and if thought fit pass the following as Special Resolution:-

08 2018 Annual Report & Accounts


NPF Microfinance Bank Plc

That a new clause 27 (b) be include in the Articles of Association as follows;

“Any Director may validly participate in Board meetings by conference telephone or other forms of communication equipment provided all persons participating in the meeting are able to hear and speak to each other throughout the meeting. A person so participating shall be deemed to be present in person at the meeting and shall accordingly be entitled to vote and counted in deciding if there is a quorum. Such meeting shall be deemed to take place where the largest group of those participating is assembled or where the chairman of the meeting is seated".

PROXY

A 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 Registrars, Cardinalstone Registrars Ltd, No. 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.28th May, 2019

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 25th July, 2019to Shareholders' whose names are registered in the Register of Members at the close of business on Friday 5th July, 2019.

(2) CLOSURE OF REGISTER The Register of Members and Transfer Books will be closed from Monday 8th July to Friday 12thJuly, 2019

(both days inclusive) to enable the Registrar prepare for payment of dividend.

(3) UNCLAIMED DIVIDEND WARRANTS Some 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 dividend canalso be accessed at the Registrar's office or via the Company's website www.npfmicrofinancebank.com.

(4) STATUTORY AUDIT COMMITTEE In 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.



5) E-ANNUAL REPORT The electronic version of the Annual Report is available at www.npfmicrofinancebank.com Shareholders

who have provided their email details to the Registrar will receive the electronic version of the Annual Report via email. Additionally, shareholders who are interested in receiving the electronic version of the Annual report may request via e-mail to registrars@ cardinalstone.com.

(6) BIOGRAPHICAL DETAILS OF DIRECTORS The profile of all Directors submitted for election or re-election are contained in the Annual Report.

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

prior to the meeting on any item contained in the Annual Report and Accounts. Such questions should be addressed to the Company Secretary, NPF Microfinance Bank Plc, Aliyu Atta House, No. 1 Ikoyi Road, Obalende, Lagoson or before 16th July, 2019.

CHAIRMAN’S STATEMENT

Azubuko Joel Udah ESQ. NPM mni DIG (Rtd)

Chairman


Distinguished Shareholders, representatives of regulatory agencies present, members of the Board of Directors, esteemed Ladies and Gentlemen. It is with great pleasure that I welcome you all to the 25th Annual General Meeting of NPF Microfinance Bank Plc holding in the Land of Promise: Akwa Ibom State, Nigeria.

I am honoured to present to you the Financial Statements and Reports for the financial year ended 30th December, 2018 together with a review of the performance of our Company during this period.

In line with the dictates of my office, I will give a n o v e r v i e w o f t h e m a c r o e c o n o m i c environment, our financial score card and conclude with our outlook for 2019.

MACROECONOMIC REVIEWIn year 2018, the business and economic space was characterised by several challenges and accomplishments. Investors had to contend w i t h t h e c o n s t r a i n t o f t h e b u s i n e s s environment such as high interest rate, weak GDP Growth, deficient infrastructure, epileptic power supply and insecurity in some parts of the country. However, Nigeria remains a potentially robust economy with a large market, abundant natural resources and a productive population.

According to the statistics released by the National Bureau of Statistics (NBS) the Gross Domestic Product (GDP) shows that the Nigeria economy grew by 1.93% in 2018 from 0.82% recorded in 2017. The growth performance of the economy was impacted by the dynamics of crude oil price in the international commodities market and domestic oil production.

The oil sector recorded a real GDP growth rate of -1.62% (year-on-year) in Q4 2018, indicating a decline of -12.81% points relative t o t h e g r o w t h r a t e r e c o r d e d i n t h e corresponding quarter of 2017. However, when compared to Q3 2018, growth increased by 1.29% points. On an annual basis, real GDP growth for the oil sector stood at 1.14% as against 4.69% recorded in 2017.

The Bank in the year under review changed her Banking Software to a new Core Banking Software (T24) u n d e r t h e N a t i o n a l Association of Microfinance Banks Unified Integration T e c h n o l o g y P l a t f o r m (NAMBUIT) of the Central Bank of Nigeria (CBN).


CHAIRMAN’S STATEMENT CONT’D

Also, the non-oil sector grew by 2.70% in real terms during the fourth quarter of 2018. This is 1.25% points higher than the growth rate recorded in Q4 2017, and 0.38% points higher than the growth rate recorded in Q3 2018. On an annual basis, the non-oil sector recorded a growth rate of 2.00% in 2018, performing considerably better than 0.47% seen in 2017. According to the NBS, the non-oil sector was mainly driven by Information and communication sector due to the steady growth in the number of subscribers while other drivers includes; agriculture, manufacturing, trade, transportation, scientific and technical services.

Despite exchange rate depreciation projected by some analyst, the Exchange rate was relatively stable in 2018 in different segments of the FX market. At the parallel market, the naira hovered

within the band of N361/$ - N363/$; and at the Investors & Exporters FX window, the naira traded within the tight band of N360.95/$-N363.32. Higher oil prices and stable local production levels of crude oil restored calm in the forex market.

The Central Bank of Nigeria (CBN) consistently intervened in the foreign exchange market in 2018. As at 28th May, 2018 the CBN increased its frequency of sales to Bureau De Change to three times weekly and further instructed authorised dealers to continue to provide foreign currencies for invisible transactions over the counter. This and

other interventions put pressure on the country's external reserves which dropped from $47.5 billion in July 2018 to $43 billion as at 20th December 2018.

The increasing pressures on the nation's currency may not be unconnected with the sell-off in fixed income securities and equities by foreign investors resulting from the rising rates in advanced economies. However, the reserves were still robust enough to support the nation's international trade transactions.

The Monetary Policy Committee (MPC) of the CBN at its 2018 meetings consistently left the Monetary Policy Rate (MPR) and other parameters unchanged. The MPC cited factors such as slow recovery in the economy, rising inflation rate, late implementation of 2018 budget, rising level of non-performing loans

in the banking system, weakening demand and consumer spending, and expected minimum wage increase as reasons for retaining a tightening monetary policy stand.

Access to and high costs of funds remain a big issue for many domestic investors, although the efforts of government through the CBN, Bank of Industry (BOI) and Development Bank of Nigeria (DBN) are noted in the extension of intervention funds to business owners particularly MSME. However there are still pockets of issues with access to funds.




CHANGE IN CORE BANKING SOFTWAREDuring the year, we continued our quest to improve our service offerings in order to grow the position of the Bank in line with our vision which is to be the clear leader in the provision of microfinance services.

The Bank in the year under review changed her Banking Software to a new Core Banking Software ( T 2 4 ) u n d e r t h e N a t i o n a l A s s o c i a t i o n o f Microfinance Banks Unified Integration Technology Platform (NAMBUIT) of the Central Bank of Nigeria (CBN).

The NAMBUIT Project is a tripartite partnership involving the CBN, Inlaks (the service provider) and the National Association of Microfinance Banks with the aim to deploy a single core and agent banking solution for microfinance Banks in Nigeria. The project is to spur significant growth in the microfinance sector by improving access to accurate, timely operational and financial reports.

Our Bank was nominated by the CBN for the pilot implementation program on the software by reason of her leading position in the Microfinance space. However, the deployment of the T24 Core Banking Software was marked with various challenges, significant of which was the late filling of quarterly returns including the Audited Financial Statements to regulatory agencies. The Bank is still grappling w i t h s o m e o f t h e s e c h a l l e n g e s a n d t h e enhancement of capabilities in-house to handle this in order to enjoy the benefits attributable to this software.

FINANCIAL SCORECARDA review of the financial results shows that our Gross earnings for the year grew by 8%

We also closed the year with an improved balance sheet position as Total Assets increased by 10% from N15.9Billion in 2017 to N17.5Billion while the Loans and Advances grew by 16.7% to close at N10.5Billion from N9Billion in 2017.

Customer's Deposits, slightly improved from N9.1B to N10.4Billion indicating sustained depositors' c o n f i d e n c e i n o u r f i n a n c i a l s t r e n g t h a n d

management.

However, the Bank recorded a Profit Before Tax of N287.1million as against N819.8million in 2017 representing a decrease of 65%.The implementation of the IFRS 9 standards and a fraud of N266,480,000 recorded in the reporting period accounted for the decrease in the Profit Before Tax as seen above. As at date the Bank has recovered the sum of N35,500,000 out of the fraud amount while the remaining balance has been fully written off during the financial year.

We are optimistic that the Bank's performance will improve in the coming year as the Board and

Management has taken steps to strengthen the Bank's key control policies and procedures.

DIVIDENDNotwithstanding the Bank's performance for the period under review, NPF Microfinance Bank remains committed to delivering returns to our valued shareholders. Consequently, the Board of Directors has proposed a dividend of 5k per share subject to withholding tax. This represents a decrease of 71% over the 17k paid in 2017 and amounts to dividend appropriation of N114m resulting in a pay-out ratio of 58% on Profit After Tax.

BOARD OF DIRECTORSIn the year under review, Mr. Abdulrahman Satumari and Mr. Salihu Argungu Hashimu joined the Board in June, 2018 to fill the vacancy created by the exit of Mr. Emmanuel C. Wabali and the death of Mr. Audu Abubakar respectively. Mrs Rakiya Edota Shehu was also appointed in line with regulatory requirement to have a female representative on the Board. These appointments have been approved by the Central Bank of Nigeria.

During the current year Prince Ifeanyi Eke retired from the Board on 30th March, 2019 after Nine (9)

N3.9billion

N3.6billionfrom

to in 2018

in 2017



years of dutiful service to the Bank. Mr. Olusholla Babajide David also resigned from the Board following his redeployment from the Nigeria Police Cooperative Multipurpose Society Ltd which he represented on the Board.

On behalf of the Board and Management I would like to express my gratitude to Prince Ifeanyi Eke and Mr. Olusholla B. David for their immense support and contribution to the growth of the Bank.

The Board also appointed Mr. Usman Isa Baba and Mr. Dasuki D. Galadanchi to fill the vacancy created by the exit of Prince Ifeanyi Eke and Mr. Olusholla B. David respectively. Their appointments will be presented to Shareholders at this meeting for approval.

STRATEGIC PLANSYear 2018 marked the end of the three (3) years strategy which commenced in 2016. Plans for the next three years (2019-2021) have been put in place to position the Bank to new heights in the provision of microfinance services.

To propel our strategy, we consider it vital to recapitalise by raising more funds from existing shareholders and inviting new investors to have a stake in our Bank. The Bank will also leverage on technology through alternative banking channels to increase her market share significantly by growing organically, the number of our customers.

In a bid to make our services available to the entire public, the Bank will also open more business offices within densely populated areas to serve low income earners thus deepening financial inclusion and serving our primary constituency; the Police Force.

Although, expanding our loan portfolio is part of our long term growth agenda, we are however committed to assessing and limiting concentration risks in this regard.

As we implement the three years strategic plan, we remain confident that achieving the strategic goals will further cement the Bank's position in the microfinance sector as a formidable player.

FUTURE OUTLOOKThe economic and political landscape remains challenging in 2019 as investment inflows and revenue generation are projected to drop further in

the year. Nevertheless, our investment in people, processes and Information Technology is expected to improve profitability and create value for our shareholders in the year ahead.

We are also confident that diligent implementation of our three (3) year strategic plan and the strategies being adopted by the Board and Management to resolve the various challenges posed by the Core Banking Software (T24) will result in better performance in the year ahead.

Our resolve to undertake a share issue to further drive the Bank's expansion plans will certainly be realised at an appropriate period in year 2019. In addition, we will continue to improve on our internal control process to enable the Bank manage its risk effectively.

The Board will maintain focus in its pursuit of shareholder value and continue to provide the stability and strategic direction the Bank requires to deliver operational excellence in our bid to become the clear leader in the provision of microfinance services.

APPRECIATIONI would like to use this opportunity to thank you our distinguish shareholders for your unwavering support and commitment over the past years. No doubt 2018 has been a challenging year for the Bank. I also wish to extend my sincere appreciation to our regulatory bodies for their invaluable support throughout the year.

Finally, I thank my fellow Directors, the management team and our hardworking employees for their unrelenting dedication and commitments to the Business of the Bank. I thank you for your hardwork and team spirit that saw the Company through this challenging period.

Thank you.

Azubuko Joel Udah Esq NPM, mni (DIG Rtd)Chairman, Board of Directors

Dear Shareholders,It's with great pleasure that I welcome you to the epoch making event of our 25th AGM. It has been a story of mixed grill but above all, we are confident of rising above the challenge and with strong assurance of maintaining a high value for your investment. The year 2018 was highly undulating, with Central Bank of Nigeria keeping all the indices of Monetary Policies unchanged while the constant intervention at the various foreign exchange markets by the same regulator saw decline in the country's foreign reserve. Since 2018 was also the end of our Strategic Plan, I will carefully state under how the Board and Management have kept faith with our set targets.

OPERATING RESULTSThe bank's total asset increased by 10.31% from

The loans and advances improved by 17.59% from N9.008B to N10.593B (2018). This gives credence to our continued support to the business of our customers. The deposit liability moved from N9.126B to N10.465B showing a growth of 14.67% which indicated the continued growth of our customer's trust and confidence in our mission.

Our borrowings from various intervention funds increased by 34.08% from N1.550B to N2.078B and this is accountable for the increase in interest expenses by 34.7%.

In terms of our earnings, the Bank realised a gross earning of N3.950B in 2018 as against N3.654B in 2017 representing a growth of 8.09%. Net interest income improved by 10.67% from N2.286B in 2017 to N2.530B in 2018. With the addition of other Fee Income and Commission income, the Net operating income increased marginally by 5.53%.


Akinwunmi LawalManaging Director/Chief Executive

Officer

MANAGING DIRECTOR/CHIEF EXECUTIVE OFFICER’S REPORT


The bank's total asset increased by 10.31% from N15.952B (2017) to N17.597B.

T h e l o a n s a n d a d v a n c e s improved by 17.59% from N9.008B to N10.593B (2018). This gives credence to our c o n t i n u e d s u p p o r t t o t h e business of our customers.

N15.952Billion

N17.597Billion

in (2017) to



The Total operating expenses increased by 28.5% from N2.516B to N3.233B. This in the main was due to sudden surge in net impairment loss on financial assets arising from the Implementation of IFRS 9 Standard, depreciation as well as increase in administration/general expenses.

Thus, Profit before tax reduced to N287.155M and with a tax provision of N91.406M the bank closed the year with Profit after tax of N195.749M as against N631.890M in 2017.

It is pertinent to state that the profit came down due to a fraud of N266.480M and the initial impact of IFRS 9 which took effect in this accounting year. The fraud has been reported to our regulators and law enforcement agencies. A total of N35.500M has so far been recovered while the balance is still being pursued through all legal means. We are thus confident of recovering the money which has been fully provided for in the financial statements.

Let me also add that it is normal to have an initial significant impact on an organisation's financials with the implementation of IFRS 9. Subsequently, we are sure that the effect in the following year will not be as impactful as this. The IFRS 9 Expected Loss model replaces the IAS 39 incurred loss model which terminated last year 31st December 2017 by regulations.

We have immediately commenced the training of our staff on the methodology of the IFRS 9 model with a view to fortifying ourselves on the rudiment of the new regime to be better able to carry out valuation of our financial assets.

With the above performance, the Bank is recommending a dividend of N114.332M which translates to 5k per share and this means that N81.416M will be transferred to various reserves as there is a need to conserve money for future developmental projects.

We are confident that the coming year will be much better as evidenced in our first and second quarter of 2019 yet to be released.

CHANGE OF SOFTWAREIn order to meet the set targets in our Strategic Plan and working in concert with CBN and the National Association of Microfinance Banks, we changed our Core banking software Financial Solution (FINSOL) to Temenos (T24) under the National Association of Microfinance Banks Unified Integration Technology Platform (NAMBUIT) of the Central Bank of Nigeria (CBN). We were nominated by the CBN to Pilot this Scheme and we are gradually overcoming the initial implementation challenges, we are also confident that the Bank will benefit immensely from the usage

016


2018 Annual Report & Accounts NPF Microfinance Bank Plc

of the Software. However, being a Pilot Scheme, the migration challenges greatly contributed to delayed submission of the audited 2018 financial result. The two episodes of the software change and the c o m m e n c e m e n t o f I F R S 9 f i n a n c i a l a s s e t impairment/valuation meant that extra time was spent to audit the financial account. In the course of this episode, all the regulators and key stakeholders were duly carried along.

Management has also commenced hands on bespoke training of our staff on the T24 processing and procedure with the best hands in the industry. Various levels of training have been arranged for all categories of staff as well as Board members to beef up their capacities.

SERVICE CHANNELSIn our bid to serve our customers more efficiently and with the deployment of T24, we are poised to opening up more service channels to our teeming customers via the use of USSD, Mobile banking and Introduction of Agency banking thereby deepening Microfinance Banking and thus improving Financial Inclusion. These platforms will assist our ATM channels that have been greatly enhanced.

BRANCH NETWORKAdditionally, we have opened 7 new branches this year in Owerri, Uyo, Jos, Minna, Makurdi, Ekiti and Ilorin. In total, the bank now has 35 branches and over 50 meeting points.

We shall continue to deploy more outlets in line with our Strategic Plan and viability remains the major reason for opening these branches in order to diversify concentration risk and render efficient services across the nation, with special interest for our primary constituency the Police force and other customers all over the nation.

STRATEGIC PLANAs mentioned earlier, the former strategic plan with the reporting period ended 2018. The board has approved a new 3 years plan (2019-2021 strategic plan) with very lofty landmarks. The highlights of the new plan are high raising but achievable. It is designed to take the bank to a new height and we are determined to make a success of it. At the heart of the plan is to use technology to render efficient service across board and to grow our numbers. The performance of the plan will continuously be reported to the Board at various quarterly board

committees and full board meetings.

PUBLIC OFFER The Bank has completed plans to undergo the much awaited sale of her shares this year. It is expected that with your approval of the public offer, we shall go ahead in a short while from now to sell our shares to existing and new prospective shareholders after securing the approval of the regulatory authorities. The proceeds will be deployed to beef up our working c a p i t a l , i n f o r m a t i o n t e c h n o l o g y , b r a n c h improvement etc.

It is our hope that the offer will be hugely subscribed as the bank has maintained an unbroken trend of dividend payment for over 20 years.

NEW RELATIONSHIP WITH UBA PLCIt is pertinent to notify you that in addition to First Bank of Nigeria Plc, the bank has fully commenced relationship with United Bank for Africa (UBA) Plc in such a way that our customers can go to any branch of UBA Plc to deposit/withdraw money from their account with NPF MFB Plc.

We shall be relying on the vast number of our correspondent banks branches to reach our numerous customers who are well spread across the country.



APPRECIATIONFinally, I will not end this address without appreciating all our stakeholders especially you our esteemed shareholders for trusting us. It is my sincere promise that we shall continue to improve on the value of your investment despite the challenging competitive environment.I am also indebted to our numerous customers who are the major reason for our existence. I appreciate the regulators, government agencies, our consultants, and our ever supportive Staff and Board members for their understanding and commitment.We will not let you down.Thank you.

Akin Lawal.

STAFF TRAININGAs we plan to increase the presence of the bank using technology as against bricks and mortar, it is in our plan to also pay special interest on staff training. We have selected some of the best training institutions within and outside the country to train our staff in order to sharpen their skill set and equip them with the required knowledge to pilot and execute our strategic plans.

