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NPF MICROFINANCE BANK PLC

· MONTHLY REPORT 30JUNE2017

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Corporate Information

Directors:

Company Secretary:

Registered Office:

Auditors:

Bankers:

Registrars:

Mr. Azubuko Joel Udah (Esq.) Mr. Akinwunmi Lawal Mr. Jude C. Ohanehi Mr. E.C. Wabali Prince Jude Ifeanyi Eke Mr. Audu Abubakar Mr. Mohammed D. Saeed Mrs. Abiodun Ige Mr. Joseph Daramola

Mrs. Osaro J. Idemudia Aliyu Atta House I, Ikoyi Road, Obalende Lagos

Aliyu Atta House I, Ikoyi Road, Obalende Lagos

KPMG Professional Services KPMGTower, Bishop Aboyade Cole Street, Victoria Island, Lagos

Sterling Bank PLC First Bank of Nigeria PLC United Bank for Africa PLC Zenith Bank PLC Access Bank PLC First City Monument Bank PLC

CardinalStone Registrars Limited 358, Herbert Macaulay Way YabaLagos.

NPF Mlcroflnance Bank PLC Monthly Report· 30 JUNE 2017

Chairman Managing Director Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive (Independent) Director Non-Executive Director Non-Executive Director

NPF Microfinance Bank PLC Monthly Report - 30 JUNE 2017

STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2017

JUNE JUNE AUDITED 2017 2016 DEC 2016

In thousands ofnaira Note ASSETS Cash and cash equivalents 14 5,996,764 4,434,676 1,889,881 Pledged assets 15 595,984 580,432 581,425 Loans and advances to customers 16 9,469,491 8,397,095 9,095,801 Investment securities 17 45,081 40,329 37,574 Trade and other receivables 18 299,289 965,770 257,545 Property and equipment 19 479,157 431,089 499,646 Deferred tax assets 2l(c)

T~)T AL ASSETS 16,885,766 14,849,388 12,361,872

LIABILITIES Deposits from customers 20 10,899,835 6,951,787 6,792,391 Current tax liabilities 2l(b) 137,894 12,981 199,571 Deferred tax liabilities 2l(c) 19,910 (34,734) 19,910 Other liabilities 22 343,317 2,594,784 537,353 Borrowings 23 505,071 548,527 349,249 TOT AL LIABILITIES 11,906,027 10,073,349 7,898,474

CAPITAL AND RESERVES Share capital 24 1,143,328 1,143,328 1,143,328 Share premium 25(a) 1,517,485 1,517,485 1,517,485 Retained earnings 25(b) 1,023,304 1,106,380 506,963 Other reserves 25(c) - (d) 1,295,622 1,008,848 1,295,622 TOT AL EQUITY 4,979,739 4,776,041 4,463,398

TOTAL LIABILITIES AND EQUITY 16,885,766 14,849,388 12,361,872

~I~ ~wunmiw Chief Financial Officer Managing Director/Chief Executive Officer FRC/20 l 4/ICAN/00000006856 FRC/20 l 4/CIBN/00000006345

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

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.. NPF Micronnance Bank PLC

Monthly Report - 30 JUNE 2017

STATEMENT OF COMPREHENSIVE INCOME FOR THE MONTH ENDED 30 JUNE 2017

JUNE JUNE AUDITED 2017 2016 DEC 2016

In thousands of naira Note

Interest income 7 1,185,841 947,035 1,997,486 Interest expense 8 (137,558) (111,083) (223,480)

Net interest income 1,048,283 835,952 1,774,006

Fee and commission income 9 354,280 315,161 716,876

Other revenue 10 128,784 98,318 210,867

Net operating income 1,531,347 1,249,431 2,701,749

Net impairment loss on financial assets 11 (84,146) (57,617) (39,866) Personnel expenses 12 (516,894) (421,126) (1,008,055) Depreciation 19 (57,308) (45,309) (96,014) Administration and general expenses 13 (364,578) (270,907) (754,374)

Total operating expenses ~l,022,926) (794,959) (1,898,309)

Profit before tax 508,421 454,478 803,440

Tax expense 2l(a) (248,537) Profit for the period 508,421 454,478 554,903

Other comprehensive income Items that will never be reclassified to profit or loss

Items that are or may be reclassified to profit or loss

Other comprehensive income for the period, net of tax

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 508,421 454,478 554,903

Basic and diluted earnings per share (kobo) 32 22 20 23


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NPF M/croflnance Bank PLC Monthly Report - 30 JUNE 2017

STATEMENT OF CHANGES IN EQUITY FOR THE MONTH ENDED 30 JUNE 2017

Share Share Retained Statutory Actuarial Regulatory Risk Total Capital Premium Earnings Reserve Reserve Reserve

Balance at 1 January 2017 1,143,328 1,517,485 506,963 1,145,124 150,498 4,463,398 Audit adjustment 7,920 7,920 Profit for the period 508,421 508,421 Other comprehensive income, net of tax Total comprehensive income 516,341 516,341

1,143,328 1,517,485 1,023,304 1,145,124 150,498 4,979,739

Contributions by and distributions to equity holders Dividend paid Transfer to regulatory risk reserve

Balance as at 30 June 2017 1,143,328 1,517,485 1,023,304 1,145,124 150,498 4,979,739

STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER2016

Share Share Retained Statutory Actuarial Regulatory Risk Total

Capital Premium Earnings Reserve Reserve Reserve

Balance at 1 January 2016 1,143,328 1,517,485 476,216 1,006,398 108,066 4,251,493

Profit for the year 416,177 138,726 554,903 Other comprehensive income, net of tax Total comprehensive income 416,177 138,726 554,903

1,143,328 1,517,485 892,393 1,145,124 108,066 4,806,396

Contributions by and distributions to equity holders Dividend paid (342,998) (342,998)

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

Balance at 31 December 2016 1,143,328 1,517,485 506,963 1,145,124 150,498 4,463,398


NPF Mlcroflnance Bank PLC Monthly Report- 30 JUNE 2017

STATEMENT OF CASH FLOWS FOR THE MONTH ENDED 30 JUNE

JUNE JUNE DECEMBER 2017 2016 2016

In thousands of naira Note AUDITED

Cash flows from operating activities Profit for the year 508,421 454,478 554,903 Adjustments for: Depreciation of property and equipment 19 57,308 37,117 96,014 Net impairment loss on loans and advances to customers II 83,070 58,166 35,178 Net impairment loss on investments 11 1,076 (549) 580 Net impairment loss on other receivables 11 4,108 Net interest income 7, 8 (1,048,283) (835,952) (1,774,006) Dividend income 10 (2) (106) (153) (Profit)/loss on sale of property and equipment 13, 10 (770) (2,285) Tax expense 2l(a) 248,537

(399,180) (286,845) (837,124)

Change in pledged assets 15 (14,559) 10,761 Change in loans and advances 16 (453,719) (515,576) (I, I 93,364) Change in trade and other receivables 18 (42,986) 144,940 85,315 Change in deposits from customers 20 4,107,444 341,674 176,090 Changes in retirement benefit obligations (116,304) Change in other liabilities 22 (118,524) 608,559 56,846 Change in borrowings 23 523,180 82,268 20,197

3,601,656 258,713 (1,681,279)

Interest received 1,185,841 947,035 1,932,242 Interest paid (137,558) (111,083) (221,831) Tax paid 2l(b) (61,677) (176,002) (182,627) Retirement benefit obligations paid 22(b) (75,512) (308,866) (172,130) Net cash from operating activities 4,512,750 609,797 (325,625)

Cash flows from investing activities Acquisition of property and equipment 19 (36,764) (92,242) (201,806) Proceeds from disposal of property and equipment 715 2,501 Dividends received 2 106 153 Net cash used in investing activities (36,047) (92,136) (199,152)

Cash flows from financing activities Repayment of borrowings 23(b) (369,820) (118,176) (297,204) Dividend paid (342,998) Net cash used in financing activities (369,820) (118,176) (640,202)

Net increase in cash and cash equivalents 4,106,883 399,485 (1,164,979) Cash and Cash equivalents as at 1 January 1,889,881 4,035,460 3,054,860 Cash and Cash equivalents as at 30 June 2017 14 5,996,764 4,434,955 1,889,881


i NPF Micrafinance Bank PLC Monthly Report - 30 JUNE 2017

NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2017

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

2 Changes in accounting policies The Bank has consistently applied the accounting policies as set out in note 3 to all periods presented in these financial statements. There were new standards and amendments to standards that affect annual periods beginning I January 2016 as follows: !AS 16 and !AS 38: Acceptable methods of Depreciation and Amortization The requirements of !AS 16 are amended to clarify that a depreciation method that is based on revenue that is generated by an activity that includes the use of an asset is not appropriate. This is because such methods reflects a pattern of generation of economic benefits that arise from the operation of the business of which an asset is part, rather than the pattern of consumption of an asset's expected future economic benefits. The requirements of !AS 38 on the other hand are amended to introduce a rebuttable presumption that a revenue-based amortisation method for intangible assets is inappropriate for the same reasons as in !AS 16. However, the IASB states that there are limited circumstances when the presumption can be overcome: The intangible asset is expressed as a measure of revenue (the predominant limiting factor inherent in an intangible asset is the achievement of a revenue threshold); and it can be demonstrated that revenue and the consumption of economic benefits of the intangible asset are highly correlated (the consumption of the intangible asset is directly linked to the revenue generated from using the asset). The amendment did not have any impact on the Bank's financial statements.

Annual improvements to IFRS 2012 - 2014 cycle. The IASB issued various amendments and clarifications to existing IFRS, none of which had a material impact on the Bank's financial statements.

3 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.

(a) Basis of preparation (i) Statement of compliance

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as issued by International Accounting Standards Board (IASB) and in the manner required by the Companies and Allied Matters Act, Cap C20, Laws of the Federation of Nigeria, 2004, the Financial Reporting Council of Nigeria Act, 2011, the Banks and Other Financial Institutions Act, Cap 83, Laws of the Federation of Nigeria, 2004 and relevant Central Bank of Nigeria (CBN) guidelines and circulars. The IFRS accounting policies have been consistently applied to all periods presented.

The financial statements were approved by the directors on 6 March 2017.

(ii) 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 (available-for-sale financial assets) measured at fair value • Loans and receivables from customers measured at amortised cost • Borrowings measured at amortised cost

(iii) 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.


(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 believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in any future periods affected. Information about significant areas of estimation uncertainties and critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are described in note 5.