BOARD OF

DIRECTORS


BOARD OF DIRECTORS

MR. AZUBUKO JOEL UDAH (Chairman)

MR. AKINWUNMI LAWAL

(Managing Director)

Mr. Azubuko J. 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 (30) 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-four (24) 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.


BOARD OF DIRECTORS

MR. FRANCIS CHUKWUEMEKA NELSON

MR. MOHAMMED DANTSOHO SAEED

(Independent Non-Executive Director)

Mr. Nelson hails from Anambra State. He was born into the family of Ndefo Nelson on 10th March, 1964. He obtained a Post Graduate D i p l o m a ( P G D ) a n d M B A i n 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 ( 2 0 0 6 ) a n d a C B N C e r t i f i e d Microfinance Banker. Mr. Nelson has extensive working experience in both Manufacturing and Finance Company before joining the Bank. H e w o r k e d a s a n A s s o c i a t e Consultant with FC & Associate (Financial Management Consultant) f r o m 1 9 9 6 - 1 9 9 9 , A s s i s t a n t Manager (Audit) with Achike Emejulu & Co (Chartered Accountants) from 1994 - 1996, Manager (Accounts D e p a r t m e n t ) , S w i s s - N i g e r i a 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.

(Executive Director Finance & Admin)

Mr. Ohanehi has a Bachelor of S c i e n c e H o n o u r s D e g r e e i n 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).

M r . J u d e w o r k e d w i t h D B L 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.

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

Mr. 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, E l e c t r i c a l a n d E c o n o m i c s respectively. He has vast experience in international Business Relations and Social Development Functions.

He is the Chairman of Siccon Group o f C o m p a n i e s c o m p r i s i n g o f Southbridge Integrated Service Limited, Northgreen Services Limited, Westwood Motors Limited, Northgreen Bureau De Change and Siccons Limited. He is equally the f o u n d e r o f T o w e r A s s e t s Management Company and a council m e m b e r , F e d e r a l C o l l e g e o f Education, Yola. He is the Chairman, G o v e r n a n c e & R e m u n e r a t i o n Committee as an Independent Non-Executive Director.


BOARD OF DIRECTORS

(Non-Executive Director)

MR. JIBRIN GARBA GANE

Mr. Jibrin Gane was born on 27th O c t o b e r , 1 9 6 6 i n D a s s L o c a l 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 h a s w o r k e d i n d i f f e r e n t P o l i c e 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.

Representing the Police Multipurpose Society Ltd.

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 p o s i t i o n s s u c h a s D e p u t y Commissioner of Police - Department of Research and Planning, Deputy C o m m i s s i o n e r o f P o l i c e - Legal/prosecution 'D' Department, DIG - Department of Training and Development amongst others.

Mr. Salihu Argungu Hashimu in the course of his career attended various local and international courses. He retired as a Deputy Inspector General o f P o l i c e i n y e a r 2 0 1 6 a f t e r a meritorious service. He enjoys reading and travelling.

He is happily married with children and he was appointed a Non-Executive Director on 28th June, 2018.

MR. SALIHU ARGUNGU HASHIMU (Non-Executive Director)

Mr. Abdulrahman Satumari is a g r a d u a t e o f t h e U n i v e r s i t y o f 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.

M r . A b d u l r a h m a n S a t u m a r i ' s professional association includes; Doctorate fel low-International Certified Risk Professional United Kingdom. Fellow-National Institute of Risk Management of Nigeria, Fellow-A m e r i c a n A c a d e m y o f P r o j e c t Managers and he is a member of the Nigeria Institute of Management.

He was born on 24th June, 1974 and h a i l s f r o m A s k i r a U b a L o c a l Government Area, Borno State. He is currently the Chairman of Board Audit Committee as an Independent Non-Executive Director.


MR. ABDULRAHMAN SATUMARI (Independent Non-Executive Director)


BOARD OF DIRECTORS

Mrs. Rakiya Edota Shehu was born on 20th February, 1974. She hails from Niger State. She obtained a Bachelor's degree in Management Studies from 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 was appointed as an Independent Non-Executive Director on 28th June, 2018.

MRS. RAKIYA EDOTA SHEHU (Independent Non-Executive Director)

MR. DASUKI DANBAPPA GALADANCHI(Non-Executive Director)

Mr. Usman Isa Baba is a retired Commissioner of Police in charge of the Nigeria Police Cooperative Multi-purpose Society Ltd.

He was born on 21st February 1955 in Lafia, Nasarawa State, Nigeria. He obtained a Bachelor's Degree in B u s i n e s s A d m i n i s t r a t i o n a n d Management from the Edo State University, Ekpoma (2008) and a National Diploma in Secured Credit and Property Law from the University of Lagos (1999).

During his service with the Nigeria Police Force, he attended various courses on financial crimes and investigation Techniques.

Mr. Baba enjoys playing lawn tennis, Horse Riding and Reading.

His appointment as a Non-Executive Director will also be presented to Shareholders for approval.

Mr. Galadanchi holds a Bsc (Hons) degree in Mathematics from the Bayero University (1988), Kano State, Nigeria, a Post Graduate Diploma in Public Policy & Administration (2007) and M.Sc. Development Studies both from the Bayero University, Kano State, Nigeria.

Mr. Galadanchi joined the Nigeria Police F o r c e i n 1 9 9 2 a s a n A s s i s t a n t Superintendent of Police II and rose through the ranks to become the current Commissioner of Police in c h a r g e o f t h e N i g e r i a P o l i c e Cooperative Multi-purpose Society Ltd.

He attended various courses both locally and internationally which includes AML/CFT compliance for B o a r d M e m b e r a n d s t r a t e g i c leadership and command course in Plateau State.

Mr. Galadanchi hails from Kano State in Gwale Local Government Area and was born on 10th January, 1966.

His appointment as a Non-Executive Director to represent the interest of the Nigeria Police Cooperative Multi-purpose Society Ltd on the Board will be presented to Shareholders for approval.

MR. USAM ISA BABA (Non-Executive Director)

DIRECTORS’ REPORT


The directors are pleased to present to members their annual report together with the financial statements of NPF Microfinance Bank Plc for the year ended 31 December 2018. 1) LEGAL FORM AND PRINCIPAL ACTIVITIES 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 C.20, Laws of the Federation of Nigeria, 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 an 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. 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.

2) OPERATING RESULTS The profit before tax recorded by the Bank for the year ended 31 December 2018 was N287 million (31 December 2017: N820 million). Highlights of the Bank’s operating results for the year ended 31 December 2018 are as follows:

In thousands of naira

Profit before taxTax charge for the yearProfit after tax

Other comprehensive income:Items that will never be reclassified to profitEquity investment at fair value though OCI, net of tax

Total comprehensive income

Basic and diluted earnings per share (kobo)

31-Dec-17

819,819 (187,929)

631,890

-

631,890

28

31-Dec-18

287,155 (91,406) 195,749

(2,405)

193,344

9

3) DIVIDENDS The Board of Directors, subsequent to the reporting date, recommended the payment of a dividend of 5 kobo (2017: 17 kobo) per share on the issued share capital of 2,286,657,766 ordinary shares, amounting to N114 million (2017: N389 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.

4) DIRECTORS The following Directors served during the year under review:-


DIRECTORS’ REPORT

NAME Mr. Azubuko Joel Udah (Esq.)Mr. Emmanuel C. Wabali*Prince Jude Ifeanyi EkeMr. Mohammed D. SaeedMr. Olusholla B.DavidMr. Jibrin G. Gane Mr. Abdulrahman Satumari Mr. Salihu Argungu Hashimu Mrs. Rakiya Edota ShehuMr. Akinwunmi M. LawalMr. Jude C. OhanehiMr. Francis C. Nelson

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

DATE OF APPOINTMENT23 July 20152 January 200930 March 201015 November 201226 October 201726 October 201728th June, 201828th June, 201828th June, 201826 June 201426 June 20141 August 2017

* Retired from the Board in January 2018

2018 2017

NAME OF DIRECTOR

Mr. Azubuko Joel Udah (Esq.)Prince Jude Ifeanyi EkeMr. Mohammed D. SaeedMr. Olusholla B. David *Mr. Jibrin. G. Gane *Mr. Abdulrahman Satumari Mr. Salihu Argungu Hashimu Mrs. Rakiya Edota Shehu Mr. Akinwunmi M. LawalMr. Jude C. OhanehiMr. Francis C. Nelson

DIRECT(units)

4,000,0002,252,0001,580,0001,500,000

108,000 - - -

5,025,8613,870,456

310,796

INDIRECT (units)

---

1,480,718,606“

- - -- - -

DIRECT (units)

1,000,0002,252,0001,580,000

- - - - -

5,025,8613,870,456

160,796

INDIRECT (units)

- - -

1,480,718,606“

- - - - - -

*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 (2017: 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 2018.

All the Directors' interest in shares remained the same as at 28th May, 2019 when the 2018 Audited Financial Statements was approved by the Board of Directors except for Mr. Olusholla B. David, who acquired additional 785,654 units of the Bank's shares in January, 2019. Mr. David's interest in shares as at 28 May 2019 was 2,285,654.

6) 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.

5) DIRECTORS' INTEREST IN SHARES The direct and indirect interests of Directors in the issued share capital of the Bank as recorded in the Register of members as at 31 December 2018 are as follows:

DIRECTORS’ REPORT


7) RETIREMENT OF DIRECTORS In accordance with Article 25(a) of the Articles of Association, Prince Ifeanyi Jude Eke retired from the Board on 30 March 2019, before the forth coming Annual General Meeting, having served for the maximum period of nine (9) years.

Mr. Olusholla B. David also resigned from the Board following his redeployment from the Police Cooperative Society Limited.

Also in accordance with S.259 (1) & (2) of the Companies and Allied Matters Act, Mr. Mohammed Dantsoho Saeed, Mr. Azubuko Joel Udah and Mr. Jibrin Garba Gane will retire by rotation and being eligible offer themselves for re-election. The profiles of all Directors, including the Directors to be presented for approval are contained in the Annual Report.

8) CHANGES TO THE BOARD In the year under review, following the approval of the Central Bank of Nigeria and that of members at the last Annual General Meeting, Mr. Salihu Argungu Hashimu, Mr. Abdulrahman Satumari and Mrs. Rakiya Edota Shehu were appointed to fill the vacancy created on the Board by the resignation of Mr. C. Wabali, the death of Mr. Audu Abubakar and the need for a female representative on the Board respectively.

The Board at its meeting held on 28th May, 2019 appointed Mr. Usman Isa Baba and Mr. Dasuki D. Galadanchi to fill the vacancies created by the exit of Prince Ifeanyi Jude Eke and Mr. Olusholla B. David respectively. 9) SUBSTANTIAL INTEREST IN SHARES According to the register of members as at 31 December 2018, no shareholder held more than 5% of the issued share capital of the Bank except the following:

31 December 201731 December 2018

Shareholder

Nigeria Police Co-operative Society LimitedNPF Welfare Insurance Scheme

No. of Shares

1,480,718,606

234,305,460

Shareholding (%)

64.75

10.25

No. of Shares

1,480,718,606

234,305,460

Shareholding (%)

64.75

10.25

In line with the Nigeria Stock Exchnage rules on the requirement for all listed companies to maintain a free float of 20% and above, the Bank 's free float for the year under review stands at 24%.


DIRECTORS’ REPORT

As at 31 December 2017 Range From

150011000150001100001500001100000150000001

To500010000500001000005000001000000500000002286657766

Holders

3,913998

1,264254455

7390

3 7,050

%

55.5014.1617.93

3.606.451.041.280.04 100

Units

6,622,8677,786,819

28,810,48819,165,546

105,295,12752,783,427

282,351,4531,783,842,0392,286,657,766

To500010000500001000005000001000000500000002286657766

As at 31 December 2018 Range From

150011000150001100001500001100000150000001

Holders

4,032996

1,258246447

7192

3 7,145

%

56.4313.9417.61

3.446.260.991.290.04 100

Units

6,670,5817,768,850

28,548,20218,381,638

102,107,20950,673,565

288,665,6821,783,842,0392,286,657,766

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


DIRECTORS’ REPORT

12) PROSPECTIVE INCREASE IN ISSUED SHARE CAPITAL In its circular dated 22 October 2018, the Central Bank of Nigeria (CBN) raised the minimum paid-up capital for national microfinance banks from N2 billion to N5 billion. The CBN's directive is to take effect from 1 April 2020. This requirement has been captured in the Bank's strategic plan and the Bank has a plan to have a hybrid offer (rights and public) in 2019 in order to meet up with this directive. 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 N4,312,000 (2017: N5,805,000) during the year. This comprises contributions to educational organisations amongst others as listed below:

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

DATE ISSUED

1993199619992000200120022003

2004

20052006200720082009

2010

2011

2012201320142015201620172018

FROMN'000

500500

- 30,000

- 80,000

-

-

250,000500,000

1,000,000 - -

-

-

- -

2,000,000.00 - - - -

TO N'000

50030,00030,00080,00080,000

250,000250,000

250,000

500,0001,000,0002,000,0002,000,0002,000,000

2,000,000

2,000,000

2,000,0002,000,0003,000,0003,000,0003,000,0003,000,0003,000,000

FROMN'000

- -

17,99621,57140,186

- -

58,624

239,958239,958259,955

- 417,192

1,143,328

1,143,328

1,143,3281,143,3281,143,3281,143,3281,143,3281,143,3281,143,328

TON'000

- 17,97621,57140,18658,62458,62458,624

239,958

239,958259,955417,192417,192

1,143,328

-

-

- - - - - - -

NOMINAL VALUE

N'000 1.00 1.00 1.00 1.00 1.00 1.00 1.00

1.00

1.00 1.00 1.00 1.00 1.00

50K

50K

50K

50K 50K 50K

50k50k50k

REMARKS

N'000CASH & KIND

CASHBONUS 1:4

CASHCASHCASHCASH

BONUS 1:10 & CASH

-BONUS 1:12

CASH-

CASH

SHARE-SPLIT 1:2

SHARE-SPLIT 1:2

-------

ISSUED & FULLY PAID AUTHORISED


DIRECTORS’ REPORT

15) FRAUD AND FORGERIES During the financial year, there was a case of fraud involving a middle management employee of the Sokoto Branch of the Bank. The Bank lost the sum of N266,480,000 from the fraud. A sum of N35,500,000 has been recovered to date while the remaining balance has been fully written off during the year. Appropriate action has been taken against the complicity employee for further recovery. In view of this incident, the Bank has strengthened the key controls and procedures surrounding its operations, including the appointment of Assistant Regional Heads and redeployment of staff, to forestall future recurrence. 16) EVENTS AFTER THE REPORTING PERIOD There were no post balance sheet events identified which could have a material effect on the state of affairs of the Bank as at 31 December 2018 or the profit for the year ended on that date. 17) HUMAN RESOURCES EMPLOYMENT OF DISABLED PERSONS The Bank operates a non-discriminatory policy on recruitment. Applications by physically challenged persons are always considered, driven by a deep conviction that even in disability, there could be immense ability. In the event of any member of staff becoming physically challenged, every effort will be 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. At present, the Bank has one physically challenged person in its employment. EMPLOYEE INVOLVEMENT AND TRAINING In today's competitive business landscape, human capability has been found to be a key factor for corporate success. Thus a drive in the right direction for employees'development is imperative for sustaianable superior company perfromance. In NPF Microfinance Bank Plc, we believe strongly that we must not only enable our employees to perform in their day-to-day task, but must unlock their potentials and make it possible for them to unleash energy to achieve our business goals. Therefore, the Bank ensures that employees receive qualitative training through both in-house and external, local and international courses. Staff training plan are drawn up yearly which is hinged on grade and job function specific programmes. These trainings are also complemented by on-the-job training.

Nigeria Police Sport Complex, AbujaInspector General of Police book launchSt. John Anglican ChurchPOWA International School, AbujaTony Okpe CommunicationsForce Education Secondary SchoolMAO Children School, Lagos IslandJoef Dynamic Educational Services, ObalendePolice Children Schools (Ikeja, Idimu, Obalende, Calabar, Akure, Lokoja, Lafia)

N 3,000,000 1,000,000

20,000 20,000

100,000 20,000 10,000 10,000

132,000 4,312,000


DIRECTORS’ REPORT

19) 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 of Nigeria, 2004 therefore, the auditor will be re-appointed at the next annual general meeting of the Bank without any resolution being passed. BY ORDER OF THE BOARD Mrs. Osaro J. Idemudia Company Secretary/Legal Adviser FRC/2013/NBA/00000002319 28 May 2019

Employees (2018)Employees (2017)

Top Management (2018)Top Management (2017)

BoardExecutive Directors (2018)Executive Directors (2017)

Non -Executive Directors (2018)Non -Executive Directors (2017)

Male145185

1914

33

76

Female 229 129

7 4

- -

1 -

Total 374 314

2618

33

86

Male39%59%

73%78%

100%100%

88%100%

Female61%41%

27%22%

0%0%

13%0%

Number Percentage

HEALTH, SAFETY AND WELFARE OF EMPLOYEES The Bank maintains business premises designed with a view to guarantee the safety and healthy working conditions of her employees amd customers alike. Employees are adequately insured against occupational and other hazards. The Bank has in place enlightement programs/publications designed to equip staff members with basic health management tips and fire prevention tips. Also, fire prevention and fire fighting equipments are installed in strategic locations within the Bank's premises. In addition, the Bank provides medical facilities to its employees and their immediate families at its expense. The Bank also 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. 18) EMPLOYEE AND DIRECTOR INFORMATION The number and percentage of men and women employed in the Bank during the year ended 31 December 2018 and the comparative year were as follows:

2018 Annual Report & Accounts NPF Microfinance Bank Plc 030

INTRODUCTION NPF Microfinance Bank Plc ("the Bank") remains committed to institutionalising corporate governance principles. For the Bank, Corporate Governance is not an end in itself but an essential enabler for value creation whilst propagating a value-led culture, high behavioural standards and robust procedures as fundamental tools in the entrenchment of a strong corporate governance framework. As a Public Company quoted on the Nigeria Stock Exchange, we remain dedicated to our duties and pledge to safeguard and increase investor value through transparent corporate governance practices. The Bank is governed under a framework that enables the Board to discharge its oversight functions while providing strategic directions to the Bank in balance with its responsibility to ensure regulatory compliance. In the year under review, the Bank largely complied with the provisions of the codes of corporate governance for Central Bank of Nigeria (CBN), Nigeria Stock Exchange (NSE) and also submited periodic statutory returns to the CBN, NSE, Securities and Excahnge Commission (SEC) Nigerian Deposit Insurnace Corporation (NDIC) and the Corporate Affairs Commission (CAC). GOVERNANCE STRUCTURES THE BOARD The Board is responsible for embedding high standards of corporate governance across the Bank. The Board recognises that effective corporate governance is a key imperative to achieving the sustainable growth of the Bank. The Board plays a central role in conjuction with Management in ensuring that the Bank is financially strong. This synergy between the Board and Manageemnt 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 eleven (11) members as stated below:

Executive DirectorsNon-Executive Directors

38 (Inclusive of 3 Independent Directors)

THE 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 perfromance on a continous 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.