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

Interest income and expense presented in the statement of comprehensive income include: - Interest income on financial assets measured at amortised cost calculated on an effective interest rate basis - Interest income on available-for-sale investment securities calculated on an effective interest rate basis - Interest expense on deposits and borrowings on an effective interest rate basis

(c) 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.

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

(e) 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 Income tax payable is calculated on the basis of the applicable tax law in the respective jurisdiction and is recognised as an expense for the period and adjustments to past years except to the extent that current tax relates to items that are charged or credited in other comprehensive income or directly to equity. In these circumstances, current tax is charged or credited to other comprehensive income or to equity (for example, current tax on available-for-sale investment).

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

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

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... NPF Microfinance Bank PLC Monthly Report - 30 JUNE 2017

(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 determined using tax rates enacted or substantively enacted at the reporting date and are expected to apply when the related deferred tax liability is settled.

Deferred tax is not recognised for the following temporary differences: - temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that

affects neither accounting nor taxable profit or - temporary differences related to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future; and - taxable temporary differences arising on the initial recognition of goodwill.

The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Bank expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset them, and they relate to taxes levied by the same tax authority on the same taxable entity or on different tax entities, but they intend to settle deferred tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which it can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

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

(f) Financial assets and financial liabilities (i) Classification Financial assets The classification of financial instruments depends on the purpose and management's intention for which the financial instruments were acquired and their characteristics. The Bank classifies its financial assets into one of the following categories:

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

- held for trading; or - designated at fair value through profit or loss.

Please refer to Note 6. Financial liabilities The Bank classifies its financial liabilities, other than financial guarantees and loan commitments, as either financial liabilities at fair value through profit or loss or other financial liabilities measured at amortised cost. (ii) Recognition Initial recognition The Bank initially recognises its financial instruments on the trade date at which the Bank becomes a party to the contractual provisions of the instrument. All financial assets or financial liabilities are measured initially at their fair value plus transaction costs, except in the case of financial assets and financial liabilities recorded at fair value through profit or loss. Subsequent recognition of financial assets and liabilities is at amortised cost or fair value, depending on the classification. Subsequent measurement See accounting policies (h) - (k) for the Bank's accounting policies on subsequent measurement of financial assets. See accounting policy (n) for the Bank's accounting policies on subsequent measurement of financial liabilities.


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

On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset transferred), and the sum of (i) the consideration received (including any new asset obtained less any new liability assumed) and (ii) any cumulative gain or loss that had been recognised in other comprehensive income is recognised in profit or loss.

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

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

Financial liabilities The Bank derecognises a financial liability when its contractual obligations are discharged, cancelled or expire.

(iv) Offsetting Financial assets and liabilities are set off and the net amount presented in the statement of financial position when, and only when, the Bank has a legal right to set off the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.

Income and expenses are presented on a net basis only when permitted under IFRS, or for gains and losses arising from a group of similar transactions.

(v) Amortised cost measurement The amortised cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment.

(vi) Fair value 'Fair value' is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Bank has access at that date. The fair value ofa liability reflects its non-performance risk. When available, the Bank measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.

If there is no quoted price in an active market, then the Bank uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction.

The best evidence of the fair value of a financial instrument at initial recognition is normally the transaction price - i.e. the fair value of the consideration given or received. If the Bank determines that the fair value at initial recognition differs from the transaction price and the fair value is evidenced neither by a quoted price in an active market for an identical asset or liability nor based on a valuation technique that uses only data from observable markets, then the financial instrument is initially measured at fair value, adjusted to defer the difference between the fair value at initial recognition and the transaction price. Subsequently, that difference is recognised in profit or loss on an appropriate basis over the life of the instrument but no later than when the valuation is wholly supported by observable market data or the transaction is closed out.

NPF Microfinance Bank PLC Monthly Report· 30 JUNE 2017

Portfolios of financial assets and financial liabilities that are exposed to market risk and credit risk that are managed by the Bank on the basis of the net exposure to either market or credit risk are measured on the basis of a price that would be received to sell a net long position (or paid to transfer a net short position) for a particular risk exposure. Those portfolio level adjustments are allocated to the individual assets and liabilities on the basis of the relative risk adjustment of each of the individual instruments in the portfolio.

The fair value of a demand deposit is not less than the amount payable on demand, discounted from the first date on which the amount could be required to be paid.

The Bank recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which the change has occurred.

(vii) Identification and measurement of impairment At each reporting date, the Bank assesses whether there is objective evidence that financial assets not carried at fair value through profit or loss are impaired. A financial asset or a group of financial assets is impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the asset(s), and that the loss event has an impact on the future cash flows of the asset(s) that can be estimated reliably.

Objective evidence that financial assets are impaired can include; (a) a breach of contract, such as a default or delinquency in interest or principal payments; (b) significant financial difficulty of the issuer or obligor; (c) the lender, for economic or legal reasons relating to the borrower's financial difficulty, granting to the borrower a concession that the lender would not otherwise consider; (d) it becomes probable that the borrower will enter bankruptcy or other financial reorganisation; (e) the disappearance ofan active market for that financial asset because of financial difficulties; or (I) observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio, including:

(i) adverse changes in the payment status of borrowers in the portfolio; and (ii) national economic conditions that correlate with defaults on the assets in the portfolio.

(g) In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment. The estimated period between a loss occurring and its identification is determined by management for each identified portfolio. In general, the periods used vary between one month and three months; in exceptional cases, longer periods are warranted.

Assets classified as loans and receivables and held-to-maturity investment securities The Bank first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.

The amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset's original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Bank may measure impairment on the basis of an instrument's fair value using an observable market price.

For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics (that is, on the basis of the Bank's grading process that considers asset type, collateral type, past-due status and other relevant factors). Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors' ability to pay all amounts due according to the contractual terms of the assets being evaluated.


Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the Bank and historical loss experience for assets with credit risk characteristics similar to those in the Bank. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exist.

Estimates of changes in future cash flows for groups of assets should reflect and be directionally consistent with changes in related observable data from period to period (for example, changes in unemployment rates, property prices, payment status, or other factors indicative of changes in the probability of losses in the Bank and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Bank to reduce any differences between loss estimates and actual loss experience.

When a loan is uncollectible, it is written off against the related allowance for loan impairment or to profit or loss. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Impairment charges are classified in 'Net impairment loss on financial and other assets'. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the 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 is recognised in the statement of comprehensive income.

Assets classified as available-for-sale The Bank assesses at each date of the statement of financial position whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is objective evidence of impairment resulting in the recognition of an impairment loss. If any such evidence exists for available-for-sale financial assets, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss - is removed from equity and recognised in the statement of comprehensive income. Impairment losses recognised in the statement of comprehensive income on equity instruments are not reversed through profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through the statement of comprehensive income.

(g) 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.

(h) Financial assets and financial liabilities at fair value through profit or loss This category comprises two sub-categories: financial instruments classified as held for trading, and financial assets designated by the Bank at fair value through profit or loss upon initial recognition. (i) Trading assets and liabilities Trading assets and liabilities are those assets and liabilities that the Bank acquires or incurs principally for the purpose of selling or repurchasing in the near term, or holds as part of a portfolio that is managed together for short-term profit.

Trading assets and liabilities are initially recognised and subsequently measured at fair value in the statement of financial position with transaction costs recognised in profit or loss. All changes in fair value are recognised as part of net trading income in the statement of comprehensive income.

(ii) Designation at fair value through profit or loss The Bank designates certain financial assets upon initial recognition at fair value through profit or loss (fair value option). This designation cannot subsequently be changed. According to IAS 39, the fair value option is only applied when the following conditions are met:

- the application of the fair value option reduces or eliminates an accounting mismatch that would otherwise arise or - the financial assets are part ofa portfolio of financial instruments which is risk managed and reported to management on a fair value

basis


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

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

(i) 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.

(j) Loans and receivables Loans and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and that the Bank does not intend to sell immediately or in the near term.

Loan and receivables are initially measured at fair value plus incremental direct transaction costs, and subsequently measured at their amortised cost using the effective interest method. When the Bank is the lessor in a lease agreement that transfer substantially all of the risks and rewards incidental to ownership of the asset to the lessee, the arrangement is classified as a finance lease and a receivable equal to the net investment in the lease is recognised and presented within loans and advances.

When the Bank purchases a financial asset and simultaneously enters into an agreement to resell the asset (or a substantially similar asset) at a fixed price on a future date ("reverse repo or borrowing"), the arrangement is accounted for as a loan or advance, and the underlying asset is not recognised in the Bank's financial statements.

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

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

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

- Sales or reclassifications that are so close to maturity that changes in the market rate of interest would not have a significant effect on the financial asset's fair value

- Sales or reclassifications after the Bank has collected substantially all the asset's original principal. - Sales or reclassification attributable to non-recurring isolated events beyond the Bank's control that could not have been

reasonably anticipated.


(ii) Fair value through profit or loss The Bank does not currently have any investment securities (or other financial assets) as at fair value through profit or loss.

(iii) Available-for-sale Available-for-sale investments are non-derivative investments that are not designated as another category of financial assets. Unquoted equity securities whose fair value cannot be reliably measured are carried at cost. All other available-for-sale investments are carried at fair value.

Interest income is recognised in profit or loss using the effective interest method. Dividend income is recognised in profit or loss when the Bank becomes entitled to the dividend. Other fair value changes are recognised directly in other comprehensive income until the investment is sold or impaired whereupon the cumulative gains and losses previously recognised in other comprehensive income are recognised to profit or loss as a reclassification adjustment.

A non-derivative financial asset may be reclassified from the available-for-sale category to the loans and receivable category if it otherwise would have met the definition of loans and receivables and if the Bank has the intention and ability to hold that financial asset for the foreseeable future or until maturity.

(I) Property and equipment (i) Recognition and measurement Items of property and equipment are measured at cost less accumulated depreciation and impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. When parts ofan 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. Freehold land is not depreciated. The estimated useful lives for the current and comparative periods of significant items of property and equipment are as follows:

Leasehold land Buildings Computer and office equipment Furniture and fittings Motor vehicles

Not to be depreciated 50 years 3 years

5 years 4 years

Depreciation methods, useful lives and residual values are reassessed at each reporting date and adjusted if appropriate.

NPF Mlcrofinance Bank PLC Monthly Report· 30 JUNE 2017

(iv) De-recognition An item of property and equipment is derecognised on disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the year the asset is derecognised.

(m) 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 Bank that generates cash flows that largely are independent from other assets and groups. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.