CORPORATE GOVERNANCE REPORT


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 roles of the Chairman and Chief Executive Officer are separate and no one individual combines the two positions. The Chairman's main responsibility is to lead and manage the Board to ensure that it operates effectively and fully discharges its legal and regulatory responsibilities. The Chairman facilitates the contributions of Directors and promotes effective relationships and open communications between Executive and Non-Executive Directors both inside and outside the Boardroom.

The Board has delegated the responsibility for the day to day management of the Bank to the Managing Director/Chief Executive Officer,who is supported by the Management Team. The Managing Director executes the powers delegated to him by the Board and the Executive Management is accountable to the Board for the development and implementation of strategies and policies.

REMUNERATION POLICY The Bank’s remuneration policy sets out the criteria and mechanism for determining the levels of remuneration of the Directors of the Bank and also defines the process for determining Executive Directors compensations and rewards for corporate and individual performance. The 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:

Remuneration classBasic Salary

Performance Incentive

Directors' fees

Sitting allowances

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

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

Annual Payments approved at the Annual General Meeting

Allowances paid for attending board and board committee meetings

Entitled DirectorsExecutive Directors only

Executive Directors only

Non-Executive Directors only

Non-Executive Directors only

TimingMonthly

Annually

Half yearly

Paid at every sitting atboard and board committee meetings


The Directors' fees for the year under review was fixed at N25,000,000.00 by members at the 24th Annual General Meeting. This excludes sitting allowance and other allowances for meetings attended.

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 timeframes 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 eight (8) times in the year under review on 9/3, 26/4, 27/6, 30/7, 27/8, 19/10, 9/11 and 9/12. Attendance at the Board meetings during the year were as follows:

No1234567891011

Members Mr. Azubuko Joel Udah (Esq.)Prince Jude Ifeanyi EkeMr. Mohammed D. SaeedMr. Olusholla B. DavidMr. Jibrin G. GaneMr. Abdulrahman Satumari *Mr. Salihu Argunu Hashimu *Mrs. Rakiya Edota Shehu *Mr. Akinwunmi M. LawalMr. Jude C. OhanehiMr. Francis C. Nelson

DesignationChairmanNon-Executive DirectorNon-Executive Director (Indep) Non-Executive DirectorNon-Executive DirectorNon-Executive Director (Indep) Non-Executive DirectorNon-Executive Director (Indep) Managing DirectorExecutive DirectorExecutive Director

No. of Meetings88888888888

Attendance 88668555888

* Appointed Directors on 28 June 2018 DIRECTORS' PERFORMANCE EVALUATION The Governance and Remuneration Committee oversees a formal evaluation process to assess the composition and performance of the Board, each Committee and individual director on an annual basis. The assessment is conducted to ensure the Board, Committees and individual members are effective and productive and to identify areas for improvement.

As part of the process, each member completes a detailed and thorough questionnaire and each member also participates in an oral interview/conversation session as a follow up to the completeion of the questionnaire. The Governance and Remuneration Committee reports annually to the full Board with result of the evaluation excercise. The recommendations of the performance evaluation are considered by the Board and are implemented as required.

In compliance with the requirement of the Central Bank of Nigeria (CBN) Code of Corporate Governance, the Board commissioned DCSL Corporate Services Limited to carry out Board evaluation for the financial year ended 31 December 2018. Their report has been forwarded to the CBN and will be communicated to 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 The Company has in place a formal induction program for newly appointed 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. All Directors attended at least one training course in the year under review. 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 five( 5) times in the 2018 financial year on 18/1, 22/2, 6/3, 17/7 and 16/10. Membership of the Committee and attendance at its meetings during the year were as follows:

MembersPrince Jude Ifeanyi EkeMr. Emmanuel C. Wabali*Mr. Olusholla Babajide David Mr. Salihu Argungu Hashimu **Mr. Abdulrahman Satumari **Mr. Akinwunmi LawalMr. Francis C. Nelson **Mr. Jude C. Ohanehi

Designation ChairmanMember Member Member Member Member Member Member

No. of Meetings 55555555

Attendance51522525

No.12345678

*Retired from the Board January, 2018 **Appointed members of the Committee on 11 July 2018

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 2018 financial year on 17/1, 18/4, 1/8 and 17/10. Membership of the Committee and attendance at its meetings during the year were as follows:-



No.123456789

MembersMr. Olusholla Babajide David*Prince Jude Ifeanyi EkeMr. Emmanuel C. Wabali **Mr. Jibrin G. Gane***Mr. Mohammed D. Saeed***Mr. Abdulrahman Satumari****Mrs. Rakiya Edota Shehu**** Mr. Akinwunmi LawalMr. Jude C. Ohanehi

Designation ChairmanMemberMember MemberMember Member MemberMember Member


Attendance241212244

*Appointed Chairman of the Committee on 11 July 2018 **Retired from the Board January 2018 ***Ceased being members of the Committee from 11 July 2018 due to reconstitution of Board Committee****Appointed members of the Committee on 11 July 2018

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 consists of only Non-Executive Directors and is required to meet quarterly in a year.The Committee met four (4) times during the 2018 financial year on 31/1, 19/4, 26/7.and 18/10. Members of the Committee and attendance at its meetings during the year were as follows:-

MembersMr. Abdulrahman Satumari*Mr. Mohammed D. SaeedMr. Jibrin G. GaneMr.Olusholla Babajide David**Mr. Salihu Argungu Hashimu*

Designation ChairmanMemberMemberMemberMember


Attendance23422

No.12345

*Appointed members of the Committee on 11 July 2018 **Ceased being a member of the Committee from 11 July 2018 due to reconstitution of Board Committees.



Board Governance and Remuneration Committee The responsibilities of the Committee 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-election and make recommendation to the Board

Monitor the development, alignment, satisfaction and productivity of the Bank’s employees with a view to competitive excellence

Develop and constantly review and make recommendation to the Board on policies and procedures to 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 five (5) times in the 2018 financial year on 1/2, 20/4, 23/4, 24/7 and 8/12. Membership of the Committee and attendance at its meetings during the year were as follows:

No.1234

MembersMr. Mohammed D. SaeedPrince Jude Ifeanyi EkeMr. Jibrin G. GaneMrs. Rakiya Edota Shehu*

DesignationChairmanMemberMemberMember

No. of Meetings5555

Attendance5552

* Appointed a member of the Committee on 11 July 2018

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 six (6) times in 2018 financial year on 8/3, 24/4, 31/7, 24/8,15/10 and 26/10. Membership of the Committee and attendance at its meetings during the year were as follows:-



Members Designation ChairmanChairmanMemberMemberMember


Attendance42664

No.12345

Mr. Timothy Adesiyan *Mr. Waheed A. Adegbite **Alhaji Abdulquadri SanniPrince Jude Ifeanyi Eke Mr. Abdulrahman Satumari***

* Appointed a member of the committee on 28 June 2018 **Ceased being a member of the Committee on 28 June 2018 ***Appointed a member of the Committee on 28th June 2018 MANAGEMENT COMMITTEES The committees comprise of 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, ED Finance & Administration, Head Credit, Head Information Technology, Head Internal Audit 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, ED Finance & Administration, Head Internal Audit, Head Credit, Head Administration and Head Information Technology. 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 ED 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. The Committee is composed of all Senior Management Staff. 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 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 participate 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 Securities and Exchange Commission 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 and other stakeholders 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 28 May 2019




AML/CFT Frame work

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, International Passport, Driver's License, Voter's Card 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 being 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 MANAGEMENT With 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) serve as a medium for reporting compliance risk.

5. TRAINING/AWARENESS The bank does adequately well to train our compliance team on the requirements,

procedures, AML/CFT, KYC principles, code of conduct and business ethics to make sure that the staff are familiar with them. Awareness is being created for new inductees as and when due.

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 Chairman FRC/2014/CIBN/00000006345 FRC/2016/NBA/00000013775 28 May 2019 28 May 2019

STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RELATION TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018



BOARD EVALUATION REPORT

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 2018 and are satisfied

with the explanations obtained in response to our queries. - We reviewed the external auditor's Management Letter for the year ended 31 December 2018 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 N115,594,000 was outstanding as at 31 December 2018 (31 December 2017: N32,086,000) of which none was non-performing (31 December 2017: 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 2018 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. Mr. Timothy Adesiyan Chairman, Audit Committee FRC/2013/IODN/00000003745 27 May 2019 Other members of the Audit Committee: - Alhaji Abdulquadri Sanni - Mr. Abdulrahman Satumari Mrs. O.J. Idemudia (Company Secretary) acted as Secretary to the Committee


REPORT OF THE AUDIT COMMITTEE TO THE MEMBER OF NPF MICROFINANCE BANK PLC

050-110

112-122

Statement of Financial Position 050

Statement of Comprehensive Income 051

Statement of Changes In Equity 052

Statement of Cash Flows 053

Notes To The Financial Statement 054



Management Team 114

Branches 118

Proxy Form 120


FINANCIAL STATEMENTS


In thousands of nairaASSETSCash and cash equivalentsPledged assetsLoans and advances to customersInvestment securitiesTrade and other receivablesProperty and equipmentTOTAL ASSETS

LIABILITIESDeposits from customersCurrent tax liabilitiesOther liabilitiesBorrowingsDeferred tax liabilitiesTOTAL LIABILITIES

CAPITAL AND RESERVESShare capitalShare premiumRetained earningsFair value reserveOther reserves

TOTAL EQUITY

TOTAL LIABILITIES AND EQUITY

STATEMENT OF FINANCIAL POSITIONAS AT 31 DECEMBER

Note

141516171819

2021(b)

2223

21©

2425(a)25(b)25©

25(d) - (e)

2017

5,752,469 409,674

9,008,675 16,681

172,878 591,964

15,952,341

9,126,494 146,270 315,251

1,550,468 61,569

11,200,052

1,143,328 1,517,485

728,276 -

1,363,200

4,752,289

15,952,341

The financial statements were approved by the Board of Directors on 28 May 2019 and signed on its behalf by:

2018

4,940,352 800,787

10,593,635 291,081 301,751 669,946

17,597,552

10,465,119 87,082

243,547 2,078,843

76,370 12,950,961

1,143,328 1,517,485

318,690 (2,405)

1,669,493

4,646,591

17,597,552

Mr. Akinwunmi LawalManaging Director/Chief Executive Officer FRC/2014/CIBN/00000006345

F.C. Nelson, FCA Chief Financial Officer FRC/2014/ICAN/00000006856

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

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

Additionally certified by:


STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOMEFOR THE YEAR ENDED 31 DECEMBER


Gross earnings

Interest incomeInterest expense

Net interest income

Fee and commission income

Other income

Net operating income

Net impairment loss on financial assetsPersonnel expensesDepreciationAdministration and general expenses

Total operating expenses

Profit before tax

Tax charge for the year

Profit for the year

Other comprehensive incomeItems that will never be reclassified to profit or lossEquity investment at fair value through OCI, net of tax

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

Basic and diluted earnings per share (kobo)


Note

78

9

10

11121913

21(a)

32

2018

3,950,377

2,960,525 (430,021)

2,530,504

733,560

256,292

3,520,356

(446,749) (1,341,874)

(176,872) (1,267,706)

(3,233,201)

287,155

(91,406)

195,749

(2,405)

-

(2,405)

193,344

9

2017

3,654,875

2,605,413 (318,898)

2,286,515

779,878

269,584

3,335,977

(184,927) (1,306,773)

(122,788) (901,670)

(2,516,158)

819,819

(187,929)

631,890

-

-

-

631,890

28


STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 DECEMBER 2018

Sh

are

C

ap

ita

l

1,1

43

,32

8

-

-

1,1

43

,32

8

-

-

-

-

1,1

43

,32

8

-

-

1,1

43

,32

8

Sh

are

C

apit

al 1

,14

3,3

28

-

-

-

1,1

43

,32

8

-

-

1,1

43

,32

8

Sh

are

P

rem

ium

1,5

17

,48

5

-

-

1,5

17

,48

5

-

-

-

-

1,5

17

,48

5

-

-

1,5

17

,48

5

Sh

are

P

rem

ium

1,5

17

,48

5

-

-

-

1,5

17

,48

5

-

-

1,5

17

,48

5

Re

tain

ed

E

arn

ing

s

72

8,2

76

89

,69

0

(90

,92

5)

72

7,0

41

1

95

,74

9

(24

,46

9) -

17

1,2

80

89

8,3

21

(38

8,7

32

)

(19

0,8

99

)

31

8,6

90

Re

tain

ed

E

arn

ing

s 5

06

,96

3

55

2,9

04

-

5

52

,90

4

1,0

59

,86

7

(34

2,9

99

)

11

,40

8

72

8,2

76

Fair

Va

lue

R

ese

rve -

-

-

-

-

-

(2,4

05

) (2

,40

5)

(2,4

05

) -

-

(2,4

05

)

Fair

Val

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Re

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-

-

-

-

-

-

Ba

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Ja

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20

18

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(b))

- T

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Ba

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Cash flows from operating activitiesProfit for the yearAdjustments for:Depreciation of property and equipmentNet impairment loss on loans and advances to customersNet impairment write-back on investmentsNet impairment loss on cash and cash equivalentsNet impairment allowance on pledged assetsNet impairment loss/(write-back) on other receivablesNet interest incomeDividend incomeProfit on disposal of available-for-sale financial assetsProfit on sale of property and equipmentTax expense

Change in pledged assetsChange in loans and advancesChange in trade and other receivablesChange in deposits from customersChange in other liabilities

Interest receivedInterest paidTax paidRetirement benefit obligations paid Net cash from/(in) operating activities

Cash flows from investing activitiesAcquisition of property and equipmentProceeds from disposal of property and equipmentDividends receivedPurchase of Treasury bill investmentsProceeds from disposal of investmentsNet cash used in investing activities

Cash flows from financing activitiesRepayment of borrowings Additions to borrowingsDividend paidNet cash used in financing activities

Net increase in cash and cash equivalentsCash and cash equivalents as at 1 JanuaryCash and cash equivalents as at 31 December

195,749

176,872 323,924

- 1,382

367 121,076

(2,530,504) - -

(3,273) 91,406

(1,623,001)

(391,709) (1,814,921)

(247,776) 1,331,203

25,818 (2,720,386)

2,946,576 (350,700) (135,793)

(97,522) (357,825)

(254,854) 3,273

- (265,894)

- (517,475)

(465,264) 921,740

(388,732) 67,744

(807,556) 5,752,469 4,944,913

631,890

122,788 186,251

(157) - -

(1,167) (2,286,515)

(24) (15,274)

(1,228) 187,929

(1,175,507)

176,804 (83,122)

85,834 2,314,066 (119,670)

1,198,405

2,584,357 (243,045) (199,571) (102,432)

3,237,714

(267,539) 53,661

24 -

36,324 (177,530)

(454,597) 1,600,000 (342,999)

802,404

3,862,588 1,889,881 5,752,469

191111111111

7, 8101010

21(a)

32(b)32©

32(d)32(e) 32(f)

32(h)32(I)

21(b)22(b)

1932(a)

1032(g) 32(g)

23(b)23(b)

14

2018 2017Note


STATEMENT OF CASH FLOWSFOR THE YEAR ENDED 31 DECEMBER


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, g r a n t i n g o f l o a n s , a d v a n c e s a n d a l l i e d 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 affected annual periods beginning 1 January 2018 adopted by the Bank as follows:

a) IFRS 9 Financial Instruments On 24 July 2014, the IASB issues IFRS 9 Financial Instruments, which addresses impairment, c l a s s i fi c a t i o n , m e a s u re m e n t a n d h e d g e accounting. The Bank has adopted IFRS 9 as issued by the IASB with a date of transition of 1 January 2018, which resulted in changes in accounting policies and adjustments to the amounts previously recognised in the financial statements. The Bank did not early adopt IFRS 9 in previous periods. As permitted by the transitional provision of IFRS 9, the Bank elected not to restate comparative figures. Any adjustments to the carrying amounts of financial assets and liabilities as at date of transition were recognised in the opening retained earnings and other reserves of the

1

2

current period. The Bank does not currently apply hedge accounting. Based on the current assessment, the only significant impact on the Bank's balance sheet of equity is as a result of the effect of applying the impairment requirements of IFRS 9. Classification and measurement of financial assets and financial liabilities IFRS 9 contains three principal measurement c a t e g o r i e s fo r fi n a n c i a l a s s e t s, n a m e ly : Amortised Cost, Fair Value through Other Comprehensive Income (FVOCI), and Fair Value through Profit or Loss (FVTPL). The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is m a n a g e d a n d i t s co n t ra c t u a l c a s h fl o w characteristics. IFRS 9 eliminates the previous IAS 39 categories of held to maturity, loans and receivables and available-for-sale financial instruments. For non-derivative financial liabilities designated at fair value through profit or loss, it requires that the credit r isk and component of fair value gains and losses be separated and included in OCI rather than the income statement. The Bank does not currently have such instruments. T h e fo l l o w i n g t a b l e s h o w s t h e o r i g i n a l measurement categories in accordance with IAS 39 and the new measurement categories under IFRS 9 for the Bank's financial assets and financial liabilities.


NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

In thousands of nairaFinancial assets

Cash and cash equivalentsPledged assetsLoans and advances to customersInvestment securitiesTrade and other receivablesTotal financial assets

Financial liabilitiesDeposits from customersBorrowingOther liabilitiesTotal financial liabilities

Note

1415

16(b)17(a)

18

202322

Original classification under IAS 39

Loans and receivablesLoans and receivablesLoans and receivables

FVTPLLoans and receivables

Other financial liabilitiesOther financial liabilitiesOther financial liabilities

New classification under IFRS 9

Amortised cost Amortised cost Amortised cost

FVTPLAmortised cost

Amortised cost Amortised cost Amortised cost

Original carrying amount under IAS 39

5,752,469 409,674

9,008,675 16,681 55,193

15,242,692

9,126,494 1,550,468

99,317 10,776,279

New carrying amount under IFRS 9

5,630,389 409,445

9,099,600 16,681 57,366

15,213,481

9,126,494 1,550,468

99,317 10,776,279

The Bank's accounting policies on the classification of financial instruments under IFRS 9 are set out in Note 3f(ii). The application of these policies resulted in the classification set out in the table above and explained below. "Before the adoption of IFRS 9, the Bank classified its cash and bank balances, Treasury bills, loan portfolio and other receivables that are not quoted as loans and receivables. On transiting to IFRS 9, the Bank assessed its loan portfolio to have contractual terms that are consistent with basic lending arrangements, and to have a business model of holding to collect contractual cash flows which meets the solely payments of principal and interest (SPPI) test. Accordingly, these loans have been classified as measured at amortised cost. These loan portfolios are still presented in the statement of financial position as 'Loans and advances to customers'. The cash and bank balances, Treasury bills and other receivables also indicate a business model of holding to collect contractual cash flows which meets the SPPI test. Therefore, they have been classified as measured at amortised cost." The table below shows the reconciliation of the carrying amounts of financial assets under IAS 39 to their carrying amounts under IFRS 9.



In thousands of nairaAmortised costCash and cash balancesBrought forward: Loans and receivables RemeasurementCarried forward: Amortised cost

Pledged assetsBrought forward: Loans and receivablesRemeasurementCarried forward: Amortised cost

Loans and advances to customersBrought forwards: Loans and receivables RemeasurementCarried forward: Amortised cost

Trade and other receivables Brought forward: Loans and receivablesRemeasurementCarried forward: Amortised cost

IAS 39 carrying amount

31 December 2017

5,633,568 -

5,633,568

409,674 -

409,674

9,008,675 -

9,008,675

55,193 -

55,193

16,681 -

16,681

15,123,791

Reclassification

- - -

- - -

- - -

- - -

- - -

-

Remeasurement

- (3,179) (3,179)

- (229) (229)

- 90,925 90,925

- 2,173 2,173

- - -

89,690

IFRS 9 carrying

amount 1 January

2018

5,633,568 (3,179)

5,630,389

409,674 (229)

409,445

9,008,675 90,925

9,099,600

55,193 2,173

57,366

16,681 -

16,681

15,213,481

FVTPLInvestment securitiesBrought forward: FVTPLRemeasurementCarried forward: FVTPL

Total amortised cost

Impairment of financial assets IFRS 9 replaces the 'incurred loss' model in IAS 39 with an 'expected credit loss' (ECL) model. The new impairment model applies to financial assets measured at amortised cost, contract assets and debt investments at FVOCI, but not to investment in equity instruments. Under IFRS 9, credit losses are recognised earlier than under IAS 39. The Bank applies a three-stage approach to measuring expected credit losses (ECL) on debt instruments accounted for at amortised cost, FVOCI, loan commitment and financial guarantee contracts. Assets migrate through the following three stages based on the change in credit quality since initial recognition.



(ii)

(iii)

In thousands of nairaRetained earningsClosing balance under IAS 39 (31 December 2017)Recognition of expected credit losses under IFRS 9 for cash and cash balancesRecognition of expected credit losses under IFRS 9 for pledged assetsRecognition of expected credit losses under IFRS 9 for loans and advancesRecognition of expected credit losses under IFRS 9 for investment securitiesRecognition of expected credit losses under IFRS 9 for other receivables

Recognition of effect of IFRS 9 transitional adjustment under regulatory risk reserveOpening balance under IFRS 9 (1 January 2018)

Regulatory risk reserveClosing balance under IAS 39 (31 December 2017)Recognition of effect of IFRS 9 transitional adjustment under regulatory risk reserveOpening balance under IFRS 9 (1 January 2018)

Impact of adopting IFRS 9 at 1 January

2018

728,276 (3,179)

(229) 90,925

- 2,173

89,690 (90,925) 727,041

139,090 90,925

230,015

Stage 2 Where the credit risk has increased significantly, the financial assets are transferred to stage 2 and an impairment equal to the lifetime expected credit losses is recognised. The calculation of interest income is the same as in stage 1.

Stage 3: Where the financial asset's credit risk increases to the point where it is considered credit-impaired, interest income is calculated based on the asset's amortised cost (that is, the gross carrying amount less the loss allowance). Lifetime ECLs are recognised, as in stage 2. For assets in the scope of the IFRS 9 impairment model, impairment losses are generally expected to increase and become more volatile. The following table analyses the impact of transition to IFRS 9 on retained earnings and the regulatory risk reserve. There is no impact on other components of equity.

Stage 1 When a loan is originated or purchased, ECLs resulting from default events that are possible within the next 12 months are recognised (12-month ECL) and a loss allowance is established. On subsequent reporting dates, 12-month ECL also applies to existing loans with no significant increase in credit risk since their initial recognition. Interest income is calculated on the loan's gross carrying amount (that is, without deduction for ECLs). In determining whether a significant increase in credit risk has occurred since initial recognition, the Bank assesses the change, if any, in the risk of default over the expected life of the loan (that is, the change in the probability of default, as opposed to the amount of ECLs).

(i)



b) IFRS 15 Revenue from Contracts with Customers In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers, effective for periods beginning on 1 January 2018 with early adoption permitted. IFRS 15 defines principles for recognising revenue and will be applicable to all contracts to customers. However, interest and fee income integral to financial instruments and leases will continue to fall outside the scope of IFRS 15 and will be regulated by the other applicable standards (e.g. IFRS 9 and IFRS 16 Leases). Revenue under IFRS 15 needs to be recognised as goods and services are transferred, to the extent that the transferor anticipates entitlement to goods and services. The standard also specifies a comprehensive set of disclosure requirements regarding the nature, extent and timing as well as a n y u n c e r t a i n t y o f r e v e n u e a n d t h e corresponding cash flows with customers. The Bank has adopted IFRS 15 from 1 January 2018. However, the adoption of IFRS 15 did not result in any adjustments to the amounts recognised in the financial statements as the Bank's previous accounting treatment is in line with the requirements of IFRS 15. The standard did not have any significant 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

3

(a)(I)

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 b e e n co n s i s t e n t ly a p p l i e d to a l l p e r i o d s presented. The financial statements were approved by the directors on 28 May 2019. Basis of measurement These financial statements have been prepared on the historical cost basis except for the following material items in the statement of financial position: Investment securities measured at FVTOCI 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.

(ii)

.

.

.

(iii)

(IV) 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 expenses. The estimates and associated assumptions are based on historical experience and various other factors that are b e l i e v e d t o b e r e a s o n a b l e u n d e r t h e 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 on-going basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in any future periods affected. Information about significant areas of estimation uncertainties and critical judgments in applying a c co u n t i n g p o l i c i e s t h a t h ave t h e m o s t significant effect on the amounts recognised in the financial statements are described in note 5.

Interest income and expense

Interest income and expense on financial instruments are recognised in profit or loss using the effective interest method. The 'effective interest rate' is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument to: - the gross carrying amount of the financial asset; or - the amortised cost of the financial liability. When calculating the effective interest rate for financial instruments other than purchased or originated credit-impaired assets, the Bank estimates future cash flows considering all contractual terms of the financial instruments, but not ECL. For purchased or originated credit-impaired financial assets, a credit-adjusted effective interest rate is calculated using estimated future cash flows including ECL. The calculation of the effective interest rate includes transaction costs and fees and points paid or received that are an integral part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or liability. The ‘amortised cost’ of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured on i n i t i a l r e c o g n i t i o n m i n u s t h e p r i n c i p a l repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and

(b)

the maturity amount and, for financial assets, adjusted for any expected credit loss allowance (or impairment allowance before 1 January 2018). The ‘gross carrying amount of a financial asset’ is the amortised cost of a financial asset before adjusting for any expected credit loss allowance. Interest income and expense are recognised in profit or loss using the effective interest method. The effective interest rate was the rate that exactly discounted the estimated future cash payments and receipts through the expected life of the financial asset or financial liability (or, where appropriate, a shorter period) to the carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Bank estimated future cash flows considering all contractual terms of the financial instrument, but not future credit losses. The calculation of the effective interest rate included transaction costs and fees and points paid or received that were an integral part of the effective interest rate. Transaction costs included incremental costs that were directly attributable to the acquisition or issue of a financial asset or financial liability.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 income The total sum includes income 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 and when the entity's right to receive payment is established.

(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 recognised directly in equity or in other comprehensive income. (i) Current income tax Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustment to the tax payable or receivable in respect of the previous years. The amount of the current tax payable or receivable is the best estimate of the tax amount expected to be paid or received that reflects uncertainty related to income taxes, if any. It is measured using tax rates enacted or substantively enacted at the reporting date. Current tax also includes any tax arising from dividends. 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 adequately provided for in the financial 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 ra 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: - t e m p o ra r y d i ffe re n c e s o n t h e i n i t i a l recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;

(e)- 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 a s s e s s m e n t r e l i e s o n e s t i m a t e s a n d 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 that such a determination is made.

Financial assets and financial liabilities(i) Recognition and initial measurement The Bank initially recognises loans and advances, deposits, debt securities issued and subordinated liabilities on the date on which they are originated.



All other financial instruments are recognised on the trade date, which is the date the Bank becomes a party to the contractual provisions of the instruments. A financial asset or financial liability is measured initially at fair value plus or minus, for an item not at fair value through profit or loss, transaction costs that are directly attributable to its acquisition or issue. (ii) Classification Financial assets - Policy applicable from 1 January 2018 On initial recognition, a financial asset is classified as measured at: amortised cost, FVOCI or FVTPL. A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL: - the asset is held within a business model whose objective is to hold assets to collect contractual cash flows, and - the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest. A debt instrument is measured at FVOCI only if it meets both of the following conditions and is not designated as at FVTPL: - the asset is held within a business model whose objective is achieved by both col lecting contractual cash flows and selling financial assets; and - the contractual terms of the financial asset give rise on specified dates to cash flows that are SPPI. On initial recognition of an equity investment that is not held for trading, the Bank may irrevocably elect to present subsequent changes in fair value in OCI. This election is made on an investment-by-investment basis. All other financial assets not classified as measured at amortised cost or FVOCI are measured at FVTPL. In addition, on initial recognition, the Bank may irrevocably designate a financial asset that

otherwise meets the requirements to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise. Business model assessment: policy applicable from 1 January 2018 The Bank makes an assessment of the objective of a business model in which an asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management. The information considered includes: i) The stated policies and objectives for the portfolio and the operation of those policies in practice. In particular, whether management's strategy focuses on earning contractual interest income, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of the liabilities that are funding those assets or realising cash flows through the sale of the assets; ii) how the performances of the portfolio is e v a l u a t e d a n d r e p o r t e d t o t h e B a n k ' s management; iii) the risks that affect the performance of the business model (and the financial assets held within that business model) as its strategy for how those risks are managed; iv ) h ow m a n a g e rs o f t h e b u s i n e s s a re compensated (e.g. whether compensation is based on the fair value of the assets managed or the contractual cash flows collected); and v) the frequency, volume and timing of sales in prior periods, the reasons for such sales and its expectations about future sales activity. However, information about sales activity is not considered in isolation, but as part of an overall assessment of how the Bank's stated objective for managing the financial assets is achieved and how cash flows are realised. Financial assets that are held for trading or managed and whose performance is evaluated on a fair value basis are measured at FVTPL because they are neither held to collect



contractual cash flows nor held both to collect contractual cash flows and to sell financial assets. Assessment of whether contractual cash flows are solely payments of principal and interest (SPPI): policy applicable from 1 January 2018 For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as profit margin In assessing whether the contractual cash flows are SPPI, the Bank considers the contractual terms of the instrument. This includes assessing w h e t h e r t h e fi n a n c i a l a s s e t co n t a i n s a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making the assessment, the Bank considers: - contingent events that would change the amount and timing of cash flows; - leverage features; - prepayment and extension terms; - terms that limit the Bank's claim to cash flows from specified assets (e.g. non-recourse loans); and - features that modify consideration of the time value of money (e.g. periodical reset of interest rates). The Bank holds a portfolio of long-term fixed-rate loans for which the Bank has the option to propose to revise the interest rate at periodic reset dates. These reset rights are limited to the market rate at the time of revision. The borrowers have an option to either accept the revised rate or redeem the loan at par without penalty. The Bank has determined that the contractual cash flows of these loans are SPPI because the option varies the interest rate to t a ke co n s i d e ra t i o n o f t h e t i m e va l u e o f money,credit risk, other basic lending risks and

costs associated with the principal amount outstanding.Financial assets - subsequent measurement and gains and losses: Policy applicable before 1 January 2018 The Bank classified its financial assets into one of the following categories: - loans and receivables; - held-to-maturity; - available-for-sale; and - at FVTPL, and within this category as: - held-for-trading; or - designated as at FVTPL Subsequent to initial measurement, financial assets are measured or accounted for depending on their classification as either held-to-maturity, FVTPL or available-for-sale. All available-for-sale financial assets are measured at fair value after initial recognition. Unquoted equity securities whose fair value cannot be measured reliably are carried at cost. Interest income on AFS 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 in other comprehensive income and presented in the fair value reserve within equity. When available-for-sale investment is sold, the gain or loss accumulated in equity is reclassified to profit and loss. Loans and receivables were initially measured at fair value plus incremental direct transaction cost, and subsequently measured at their amortised cost using effective interest method.

Financial liabilities: Classification, subsequent measurement and gain and losses The Bank classifies its financial liabilities, other than financial guarantees and loan commitments, as measured at amortised cost or FVTPL. After initial measurement, debt issued and other



borrowed funds are subsequently measured at amortised cost. Amortised cost is calculated by taking into account any discount or premium on issued funds, and cost that are an integral part of the effective interest rate. In both the current and prior period, all financial l iabilities are classified and subsequently measured at amortised cost. Derecognition i) Financial assets The Bank derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the rights to re c e ive t h e co n t ra c t u a l c a s h fl o w s i n a transaction in which substantially all the risks and rewards of ownership of the financial assets are transferred or in which the Bank neither transfers nor retains substantially all the risks and rewards of ownership and it does not retain control of the financial asset. Any interest in transferred financial assets that qualify for derecognition that is created or retained by the Bank is recognized as a separate asset or liability in the statement of financial position. On derecognition of the financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset derecognised) and the sum of (i) the consideration received (including any new asset obtained less any new liability assumed) and (ii) any cumulative gain or loss that had been recognised in OCI is recognised in profit or loss. Financial assets transferred to external parties that do not qualify for de-recognition are reclassified in the statement of financial position 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 recognition of assets pledged as collateral is at fair value, whilst subsequently measured at amortized cost or fair value as appropriate.

ii) Financial liabilities The Bank derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire. Offsetting Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Bank currently has a legally enforceable 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 such as in the Bank’s trading activity. iii) Reclassifications Financial assets are not reclassified subsequent to their initial recognition, except in the period after the Bank changes its business model for managing financial assets. (iv) Modifications of financial assets and financial liabilities Policy applicable from 1 January 2018 Financial assets If the terms of a financial asset are modified, then the Bank evaluates whether the cash flows of the modified asset are substantially different. If the cash flows are substantially different, then the contractual rights to cash flows from the original financial asset are deemed to have expired. In this case, the original financial asset is derecognised and a new financial asset is recognised at fair value plus any eligible transaction costs. If cash flows are modified when the borrower is in financial difficulties, then the objective of the modification is usually to maximise recovery of the original contractual terms rather than to originate a new asset with substantially different



terms. If the Bank plans to modify a financial asset in a way that would result in forgiveness of cash flows, then it first considers whether a portion of the asset should be written off before the modification takes place. If the cash flow of the modified asset carried at amortised cost are not substantially different, then the modification does not result in derecognition of the financial asset. In this case, the Bank recalculates the gross carrying amount of the financial asset using the original effective interest rate of the asset and recognises the resulting adjustment as a modification gain or loss in profit or loss. If such a modification is carried out because of financial difficulties of the borrower, then the gain or loss is presented together with impairment losses. In other cases, it is presented as interest income Financial liabilities The Bank derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially different. In this case, a new financial liability based on the modified terms is recognised at fair value. The difference between the carrying amount of the financial liability derecognised and consideration paid is recognised in profit or loss. Consideration paid includes non-financial assets transferred, if any, and the assumption of liabilities, including the new modified financial liability. If the modification of a financial liability is not accounted for as derecognition, then the amortised cost of the liability is recalculated by discounting the modified cash flows at the original effective interest rate and the resulting gain or loss is recognised in profit or loss. Policy applicable before 1 January 2018 Financial assets If the terms of a financial asset were modified because of financial difficulties of the borrower and the asset was not derecognised, then

impairment of the asset was measured using the premodification interest rate.

Financial liabilities The Bank derecognised a financial liability when its terms were modified and the cash flows of the modified liability were substantially different. In this case, a new financial liability based on the modified terms was recognised at fair value. The difference between the carrying amount of the financial liability extinguished and consideration paid was recognised in profit or loss. (v) Impairment Policy applicable from 1 January 2018 The Bank recognises loss allowances for ECL on the following financial instruments that are not measured at FVTPL: - financial assets that are debt instruments; - lease receivables; - financial guarantee contracts issued; and - loan commitments issued. No impairment loss is recognised on equity investments. The Bank measures loss allowances at an amount equal to lifetime ECL, except for the following, for which they are measured as 12-month ECL: - debt investment securities that are determined to have low credit risk at the reporting date; and - other financial instruments (other than lease receivables) on which credit risk has not increased significantly since their init ial recognition. The Bank considers a debt investment security to have low credit risk when its credit risk rating is equivalent to the globally understood definition of ‘investment grade’. The Bank does not apply the low credit risk exemption to any other financial instruments. 12-month ECL are the portion of ECL that result from default events on a financial instrument that are possible within the 12 months after the reporting date. Financial instruments for which a



12-month ECL is recognised are referred to as ‘Stage 1 financial instruments’. Life-time ECL are the ECL that result from all possible default events over the expected life of the financial instrument. Financial instruments for which a lifetime ECL is recognised but which are not credit-impaired are referred to as ‘Stage 2 financial instruments.

Measurement of ECL ECL are a probability-weighted estimate of credit losses. They are measured as follows: - financial assets that are not credit-impaired at the reporting date: as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Bank expects to receive); - financial assets that are credit-impaired at the reporting date:as the difference between the gross carrying amount and the present value of estimated future cash flows; - undrawn loan commitments:as the present value of the difference between the contractual cash flows that are due to the Group if the commitment is drawn down and the cash flows that the Bank expects to receive; and - financial guarantee contracts:the expected payments to reimburse the holder less any amounts that the Bank expects to recover. Restructured financial assets If the terms of a financial asset are renegotiated or modified or an existing financial asset is replaced with a new one due to financial difficulties of the borrower, then an assessment is made of whether the financial asset should be derecognised and the ECL are measured as follows.

- If the expected restructuring will not result in derecogintion of the existing asset, then the expected cash flows arising from the modified financial assets are included in calculating the cash shortfalls from the existing asset. - If the expected restructuring will result in derecognition of the existing asset, then the expected fair value of the new assets is treated as the final cash flow from the existing financial asset at the time of its recognition. The amount is included in calculating the cash shortfalls from the existing financial asset that are discounted from the expected date of derecognition to the reporting date using the original effective rate of the existing financial asset.

Credit-impaired financial assets At each reporting date, the Bank assesses whether financial assets carried at amortised cost and debt financial assets carried at FVOCI, and finance lease receivables are credit-impaired (referred to as ‘Stage 3 financial assets’). A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Evidence that a financial asset is credit-impaired includes the following observable data: - significant financial difficulty of the borrower or issuer; - a breach of contract such as a default or past due event; - the restructuring of a loan or advance by the Bank on terms that the Bank would not consider otherwise; - it is becoming probable that the borrower will e n t e r b a n k r u p t c y o r o t h e r fi n a n c i a l reorganisation; or - the disappearance of an active market for a security because of financial difficulties. A loan that has been renegotiated due to a deterioration in the borrower's condition is usually considered to be credit-impaired unless there is evidence that the risk of not receiving contractual cash flows has reduced significantly



and there are no other indicators of impairment. In addition, a retail loan that is overdue for 90 days or more is considered impaired.