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

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, ifno impairment loss had been recognised.

(n) Deposits and borrowings Deposits and borrowings are the Bank's sources of funding. When the Bank sells a financial asset and simultaneously enters into a "repo" or "lending" agreement to repurchase the asset (or a similar asset) at a fixed price on a future date, the arrangement is accounted for as a deposit, and the underlying asset continues to be recognised in the Bank's financial statements.

Deposits and borrowings are initially measured at fair value plus transaction costs, and subsequently measured at their amortised cost using the effective interest method, except where the Bank chooses to carry the liabilities at fair value through profit or loss.

(o) Trade and other receivablesss 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.

(p) 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.

(q) 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.

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

ii NPF Microfinance Bank PLC Monthly Report· 30 JUNE 2017

(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.

(s) 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.

(t) Earnings per share The Bank presents basic earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Bank by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares.

(u) 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.

(v) New standards and interpretations not yet adopted A number of new Standards, Amendments to Standards, and Interpretations are effective for annual periods beginning after I January 2017 and early application is permitted; however, the Bank has not applied the new or amended standards in preparing these financial statements.

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

Standard not yet Summary of the requirements and impact assessment Effective date effective Amendments The amendments provide for disclosures that enable users of financial statements to 1 January2017 to !AS 7 Disclosure evaluate changes in liabilities arising from financing activities, including both changes Early adoption is Initiative arising from cash flow and non-cash changes. This inlcudes providing a reconciliation permitted

between the opening and closing balances arising from financing activities. The Bank hopes to adopt the amendments for the year ending 31 December 2017.

Amendments to The amendments provide additional guidance on the existence of deductible temporary I January 2017 !AS 12 Recognition differences, which depend solely on a comparison of the carrying amount of an asset and Early adoption is of Deferred its tax base at the end of the reporting period, and is not affected by possible future permitted Tax Assets changes in the carrying amount or expected manner of recovery of the asset. The for Unrealised amendments also provide additional guidance on the methods used to calculate future Losses taxable profit to establish whether a deferred tax asset can be recognised. Guidance is

provided where an entity may assume that it will recover an asset for more than its carrying amount, provided that there is sufficient evidence that it is probable that the entity will achieve this. Guidance is provided for deductible temporary differences related to unrealised losses are not assessed separately for recognition. These are assessed on a combined basis, unless a tax law restricts the use of losses to deductions against income of a specific type. The amendment is not expected to have any significant impact on the Bank. The Bank hopes to adopt the amendments for the year ending 31 December 2017.


IFRS 9 Financial On 24 July 2014, the IASB issued the final IFRS 9 Financial Instruments Standard, I January2018 instruments which replaces earlier versions of!FRS 9 and completes the IASB's project to replace Early adoption is

!AS 39 permitted

The Bank has performed a preliminary assessment of the potential impact of adoption of IFRS 9 based on its positions at 31 December 2016 and hedging relationships designated during 2016 under IAS 39. IFRS 9 contains a new classification and measurement approach for financial assets that reflects the business model in which assets are managed and thier cash flow characteristics. IFRS 9 contains three principal classification categories for financial assets: measured at amortised cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). The standard eliminates the existing IAS 39 categories of held to maturity,loans and receivables and available for sale. Under IFRS 9, derivatives embedded in contracts where the host is a financial asset in the scope of the standard are never bifurcated. Instead, the hybrid financial instructment as a whole is assessed for classification. IFRS 9 replaces the "incurred loss" model in IAS 39 with a forward-looking "expected credit loss" (ECL) model. This require considerable judgement as to how changes in economic factors affect ECLs, which will be determined on a probability-weighted basis. The new impairment model will apply to financial assets measured at amortised cost or fair value reported in other comprehensive income (FVOCI), except for investments in equity instructments, and to contract assets. Under IFRS 9, loss allowances will be measured on either of the following bases: (i) 12-month ECLs. These are ECLs that results from possible default events within the 12 months after the reporting date; and (ii) Lifetme ECLs. These are ECLs that result from all possible default events over the expected life of a financial instrument. Based on its preliminary assessment, the Bank does not believe that the new impairment requirements, would have a material impact on its accounting for Trade and other receivables, loans, investments in debt securities and investments in equity securities.

IFRS 15 Revenue from This standard replaces !AS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 I January 2018 Contracts with Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Early adoption is Customers Estate, IFRIC 18 Transfer of Assets from Customers and SIC-31 Revenue - Barter of permilled

Transactions Involving Advertising Services. IFRS 15 establishes a comprehensive framework for determining whether, how much and when the revenue is recognised. It replaces existing revenue recognition guidance, including IAS 18 Revenue, !AS 11 construction contracts and IFRIC 13 customer loyalty programmes. IFRS 15 is effective for annual periods beginning on or after I january 2018, with early adoption permitted. The group has complete an initial assessment of the potential impact of the adoption of IFRS 15 on its consolidate financial statements. (i) The Bank is involved in managing forest resources, as well as performing related services. if the services under a single arrangement are rendered in different reporting periods, the the cinsideration is allocated on a relative fair value basis between the different services. Revenue is currently recognised using the stage-of- completion method. under IFRS 15, the total consideration inthe service contract will be allocated to all services based on thier stand-alone selling prices. The stand-alone selling prices will be determined based on the list prices at which the Bank sells the services in seperate transactions. The Bank has performed an initial comparison of the fair value and the stand-alone selling prices of the services. Since these amounts are broadly similar, the Bank does not expect significant differences in the timing of revenue recognition for these services.

; NPF Microfinance Bank PLC Monthly Report - 30 JUNE 2017

The following new or amended standards are not expected to have a significant impact on the Bank's financial statements: • Accounting/or Acquisitions of Interests in Joint Operations (Amendments to IFRS 11) - Effective application date: I January 2016 • Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to !AS 16 and !AS 38) • Agriculture: Bearer Plants (Amendments to !AS 16 and !AS 41) • Equity Method in Separate Financial Statements (Amendments to IAS27) • Annual Improvements to IFRSs 2012-2014 Cycle - various standards • Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and !AS 28) • Disclosure Initiative (Amendments to !AS I) • JFRS I 4 Regulatory Deferral Accounts

NPF Mlcroflnance Bank PLC Monthly Report- 30JUNE 2017


4 Financial risk management (a) Introduction and overview

The Board of Directors has overall responsibility for the establishment and oversight of the Bank's risk management framework.

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

The general organisational structure can be seen below:

Head of ERM -- Market Risk and ALM

' Credit and Investment

Risk Management Operational Risk Management

'

The Bank's risk management governance structure is as shown below:

Board Audit Committee Board ·

- Board Risk · Management

· Committee ·

I Managing Director l Internal ft:udit (Risk

Based} ERM Unit

. . . ~

Enterprise Risk Management Committee

ALCO

i l - Credit and

Investment Risk Management

. Operatlqnal

'Risk · Marketing and ALM Risk

Man<!gemen!

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

NPF Mlcrofinance Bank PLC Monthly Report- 30JUNE 2017

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.

(ii) Risk Appetite The Bank's risk appetite is reviewed by the Board of Directors annually, at a level that minimizes erosion of earnings or capital due to avoidable losses or from frauds and operational inefficiencies. This reflects the conservative nature of the Bank as far as risk taking is concerned.

(iii) 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 market facing business units and risk management functions. -Risk Management is governed by well defined policies which are clearly communicated within the Bank. -Risk related issues are taken into consideration in all business decisions. The Bank shall continually strive to maintain a conservative balance between risk and revenue consideration. ·

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

(b) Credit risk Credit risk is the risk of financial loss to the Bank if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Bank's loans and receivables from customers. The Bank has exposure to credit risk as it routinely executes transactions with counterparties which comprise mainly of public service employers and employees as well as private sector employees.

(i) 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. The Bank has in place various portfolio concentration limits (which is subject to periodic review). These limits are closely monitored and reported on from time to time.

NPF Mlcronnance Bank PLC Monthly Report· 30JUNE 2017

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

Approval Limit RANK MICRO MACRO Officer I NJ00,000 N200,000 Assistant Manager N200,000 N300,000 Deputy Manager N200,000 N400,000 Manager N200,000 N500,000 Senior Manager N200,000 N650,000 Regional Head N500,000 NJ,500,000 AGM/GM N200,000 Nl,000,000 Executive Director N350,000 Nl,800,000

N400,000 Managing Director (MD) &Above N2,000,000

Management Risk Committee/ N500,000 Managing Director. &Above N2,000,000

AboveN2 Board Risk Management million to NIO Committee NIL million

AboveNJO Full Board NIL 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.

(ii) Exposure to credit risk The Bank's exposure to credit risk is influenced mainly by the characteristics of the counterparties. Management considers the default risk of the industry in which the counterparty operates based on economic factors as this may have an influence on credit risk.

The Bank is exposed to credit risk on its loans and receivables balances due from its its customers in the public and private sectors . The Bank has credit standards, policies and procedures to control and monitor intrinsic and concentration risks through all credit levels of selection, underwriting, administration and control. This include: -Utilization of the services of portfolio managers whom are educated on the risk appetite of the Bank and thus ensure that all investments are in low risk grade securities. -Ensuring that all investments entered are of a low to medium duration and thus minimising the risk of default. -All treasury investments undergo a formal credit analysis process that would ensure the proper appraisal of the facility. • The consequences for non-compliance with the credit policy and credit indiscipline are communicated to all staff and implemented. • All conflict of interest situations must be avoided.

(iii) Held to maturity investments (HTM) The Bank via its portfolio managers limits its exposure to credit risk by investing only in highly liquid money market instruments with counterparties that have a good credit rating. The portfolio managers actively monitors credit ratings and ensures that the Bank has only made investment in line with the Bank's investment policy as approved by Board which approves investment in short term fixed deposit, placement with local banks and Federal Government Treasury Bills.

The Bank did not have any held to maturity investments that were impaired as at 30 June 2017.

(iv) Cash and cash equivalents The Bank held cash and cash equivalents with maturity profile of less than 3 months, held with local banks and assessed to have good credit ratings based

on the Bank's policy.

(v) Loans and advances to customers and other receivables

The Bank has classified loans to customers, staff loans and other receivables warehoused in other assets as loans and receivables and other receivables. These are evaluated periodically for impairment in line with its accounting policy as disclosed in note 3(f)(vii). Impairment losses have been recognized in profit or loss and reflected in an allowance account against loans and receivables. The total impairment allowance during the period ended 30 June 2017 was approximately NI 98 million (31 December 2016: Nl 18 million). These figures are inclusive of impairment allowance on other receivables.

(vi) 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.

NPF Microfinance Bank PLC Monthly Report- 30 JUNE 2017

(vii) Write-off policy The Bank writes off a loan balance when the Bank's Credit Department determines that the loan is uncollectible and had been declared delinquent and subsequently classified as lost. The write-off process is a critical component of the Bank's credit management activities. The policy requires a periodic review and identification of classified loans deemed to be uncollectible with long outstanding balances of principal and interest. The determination is made after considering information such as the continous 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.

(viii) 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:

In thousands of_ naira Note 30-Jun-17 31-Dec-16

Cash and cash equivalents 14 5,996,764 1,889,881 Pledged assets 15 595,984 581,425

16 9,469,491 9,095,801 Loans and advances to customers Investment securities 17 45,081 37,574 Trade and other receivables ( excluding prepayments and other 18 76,454 85,357 assets)

16183774 11 690 038

(vii) 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 through Kakawa Discount House. For this table, the Bank has allocated exposures to regions based on the region of domicile of the Bank's counterparties.

30 June 2017 31 December 2016

Due from Loans and Due from Loans and

Banks advances to Total Banks advances to Total In thousands ofnaira customers customers

South South 123,444 788,293 911,737 97,174 807,233 904,407 South West 1,549,868 3,683,420 5,233,288 1,220,040 3,771,921 4,991,961 South East 29,833 479,983 509,816 23,484 491,515 514,999 North Central 423,789 2,420,928 2,844,717 333,602 2,479,094 2,812,696 North West 116,677 1,207,325 1,324,002 91,847 1,236,334 1,328,181 North East 34,153 417,979 452,132 26,885 428,022 454,907

2,277,764 8,997,928 11,275,692 1,793,032 9,214,119 11,007,151

(viii) Credit Quality The following table breaks down the Bank's main credit exposure at their gross amounts ("Due from banks" at carrying amount), as categorised by performance as at 30 June 2017 and 31 December 2016 respectively.

30 June 2017 31 December 2016

Due from Loans and Due from Loans and

Banks advances to Total

Banks advances to Total

In thousands of_ naira customers customers

Neither past due nor impaired 5,965,460 9,407,832 15,373,292 1,793,032 8,954, l 13 10,747,145 Impaired Individually impaired 163,144 163,144 163,144 163,144 Collectively impaired 96,862 96,862 96,862 96,862 Gross 5,965,460 9,667,838 15,633,298 1,793,032 9,214,119 11,007,151 Impairment allowance Specific impairment (122,462) (122,462) (43,510) (43,510) Collective impairment (78,9262 {78,926) (74,808) (74,808)

5,965,460 9,466,450 15,431,910 1,793,032 9,095,801 10,888,833

(c) 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.

NPF Mlcronnance Bank PLC Monthly Report - 30 JUNE 2017

(i) 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 regular basis. This process includes: - Projecting cash flows and considering the level ofliquid assets necessary in relation thereto - Monitoring balance sheet liquidity ratios against internal and regulatory requirements; - Managing the concentration and profile of debt maturities; - Maintaining liquidity and funding contingency plans. These plans identify early indicators of stress conditions and describe actions to be taken in the event of difficulties arising from systemic or other crises while minimizing any adverse long-term implications for the business.

- Regular conduct of stress testing, coupled with testing of contingency funding plans from time to time.

The Bank maintains adequate liquid assets sufficient to manage any liquidity stress situation. The liquidity ratio remains one of the best among its peer companies.

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

30 June 2017 Expected cash flows

Carrying Up to3 6 months - In thousands ofnaira Note amount Total months 3 - 6 months 1 year Over 1 year Non-derivative financial liabilities

Deposits from customers 20 10,899,835 (6,803,321) (6,771,817) (24,146) (7,358) Other liabilities 22 343,251 (366,018) (234,773) (28,918) (26,694) (75,633) Borrowins;s 23 505,071 (371,022) (319,573) (6,490) (44,959)

11,748,157 (7,540,361) (7,326,163) (59,554) (34,052) (120,592)

31 December 2016 Expected cash flows

Carrying Up to3 6 months - In thousands ofnaira Note amount Total months 3 - 6 months 1 year Over 1 year Non-derivative financial liabilities Deposits from customers 20 6,792,391 (6,803,321) (6,771,817) (24,146) (7,358) Other liabilities 22 387,353 (366,018) (234,773) (28,918) (26,694) (75,633) Borrowins;s 23 349,249 (371,022) (319,573) (6,490) (44,959)

7,528,993 (7,540,361) (7,326,163) (59,554) (34,052) (120,592)

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 !lows.

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.

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

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

In thousands ofnaira 2017 2016

At 31 December 55% 28%

Average for the period 45% 37%

Maximum for the period 28% 47%

Minimum for the period 55% 28%

•

.. NPF Mlcroflnance Bank PLC Monthly Report· 30 JUNE 2017

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

The Bank's portfolio managers assess, monitor, manage and report on market risk taking activities within the Bank. The Bank has continued to develop its market risk management framework. The operations of the fund managers in connection with the management of market risk is guided by the Bank's culture of reducing the risk of losses associated with market risk-taking activities, and optimizing risk-reward trade-off."

The Bank's market risk objectives, policies and processes are aimed at instituting a model that objectively identifies, measures and manages market risks in the Bank and ensure that:

The individuals who take or manage risk clearly understand it. 2 The Bank's risk exposure is within established limits. 3 Risk taking decisions are in line with business strategy and objectives set by the Board of Directors. 4 The expected payoffs compensate for the risks taken. 5 Sufficient capital, as a buffer, is available to take risk.

Our market risks exposures are broadly categorised into: (i) Trading market risks - These are risks that arise primarily through trading activities and market making activities. These include position taking in fixed income securities (Bonds and Treasury Bills).

(ii) Non trading market risks - These are risks that arise from assets and liabilities that are usually on our books for a longer period of time, but where the intrinsic value is a function of the movement of financial market parameters.

(i) 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.

(ii) 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 is 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.

(iii) 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.

j

• NPF Mlcroflnance Bank PLC Monthly Report· 30JUNE 2017

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

30 June 2017 Contractual cash flows Carrying Up to3 6 months -

In thousands oLnaira Note amount Total months 3 - 6 months 1 year Over 1 year Assets Cash and cash equivalents 14 5,996,764 1,889,936 1,889,936 Pledged assets 15 595,984 581,298 581,298 Loans and advances to customers 16 9,469,491 10,592,073 1,736,251 1,377,091 2,540,399 4,938,332 Investment securities 17 45,081 45,081 45,081

16,107,320 13,108,388 4,252,566 1,377,091 2,540,399 4,938,332 Liabilities Deposits from customers 20 (10,899,835) (6,803,321) (6,771,817) (24,146) (7,358) Other liabilities 22 (343,251) (366,018) (234,773) (28,918) (26,694) (75,633) Borrowings 23 505,071 {371,022) (319,573) {6,490) (44,959)

(10,738,015) {7,540,361) (7,326,163) (59,554) (34,052) (120,592)

5,369,305 5,568,027 (3,073,597) 1,317,537 2,506,347 4,817,740

31 December 2016 Contractual cash flows

Carrying Up to 3 6 months - In thousands of naira Note amount Total months 3 - 6 months 1 year Over 1 year Assets Cash and cash equivalents 14 1,889,881 1,889,936 1,889,936 Pledged assets 15 581,425 581,298 581,298 Loans and advances to customers 16 9,095,801 10,592,073 1,736,251 1,377,091 2,540,399 4,938,332 Investment securities 17 37,574 37,574 37,574

11,604,681 13,100,881 4,245,059 1,377,091 2,540,399 4,938,332 Liabilities Deposits from customers 20 (6,792,391) (6,803,321) (6,771,817) (24,146) (7,358) Other liabilities 22 (387,353) (366,018) (234,773) (28,918) (26,694) (75,633) Borrowings 23 349,249 {371,0222 (319,573) (6,490) (44,9592

(6,830,495) (7,540,361) (7,326,163) (59,554) (34,052) (120,592)

4,774,186 5,560,520 (3,081,104) 1,317,537 2,506,347 4,817,740

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 increse 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:

30-Jun-17 31-Dec-16 In thousands of naira Increase in interest rate by 200 basis points (+2%) Decrease in interest rate by 200 basis point (-2%)

110,074 (110,074)

25,074 (25,074)

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.

Capital adequacy The Capital Adequacy Ratio is the quotient of the capital base of the Bank and the Bank's risk weighted asset base. In accordance with Central Bank of Nigeria regulations, the regulatory capital of a national Microfinance Bank is N2 billion, while a minimum ratio of I 0% is to be maintained.

(i) The Bank prides itself in maintaining very healthy capital adequacy ratio in all its areas of operations. Capital levels are determined either based on internal assessments or regulatory requirements.

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


(iii) The Bank undertakes a regular monitoring of capital adequacy. The Bank has consistently met and surpassed the minimum capital adequacy requirements applicable in all areas of operations. (iv) The Bank's capital plan is linked to its business expansion strategy which anticipates the need for growth and expansion in its branch network and IT infrastructure. The capital plan sufficiently meets regulatory requirements as well as providing adequate cover for the Bank's risk profile. The Bank's capital adequacy remains strong and the capacity to generate and retain reserves continues to grow.

In thousands ofnaira Note 30-Jun-17 31-Dec-16

Tier 1 capital Ordinary share capital Share premium Retained earnings Regulatory risk reserves Statutory reserves Other reserves Less: Deferred tax assets

24 25 25 25 25 25

21(c)

1,143,328 1,517,485 1,023,304 150,498

1,145,124

1,143,328 1,517,485 506,963 150,498

1,145,124

Total regulatory capital (Tier 1)

Tier 2 capital Collective impaiment 16(c)

4,979,739 4,463,398

72,065 68,693 72,065 68,693

5,051,804 4,532,091

10,889,002 6,543,528

46% 67% 46% 66%

Total tier 2 capital

Total regulatory capital (Tier 2)

Risk-weighted assets

Capital ratios Total regulatory capital expressed as a percentage of total risk-weighted assets Total tier 1 capital as a percentage of total risk-weighted assets

.. NPF Mlcrofinance Bank PLC Monthly Report - 30 JUNE 2017


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

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

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

These disclosures supplement the commentary on financial risk management (see note 4).