Presentation of allowance for ECL in the statement of financial position Loss allowances for ECL are presented in the statement of financial position as follows: - financial assets measured at amortised cost: as a deduction from the gross carrying amount of the assets; - loan commitments and financial guarantee contracts: generally, as a provision; - where a financial instrument includes both a drawn and an undrawn component, and the Bank cannot identify the ECL on the loan commitment component separately from those on the drawn component: the Bank presents a combined loss allowance for both components. The combined amount is presented as a deduction from the gross carrying amount of the drawn component. Any excess of the loss allowance over the gross amount of the drawn component is presented as a provision; and - debt instruments measured at FVOCI: no loss allowance is recognised in the statement of financial position because the carrying amount of these assets is their fair value. However, the loss allowance is disclosed and is recognised in the fair value reserve. Write-off Loans and debt securities are written off (either partially or in full) when there is no reasonable expectation of recovering a financial assets in its entirety or a portion thereof. This is generally the case when the Bank determines that the borrower does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to write-off. Policy applicable before 1 January 2018 Objective evidence of impairment At each reporting date, the Bank assessed whether there was objective evidence that financial assets not carried at FVTPL were impaired. A financial asset or a group of financial

assets was ‘impaired’ when objective evidence demonstrated that a loss event had occurred after the initial recognition of the asset(s) and that the loss event had an impact on the future cash flows of the asset(s) that could be estimated reliably. In addition, a retail loan that was overdue for 90 days or more was considered impaired. Objective evidence that financial assets were impaired included: - significant financial difficulty of a borrower or issuer; - default or delinquency by a borrower; - the restructuring of a loan or advance by the Bank on terms that the Bank would not consider otherwise; - indications that a borrower or issuer would enter bankruptcy; - the disappearance of an active market for a security; or - observable data relating to a group of assets, such as adverse changes in the payment status of borrowers or issuers in the group, or economic conditions that correlated with defaults in the group.

Individual or collective assessment An individual measurement of impairment was based on management’s best estimate of the present value of the cash flows that were expected to be received. In estimating these cash flows, management made judgements about a debtor’s financial situation and the net realisable value of any underlying collateral. Each impaired asset was assessed on its merits, and the workout strategy and estimate of cash flows considered recoverable were independently approved by the Credit Risk function. T h e co l l e c t i v e a l l o w a n c e fo r g ro u p s o f homogeneous loans was established using statistical methods such as roll rate methodology o r, fo r s m a l l p o r t fo l i o s w i t h i n s u ffi c i e n t information, a formula approach based on historical loss rate experience. The roll rate methodology used statistical analysis of



historical data on delinquency to estimate the amount of loss. Management applied judgement to ensure that the estimate of loss arrived at on t h e b a s i s o f h i s to r i c a l i n fo r m a t i o n w a s appropriately adjusted to reflect the economic conditions and product mix at the reporting date. Ro l l ra t e s a n d l o s s ra t e s we re re g u l a r ly benchmarked against actual loss experience. The IBNR allowance covered credit losses inherent in portfolios of loans and advances, and held-to-maturity investment securities with similar credit risk characteristics when there was objective evidence to suggest that they contained impaired items but the individual impaired items could not yet be identified. In assessing the need for collective loss allowance, management considered factors such as credit quality, portfolio size, concentrations and economic factors. To estimate the required allowance, assumptions were made to define how inherent losses were modelled and to determine the required input parameters, based on historical experience and current economic conditions. The accuracy of the allowance depended on the model assumptions and parameters used in determining the collective allowance Loans that were subject to a collective IBNR provision were not considered impaired. Measurement of impairment Impairment losses on assets measured at amortised cost were calculated as the difference between the carrying amount and the present value of estimated future cash flows discounted at the asset’s original effective interest rate. Impairment losses on available-for-sale assets were calculated as the difference between the carrying amount and the fair value. Reversal of impairment If, in a subsequent period, the amount of the impairment loss decreased and the decrease could be related objectively to an event occurring after the impairment was recognised (such as an

improvement in the debtor’s credit rating), the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal was recognised in profit or loss under impairment charge for credit losses. Write-off The Bank wrote off a loan or an investment debt security, either partially or in full, and any related allowance for impairment losses, when Bank Credit determined that there was no realistic prospect of recovery. 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 than three months, which are subject to insignificant risk of changes in their fair value, and are used by the Bank in the management of its short-term commitments. Cash and cash equivalents are carried at amortised cost in the statement of financial position.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.

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. 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.

(g)

(h)

(i)



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 carrying amount of the replaced part is 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 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: Buildings 50 years Computer equipment 3 years Furniture, fittings and office equipment 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 A n i t e m o f p r o p e r t y a n d e q u i p m e n t i s 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 i n p ro fi t o r l o s s i n t h e ye a r t h e a s s e t i s 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.

( j)



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 or minus 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. Prepayment and other receivables Prepayments include costs paid in relation to 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 expected loss on a contract is recognised immediately in profit or loss. Employee benefits (i) Defined contribution plan A d e fi n e d co n t r i b u t i o n p l a n i s a p o s t-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. 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 c a l c u l a t e d b y d iv i d i n g t h e p ro fi t o r l o s s 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.

(k)

(l)

(m)

(n)

(o)

(p)

(q)



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.

New standards and interpretations not yet adopted A number of new Standards, Amendments to Standards, and Interpretations are effective for annual periods beginning on or after 1 January 2019 and early application is permitted; however, the Bank has not applied the new or amended s t a n d a r d s i n p r e p a r i n g t h e s e fi n a n c i a l statements. Those Standards, Amendments to Standards, and Interpretations which may be relevant to the Bank are set out below:

( r )

(s)



Standard not yet effective

IFRS 16 Leases

IFRIC 23 Uncertainty over income tax treatments

Effective date

1 January 2019 Early adoption is permitted.

1 January 2019 Early adoption is permitted.

This standard sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer ('lessee') and the supplier ('lessor'). IFRS 16 eliminates the classification of leases as required by IAS 17 and introduces a single lease accounting model. Applying that model, a lessee is required to recognise:- assets and liabilities for leases with a term of more than 12 months, unless the underlying assets is of low value; - depreciation of lease assets separately from interest on lease liabilities in profit or loss." For the lessor, IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases or finance leases, and to account for these two types of leasers differently. The standard is not expected to have any significant impact on the Bank.

These amendments provide clarity on the accounting for income tax treatments that have yet to be accepted by the tax authorities. The amendment clarifies that the key test for determining the amounts to be recognised in the financial statements is whether it is probable that the tax authority will accept the chosen tax treatment; this could result in an increase in the tax liability or a recognition of an asset depending on the current practice of the Bank.

The following new Standards and Amendments are not expected to have a significant impact on the Bank's financial statements:

Effective date With early adoption permitted, periods beginning on or after 1 January 2019

1 January 2020

1 January 2019 1 January 2020 1 January 2022No effective date; indefinitely deferred

Standard/Amendment

Prepayment Features with Negative Compensation (Amendments to IFRS 9)Plan Amendment, Curtailment or Settlement (Amendments to IAS 19)Annual Improvements to IFRS Standards 2015/2017 Cycle various standardsDefinition of Material (Amendments to IAS 1 and IAS 8)Amendments to References to Conceptual Framework in IFRS StandardsLong-term interests in associates and joint ventures (Amendment to IAS 28)Definition of a Business (Amendments to IFRS 3)IFRS 17 Insurance ContractsSale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28)

Summary of the requirements and impact assessment



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

Market Risk and ALM

Head of ERM

Credit andInvestment Risk

Management

Operational Risk

Management

Board AuditCommittee Board

Board Risk Management

Committee

Managing Director

Operational Risk

ALCO

Credit & Investment Risk

Management Marketing & ALM Risk Management

Internal Audit(Risk Based)

Enterprise Risk Management

Committee

ERM Unit

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

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 analyse 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.

The general organisational structure can be seen below:

Financial risk management (a) Introduction and overview

4



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.

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 compliance with a framework to enforce compliance with applicable laws, rules and standards issued by the industry regulators and other law enforcement agencies, market 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 l o s s e s o r f r o m f r a u d s a n d o p e r a t i o n a l 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 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 perspective on risks that is grounded in 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.

(I)

(ii)

(iii)



Credit risk Credit risk is the risk of financial loss to the Bank if a customer or counterparty to a financial instrument fai ls 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 r o u t i n e l y e x e c u t e s t r a n s a c t i o n s w i t h 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. 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. Th e Ba n k h a s i n p l a c e va r i o u s p o r t fo 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.

RANKOfficer Assistant ManagerDeputy ManagerManagerSenior ManagerAGM/ GMRegional HeadExecutive DirectorManaging Director (MD)

Board Risk Committee

Full Board

MICRON100,000N200,000N200,000N200,000N200,000N200,000N500,000N700,000

N1,000,000

NIL

NIL

MACRON200,000N300,000N400,000N500,000N650,000

N1,000,000N1,500,000N2,000,000N2,500,000

Above N2.5 million to N10 millionAbove

N10 million

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. Significant increase in credit risk When determining whether the risk of default on a financial instrument has increased significantly since initial recognition, the Bank considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Bank’s h i s t o r i c a l e x p e r i e n c e a n d e x p e r t c r e d i t assessment and including forward-looking information. The objective of the assessment is to identify whether a significant increase in credit risk has occurred for an exposure by comparing: - the remaining lifetime probability of default (PD) as at the reporting date; with

The Bank has exposure to the following risks from its financial instruments: - Credit risk - Liquidity risk - Market risk

(b)

( i )

Approval Limit



- the remaining lifetime PD for the point in time that was estimated at the time of initial recognition of the exposure (adjusted where r e l e v a n t f o r c h a n g e s i n p r e p a y m e n t expectations). Credit risk grades The Bank allocates each exposure to a credit risk grade based on a variety of data that is determined to be predictive of the risk of default and applying experienced credit judgement. Credit risk grades are defined using qualitative and quantitative factors that are indicative of risk of default. These factors vary depending on the nature of the exposure and the type of borrower. Credit risk grades are defined and calibrated such that the risk of default occurring increases exponentially as the credit risk deteriorates so, for example, the difference in risk of default between credit risk grades 1 and 2 is smaller than the difference between credit risk grades 2 and 3. Each exposure is allocated to a credit risk grade on init ial recognition based on avai lable information about the borrower. Exposures are subject to on-going monitoring, which may result in an exposure being moved to a different credit risk grade. Corporate exposures - Information obtained during periodic review of c u s t o m e r fi l e s – e . g . a u d i t e d fi n a n c i a l statements, management accounts, budgets and projections. Examples of areas of particular focus are: gross profit margins, financial leverage ratios, debt service coverage, compliance with covenants, quality of management, senior management changes; - data from reference agencies, press articles, changes in external credit ratings; - actual and expected significant changes in the p o l i t i c a l , re g u l a to r y a n d t e c h n o l o g i c a l environment of the borrower or in its business activities. Retail exposures - Internally collected data on customer behaviour

- e.g. utilisation of credit card and facilities; - external data from credit reference agencies, including industry-standard credit scores.

All exposures - payment record - this includes overdue status as well as a range of variables about payment ratios; - utilisation of the granted limit; - requests for and granting of forbearance; and - existing and forecast changes in business, financial and economic conditions. Generating the term structure of PD Credit risk grades are a primary input into the determination of the term structure of PD for exposures. The Bank collects performance and default information about its credit r isk exposures analysed by jurisdiction or region and by type of product and borrower as well as by credit r isk grading. For some portfolios, information purchased from external credit reference agencies is also used. The Bank employs statistical models to analyse the data collected and generate estimates of the remaining lifetime PD of exposures and how these are expected to change as a result of the passage of time. Determination of whether credit risk has increased significantly The Bank assesses whether credit risk has increased significantly since initial recognition at each reporting date. Determining whether an increase in credit risk is significant depends on the characteristics of the financial instrument and the borrower, and the geographical region. The credit risk may also be deemed to have increased significantly since initial recognition based on qualitative factors linked to the Bank’s credit risk management processes that may not otherwise be fully reflected in its quantitative analysis on a timely basis. This will be the case for



exposures that meet certain heightened risk criteria, such as placement on a watch list. Such qualitative factors are based on its expert judgment and relevant historical experiences. If there is evidence that there is no longer a significant increase in credit risk relative to initial recognition, then the loss allowance on an instrument returns to being measured as 12-month ECL. Some qualitative indicators of an increase in credit risk, such as delinquency or forbearance, may be indicative of an increased risk of default that persists after the indicator itself has ceased to exist. In these cases, the Bank determines a probation period during which the financial asset is required to demonstrate good behaviour to provide evidence that its credit risk has declined sufficiently. When contractual terms of a loan have been modified, evidence that the criteria for recognising lifetime ECL are no longer met includes a history of up-to-date payment performance against the modified contractual terms.

The Bank monitors the effectiveness of the criteria used to identify significant increases in credit risk by regular reviews to confirm that: - the criteria are capable of identifying significant increases in credit risk before an exposure is in default; - the criteria do not align with the point in time when an asset becomes 30 days past due; - the average time between the identification of a significant increase in credit risk and default appears reasonable; - exposures are not generally transferred directly from 12-month ECL measurement to credit-impaired; and - there is no unwarranted volatility in loss allowance from transfers between 12-month PD (Stage 1) and lifetime PD (Stage 2). Definition of default The Bank considers a financial asset to be in default when: - the borrower is unlikely to pay its credit obligations to the Bank in full, without recourse

by the Bank to actions such as realising security (if any is held); - the borrower is more than 90 days past due on any material credit obligation to the Bank. Overdrafts are considered as being past due once the customer has breached an advised limit or been advised of a limit smaller than the current amount outstanding; or - it is becoming probable that the borrower will restructure the asset as a result of bankruptcy due to the borrower’s inability to pay its credit obligations. In assessing whether a borrower is in default, the Bank considers indicators that are: - qualitative: e.g. breaches of contract; - quantitative: e.g. overdue status and non-payment on another obligation of the same issuer to the Bank; and - based on data developed internally and obtained from external sources. Inputs into the assessment of whether a financial instrument is in default and their significance may vary over time to reflect changes in circumstances. The definition of default largely aligns with that applied by the Bank for regulatory capital purposes. Measurement of ECL - Explanation of input, assumption and estimation techniques The Expected Credit Loss (ECL) is measured on either a 12-month or lifetime basis depending on whether a significant increase in credit risk has occurred since initial recognition or whether an asset is considered to be credit-impaired. Expected credit losses are the discounted product of the Probability of Default (PD), Exposure at Default (EAD), and Loss Given Default (LGD), defined as follows: - The PD represents the likelihood of a borrower defaulting on its financial obligation either over the next 12 months (12M PD), or over the remaining lifetime (Lifetime PD) of the obligation. - EAD is based on the amounts the Bank expects to be owed at the time of default, over the next 12



months (12M EAD) or over the remaining lifetime (Lifetime EAD). For example, for a revolving commitment, the Bank includes the current drawn balance plus any further amount that is expected to be drawn up to the current contractual limit by the time of default, should it occur. - Loss Given Default (LGD) represents the Bank’s expectation of the extent of loss on a defaulted exposure. LGD varies by type of counterparty, type and seniority of claim and availability of collateral or other credit support. LGD is expressed as a percentage loss per unit of exposure at the time of default (EAD). LGD is calculated on a 12-month or lifetime basis, where 12-month LGD is the percentage of loss expected to be made if the default occurs in the next 12 months and Lifetime LGD is the percentage of loss expected to be made if the default occurs over the remaining expected lifetime of the loan. The ECL is determined by projecting the PD, LGD and EAD for each future month and for each individual exposure or collective segment. These three components are multiplied together and adjusted for the likelihood of survival (i.e. the exposure has not prepaid or defaulted in an earlier month). This effectively calculates an ECL for each future month, which is then discounted back to the reporting date and summed. The discount rate used in the ECL calculation is the o r i g i n a l e ff e c t i v e i n t e r e s t r a t e o r a n approximation thereof. The Lifetime PD is developed by applying a maturity profile to the current 12M PD. The maturity profile looks at how defaults develop on a portfolio from the point of initial recognition throughout the lifetime of the loans. The maturity profile is based on historical observed data and is assumed to be the same across all assets within a portfolio and credit grade band. This is supported by historical analysis. The 12-month and lifetime EADs are determined based on the expected payment profile, which varies by product type.

- For amortising products and bullet repayment l o a n s, t h i s i s b a s e d o n t h e co n t ra c t u a l repayments owed by the borrower over a 12 month or lifetime basis. This will also be adjusted for any expected overpayments made by a b o r r o w e r. E a r l y r e p a y m e n t /r e fi n a n c e assumptions are also incorporated into the calculation. - For revolving products, the exposure at default is predicted by taking current drawn balance and adding a “credit conversion factor” which allows for the expected drawdown of the remaining limit by the time of default. These assumptions vary by product type and current limit utilisation band, based on analysis of the Bank’s recent default data. The 12-month and lifetime LGDs are determined based on the factors which impact the recoveries made post default. These vary by product type. - For secured products, this is primarily based on collateral type and projected collateral values, historical discounts to market/book values due to forced sales, time to repossession and recovery costs observed. - For unsecured products, LGD’s are typically set at product level due to the limited differentiation i n re cove r i e s a c h i eve d a c ro s s d i ffe re n t borrowers. These LGD’s are influenced by collection strategies, including contracted debt sales and price.

Forward-looking economic information is also included in determining the 12-month and lifetime PD, EAD and LGD. These assumptions vary by product type. Exposure to credit risk The Bank's exposure to credit risk is influenced m a i n l y b y t h e c h a r a c t e r i s t i c s o f t h e counterparties. Management considers the default r isk 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

(ii)



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 re d i t p o l i c y a n d c re d i t i n d i s c i p l i n e a re communicated to all staff and implemented. • All conflict of interest situations must be avoided. Investment securities designated at FVTOCI 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 investments in line with the Bank's investment policy as approved by Board which approves investments in equities, placements with local banks and Federal Government Treasury Bills.

Cash and cash equivalents The Bank held cash and cash equivalents with maturity profile of less than or equal to 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 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)(v). Impairment losses have been recognized in profit

or loss and reflected in an allowance account a g a i n s t l o a n s a n d re c e iva b l e s. Th e tot a l impairment allowance during the year ended 31 December 2018 was approximately ?531 million (31 December 2017: ?342 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 p o l i c y r e q u i r e s a p e r i o d i c r e v i e w a n d identification of classified loans deemed to be uncollectible with long outstanding balances of principal and interest. The determination is made after considering 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.

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

(iii)

(iv)

(v)

(vi)

(vii)

(viii)




Cash and cash equivalentsPledged assetsLoans and advances to customersInvestment securitiesTrade and other receivables (excluding prepayments and other assets)

Note

14151617

18

31-Dec-17

5,752,469409,674

9,008,67516,681

55,193

15,242,692

31-Dec-18

4,940,352800,787

10,593,635291,081

162,035

16,787,890

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.

(vii)


South South South West South East North Central North West North East

Due from Banks

354,173 2,501,164

334,833 1,184,993

326,251 146,941

4,848,355

Loans and advances to

customers

1,015,668 4,478,231

627,932 3,044,596 1,381,735

576,685

11,124,847

Total

1,369,841 6,979,395

962,765 4,229,589 1,707,986

723,626

15,973,202

Due from Banks

305,404 3,832,734

73,807 1,048,465

288,662 84,496

5,633,568


customers

815,756 3,811,745

496,705 2,505,268 1,249,387

432,568

9,311,429

Total

1,121,160 7,644,479

570,512 3,553,733 1,538,049

517,064

14,944,997

31 December 2018 31 December 2017

Credit Quality The following table breaks down the Bank’s main credit exposure at their gross amounts, as categorised by performance as at 31 December 2018 and 31 December 2017 respectively.