Key sources of estimation uncertainty (a) Impairment

Financial assets accounted for at amortised cost are evaluated for impairment on a basis described in the significant accounting policy. The specific component of the total allowances for impairment applies to financial assets evaluated individually for impairment and is based upon management's best estimate of the present value of the cash flows that are expected to be received. In estimating these cash flows, management makes judgements about a debtor's financial situation and the net realisable value of any underlying collateral. Each impaired asset is assessed on its merits, and the workout strategy and estimate of cash flows considered recoverable are independently approved by the credit risk function.

The collective component of the total impairment allowable is established for: - groups of homogeneous loans that are not considered individually significant; and - groups of assets that are individually significant but that were not found to be individually impaired (incurred but not reported - IBNR).

Collective allowance for groups of homogeneous loans is established using statistical methods such as roll rate methodology or, for small portfolios with insufficient information, a formula approach based on historic loss rate experience. The roll rate methodology uses statistical analysis of historical data on delinquency to estimate the amount of loss. The estimate of loss arrived at on the basis of historical information is then reviewed to ensure that it appropriately reflects the economic conditions and product mix at the reporting date. Roll rates and loss rates are regularly benchmarked against actual loss experience.

Collective allowance for groups of assets that are individually significant but that were not found to be individually impaired (IBNR) cover credit losses inherent in portfolios of loans and advances with similar credit risk characteristics when there is objective evidence to suggest that they contain impaired loans and advances, but the individually impaired items cannot yet be identified. In assessing the need for collective loss allowances, management considers factors such as credit quality, portfolio size, concentrations and economic factors. In order to estimate the required allowance, assumptions are made to define the way inherent losses are modelled and to determine the required input parameters, based on historical experience and current economic conditions. The accuracy of the allowances depends on the estimates of future cash flows for specific counterparty allowances and the model assumptions and parameters used in determining collective allowances.

Investments in equity securities are evaluated for impairment on the basis described in note 3. For an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment. In this respect, the Bank regards a decline in fair value in excess of20 percent to be significant and a decline in a quoted market price that persists for 9 months or longer to be prolonged.

• NPF Microfinance Bank PLC Monthly Report - 30 JUNE 2017

An assessment as to whether an investment in debt securities is impaired may be _complex. In making such an assessment, the Bank considers the following factors:

- The market's assessment of credit worthiness as reflected in the instrument yields. - The rating agencies' assessments of the creditworthiness. - The ability of the country to access the capital market for new debt issuance. - The probability of debt being restructured resulting in holders suffering losses through voluntary or mandatory debt

forgiveness.

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

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

The Bank measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the requirements.

- Level 1: Quoted market price in an active market for an identical instrument. - Level 2: Valuation techniques based on observable inputs. This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data.

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

Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments, the Bank determines fair value using valuation techniques.

Valuation techniques include net present value and discounted cash flow models, comparison to similar instruments for which market observable prices exist, Black-Scholes and polynomial option pricing models and other valuation models. Assumptions and inputs used in valuation techniques include risk-free and benchmark interest rates, credit spreads and other premia used in estimating discount rates, bond and equity prices, foreign currency exchange rates, equity and equity index prices and expected price volatilities and correlations. The objective of valuation techniques is to arrive at a fair value determination that reflects the price of the financial instrument at the reporting date, that would have been determined by market participants acting at arm's length.

Availability of observable market prices and model inputs reduces the need for management judgment and estimation and also reduces the uncertainty associated with determination of fair values. Availability of observable market prices and inputs varies depending on the products and markets and is prone to changes based on specific events and general conditions in the financial markets.

Valuation models that employ significant unobservable inputs require a higher degree of management judgment and estimation in the determination of fair value. Management judgment and estimation are usually required for selection of the appropriate valuation model to be used, determination of expected future cash flows on the financial instrument being valued, determination of probability of counterparty default and prepayments and selection of appropriate discount rates.

The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierachy. It does not include the fair value information for financial assets ans financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value.

In thousands ofnaira Note Level 1 Leve12 Level 3 Total

2017 ASSETS Investment securities 17 33,681 11,400 45,081

33,681 11,400 45,081

NPF Microflnance Bank PLC Monthly Report- 30 JUNE 2017

2016 ASSETS Investment securities 17 26,174 11,400 37,574

26,174 11,400 37,574

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 analyses them by level in the value hierachy into which each fair value measurement is categorised.

30 June 2017 Total fair Total carrying

In thousands of naira Note Level 1 Level 2 Level 3 value amount ASSETS Cash and cash equivalents 14 572,277 5,309,539 5,881,816 5,996,764 Pledged assets 15 595,984 595,984 595,984 Loans and advances to customers 16 9,469,491 9,469,491 9,469,491 Trade and other receivables (excluding

18 76,454 76,454 76,454 prepayments and other assets) 572,277 5,905,523 9,545,945 16,023,745 16,138,693

LIABILITIES Deposits from customers 20 10,899,835 10,899,835 10,899,835 Other liabilities 22 343,317 343,317 343,317 Borrowings 23 505,071 505,071 505,071

11,748,223 11,748,223 11,748,223

31 December 2016 I otal lair I otal carrymg

In thousands of naira Note Level 1 Level 2 Leve13 value amount ASSETS Cash and cash equivalents 14 299,367 4,090,274 4,389,641 1,889,881 Pledged assets 15 576,594 576,594 581,425 Loans and advances to customers 16 7,471,254 7,471,254 9,095,801 Trade and other receivables (excluding

18 85,357 85,357 85,357 prepayments and other assets) 299,367 4,666,868 7,556,611 12,522,846 11,652,464

LIABILITIES Deposits from customers 20 6,792,391 6,792,391 6,792,391 Other liabilities 22 537,353 537,353 537,353 Borrowings 23 631,700 631,700 349,249

7,961,444 7,961,444 7,678,993

The estimation of the useful lives of assets is based on management's judgement. Any material adjustment to the estimated useful lives of items of property and equipment will have an impact on the carrying value of these items.

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

NPF Mlcrofinance Bank PLC Monthly Report - 30 JUNE 2017

(e) Income taxes The Bank is subject to income taxes in numerous jurisdictions. Significant estimates are required in determining the Bank wide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Bank recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

For recognition of deferred tax assets, judgment is exercised to assess the availability of future taxable profit against which tax losses carried forward can be used.

(f) Determination of regulatory risk reserves Provisions under prudential guidelines are determined using the time based provisioning regime prescribed by Central Bank of Nigeria's (CBN) Amended Regulatory and Supervisory Guidelines for Microfinance Banks. This is at variance with the incurred loss model required by IFRS under IAS 39. As a result of the differences in the methodology/provision regime, there will be variances in the impairments allowances required under the two methodologies.

Paragraph 12.4 of the revised Prudential Guidelines for Deposit Money Banks in Nigeria stipulates that Banks would be required to make provisions for loans as prescribed in the relevant IFRS Standards when IFRS is adopted. However, Banks would be required to comply with the following:

(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:

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

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

(ii) The non-distributable reserve should be classified under Tier I as part of the core capital.

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

Prudential adjustments for the period ended 30 June 2017

In thousands ofnaira Note Loans & advances: Specific impairment allowances on loans to customers Collective impairment allowances on loans to customers Total impairment allowances on loans (a)

16 (c) 16 (c)

122,462 78,926

201,388

Total regulatory impairment based on prudential guidelines (b)

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

351,886

150,498

Balance, 1 January 2017 150,498

Addition during the year

Balance, 30 June 2017 150,498

Prudential adjustments for the year ended 31 December 2016 In thousands ofnaira Note Loans & advances: Specific impairment allowances on loans to customers Collective impairment allowances on Joans to customers Total impairment allowances on loans (a)

16 (c) 16 (c)

Total regulatory impairment based on prudential guidelines (b)

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

Balance, 1 January 2016

Addition during the year

Balance, 31 December 2016

NPF Mlcrofinance Bank PLC Monthly Report- 30 JUNE 2017

43,510 74,808

118,318

268,816

150,498

108,066

42,432

150,498

NPF Mlr:rofinanco Bank PLC Monthly Reporl - 30 JUNE 2017


Financial assets and liabilities Accounting classincation measurement basis and fair values The table below sets out the carrying amounts and fair values of the Bank's financial assets and liabilities:

30 June 2017 Fair value through Held-to- maturity Loans and Available- for-sale Other financial Total carrying

In thousands ofnaira Note profit or loss investments receivables financial assets liabilities amount Fair value

Cash and cash equivalents 14 5,996,764 5,996,764 5,881,816 Pledged assets 15 595,984 595,984 595,984 Loans and advances to customers 16 9,469,491 9,469,491 9,469,491 lnvesunent securities 17 45,081 45,081 45,081 Trade and other receivables (excluding 18 76,454 76,454 76,454 re a ments and other assets)

16,138,693 45,081 16,183,774 16,068,826

Deposits from customers 20 10,899,835 10,899,835 10,899,835 Other liabilities 22 343,251 343,251 343,251 Borrowin s 23 505,071 505,071 505,071

11,404,906 11,404,906 11,404,906

31 December 2016 Fair value through Held-to· maturity Loans and Avnilnble- for-sale Other financial Total carrying

/11 thousands of naira Note profit or loss investments receivn hies financial assets liabilities amount Fair value

Cash and cash equivalents 14 1,889,881 1,889,881 4,389,641

Pledged assets 15 581,425 581,425 576,594 Loans and advances to customers 16 9,095,801 9,095,801 7,471,254

lnvesunent securities 17 37,574 37,574 37,574 Trade and other receivables (excluding 18 85,357 85,357 85,357 re a ments and other assets

11,652,464 37,574 11,690,038 12,560,420

Deposits from customers 20 6,792,391 6,792,391 6,792,391

Other liabilities 22 387,353 387,353 387,353 Borrowin s 23 349,249 349,249 349,249

7,141,640 7,141,640 7,141,640

Financial instruments at fair value (including those held for trading. designated at fair value, available-for-sale) 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.


NOTES TO THE FINANCIAL STATEMENTS FOR THE MONTH ENDED 30 JUNE 2017

JUNE JUNE AUDITED In thousands of naira 2017 2016 DEC 2016

7 Interest income Loans and advances 1,007,578 907,797 1,913,160 Bankers acceptances 12,808 6,447 15,697 Placements with local banks 165,455 32,791 68,629

1,185,841 947,035 1,997,486

There was no impairment recorded in the interest income above for the period ended 30 June 2017 (2016: NI0.90.million).

8 Interest expense Term deposits 110,194 92,016 188,949 Current accounts 4,160 4,149 8,059 Savings 4,507 4,670 9,570 Borrowings 18,697 10,248 16,902

137,558 lll,083 223,480

9 Fees and commission income Credit-related fees and commission 286,530 257,960 599,610 Deposit-related fees and commission 67,750 57,201 117,266

354,280 315,161 716,876

IO Other revenue Income on salary administration 86,998 82,831 171,552 Service fees and charges 41,014 14,016 36,877 Profit on disposal of property and equipment 770 1,365 2,285 Dividend income 2 106 153

128,784 98,318 210,867

11 Net impairment loss on financial assets Impairment loss on loans and advances to customers:

(Write-back)/Charge on specific impairment (see 16(c)) 78,952 58,166 (17,511) Charge/(Write-back on collective impairment (see 16(c)) 4,118 52,689

83,070 58,166 35,178 Impairment loss on investments (see note l 7(b )) 1,076 (549) 580 Impairment loss on other receivables (see note l 8(a)) 4,108

84,146 57,617 39,866

12 Personnel expenses Short term employee benefits 447,604 346,536 876,821 Post-employment benefits:

Defined benefit plan 14,761 (60) Defined contribution plan - pension cost 20,264 16,951 36,047

Other staff cost 49,026 42,878 95,247 516,894 421,126 1,008,055

. NPF Mlcroflnance Bank PLC Monthly Report - 30 JUNE 2017


JUNE JUNE AUDITED In thousands ofnaira 2017 2016 DEC 2016

13 Administration and general expenses Repairs and maintenance cost 41,328 28,566 105,761 Vehicle and generator running cost 39,478 27,992 59,618 Office expenses 40,639 31,722 77,325 Computer expenses 26,388 20,131 54,772 Travel expenses 16,927 15,654 33,727 AGM and year-end expenses 25,274 14,613 43,212 Directors' expenses 40,021 29,056 111,334 Bank charges 12,960 10,388 32,670 Publicity expenses 26,831 23,881 57,259 Professional fees 6,883 6,896 30,967 Subscription fees 2,929 2,218 2,782 Charges and levies 15,125 1,546 21,681 Insurance cost 10,060 10,155 20,535 NDIC premium 15,187 14,724 29,448 Rent and rates 14,365 8,508 22,253 Corporate social responsibility 1,100 500 860 Auditor's remuneration 8,250 7,500 15,000 Income tax Loss on sale of property and equipment Other expenses (see note a) 20,833 16,856 35,170

364,578 270,906 754,374 (a) Other expenses includes the following:

Donations 2,155 4,923 4,103 Electricity expenses 9,092 4,432 9,696 Recruitment expenses 1,258 43 3,487 Damaged A TM cards 9 14 14 Loan recovery expenses 399 13 149 Fines 1,350 2,453 Stamp duties 29 9 1,945 Legal expenses 2,944 551 3,688 SMS alerts 3,497 4,372 6,957 Bad debts written off 458 378 Pre-operational expenses 1,150 2,300 Share listing expenses 992 WHT expense

20,833 16,856 35,170

14 Cash and cash equivalents Cash-in-hand 31,304 25,797 96,849 Current account balances with other banks 461,770 3,355,588 539,345 Money market placements 4,816,465 708,342 863,113 Treasury Bills 687,225 344,949 390,574

5,996,764 4,434,676 1,889,881

Cash and cash equivalents comprise balances with less than three months' maturity from the date of acquisition, including cash-in-hand, deposits held at call with other banks, other short-term highly liquid investments with original maturities less than three months. The current balances with other banks also includes ATM working capital accounts and the suspense accounts used to manage settlement of A TM 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.

11111111


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

Underlying transaction Counterparty Asset description BO! concessionary loan Ster I ing Bank Pie Treasury Bills 189,781 238,503 236,198 801 concessionary loan Sterling Bank Pie Fixed placement 259,221 CBN concessionary loan Zenith Bank Pie Fixed placement 148,790 152,933 CBN concessionary loan Firct City Monument Bank Fixed placement 50,445 99,804 101,955 NIBSS Platform First Bank of Nigeria Pie Fixed placement 76,537 74,942 70,339 A TM Transactions Sterling Bank Pie Call placement 20,000 20,000 20,000

595,984 582,039 581,425

Current 595,984 582,039 581,425 Non-current

595,984 582,039 581,425

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

Loan and advances to customers at amortised cost 9,469,491 8,397,095 9,095,801 9,469,491 8,397,095 9,095,801

Current 3,815,750 1,624,636 3,442,060 Non-current 5,653,741 5,694,163 5,653,741

9,469,491 7,318,799 9,095,801

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

I 2017 2016

Gross Impairment Carrying Gross Impairment Carrying Amount Allowance Amount Amount Allowance Amount

Term loans 8,438,842 (141,018) 8,297,824 8,837,988 (63,172) 8,774,816 Overdrafts 1,228,996 (57,329) 1,171,667 376,131 (55,146) 320,985

9,667,838 (198,347) 9,469,491 9,214,119 (118,3181 9,095,801

( c ) Movement in allowances for impairment JUN 2017 JUN 2016 DEC. 2016

Specific allowances for impairment Balance at I January 43,510 105,115 139,715 Write-offs during the year (78,694) Impairment loss for the year:

(Write-back)/Charge during the year (see note 11) 78,952 21,759 (17,511) Balance at 30 June 122,462 126,874 43,510

Collective allowances for impairment Balance at 1 January 74,808 41,280 22,119 Impairment loss for the year:

Charge/(Write-back) during the year (see note 11) 4,118 105,079 52,689 Balance at 30 June 78,926 146,389 74,808

201,388 273,263 118,318

NPF Mlcroflnance Bank PLC Monthly Report - 30 JUNE 2017

17 Investment securities (a) Investment securities comprise:

Available-for-sale equities: Listed equities Unlisted equities

354,522 354,523 354,522 22,499 22,499 22,499 377,021 377,022 377,021

(331,940) (336,693) (339,447) 45,081 40,329 37,574

45,081 40,329 37,574 45,081 40,329 37,574

Specific impairment allowance (see note (b) below)

Current Non-current

(b) Movement in specific allowances for impairment:

Balance at I January Impairment loss for the year:

Charge during the year (see note 11) Balance at 30 June

339,448

1,076

338,868

(549)

338,868

580 340,524 338,319 339,448

18 Trade and other receivables

Prepayments Other assets (see note (a) below) Other receivables (see note (b) below)

Impairment allowance on other receivables (see note ( c ) below)

Current Non-current

225,907 196,315 164,263 38,932 29,264 48,687 76,454 768,175 85,357

341,293 993,754 298,307 (42,004) (27,984) (40,762)

299,289 965,770 257,545

221,496 870,746 169,588 77,793 95,024 87,957

299,289 965,770 257,545

(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 advance, sundry debtors, discount instrument maturity suspense, consumer loan suspense and fraud & forgery account.

(c) Movement in specific allowances for impairment:

Balance, beginning of year Charge during the year (see note 11) Balance, end of period

40,762 27,984 36,655 4,108

40,762 27,984 40,762

,.

i. NPF Microfinance Bank PLC Monthly Report - 30 JUNE 2017


In thousands ofnaira

19 Property and Equipment Computer

Land and Furniture Motor and office Building and Fittings Vehicles Equipment Total

Cost: Balance as at 1 January 2016 234,609 72,835 188,610 187,302 683,356 Additions during the year 28,314 19,239 47,283 106,970 201,806 Disposals (2,999) (15,414) (18,413)

Balance at 31 December 2016 262,923 89,075 235,893 278,858 866,749

Balance as at 1 January 2017 262,923 89,075 235,893 278,858 866,749 Additions during the period 1,863 15,492 19,409 36,764 Disposals (526) (7,990) (5,554) (14,070)

Balance at 30 JUNE 2017 262,923 90,412 243,395 292,713 889,443

Accumulated Depreciation: Balance at 1 January 2016 25,107 53,691 92,289 118,199 289,286 Charge for the year 4,787 9,820 43,138 38,269 96,014 Disposals (2,999) (15,198) (18,197)

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

Balance at 1 January 2017 29,894 60,512 135,427 141,270 367,103 Charge for the period 2,912 5,402 21,964 27,030 57,308 Disposals (581) (7,990) (5,554) (14,125)

Balance at 30 JUNE 2017 32,806 65,333 149,401 162,746 410,286

Net Book Value: 31 December 2016 Net Book Value: 30 June 2017

233,029 28,563 100,466 137,588 499,646 230,117 25,079 93,994 129,967 479,157

There were no capitalised borrowing costs related to the acquisition of property and equipment during the period (2016: Nil). There were no impairment losses on any class of property and equipment during the period (2016: Nil). There were no property and equipment pledged as securities for liabilities (2016: Nil). There were no contractual commitment for the acquisition of property and equipment (2016: Nil).

Current Non-current

2017

479,157

2016

499,646 479,157 499,646

• NPF Microfinance Bank PLC Monthly Report - 30 JUNE 2017


JUNE JUNE AUDITED In thousands of naira 2017 2016 DEC 2016

20 Deposits from customers Current 3,902,923 2,552,017 2,250,146 Savings 4,068,572 1,921,631 1,816,956 Term 2,874,016 2,478,143 2,659,449 Sundry deposits 54,324 65,840.00

10,899,835 6,951,792 6,792,391

Current 10,899,835 6,951,792 6,792,391 Non-current

10,899,835 6,951,792 6,792,391

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

Current tax expense Company income tax Education tax National Information Technology Development Agency (NITDA) levy

170,412 14,848 7,955

193,215

Deferred tax expense Origination and reversal of temporary differences - Charge/(Credit) 55,322

55,322

Tax expense 248,537

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.