(viii)

Due from Banks

4,848,355

-

- 4,848,355

(4,561) 4,843,794


customers

10,593,635

153,252

377,960 11,124,847

(531,212) 10,593,635

Total

15,441,990

153,252

377,960 15,973,202

(535,773) 15,437,429

Due from Banks

5,633,568

-

- 5,633,568

- 5,633,568


customers

9,008,675

97,253

205,501 9,311,429

(302,754) 9,008,675

Total

14,642,243

97,253

205,501 14,944,997

(302,754) 14,642,243


12 months ECLLifetime ECL not credit impairedLifetime ECL credit impairedGross amount

ECL impairmentCarrying amount




External rating grade (S&P)

2017

Stage 1 Stage 2 Stage3

-

-

-

-

4,944,913

-

-

5,633,568

-

-

-

-

-

-

-

-

Gross carrying amount 4,944,913

-

-

5,633,568

(4,561)

-

-

-

4,940,352

-

-

5,633,568

2017


-

-

-

-

801,383

-

-

409,674

-

-

-

-

-

-

-

-

Gross carrying amount 801,383

-

-

409,674

(596)

-

-

-

800,787

-

-

409,674

2017


- - - -

- - - - - - - -

9,861,763 298,462 964,622 9,311,429 Gross carrying amount 9,861,763 298,462 964,622 9,311,429

(153,252) (3,785) (374,175) (302,754) 9,708,511

294,677

590,447

9,008,675

2017


-

-

-

-

In thousands of Naira

Trade and other receivables

2018


Cash and cash equivalents


2018


Loans and advances

2018

2018

-

-

-

-

- - - -

-

-

162,035

55,193

Gross carrying amount -

-

162,035

55,193

-

-

(158,498)

(39,595)

- - 3,537

Total

-

4,944,913

-

-

4,944,913

(4,561)

4,940,352

Total

-

801,383

-

-

801,383

(596)

800,787

Total

-

- -

11,124,847 11,124,847

(531,212) 10,593,635

Total

-

-

-

162,035

162,035

(158,498)

3,537 15,598

Unrated

Loss allowance

Carrying amount

Unrated

Loss allowance

Carrying amount

Unrated

Loss allowance

Carrying amount

Unrated

Loss allowance

Carrying amount

AAA - A

BBB - B

AAA - A

BBB - B

Below B

Pledged assets

AAA - A

BBB - B

Below B

Below B

AAA - A

BBB - B

Below B

Credit risk exposure The following table sets out information about the credit quality of financial assets measured at amortised cost. Unless, specifically indicated, for financial assets, the amounts in the table represent gross carrying amounts.

(ix)



Loss allowance Measurement basis under IFRS 9 "The following tables show reconciliation from the opening to the closing balance of the loss allowance of financial instrument. Comparative amount for 2017 represent allowance account for credit losses and reflect measurement basis under IAS 39."

(x)

Cash and cash equivalent

12-month ECL

Lifetime ECL

not credit

impaired

Lifetime

ECL credit

impaired Total

Specific

Impairment

Collective

Impairment Total

3,179 - - 3,179 - - -

1,382 - - 1,382 - - -

- - - - - - -

4,561 - - 4,561 - - -

Pledged assets

12-month ECL

Lifetime ECL

not credit

impaired

Lifetime

ECL credit

impaired Total

Specific

Impairment

Collective

Impairment Total

229 - - 229 - - -

367 - - 367 - - -

- - - - - - -

596 - - 596 - - -

Balance at 1 JanuaryNet measurement on loss allowance (see note 11)

Write-offs during the year

Balance at 31 December


Balance at 1 JanuaryNet measurement on loss allowance (see note 11)




12-month ECL

Lifetime ECL

not credit

impaired

Lifetime

ECL credit

impaired Total

Specific

Impairment

Collective

Impairment Total

128,324 5,002 78,503 211,829 43,510 74,808 118,318

24,928 (1,217) 300,213 323,924 163,806 22,445 186,251

- - (4,541) (4,541) (1,815) - (1,815)

153,252 3,785 374,175 531,212 205,501 97,253 302,754

Loan and advances to

customers

Balance at 1 January

Net measurement on loss allowance (see note 11)






12-month ECL

Lifetime ECL

not credit

impaired

Lifetime

ECL credit

impaired Total

Specific

Impairment

Collective

Impairment Total

- - 37,422 37,422 - - -

- - 121,076 121,076 - - -

- - - - - - -

- - 158,498 158,498 - - -

Trade and other

receivables

Balance at 1 January

Net measurement on

note 11)



loss allowance (see


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. The Bank’s liquidity risk exposure is monitored and managed by senior management on a

( i )

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. 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.

(ii)



31 December 2018

In thousands of naira Note

Carrying

amount Total

Up to 3

months 3 - 6 months

6 months - 1

year Over 1 year

Non-derivative financial liabilities

Deposits from customers 20 10,465,119

(11,260,803)

(9,161,811) (1,064,582)

(1,034,410)

-

22 16,001

(19,484)

(3,518)

(3,518)

(3,247)

(9,201)

Borrowings 23 2,078,843

(2,386,855)

(1,957,516) (60,000)

(45,205)

(324,134)

12,559,963

(13,667,142)

(11,122,845) (1,128,100)

(1,082,862)

(333,335)

31 December 2017


Carrying

amount Total

Up to 3

months 3 - 6 months

6 months - 1

year Over 1 year

Non-derivative financial liabilities

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)

Expected cash flows

Other liabilities (excluding

accounts payable, sundry

creditors, accruals, other

payables, unearned income

& productivity bonus)

Expected cash flows

Deposits from customers

Other liabilities (excluding

accounts payable, sundry

creditors, accruals, other

payables, pension payable &

productivity bonus)

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:

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.

(ii)



In thousands of naira 2018 2017

At 31 December 50% 63%

Average for the period 56% 48%

Maximum for the period 66% 63%

Minimum for the period 47% 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 c o n t i n u e d t o d e v e l o p i t s m a r k e t r i s k management framework. The operations of the f u n d m a n a g e r s i n co n n e c t i o n w i t h t h e 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 r isks exposures are broadly categorised into:(I) Trading market risks - These are risks that arise primarily through trading activities and market

1

2

3

4

5

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.

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.

(I)

(ii)



31 December 2018

In thousands of naira NoteCarrying amount Total

Up to 3 months 3 - 6 months

6 months - 1 year

Over 1 year

Assets

Cash and cash equivalents 14 4,940,352 5,374,540 5,374,540 -

- -Pledged assets 15 800,787

623,586 623,586 -

- -Loans and advances to customers

16 10,593,635

14,402,260 3,286,503 2,067,479 3,485,777 5,562,501

16,334,774

20,400,386

9,284,629 2,067,479

3,485,777 5,562,501LiabilitiesDeposits from customers 20 (10,465,119) (11,260,803) (9,161,811) (1,064,582)

(1,034,410) -

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

22 (16,001)

(19,484)

(3,518)

(3,518)

(3,247) (9,201)

Borrowings 23 (2,078,843)

(2,386,855)

(1,957,516) (60,000)

(45,205) (324,134)(12,559,963) (13,667,142) (11,122,845) (1,128,100)

(1,082,862) (333,335)

3,774,811 6,733,244 (1,838,216) 939,379 2,402,915 5,229,166

Contractual cash flows

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

31 December 2017

In thousands of naira NoteCarrying amount Total

Up to 3 months 3 - 6 months

6 months - 1 year Over 1 year

AssetsCash 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 4,925,145 LiabilitiesDeposits 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) (10,776,279) (10,870,084) (10,159,567) (234,043) (91,891) (384,583)

4,394,539 6,073,067 (2,069,195) 1,169,554 2,432,146 4,540,562

Contractual cash flows



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-18 31-Dec-17


Increase in interest rate by 200 basis points (+2%) 73,513 79,970

Decrease in interest rate by 200 basis point (-2%) (73,513) (79,970)

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

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. In its circular dated 22 October 2018, the Central Bank of Nigeria (CBN) raised the minimum paid-up capital for national microfinance banks from N2 billion to N5 billion. The CBN's directive is to take effect from 1 April 2020. This requirement has been captured in the Bank's strategic plan and the Bank has a plan to have a hybrid offer (rights and public) in 2019 in order to meet up with this directive. 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 N5 billion, while a minimum ratio of 10% is to be maintained.

(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.




Tier 1 capitalOrdinary share capital 24 1,143,328 1,143,328Share premium 25 1,517,485 1,517,485Retained earnings 25 318,690 728,276Regulatory risk reserves 25 420,914 139,090Statutory reserves 25 1,248,579 1,224,110

Total regulatory capital (Tier 1) 4,648,996 4,752,289

Tier 2 capitalCollective impairment 16(c) 3,785 97,253Total tier 2 capital 3,785 97,253

Total regulatory capital 4,652,781 4,849,542

Risk-weighted assets 12,016,570 9,872,133

Capital ratiosTotal regulatory capital expressed as a percentage of total risk-weighted assets 39% 49%Total tier 1 capital as a percentage of total risk-weighted assets 39% 48%

31-Dec-18 31-Dec-17



i) Stage 1: 12-month ECLFor exposures where there has not been a significant increase in credit risk since initial recognition and that are not credit-impaired upon origination, the portion of the lifetime ECL associated with the probability of default events occurring within the next 12 months is recognised. Interest income is calculated by applying the effective interest rate to the gross carrying amount.

ii) Stage 2: Lifetime ECL - not credit-impairedFor credit exposures where there has been a significant increase in credit risk since initial recognition but are not credit-impaired, a lifetime ECL is recognised. Interest income is calculated by applying the effective interest rate to the gross carrying amount.

iii) Stage 3: Lifetime ECL - credit-impairedFinancial assets are assessed as credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of that asset have occurred. As this uses the same criteria as under IAS 39, the Bank's methodology for specific provision remains unchanged. For financial assets that have become credit-impaired, a lifetime ECL is recognised and interest income is calculated by applying the effective interest rate to the amortised cost rather than the gross carrying amount.

At each reporting date, the Bank assesses whether there has been a significant increase in credit risk for financial assets since initial recognition by comparing the risk of default occurring over the expected life between the reporting date and the date of initial recognition.In determining whether credit risk has increased significantly since initial recognition, the Bank uses its internal credit risk grading system, external risk ratings and forecast information to assess deterioration in credit quality of a financial asset.

5 Use of estimates and judgmentsThe 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 on-going 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).

Key sources of estimation uncertainty(a) ImpairmentIFRS 9 impairment requirements are based on an expected credit loss model (ECL), replacing the incurred loss model under IAS 39. Key changes in the Bank's accounting policies for impairment of financial assets are listed below.The Bank applies a three-stage approach to measuring expected credit losses (ECL) on debt instruments accounted for at amortised cost, FVOCI, loan commitment and financial guarantee contracts. Assets migrate through the following three stages based on the change in credit quality since initial recognition.



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).

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 s i g n i fi c a n t u n o b s e r va b l e a d j u s t m e n t s o r 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.

The Bank assesses whether the credit risk on a financial asset has increased significantly on an individual or collective basis. For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of shared credit r i s k c h a ra c t e r i s t i c s, t a k i n g i n to a c co u n t instrument type, credit risk ratings, date of initial recognition, remaining term to maturity, geographical location of the borrower and other relevant factors.

The amount of ECL is measured as the probability-weighted present value of all cash shortfalls over the expected life of the financial asset discounted at its original effective interest rate. The cash shortfall is the difference between all contractual cash flows that are due to the Bank and all the cash flows that the Bank expects to receive. The amount of the loss is recognised using an allowance for credit losses account.

The Bank considers its historical loss experience and adjusts this for current observable data. In a d d i t i o n , t h e B a n k u s e s re a s o n a b l e a n d supportable forecasts of future economic conditions including experience judgement to estimate the amount of an expected impairment loss. IFRS 9 introduces the use of macroeconomic factors which include, but not l imited to, unemployment, interest rates, gross domestic product, inflation, and requires an evaluation of both the current and forecast direction of the economic cycle. Incorporating forward looking information increases the level of judgement as to how changes in these macroeconomic factors will affect ECL. The methodology and assumptions including any forecasts of future economic conditions are reviewed regularly.

(b) Fair valueThe 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



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 wo u l d h ave b e e n d e t e r m i n e d b y m a r k e t 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 Total

Investment securities 17 3,787 10,489

-

14,2763,787 10,489

-

14,276

2017ASSETSInvestment securities 17 5,281 11,400 - 16,681

5,281 11,400 - 16,681

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.

2018

ASSETS

31 December 2018

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

value

Total carrying amount

ASSETSCash and cash equivalents 14 340,463 4,603,870 - 4,944,333 4,940,352 Pledged assets 15 466,139 357,149 - 823,288 800,787 Loans and advances to customers 16 - -

11,770,932 11,770,932 10,593,635 Investment securities at amortised cost 17 242,938 -

- 242,938 276,805

Trade and other receivables (excluding prepayments and other assets)

18 - -

162,035 162,035 162,035

1,049,540 4,961,019 11,932,967 17,943,526 16,773,614

LIABILITIESDeposits from customers 20 - 10,465,119 - 10,465,119 10,465,119 Other liabilities 22 - 16,001 - 16,001 16,001

Borrowings 23 - 2,386,855 - 2,386,855 2,078,843 - 12,867,975 - 12,867,975 12,559,963

31 December 2017

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

value

Total 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



(c) 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 i m p a i r m e n t e x i s t s. Th e B a n k a p p l i e s t h e impairment assessment to its separate cash generating units. This requires management to make significant judgements and estimates co n c e r n i n g t h e e x i s t e n c e o f i m p a i r m e n t 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.

(d) Income taxes 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. (e) Determination of regulatory risk reserves Provisions under prudential guidelines are determined using the time based provisioning regime prescribed by the Central Bank of Nigeria's (CBN) Amended Regulatory and Supervisory

Guidelines for Microfinance Banks. This is at variance with the expected credit loss model required by IFRS 9. As a result of the differences in the methodology/provision regime, there will be variances in the impairments allowances required under the two methodologies. Pa ra g ra p h 1 2 . 4 o f t h e rev i s e d Pr u d e n t i a l 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:

(I) 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: where Prudential provisions is greater than IFRS provisions: the excess provision resulting should be transferred from the retained reserve account to a non-distributable "regulatory risk reserve". where Prudential impairment provisions is less than IFRS provisions: the excess charges resulting should be transferred from the Regulatory Risk Reserve account to the Retained Earnings to the extent of the non-distributable reserve previously recognised. (ii) The non-distributable reserve should be classified under Tier 1 as part of the core capital. The Bank has complied with the requirements of the guidelines as follows:



Prudential adjustments for the year ended 31 December 2018


Impairment assessment under IFRS

Loan and advances:

Stage 1 16 (c) 153,252

Stage 2 16 (c) 3,785

Stage 3 16 (c) 374,175

Total impairment allowances on loans (a) 531,212

Total impairment allowances (a) 531,212

Total regulatory impairment based on prudential guidelines (b) 952,126

Required balance in regulatory risk reserves (c = b - a) 420,914

Balance, 1 January 2018 230,015

Transfer from retained earnings 190,899

Balance, 31 December 2018 420,914

Prudential adjustments for the year ended 31 December 2017


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

Transfer to retained earnings (11,408)

Balance, 31 December 2017 139,090



6 Financial assets and financial liabilitiesAccounting classification measurement basis and fair values

The table below sets out the carrying amounts classification and fair values of the Bank’s financial assets and financial liabilities:

31 December 2018


Fair value through profit or

loss

Fair value through

OCI

Amortised cost

Total carrying amount Fair value

Cash and cash equivalents 14 -

-

4,940,352

4,940,352

4,944,333Pledged assets 15 -

-

800,787

800,787

823,288Loans and advances to customers 16 -

- 10,593,635

10,593,635

11,770,932Investment securities 17 -

14,276

276,805

291,081

257,214Trade and other receivables (excluding prepayments and other assets)

18 -

- 162,035

162,035

162,035

-

14,276

16,773,614

16,787,890

17,957,802

Deposits from customers 20 -

- 10,465,119

10,465,119

10,465,119

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

22

-

-

243,547

243,547

243,547

Borrowings 23 - - 2,078,843 2,078,843 2,386,855-

- 12,787,509

12,787,509

13,095,521

31 December 2017


Loans and

receivables

Available-for-sale

financial assets

Other financial

liabilities

Total carrying

amount Fair value

Cash and cash equivalents 14 5,752,469 - - 5,752,469 5,755,741Pledged assets 15 409,674 - 409,674 409,526Loans and advances to customers 16 9,008,675

- -

9,008,675

10,080,985Investment securities 17 -

16,681

-

16,681

16,681Trade and other receivables (excluding prepayments and other assets)

18 55,193

- -

55,193

55,193

15,226,011

16,681

-

15,242,692

16,318,126

Deposits from customers 20 -

- 9,126,494

9,126,494

9,126,494Other liabilities (excluding accounts payable, sundry creditors, accruals, other payables, unearned income and productivity bonus)

22 -

- 215,185

215,185

215,185

Borrowings 23 -

- 1,550,468

1,550,468

1,290,622

- - 10,892,147 10,892,147 10,632,301

Financial instruments at fair value are either priced with reference to a quoted market price for that instrument or by using a valuation model. Where the fair value is calculated using a valuation model, the methodology is to calculate the expected cash flows under the terms of each specific contract and then discount these values back to a present value. The expected cash flows for each contract are determined either directly by reference to actual cash flows implicit in observable market prices or through modelling cash flows using appropriate financial markets pricing models. Wherever possible, these models are used as the basis of observable market prices and rates including, for example, interest rate, yield curves, equities and prices.




7 Interest incomeLoans and advances 2,455,061 2,125,018Bankers acceptances 127,642 58,500Placements with local banks 377,822 421,895

2,960,525 2,605,413

8 Interest expenseTerm deposits 329,305 243,510Current deposits 11,041 8,704Savings deposits 17,776 10,803Borrowings 71,899 55,881

430,021 318,898

9 Fees and commission incomeCredit-related fees and commission 587,253 635,198Deposit-related fees and commission 146,307 144,680

733,560 779,878

10 Other incomeIncome on salary administration 217,015 202,469Profit on disposal of available-for-sale financial assets -

15,274Service fees and charges 36,004 50,589Profit on disposal of property and equipment 3,273 1,228Dividend income -

24256,292 269,584

11 Net impairment loss on financial assetsImpairment loss on loans and advances to customers: Specific impairment (see 16(c)) 300,213 163,806 Collective impairment (see 16(c)) 23,711 22,445

323,924 186,251Impairment loss/(write-back) on investments (see note 17(b)) -

(157)

Impairment loss/(write-back) on other receivables (see note 18(a)) 121,076 (1,167)

Impairment loss on cash and cash equivalent (see note 14(b)) 1,382 -

Impairment loss on pledged assets (see note 15(b)) 367 -

446,749 184,927

12 Personnel expensesShort-term employee benefits 1,114,978 1,146,948Post-employment benefits: Defined contribution plan - pension cost 59,882 46,967Other staff cost 167,014 112,858

1,341,874 1,306,773

Included in the interest income above is a N34.9 million with respect to impaired financial assets for the year ended 31 December 2018 (2017: N16 million). Total interest income reported above relates to financial assets measured at amortised cost using the applicable effective interest rates.

Total interest expense reported above relates to financial liabilities measured at amortised cost using the applicable effective interest rates.