(b) Movement in current tax liabilities Beginning of the year 199,571 188,983 188,983 Income tax expense (see note (a) above) 193,215 Tax paid (61,677) (176,002) (182,627) End of the year 137,894 12,981 199,571

• NPF Mlcrofinance Bank PLC Monthly Report- 30 JUNE 2017



(c) Movement in deferred tax balances

2017

Recognized in Net balance at 1 profit or loss Recognized in

January (see (a)) OCI Balance as at 31 December

Property and equipment Loans and advances · Employee benefits Deferred tax (assets)/liabilities

86,721 (22,443) (44,368)

86,721 (22,443) (44,368)

19,910 19,910

2016

Recognized in Net balance at 1 profit or loss Recognized in

January (see (a)) OCI Balance as at 31 December

Property and equipment Loans and advances Employee benefits Deferred tax (assets)/liabilities

67,232 (6,636)

(96,007)

19,489 (15,807) 51,639

86,721 (22,443) (44,368)

(35,411) 55,321 19,910

(d) Reconciliation of effective tax rate In thousands ofnaira

Profit before tax Tax using the Company's domestic tax rate Non-deductible expenses Tax-exempt income Tertiary Education Tax NITDALevy

2017 2016

508,421 803,440 30.00% - 30.00% 241,032 0.00% - 5.77% 46,349 0.00% - -7.67% (61,648) 0.00% - 1.85% 14,848 0.00% - 0.99% 7,955

30.00% - 30.93% 248,536


JUNE AUDITED In thousands ofnaira 2017 DEC2016

22 Other liabilities Accounts payable 26,130 88,386 Productivity bonus (see note (a) below) 66 150,000 Sundry creditors 51,810 71,295 Staff benefits payable (see note (b) below) 122,669 180,208 Accruals 142,315 46,432 Other payables 336 132 Deffered income on fees Unearned income 92 Pension payable (101) 900

343,317 537,353

Current 220,749 356,245 Non-current 122,568 181,108

343,317 537,353

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

(b) Staff benefits payable comprise the outstanding liabilities on the staff defined benefits plan discontinued on 30 June 2015 and reclassified from retirement benefit obligations. It is repayable at 10% interest rate per annum over three years.

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

Balance, beginning of year Addition during the period Interest accrued during the period Liability repayment during the period Interest repayment during the period Balance, end of period

JUN2017 DEC2016

180,208 331,669

29,158 32,003 (75,512) (172,130) (11,185) (11,334) 122,669 180,208

23 Borrowings (a)_ Borrowings comprise:

BO! concessionary loan (see note (i) below) CBN concessionary loan (see note (ii) below)

Current Non-current

505,006 42,749 65 306,500

505,071 349,249

505,071 349,249 505,071 349,249

(i) The Bank of Industry (BO!) loan was availed the Bank on 14 May 2014. The amount availed was N200 million at a rate of 5 percent per annum for a duration of 3 years. This loan is for on-lending to the Bank's customers. It is for the benefit of small and medium sized enterprises to grow their businesses and to become financially independent.

(ii) The Central Bank of Nigeria (CBN), Micro Small and Medium sized Enterprises Development Fund (MSMEDF) loan of N500 million was also availed the Bank on 9 October 2014 at a rate of 2 percent and is due on demand. The loan is also 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.

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

Balance, beginning of year Addition during the period Interest accrued during the year Repayment during the year Balance, end of year

JUN2017 DEC2016

349,249 630,795 500,000 25,642 15,658

(369,820) (297,204) 505,071 349,249

24 Share capital

Authorised:

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

Issued and fully paid: 2,286,657,766 units of ordinary shares of 50 kobo each

3,000,000 3,000,000

1,143,328 1,143,328

25 Share premium and reserves The nature and purpose of the share premium and reserve accounts in equity are as follows:

(a) Share premium The share premium warehouses the excess paid by shareholders over the nominal value for their shares. Premiums from the issue of shares are reported in share premium.

(b) Retained earnings Retained earnings comprise the undistributed profits from previous years, which have not been reclassified to the other reserves noted below.

(c) Statutory reserve The Nigerian banking regulations require the Bank to make an annual appropriation to a statutory reserve. As stipulated by S.8.1. 7 of the Amended Regulatory and Supervisory Guidelines for Microfinance Banks issued by the Central Bank of Nigeria (CBN), an appropriation of 50% of profit after tax is made if the statutory reserve is less than 50% of its paid-up share capital, 25% of profit after tax if the statutory reserve is greater than 50% but less than I 00% 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 25% of its profit after tax to statutory reserves as at year-end .

(d) Regulatory risk reserve The regulatory risk reserve warehouses the excess of the impairment allowance on loans and advances computed based on the Central Bank of Nigeria prudential guidelines over that computed based on the incurred loss model under IFRS.


26 Related party transactions

NPF Microfinance Bank Pie neither has a parent company nor subsidiaries.

(a) Transactions with key management personnel (i) Key management compensation for the year comprised:


NPF Microfinance Bank PLC Monthly Report- 30 JUNE 2017

2017 2016

Salaries and other short term benefits Retirement benefits

45,767 9,800

43,519 9,800

55,567 53,319

(ii) Loans and advances In addition to their salaries, the Bank also provides non-cash benefits to its executive directors. Loans to key management personnel include housing loans and other personal loans which are given under terms that are no more favorable than those given to other staff. The housing loans are secured by property of the respective borrowers. All other loans are unsecured and interest rates charged on the related parties are at arm's length.

The movement in the loans and receivables to key management personnel during the year was: At start of the year Granted during the year Repayment during the year At end of the year

Interest earned

No specific impairment has been recognized in respect of loans granted to key management personnel (2015: Nil).

Loans and advances outstanding: The amounts granted and their balances as at 31 December 2016 were as follows: /11 thousands ofnaira

27,827 29,851 5,355 6,983

(8,946) (9,007) 24,236 27,827

644 1,257

Amount Name Relationship Facility type granted 31 Dec. 2016 31 Dec. 2015 Status Security

Mr. Akinwunmi Lawal Managing Housing loan 11,800 7,424 8,014 Performing Certificate of Director occupancy

Mr. Jude Ohanehi Executive Housing loan 12,095 8,718 9,323 Performing Certificate of Director occupancy

Mr. Akinwunmi Lawal Managing Vehicle loan 8,500 3,069 4,486 Performing Unsecured Director

Mr. Akinwunmi Lawal Managing Personal loan 2,600 975 Performing Unsecured Director

Mr. Jude Ohanehi Executive Vehicle loan 7,500 2,917 4,167 Performing Unsecured Director

Mr. Jude Ohanehi Executive Personal loan 2,300 2,108 862 Performing Unsecured Director 44,795 24,236 27,827


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

In thousands of'naira

Name Relationship Type of deposit 31 December 31 December 2016 2015

Mr Joel Udah Chairman Current deposit 949 106

Mrs Gimba Dorothy Non-Executive Current deposit 1,610 472

Mr Wabali Emmanuel Non-Executive Current deposit 888 565

Mr Daramola Joseph Non-Executive Current deposit 768 695

Prince Eke Ifeanyi Non-Executive Current deposit 603 16

Mr Abubakar Audu Current deposit 939 118

Non-Executive

Mrs Florence Adebanjo Former

Current deposit 26

Chairperson

Mr Saeed Dantsoho Non-Executive Current deposit 4,522 1,375

Mr Ohanehi Jude Executive-

Current deposit 7,084

Director

Mr Lawal Akinwunmi Managing

Current deposit 6,648 1,085

Director 24,037 4,432

(b) Deposits of other related parties Included in deposits is an amount ofNl.83 billion (31 December 2015: Nl.74 billion), representing deposits from major shareholders. The balances as at 31 December 2015 were as follows:


Name of Relationship Type of deposit 31 December 31 December

compnny/mdividua! 2016 2015 NPF Cooperative Society Major

Current deposit 2,761 3,687 Limited shareholder NPF Cooperative Society Major

Term deposit 1,132,373 1,069,754 Limited shareholder NPF Welfare Insurance Major

Current deposit 172,143 171,449 Scheme shareholder NPF Welfare Insurance Major

Term deposit 525,291 502,252 Scheme shareholder

1,832,568 1,747,142

(iv) Transaction with related parties Mr. Udah owns the property in Aba leased by the Bank for use as a branch. The leased property was inspected and found suitable for the proposed branch and the offer price was also competitive. The property was leased to the Bank for a 3-year duration at a cost of N5,6 I 0,000. (31 December 2015: nil)



27 EMPLOYEES AND DIRECTORS EMPLOYEES

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

Management

Non-management

2017

2

40

242

2016

2

42

180

284 224

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

Less than NS00,000 NS00,001 - Nl,000,000 13 13 Nl,000,00 I - N2,500,000 232 167 N2,500,00I - N3,500,000 16 19 N3,500,001 - N4,500,00I 9 II N4,500,0001 - NS,500,000 2 2 NS,500,001 and above 12 12

284 224

(c) Diversity in Employment

i). A total of 123 women were employed by the Bank during the period ended 30 June 2017 (2016: 123), which represents 43% of the total workforce (2016: 43%).

ii). A total of2 women were in the top management position as at the period ended 30 June 2017 (2016: 2), which represents 30% of the total top management workforce (2016: 30%). 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:

June 2017 December 2016 GRADE LEVEL Male Female Total Male Female Total

Manager(M) 6 - 6 3 I 4 Senior Manager (SM) 3 - 3 3 - 3 Assistant General Manager (AGM) 2 1 3 3 1 4 Deputy General Manager (DGM) I - 1 - - - General Manager (GM) 1 1 2 1 1 2 TOTAL 13 2 15 IO 3 13

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

(d) DIRECTORS Analysis of directors by gender: June 2017 December 2016

Male Female Total Male Female Total Managing Director 1 - I 1 - I Executive Director 1 - I 1 - 1 Non - Executive Directors 6 I 7 6 1 7 TOTAL 8 1 9 8 1 9


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

In thousands ofnaira 2017 2016

Executive compensation 29,315 33,402 Fees and sitting allowances 9,202 27,995 Other directors' expenses 1,504 49,937

40,021 111,334 The directors' remuneration shown above includes:

The chairman 6,200 5,575

Highest paid director 18,906 18,192

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

Below Nl,000,000 6 6 Nl,000,001 - N5,000,000 N5,000,001 - NI0,000,000 2 2 NI0,000,001 and above

9 9

28 Compliance with banking and other regulations During the year, the Bank paid penalties of N 1.3 Smillion (2015: Nil) to the Securities and Exchange Commissionin respect of delay in submission ofthe 2015 audited financial statements and Nl.095 million (2015: Nil) to the Federal Inland Revenue for non-rendition of VAT returns.

29 Events after the reporting period

There were no events which could have a material effect on the financial position of the Bank as at 3 0 June 2017 or the profit for the year then ended on that date, that have not been adequately provided for or disclosed in the financial statements.

30 Litigations and claims

The Bank in its ordinary course of business is presently involved in 12 cases (December 2016: 12) as a co-defendant. The directors of the Bank are of the opinion that none of the aforementioned cases is likely to have material adverse effect on the Bank and are not aware of any other pending and/or threatened claims or litigations which may be material to the financial statements. However, the total amount that may be claimed against the Bank is estimated at N552.4 million (2016: N552.4 million).