13 Administration and general expenses

Repairs and maintenance cost 71,091 90,547

Vehicle and generator running cost 89,330 80,192

Office expenses 113,843 92,192

Computer expenses 76,094 59,209

Travel expenses 53,460 39,643

AGM and year-end expenses 54,459 48,538

Directors' remuneration 140,453 116,563

Bank charges 38,312 35,524

Marketing/publicity expenses 112,564 113,287

Professional fees 30,498 21,315

Subscription fees 4,278 3,525

Charges and levies 43,185 31,751

Insurance cost 39,151 26,575

NDIC premium 42,347 30,374

Rent and rates 26,391 31,784

Auditor's remuneration 18,500 17,000

Tax expense -

-

Fraud, forgery and theft 231,390 -

25th year anniversary expense 30,252 -

Other expenses (see note a) 52,108 63,651

1,267,706 901,670

(a) Other expenses includes the following:

Corporate social responsibility 4,283 6,642

Donations 4,312 5,805

Electricity expenses 12,813 16,790

Recruitment expenses 4,987 3,486

Damaged ATM cards 3 38

Loan recovery expenses 93 618

Fines 105 -

Stamp duties 154 -

Legal expenses 11,280 5,723

SMS alerts 11,827 15,557

Bad debts written off 3 763

Share listing expenses 2,143 1,985

WHT expense -

4,219

Miscellaneous expenses 105 2,025

52,108 63,651



14 Cash and cash equivalents

(a) Cash and cash equivalent comprise:

Cash-in-hand:

Cash-in-hand 96,558 118,901

96,558 118,901

Due from banks:

Current account balances with other banks 1,172,711 1,635,073

Money market placements 3,334,601 3,462,172

Treasury Bills 341,043 536,323

4,848,355 5,633,568

Cash and cash equivalents for cash flow purposes: 4,944,913 5,752,469

Impairment allowance (see note (b) below) (4,561)

-

Cash and cash equivalents 4,940,352 5,752,469

(b) Movement in impairment allowance:

Balance at 1 January -

-

IFRS 9 transition adjustment 3,179 -

Impairment allowance (see note 11) 1,382 -

4,561 -

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. Pledged assets Pledged assets, initially recognised at fair value and subsequently measured at amortised cost, 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 description

BOI concessionary loan Sterling Bank Plc Treasury Bills 239,103 51,284

BOI concessionary loan Sterling Bank Plc Fixed placement 262,116 263,408

DBN concessionary loan Development Bank of Nigeria Treasury Bills 205,131 -

NIBSS Platform First Bank of Nigeria Plc Fixed placement 75,033 74,982

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

801,383 409,674

Impairment allowance (see note (b) below) (596) -

800,787 409,674

Current 800,787 409,674

Non-current - -

800,787 409,674(b) Movement in impairment allowance:

Balance at 1 January - -

IFRS 9 transition adjustment 229 -

Impairment allowance (see note 11) 367 -

596 -



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

Loan and advances to customers at amortised cost 10,593,635 9,008,675

10,593,635 9,008,675

Current 1,753,876 3,162,726Non-current 8,839,759 5,845,949

10,593,635 9,008,675

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

Gross Amount

ECL

Allowance

Carrying

Amount

Gross

Amount

Impairment

Allowance

Carrying

Amount

Term loans 10,257,934 (458,590)

9,799,344 8,894,640 (187,047)

8,707,593Overdrafts 866,913 (72,622)

794,291 416,789 (115,707)

301,082

11,124,847 (531,212)

10,593,635 9,311,429 (302,754)

9,008,675

(c)Movement in allowances for impairment

12-month ECL

Lifetime ECL not credit

impaired

Lifetime ECL credit

impaired Total

Specific

Impairment

Collective

Impairment Total

Balance at 1 January 128,324

5,002

78,503

211,829

43,510 74,808 118,318

Charge during the year (see note 11) 24,928

(1,217)

300,213

323,924

163,806 22,445 186,251

Write-offs during the year -

-

(4,541)

(4,541)

(1,815)

- (1,815)

Balance at 31 December 153,252

3,785

374,175

531,212

205,501 97,253 302,754

201717 Investment securities

Investment securities comprise:

Investment securities measured at FVTOCI:

Equity securities:

Listed equities 3,787 5,281

Unlisted equities 10,489

11,400

14,276

16,681Investment securities at amortised cost

Treasury bills 276,805

-

Total investment securities 291,081 16,681

Current 291,081 16,681

Non-current - -

291,081 16,681

2017

31 December 2017

2018

31 December 2018

2018



18 Trade and other receivables

Prepayments 265,181 133,477Other assets (see note (a) below) 33,033 23,803Other receivables (see note (b) below) 162,035 55,193

460,249 212,473Impairment allowance (see note (c ) below) (158,498)

(39,595)

301,751 172,878

Current 96,875 85,165Non-current 204,876 87,713

301,751 172,878

Balance at 1 January 39,595 40,762

Impact of adoption of IFRS 9 (Note 2(ii)) (2,173)

-

(Write-back)/charge during the year (see note 11) 121,076 (1,167)

Balance at 31 December 158,498 39,595

(a) 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. (b) Other receivables includes staff cash advances, sundry debtors and asset suspense accounts. ( c ) Movement in impairment allowances:



19 Property and Equipment

BuildingsFurniture

and FittingsMotor

Vehicles

Computer and Office

Equipment Total

Cost: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

Balance as at 1 January 2018 266,128

59,988

278,274

254,189

858,579

Additions during the year 13,921

11,927

144,995

84,011

254,854

Disposals -

(677)

-

-

(677)


71,238

423,269

338,200

1,112,756

Accumulated Depreciation: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)


29,061

110,572

94,533

266,615

Balance at 1 January 2018 32,449 29,061 110,572 94,533

266,615

Charge for the year 6,380

10,579

84,875

75,038

176,872

Disposals -

(677)

-

-

(677)


38,963

195,447

169,571

442,810

Net Book Value: 31 December 2017 233,679

30,927

167,702

159,656

591,964

Net Book Value: 31 December 2018 241,220

32,275

227,822

168,629

669,946

- There were no capitalised borrowing costs related to the acquisition of property and equipment during the year (2017: Nil).

- There were no impairment losses on any class of property and equipment during the year (2017: Nil).- There were no property and equipment pledged as securities for liabilities (2017: Nil).- There were no contractual commitments for the acquisition of property and equipment (2017: Nil).

31 December 2018

31 December 2017

Current -

-

Non-current 669,946 591,964

669,946 591,964





20 Deposits from customers

Current deposits 3,439,928 3,266,736

Savings deposits 2,252,357 2,090,106

Term deposits 4,478,357 3,470,848

Sundry deposits 294,477 298,804

10,465,119 9,126,494

Current 10,465,119 9,126,494

Non-current - -

10,465,119 9,126,494

21 Income taxes

(a) Amounts recognized in profit or loss

Current tax expense

Company income tax 64,451 125,019

Education tax 9,311 13,134

National Information Technology Development Agency (NITDA) levy 2,843 8,117

76,605 146,270

Deferred tax expense

Origination and reversal of temporary differences - Charge/(Credit) 14,801 41,659

14,801 41,659

Tax expense 91,406 187,929

Balance at 1 January 146,270 199,571

Income tax expense (see note (a) above) 76,605 146,270

Tax paid (135,793) (199,571)

Balance at 31 December 87,082 146,270

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

2018Balance at 1

January

Recognized in

profit or loss

(see (a))

Recognized in

OCI

Balance at 31

December

Property and equipment 104,384 19,097

-

123,481

Loans and advances (29,176) (17,935)

-

(47,111)

Employee benefits (13,639) 13,639

-

-

Deferred tax (assets)/liabilities 61,569 14,801

-

76,370



2017

Balance at 1

January

Recognized in

profit or loss

(see (a))

Recognized in

OCI

Balance at 31

December

Property and equipment 86,721 17,663 -

104,384

Loans and advances (22,443) (6,733)

-

(29,176)

Employee benefits (44,368) 30,729

-

(13,639)

Deferred tax (assets)/liabilities 19,910 41,659 61,569

(d) Reconciliation of effective tax rate


Profit before tax 287,155 819,819

Tax using the Company's domestic tax rate 30.00% 86,147 30.00% 245,946

Non-deductible expenses 47.05% 135,100 7.80% 63,957

Tax-exempt items -49.45% (141,995) -17.47% (143,225)

Tertiary Education Tax 3.24% 9,311 1.60% 13,134

NITDA Levy 0.99% 2,843 0.99% 8,117

31.83% 91,406 22.92% 187,929

2018 2017


22 Other liabilities

Accounts payable 7,935 5,202

Productivity bonus (see note (a) below) 29,299 100,066

Sundry creditors 82,066 53,838

Staff benefits payable (see note (b) below) 16,001 99,317

Accruals 81,338 54,023

Other payables 23,432 411

Unearned income 3,476 2,394

243,547 315,251

Current 243,547 315,251

Non-current - -

243,547 315,251

(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:

2018 2017

Balance, beginning of year 99,317 180,208

Addition during the period - -

Interest accrued during the period 16,001 32,003

Liability repayment during the period (97,522) (102,432)

Interest repayment during the period (1,795) (10,462)

Balance, end of year 16,001 99,317

23 Borrowings

(a) Borrowings comprise:

BOI concessionary loan (see note (i) below) 230,606 456,040

CBN concessionary (see note (ii) below) 983,562 1,000,242

DBN concessionary loan (see note (iii) below) 779,369 94,186

CBN housing microfinance loan (see note (iv) below) 85,306 -

2,078,843 1,550,468

Current - -

Non-current 2,078,843 1,550,468

2,078,843 1,550,468

(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% 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 years and it is 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 N830 million was granted to the Bank on 12 October 2018. The loan is for a duration of 2 years at an interest rate of 13.79% per annum. 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.

(iv) The Central Bank of Nigeria (CBN) housing microfinance loan of N91.74 million was granted to the Bank on 18 May 2018 at an interest rate of 15.99% per annum. The loan tenor is 5 years and it is for on-lending to the Bank's customers to take care of their housing needs.



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

2018 2017

Balance, beginning of year 1,550,468 349,249

Additions during the year 921,740 1,600,000

Interest accrued during the year 71,899 55,816

Repayment during the year (465,264) (454,597)

Balance, end of year 2,078,843 1,550,468

24 Share capital

Authorised:

6,000,000,000 units of ordinary shares of 50 kobo each 3,000,000 3,000,000

Issued and fully paid:

2,286,657,766 units of ordinary shares of 50 kobo each 1,143,329 1,143,329

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) Fair value reserve Fair value reserve comprise the cumulative net change in the fair value of equity securities designated at fair value

through other comprehensive income (2017: available-for-sale). (d) 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 .

2018 2017

Balance at 1 January 1,224,110 1,145,124

Transfer to statutory reserve during the year 24,469 78,986

Balance at 31 December 1,248,579 1,224,110

(e) 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 expected credit loss (ECL) model under IFRS.



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 benefits 71,001 71,001Retirement benefits 21,790 25,350

92,791 96,351

(ii) Loans and advances

At start of the year 32,086 24,236Granted during the year 122,909 15,846Repayment during the year (39,401)

(7,996)At end of the year 115,594 32,086

Interest earned 2,012 716

Loans and advances outstanding:


Name Relationship Facility typeAmount granted 31 Dec. 2018 31 Dec. 2017 Status Security

Mr. Akinwunmi Lawal Managing Director Housing loan 36,735 31,634 6,834 PerformingCertificate of

occupancy

Mr. Jude Ohanehi Executive Director Housing loan 43,013 39,429 8,114 PerformingCertificate of

occupancy

Mr. Akinwunmi Lawal Managing Director Vehicle loan 8,500 - 1,653

Mr. Jude Ohanehi Executive Director Vehicle loan 7,500 417 1,667 Performing UnsecuredMr. Jude Ohanehi Executive Director Personal loan 2,300 - 958 Performing Unsecured

Mr. Francis Nelson Executive Director Housing loan 42,027 36,190 7,173 PerformingCertificate of

occupancy

Mr. Francis Nelson Executive Director Vehicle loan 8,900 - 1,731

Mr. Francis Nelson Executive Director Personal loan 1,500 563 1,312 Performing Unsecured

Prince Eke IfeanyiNon-Executive

DirectorOverdraft 7,300 7,361 2,644 Performing Unsecured

157,775 115,594 32,086

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

All loans granted to key management personnel were performing as at 31 December 2018 (2017: Performing).

The amounts granted and their balances as at 31 December 2018 were as follows:

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 favourable 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 .

26



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


Name Relationship Type of deposit31 December

201831 December

2017Mr Joel Udah Chairman Current deposit 129 1,135 Mrs Gimba Dorothy Non-Executive Current deposit - 241 Mr Wabali Emmanuel Non-Executive Current deposit 250 1,898 Mr Daramola Joseph Non-Executive Current deposit - 970 Prince Eke Ifeanyi Non-Executive Current deposit - - Mr Abubakar Audu Non-Executive Current deposit - 2,351 Mr Saeed Dantsoho Non-Executive Current deposit 28,770 5,990 Mr Saeed Dantsoho Non-Executive Term deposit 400,986 - Mr Ohanehi Jude Executive Director Current deposit 28 6,783 Mr Lawal Akinwunmi Managing Director Current deposit 1,943 7,040 Mr Francis Nelson Executive Director Current deposit 22 4,072 Mr Jibrin G. Gane Non-Executive Current deposit 3,258 1,147 Mr Olusholla B. David Non-Executive Current deposit 9,902 3,785 Mr Hashimu Argungu Non-Executive Current deposit 518 - Mr Abdurahman Satumari Non-Executive Current deposit 5,164 - Mrs Rakiya Edota Shehu Non-Executive Current deposit 5,396 -

456,366 35,412

(b) Deposits of other related parties


Name of company/individual

Relationship Type of deposit31 December

201831 December

2017NPF Cooperative Society Limited

Major shareholder Current deposit 651 2,873

NPF Cooperative Society Limited

Major shareholder Term deposit - 1,311,093

NPF Welfare Insurance Scheme

Major shareholder Current deposit 90,852 45,345

NPF Welfare Insurance Scheme

Major shareholder Term deposit - 551,697

91,503 1,911,008

(iv) Transaction with related parties

Included in deposits is an amount of N0.092 billion (31 December 2017: N1.91 billion), representing deposits from major shareholders. The balances as at 31 December 2018 were as follows:

The Chairman, 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 in 2016 for a 3-year duration at a cost of N5,610,000.

27 EMPLOYEES AND DIRECTORS

EMPLOYEES 2018 2017

(a) The average number of persons employed during the year by category:

Executive Directors 3 3

Management 51 43

Non-management 320 268

374 314



(b )

Less than N500,000 - -

N500,001 - N1,000,000 15 11

N1,000,001 - N2,500,000 202 213

N2,500,001 - N3,500,000 91 40

N3,500,001 - N4,500,001 27 13

N4,500,0001 - N5,500,000 13 20

N5,500,001 and above 26 17

374 314

(c) Diversity in Employment

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

i). A total of 229 women were employed by the Bank during the year ended 31 December 2018 (2017: 129), which represents 61% of the total workforce (2017: 41%).

ii). A total of 7 women were in top management positions as at the year ended 31 December 2018 (2017: 4), which represents 30% of the total top management workforce (2017: 22%). 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:

GRADE LEVEL Male Female Total Male Female Total

Manager (M) 11 5 16 7 2 9 Senior Manager (SM) 2 - 2 1 - 1 Assistant General Manager (AGM) 3 - 3 3 - 3 Deputy General Manager (DGM) 3 1 4 3 1 4 General Manager (GM) - 1 1 - 1 1 TOTAL 19 7 26 14 4 18

(d) DIRECTORS

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

Managing Director 1 - 1 1 - 1 Executive Directors 2 - 2 2 - 2 Non - Executive Directors 7 1 8 6 - 6

TOTAL 10 1 11 9 - 9

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

In thousands of naira 2017

Fees and sitting allowances 74,532

46,658

Other Directors' expenses 65,921

69,905

Total Non-executive Directors' remuneration (see note 13) 140,453

116,563

Executive compensation (see note 26(a)(i)) 71,001 71,001

211,454 187,564

December 2018 December 2017

December 2018 December 2017

2018

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.



The Directors' remuneration shown above includes:

The Chairman 12,510 12,510

Highest paid Director 26,977 26,977

Below N1,000,000 - -

N1,000,001 - N5,000,000 1 1

N5,000,001 - N10,000,000 7 6

N10,000,001 and above 3 3

11 10

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

28 Compliance with banking and other regulations During the year, the Bank did not pay any penalties (31 December 2017: Nil). 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 2018 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 7 cases as at 31 December 2018 (31 December

2017: 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 N581 million (2017: N636 million).

31 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

Net profit attributable to shareholders (in thousands of naira) 631,890

Number of shares in issue (in thousands) 2,286,658

Weighted average number of shares in issue (in thousands) 2,286,658

Basic earnings per share (kobo) 28

The Bank did not have potential dilutive shares as at 31 December 2018 (31 December 2017: Nil).

2018

195,749

2,286,658

2,286,658

9

Statement of cash flows notes

Proceeds from disposal of property and equipment

Cost of property and equipment disposed during the year (see note 19) 677 275,709Accumulated depreciation on property and equipment disposed (see note 19) (677) (223,276)Net book value of property and equipment disposed - 52,433Profit on sales of property and equipment (see note 10) 3,273 1,228Proceeds from disposal of property and equipment 3,273 53,661

32

(a)

(b) Changes in pledged asset

Closing balance in pledged asset at 31 December 2017 (see note 15) 409,674 581,425

Closing balance in pledged assets at 31 December 2018 (see note 15) (800,787) (409,674)

Impairment allowance (see note 15(b)) (596) -

Interest receivable on pledged assets - 5,053

(391,709) 176,804

2018 2017

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBR 2018


(c) Changes in loans and advances

Closing balance in loans and advances at 31 December 2017 (see note 16(b)) 9,311,429 9,214,119Closing balance in loans and advances at 31 December 2018 (see note 16(b)) (11,124,847) (9,311,429)

(1,813,418) (97,310)Interest receivable on loans and advances 3,038 16,003Write off during the year (see note 16(c)) (4,541) (1,815)

(1,814,921) (83,122)

(d) Changes in trade and other receivables

Closing balance in trade and other receivables at 31 December 2017 (see note 18) 212,473 298,307Closing balance in trade and other receivables at 31 December 2018 (see note 18) (460,249) (212,473)

(247,776) 85,834

(e) Changes in deposit from customers

Closing balance in deposit from customers at 31 December 2018 (see note 20) 10,465,119 9,126,494Closing balance in deposit from customers at 31 December 2017 (see note 20) (9,126,494) (6,792,391)

1,338,625 2,334,103Interest payable on deposits (7,422) (20,037)

1,331,203 2,314,066

(f ) Change in other liabilities

Closing balance in other liabilities at 31 December 2018 (see note 22) 243,547 315,251Closing balance in other liabilities at 31 December 2017 (see note 22) (315,251) (537,353)

(71,704) (222,102)Retirement benefit obligations paid (see note 22(b)) 97,522 102,432

25,818 (119,670)

(g) Investment securities

Closing balance on investment securities at 31 December 2017 (see note 17) 16,681 37,574Closing balance on investment securities at 31 December 2018 (see note 17) (291,081) (16,681)

(274,400) 20,893Explained by:Profit on disposal of available-for-sale financial assets (see note 10) - (15,274)Impairment (loss)/write-back on investments (see note 11) -

(157)Fair value loss 2,405 -Proceeds from disposal of investments - 36,324Purchase of Treasury bill investments (265,894) -Unwinding of discount on treasury bill investments (10,911) -

(274,400) 20,893

(h) Interest received

Interest income (see note 7) 2,960,525 2,605,413Interest receivable on pledged assets - (5,053)Interest receivable on loans (3,038) (16,003)Unwinding of discount on treasury bill investments (see note 32(c)) (10,911) -

Interest received 2,946,576 2,584,357

(i) Interest paid

Interest expense (see note 8) (430,021) (318,898)Interest payable on borrowings (see note 23(b)) 71,899 55,816Interest payable on deposits 7,422 20,037

Interest paid (350,700) (243,045)


NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

N'000 N'000Net investible balance 1 October - 31 December 2018 75,768 57,646Net income earned 1,933 1,433

77,701 59,079

34 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 consultancy - Recurring 1,200 1,210Tax consultancy - VAIDS filing 3,500 -IT system post-implementation review 6,000 -

10,700 1,210

The investment balance of N77,700,681.77 is analysed below:

33 Unclaimed dividends Unclaimed dividends summed up to N83,350,022.60 as at 31 December 2018 (2017: N63,896,101.91). This

amount is made up of N77,700,681.77 (2017: N59,079,612.93) invested with Stanbic IBTC Asset Management Limited in fixed income mutual funds and N5,649,340.83 (2017: N4,816,488.98) in the custody of CardinalStone Registrars Limited.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBR 2018


1112018 Annual Report & AccountsNPF Microfinance Bank Plc

112-122



Management Team 114

Branches 118

Proxy Form 120


OTHER NATIONAL DISCLOSURES

N'000 % N'000 %

Gross earnings 3,950,377 3,654,875

Bought-in-materials and services - local (1,714,455) (1,086,597)

Value added 2,235,922

100 2,568,278 100

Distribution of value added:

To employees

- As salaries and other benefits 1,341,874 60 1,306,773 51

To providers of finance

- As interests 430,021

19

318,898

12

To the Government

- As taxes 91,406

4

187,929

7

Retained in the business

- Asset replacement (depreciation) 176,872 8 122,788 5

- Profit to augment reserves 195,749 9 631,890 25

Value added 2,235,922

100

2,568,278 100

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

2018 2017


OTHER NATIONAL DISCLOSURES:VALUE ADDED STATEMENTFOR THE YEAR ENDED 31 DECEMBER


STATEMENT OF FINANCIAL POSITION

ASSETSCash and cash equivalents 4,940,352 5,752,469 1,889,881 3,054,860 3,054,787Pledged assets 800,787

409,674

581,425

583,038

635,090Loans and advances to customers 10,593,635 9,008,675 9,095,801 7,881,519 6,527,210Investment securities 291,081 16,681 37,574 38,154 47,265Trade and other receivables 301,751

172,878

257,545

346,969

194,773Property and equipment 669,946

591,964

499,646

394,070

371,331Deferred tax assets - - - 35,411 34,733

TOTAL ASSETS 17,597,552 15,952,341

12,361,872

12,334,021

10,865,189

LIABILITIESDeposits from customers 10,465,119 9,126,494 6,792,391 6,610,113 4,803,374Current tax liabilities 87,082 146,270 199,571 188,983 213,434Retirement benefit obligations -

- -

-

282,010Borrowings 2,078,843

1,550,468

349,249

630,795

672,976Deferred tax liabilities 76,370 61,569 19,910 - -Other liabilities 243,547 315,251 537,353 652,637 813,502

TOTAL LIABILITIES 12,950,961 11,200,052

7,898,474

8,082,528

6,785,296

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 318,690

728,276

506,963

476,216

407,801

Fair value reserve (2,405)

- -

-

-Other reserves 1,669,493

1,363,200

1,295,622

1,114,464

1,011,279

TOTAL EQUITY 4,646,591 4,752,289

4,463,398

4,251,493

4,079,893

TOTAL LIABILITIES AND EQUITY 17,597,552 15,952,341 12,361,872 12,334,021 10,865,189

STATEMENT OF COMPREHENSIVE INCOME

Gross income 3,950,377

3,654,875

2,925,229

2,592,694

2,134,692

Profit before taxation 287,155 819,819 803,440 688,899 617,507

Profit after taxation 195,749 631,890 554,903 514,598 477,816

Dividend 388,732 342,999 342,998 342,998 342,998

Basic and diluted earnings per share (kobo) 9 28 24 23 21Dividend per share (kobo) 17 15 15 15 15Net assets per share (kobo) 203 208 195

186

178

2018 2017 2016 2015 2014

OTHER NATIONAL DISCLOSURESFINANCIAL SUMMARY

AS AT 31 DECEMBER


Mr. Ohanehi has a Bachelor of S c i e n c e H o n o u r s D e g r e e i n B i o c h e m i s t r y f ro m I m o St a t e University in 1990. He has PGDM ( 2 0 0 0 ) a n d M B A ( 2 0 0 2 ) f r o m University of Calabar. He is a fellow of t h e C h a r t e r e d I n s t i t u t e o f Stockbrokers (FCS) and Associate member of the Nigeria Institute of Management, Certified Pension Institute of Nigeria (CPIN).

M r. O h a n e h i wo r ke d w i t h D B L B e v e ra g e s Lt d a s P ro d u c t i o n Manager up to 1993 before joining the Bank. As one of the pioneer staff of NPF Microfinance Bank Plc, Mr. Ohanehi has worked in al l the department of the Bank and has attended various local and foreign professional courses. He headed our A b u j a B r a n c h O ffi c e b e f o r e 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.

MR. AKINWUNMI LAWAL

(Managing Director)

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

Mr. Akinwunmi Lawal holds a Higher

N a t i o n a l D i p l o m a i n B u s i n e s s

Administration from Yaba College of

Te c h n o l o gy ( 1 9 9 6 ) a n d M BA i n

Financial Management Technology

f ro m t h e Fe d e ra l U n ive rs i ty o f

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

A s s o c i a t i o n o f E n t e r p r i s e R i s k

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 P l c . ( 1 9 8 7 - 1 9 9 3 ) a n d U n i t e d Commercial Bank (1993 -1994). He joined NPF Microfinance Bank Plc over twenty-four (24) 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 a n d i n t e r n a t i o n a l b a n k i n g m a n a g e m e n t a n d l e a d e r s h i p programmes. He is a team player whose experience makes him well suited to play a leading role in repositioning the Bank as a leading M i c r o fi n a n c e B a n k i n t h e Microfinance sub-sector of the Banking Industry.

M r. N e l s o n o b t a i n e d a P o s t 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) f r o m 1 9 9 6 - 1 9 9 9 , A s s i s t a n t 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 Head of Finance & Administration Department of the Bank.

MR. FRANCIS C. NELSON(ED, Finance & Administration)

MANAGEMENT TEAM


H e i s a g ra d u a t e o f B u s i n e s s Administration (1996) from Yaba College of Technology as well as holder of Masters of Business Administration Degree (2012). M r. O s i s a nya i s a n A s s o c i a t e member of the Institute of Cost Management of Nigeria, Associate Business Continuity Professional. H e i s a m e m b e r o f G l o b a l Association of Risk Management Professional, Doctoral Fellow- I n t e r n a t i o n a l C e r t i fi e d R i s k Management Professionals United K i n g d o m , Fe l l ow - C h a r t e re d I n s t i t u t e o f L o a n & R i s k Management of Nigeria and Fellow- Association of Risk Management professional Nigeria. He is also a Certified Microfinance Banker.

He acquired thirteen (13) years' experience in Commercial Bank and s i x ( 6 ) y e a r s ' e x p e r i e n c e i n management consultancy before joining the Bank in 2002. He is currently the Head of Enterprise Risk Management Department.

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 a n A s s o c i a t e m e m b e r o f t h e Chartered Institute of Bankers of N i g e r i a , N i g e r i a I n s t i t u t e o f Management (Chartered), Certified Pension Institute of Nigeria (CIPN), N i g e r i a I n s t i t u t e o f C o s t Ma n a g e m e n t a n d h e i s a C B N 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 H e a d o f C r e d i t / O p e r a t i o n s Department.

MR CHIMA WOSU(Head, Credit/Operations)

MR. OLUSEGUN OSISANYA(Head, Enterprise Risk Management)

MRS. OSARO JOSEPHINE IDEMUDIA

(Company Secretary/Legal Adviser)

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 p a s s e d h e r L a w S c h o o l examinations. An Experienced and versatile corporate Lawyer, Mrs. Idemudia has trained with Thomas & Co (Legal Practitioners). She has 26 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 s e r ve d a s t h e H e a d , G e n e ra l S e r v i c e s o v e r s e e i n g t h e Administration and Personnel D e p a r t m e n t o f t h e B a n k , t h e 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 C B N C e r t i fi e d M i c ro fi n a n c e B a n k e r. S h e i s c u r r e n t l y t h e Company Secretary/ Legal Adviser.


MANAGEMENT TEAM

(Head, Administration)

S h e i s a g r a d u a t e o f Quantity Surveying from Yaba College of Technology (1998). She also holds an Executive MBA (CEMBA) from the National Open University, Nigeria through t h e Co m m o n w e a l t h o f Learning, Canada and a CBN Certified Microfinance Banker. She is a Registered and Professional Quantity Surveyor.

Mrs Babarinde joined the service of the Bank in 2005 as an Assistant Officer and has risen through the ranks. She was one time Branch M a n a g e r o f Te j u o s h o branch. She is currently the Head of Administration.

MRS YETUNDE A. BABARINDE

Mr. Omokhapue holds a Bachelor of Science Degree in Banking and Finance from Olabisi Onabajo University, Ago-Iwoye, Ogun State and a M a s t e r ' s D e g r e e i n M a n a g e m e n t f ro m t h e University of Lagos. He is a Fellow of the Institute of Chartered Accountants of Nigeria and an Associate member of the Chartered Institute of Bankers of N i g e r i a . H e i s a l s o a n Associate member of the C h a r t e re d I n s t i t u t e o f Taxation of Nigeria and a C e r t i fi e d M i c ro fi n a n c e Banker. His experience spans Financial Control, B a n k i n g o p e r a t i o n s , Treasury Management and Audit.

Mr. Omokhapue worked in the Banking and Financial service industry for over 8 years before joining the Bank in 2005. He is currently the Head of Internal Audit Department.

MR. FIDELIS OMOKHAPUE(Head, Internal Audit)

Mrs. Hasfat Ekutti holds a B.sc in Computer Science from University of Ilorin in 1999 and also a PGD in Education from University o f L a g o s. S h e a l s o h a s certifications in ITIL and COBIT5. She has attended v a r i o u s c o u r s e s o n M i c r o s o f t s e r v e r & Exchange as well as SQL Database Administration.

She previously worked as a Computer Instructor in Nigeria Mil itary School, Zaria (1999) as well as in the N i g e r i a P o l i c e F o r c e Education Unit (2001- 2005) P r i o r t o j o i n i n g N P F Microfinance Bank Plc 12 Years ago. She has served the Bank majorly in the Information Technology D e p a r t m e n t . S h e i s c u r r e n t l y t h e H e a d o f Information Technology Department.

MRS. HAFSAT EKUTTI(Head, Information Technology)

Mrs Fatima Olajumoke attended the prestigious Secondary School Queen's College Yaba Lagos.S h e h o l d s a B.S C d e g re e i n Accounting from the university of Jos ,Plateau state in 1998,and an MBA in Finance from Ladoke Akintola university of Technology in 2010.S h e i s a C B N C e r t i fi e d M i c ro fi n a n c e B a n ke r a n d a n Associate Member of the Nigerian Institute of Management.She is also a Fellow Member of the National Institute of Marketing of N i g e r i a a n d A s s o c i a t i o n o f Economists and Statisticians of Nigeria.Mrs Fatima Olajumoke has over 17 y e a r s w o r k i n g e x p e r i e n c e beginning with her National Youth Service at Akintola Wil l iams Adetona /Isichie and co. and thereafter worked with Basic Komputers before joining the Bank in 2002.S h e w a s t h e fo r m e r B ra n c h Manager at Ikeja branch and presently the Head, Marketing Department of the bank.S h e h a s a t t e n d e d v a r i o u s M a n a g e r i a l a n d M a r k e t i n g Courses amongst which are t r a i n i n g s o r g a n i s e d b y CBN/AFOS/MicroSave on Savings Mobilisation and Digital Financial Services, and Lagos Business S c h o o l o n E x e c u t i v e Sustainability and Social Impact Assessment trainingShe 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)


MANAGEMENT TEAM

MR. JOHN KWABE TIZHE (Regional Head, North)

MRS. KATE NKECHI UKAH(Regional Head, East)

(Regional Head, South)

MR. KOMOLAFE SOLOMON OLADAPO

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 t h e C h a r t e r e d I n s t i t u t e o f 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 2 0 0 7 . H e h a s w o r k e d a s 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 re m a r k a b l e d e v e l o p m e n t a n d growth. She also holds a (PGD) in Business Management as well as an ( M B A ) i n H u m a n R e l a t i o n s Management. She is the Regional Head, East.

Mr. Komolafe, before joining NPF Microfinance Bank Plc in 1999, had over thirteen (13) years working experience in commercial Banking. He is a Fellow of the Chartered Institute of Bankers of Nigeria (FCIB), Institute of Chartered E c o n o m i c s o f N i g e r i a a n d Association of Enterprise Risk Management Professionals. He is also a CBN Certified Microfinance Banker. He Holds a MBA degree from the Lagos State University.

Mr. Dapo Komolafe has occupied various positions including Head Operations, Branch Manager - Obalende and Ikeja Branches and Head Administration. He is currently the Regional Head, South.


MANAGEMENT TEAM

OBALENDE1B Ikoyi Road Obalende -Lagos Tel:08074550527 08074550549Branch Manager:Mr. Isaac Jackson

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:Alhaji Aminu Abdulmalik

OSOGBOOsogbo-Ilobu Road OkefiaBeside Fire Service Osogbo- Osun StateTel: 08074550372 08074550374Branch Manager:Mr. Isiaka Ameh

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. Dare Oguntuga

ONITSHAEnugu RoadBy Area Commander Office Opposite Court Road Onitsha - Anambra StateTel: 08074550443 08074550439Branch Manager:Mr. Ben Iwebi

AKUREOpposite Government HouseBeside Police Officers' Mess Adekunle Ajasin Road Akure - Ondo StateTel: 08074550469 08074550476Branch Manager:Mr. Olurotimi Olayinka

LOKOJACity Plaza Along Ibrahim Taiwo Road Opposite Bishop Delisle College Lokoja - Kogi StateTel: 08074550480 08074550495Branch Manager:Mr. Sunday Ibitoye

YOLAPowa Shopping Complex Galadima-Aminu Way JimetaYola - Adamawa StateTel: 08074550387 08074550598Branch Manager:Mr. Stanley Aligbe

BAUCHIPowa Shopping ComplexYandoka Road BauchiTel: 08074550879 08074550966Branch Manager:Mr. Jibrin Tijani

LAFIABaba Ajuji HouseJos RoadLafia - Nassarawa StateTel: 08074604394 08074604089Branch Manager: Mr. Yusuf Haruna

ENUGUSuite A6B Bethel Plaza Garden AvenueEnugu - Enugu StateTel: 08074550966Branch Manager:Mr. Samuel Abani

KADUNAIndependence WayPolice College Kaduna StateTel: 08074108748Branch Manager:Mr. Kabir Audi

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:Mr. Cadmus Ikhiboya

ABANO.105 Jubilee Road AbaTel: 08077411103Branch Manager:Mr. Godson Eke

ASABA"A" Division Police Area Command Asaba-Delta StateTel: 08077411114Branch Manager:Mr. Dominic Enudi

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


BRANCHES

RC 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 25th July, 2019, or at any adjournment thereof.

Dated this ...............................................Day of .....................................2019

Shareholder’s Signature..................................................................................

(Affix 10k stamp here and sign across)

Address.............................................................................................................

...........................................................................................................................

25THANNUAL GENERAL MEETINGPLEASE ADMIT ONLY SHAREHOLDER NAMED ON THIS CARD OR HIS DULY APPOINTED PROXY TO THE 25TH ANNUAL GENERAL

MEETING BEING HELD AT IBOM HOTEL AND GOLF RESORT, NWANIBA ROAD, UYO, AKWA IBOM STATE ON THUSDAY 25TH JULY 2019. 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)

RESOLUTIONS FOR AGAINSTTwenty-fifth Annual General Meeting of NPF MICROFINANCE BANK PLC. holding at Ibom Hotel and Golf Resort, Nwaniba Road, Uyo, Akwa Ibom State on Thusday 25th July 2019, at 11.00am

PROXY FORM


1. To receive the Audited Financial Statements for the period ended December 31, 2018 together with the Reports of the Directors, Auditors and Statutory Audit Committee thereon,

2. To declare a dividend

3. (i) To re-elect the following retiring Directors;

a. Mr. Mohammed D. Saeedb. Mr. Azubuko Joel Udah c. Mr. Jibrin Garba Gane

(ii) To approve the appointment of the following Directors;a. Mr. Dasuki D. Galadanchib. Mr. Usman Isa Baba

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

5. To elect members of the Audit Committee

SPECIAL BUSINESS

6. To consider and if thought fit pass the following as an ordinary resolution:

That the directors' annual fees for the year ending 31 December 2019 be and is hereby fixed at N25,000,000.00.

7. To consider and if thought fit pass the following as an ordinary resolutions:

That the Directors of the Company be authorised to offer to the general public and any other investor 3,000,000,000 units of its authorised share capital by a combination of Rights Issue and Public Offer on a date and at a price to be determined by them, subject to the approval of the Regulatory authorities.

That the Directors of the Company be and are hereby authorised to allot the shares on offer in line with regulatory requirement.

That the Directors of the Company be and are hereby authorised to take all necessary steps and do all that is required to list the new shares of the Company on the floor of the Nigeria Stock Exchange at a date to be determined by them.

To consider and if thought fit pass the following as Special Resolution:-That Clause 28(a) of the Bank's Articles of Association be amended by deleting that clause and replacing it as follows;

The quorum necessary for the transaction of the business of the Board shall be seven (7).

To consider and if thought fit pass the following as Special Resolution:-

a.

b.

8.

9.

That a new clause 27 (b) be include in the Articles of Association as follows;

“Any Director may validly participate in Board meetings by conference telephone or other forms of communication equipment provided all persons participating in the meeting are able to hear and speak to each other throughout the meeting. A person so participating shall be deemed to be present in person at the meeting and shall accordingly be entitled to vote and counted in deciding if there is a quorum. Such meeting shall be deemed to take place where the largest group of those participating is assembled or where the chairman of the meeting is seated".


REGISTRARCARDINALSTONE REGISTRARS LIMITED358 HERBERT MACAULAY WAY,YABALAGOS.


OVERVIEW BUSINESS REVIEW CORPORATE GOVERNANCE FINANCIAL STATEMENTS

2018 Annual Report & Accounts 121

npf microfinance bank plc 2018 annual report & accounts · npf microfinance bank plc 2018...

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