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

32 Earnings per share Basic earnings per share (EPS) is calculated by dividing the net profit attributable to shareholders by the weighted average number of ordinary shares in issue during the year.

2017 2016

Net profit attributable to shareholders ( in thousands ofnaira) Number of shares in issue (in thousands) Weighted average number of shares in issue (in thousands) Basic earnings per share (kobo)

The Bank did not have potential dilutive shares as at 30 June 2017 (31 December 2016: Nil).

508,421 554,903 2,286,656 2,286,656 2,286,656 2,286,656

22 24

ii

NPF Micronnance Bank PLC Monthly Report - 30 JUNE 2017

33 Unclaimed dividends Unclaimed dividends summed up to N44,537,224.57 as at 31 December 2016 (2015: N32,932,520.79). This amount is made up of N35,769,790.30 (2015: NJ0,265,664.68) invested with Stanbic IBTC Asset Management Limited in fixed income mutual funds and NS,767,434.27 (2015: N2,666,856.11) in the custody of Cardinal Stone Registrars Limited.

The investment balance ofN35,769,790.30 is analysed below:

Net investible balance I October - 3 I December 2016 Net income earned

N'OOO 34,573 1,196

N'OOO 29,530

735 35,769 30,266

34 Fees for non-audit services KPMG Professional services rendered the following non-audit services to the Bank:

Service description Fee amount N'OOO

Fee amount N'OOO

Certification of the Statement of Deposit Liabilities as at 31 December 2016 in compliance with section 17(l)(a) of the NDIC Act, 2006

Tax compliance services 1,500 1,100

1,500 1,000

2,600 2,500

•

\

OTHER NATIONAL DISCLOSURES

ii NPF Mlcrofinance Bank PLC Monthly Report-30 JUNE 2017

OTHER NATIONAL DISCLOSURES: VALUE ADDED STATEMENT FOR THE MONTH ENDED 30 JUNE

JUN 2017 DEC2016 N'OOO % N'OOO %

Gross earnings 1,668,905 2,925,229 Bought-in-materials and services - local (448,724) (794,240)

Value added 1,220,181 100 2,130,989 100

Distribution of value added: To employees - As salaries and other benefits 516,894 42 1,008,055 47

To providers of finance - As interests 137,558 11 223,480 10

To the Government -As taxes 248,537 12

Retained in the business - Asset replacement (depreciation) 57,308 5 96,014 5 - Profit for the year (including statutory reserves) 508,421 42 554,903 26

Value added 1,220,181 100 2,130,989 100

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

•

NPF Mlcrofinance Bank PLC Monthly Report - 30 JUNE 2017

OTHER NATIONAL DISCLOSURES: FINANCIAL SUMMARY AS AT 30 JUNE

JUNE 2017 2016 2015 2014 2013 In thousands of naira

STATEMENT OF FINANCIAL POSITION

ASSETS Cash and cash equivalents 5,996,764 1,889,881 3,054,860 3,054,787 2,477,012 Pledged assets 595,984 581,425 583,038 635,090 20,000 Loans and advances to customers 9,469,491 9,095,801 7,881,519 6,527,210 5,559,453 Investment securities 45,081 37,574 38,154 47,265 61,268 Trade and other receivables 299,289 257,545 346,969 194,773 207,530 Property and equipment 479,157 499,646 394,070 371,331 355,375 Deferred tax assets 35,411 34,733

TOTAL ASSETS 16,885,766 12,361,872 12,334,021 10,865,189 8,680,638

LIABILITIES Deposits from customers 10,899,835 6,792,391 6,610,113 4,803,374 3,858,052 Current tax liabilities 137,894 199,571 630,795 213,434 135,024 Retirement benefit obligations 188,983 282,010 106,449 Deferred tax liabilities 19,910 19,910 62,196 Other liabilities 343,317 537,353 813,502 602,023 Borrowings 505,071 349,249 652,637 672,976

TOT AL LIABILITIES 11,906,027 7,898,474 8,082,528 6,785,296 4,763,744

CAPITAL AND RESERVES Share capital 1,143,328 1,143,328 1,143,328 1,143,328 1,143,328 Share premium 1,517,485 1,517,485 1,517,485 1,517,485 1,517,485 Retained earnings 1,023,304 506,963 476,216 407,801 301,138 Other reserves 1,295,622 1,295,622 1,114,464 1,011,279 954,943

TOTAL EQUITY 4,979,739 4,463,398 4,251,493 4,079,893 3,916,894

TOTAL LIABILITIES AND EQUITY 16,885,766 12,361,872 12,334,021 10,865,189 8,680,638

STATEMENT OF COMPREHENSIVE INCOME Gross income 1,668,905 2,925,229 2,592,694 1,934,059 1,631,284 Profit before taxation 508,421 803,440 688,899 512,076 630,529 Profit after taxation 508,421 554,903 514,598 391,320 475,837 Dividend 342,998 342,998 228,666

Basic and diluted earnings per share (kobo) 22 24 23 21 17 Dividend per share (kobo) 15 15 10 Net assets per share (kobo) 218 195 186 178 171

,.

NPF MICRO FINANCE BANK PLC Month End: JUNE 30, 2017 Trial balance - by mapping number

2017 Account Unadjusted Adjustments Adjusted (Absolute) Adjusted (Rounded)

1 Assets 16,885,765,184.38 0.00 16,885,765,184.38 16,885,765

I.I Cash and cash equivalents 5,996,764,320.79 0.00 5,996,764,320.79 5,996,764

1.1.1 Cash in hand 31,304,228.65 0.00 31,304,228.65 31,304 101100 PETIY CASH 0.00 0.00 0 101201 CASHIER TELLER-I 1,000,000.75 0.00 1,000,000.75 1,000 101202 CASHIER TELLER-2 415,715.00 0.00 415,715.00 416 101203 CASHIER TELLER-3 64,000.00 0.00 64,000.00 64 101204 CASHIER TELLER-4 11,148,153.66 0.00 11,148,153.66 11,148 101205 CASHIER TELLER-5 -252,703.00 0.00 -252,703.00 -253 101207 CASHIER TELLER-7 -187,289.00 0.00 -187,289.00 -187 101208 CASHIER TELLER-8 -2,402,124.00 0.00 -2,402, 124.00 -2,402 101209 CASHIER TELLER-9 -19,272,972.97 0.00 -19,272,972.97 -19,273 101210 CASHIER TELLER JO -39,230,680.18 0.00 -39,230,680.18 -39,231 101301 CASHIER DIFEERENCE TELLER-I -40,919.61 -40,919.61 -41 101302 CASHIER DIFEERENCE TELLER-2 0.00 0.00 0 101303 CASHIER DIFEERENCE TELLER-3 -12,000.00 -12,000.00 -12 101304 CASHIER DIFEERENCE TELLER-4 118,000.00 118,000.00 118 101305 CASHIER DIFEERENCE TELLER-5 19,048.00 19,048.00 19 101306 CASHIER DIFEERENCE TELLER-6 0.00 0.00 0 101307 CASHIER DIFFERENCE TELLER 7 0.00 0.00 0 101400 CASH IN VAULT 79,938,000.00 0.00 79,938,000.00 79,938

1.1.2 Held-to-Maturity Treasury Bills 687,224,711.98 0.00 687,224,711.98 687,225 I 03100 TREASURY BILL PURCHASE 688,026,944.18 0.00 688,026,944.18 688,027 202100 DEFERRED INCOME ON T/8 -802,232.20 -802,232.20 -802

1.1.3 Current balances with other banks 461,770,188.37 0.00 461,770,188.37 461,770 102150 FBN GARKI MKT BRANCH 5,253,974.96 0.00 5,253,974.96 5,254 102200 FIRST BANK CURRENT ACCOUNT I 360,404,887.20 0.00 360,404,887.20 360,405 102202 FBN CURRENT ACCOUNT OBALENDE BRANCH 2,891,606.79 0.00 2,891,606.79 2,892 I 02204 ATM WORKING CAP IT AL -STERLING BANK (DEBIT CARD 534,572,350.40 0.00 534,572,350.40 534,572 102205 ATM WORKING CAPITAL-STERLING BANK(CREDIT CARI: 542,104,136.27 542,104,136.27 542,104 102300 U.B.A PLC CURRENT NC 63,239,044.96 0.00 63,239,044.96 63,239 I 02500 STERLING BANK 223,562,142.73 0.00 223,562,142.73 223,562 I 02502 STERLING BANKS ACCOUNT OBALENDE BRANCH -2,459,527.00 0.00 -2,459,527.00 -2,460 102901 FBN CLEARING NC 19,002,471.60 0.00 19,002,471.60 19,002 102207 POS WORKING CAPITAL 567,209.88 567,209.88 567 I 02208 FBN NIP SETILEMENT ACCOUNT 5,329,082.98 0.00 5,329,082.98 5,329 102203 ATM SETILEMENT ACCOUNT -57,501,493.66 -57,501,493.66 -57,501 I 02206 A TM WORKING CAPITAL (CREDIT CARD) BRANCH -950,515,329.28 -950,5 I 5,329.28 -950,515 129005 ATM SETILEMENT ACCOUNY (DEBIT CARD) -233,641,913. 13 0.00 -233,641,913.13 -233,642 129007 ATM SETILEMENT ACCOUNT (CREDIT CARD) -51,038,456.33 0.00 -51,03 8,456.33 -51,038

1.1.6 Money market placements 4,816,465,191.79 0.00 4,816,465,191.79 4,816,465 102201 CALLACCOUNT-FBN 194,660,538.14 0.00 194,660,538.14 194,661 102301 CALLACCOUNT-UBA 0.00 0.00 0.00 0 102501 CALL ACCOUNT-STERLING 281,956,839.66 0.00 281,956,839.66 281,957 I 03200 FIXED DEPOSIT (PLACEMENT) 199,761,282.66 0.00 199,761,282.66 199,761 103300 CALL PLACEMENTS 4,140,086,531.33 0.00 4,140,086,531.33 4,140,087

1.1.6.1 Allowance for Impairment on Doubtful Placements 0.00 0.00 0.00 0 103302 PROVISION FOR DOUBTFUL BALANCE RECOVERABLE 0.00 0.00 0

1.1.4 Pledged Assets 595,983,686.80 0.00 595,983,686.80 595,984 I 02503 A TM COLLATERAL ACCOUNT 20,000,000.00 0.00 20,000,000.00 20,000

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