GROUP OVERVIEW OUR APPROACH GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDER INFORMATION
Notes to the Consolidated Financial Statements
for the year ended 31 December 2016
(b) The fair value of loans and advances to customers (including loan commitments) and investment securities are as follows:
At 31st December 2016 At 31st December 2015
Carrying Fair Carrying Fair
value value value value
N’million N’million N’million N’million
GROUP 48,597 44,525 51,055 48,915
Financial assets 2,035,297 2,035,298 1,766,217 1,811,618
Loans and advances to customers
Fixed rate loans 108,479 93,472 106,624 104,094
Variable rate loans 83,679 60,582 82,020 51,899
Investment securities (held to maturity) 14,203 14,203 33,342 33,342
Asset pledged as collateral
Loan commitments 316,792 272,774 256,116 286,016
Financial liability
Borrowings
Investment securities have been fair valued using the market prices and is within level 1 of the fair value hierarchy.
Loans and advances to customers have been fair valued using average benchmarked lending rates which are adjusted to specific entity
risks based on history of losses.
Borrowings which are listed on stock exchange are fair valued using market prices and are within level 1 of the fair value heirarchy while
other borrowings are fair valued using valuation techniques and are within level 2 of the fair value heirarchy.
The carrying value of the following financial assets and liabilities for both the company and group approximate their fair values:
Cash and balances with central banks
Loans and advances to banks
Other assets (excluding prepayments)
Deposits from banks
Deposits from customers
Liability on investment contracts
Other liabilities (excluding provisions and accruals)
166 FBN HOLDINGS PLC Annual Report and Accounts 2016
GROUP OVERVIEW OUR APPROACH GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDER INFORMATION
Notes to the Consolidated Financial Statements
for the year ended 31 December 2016
4. Capital management
The Group’s objectives when managing capital are (i) to comply with the capital requirements set by the regulators (Central Bank of
Nigeria, Securities and Exchange Commission, National Insurance Commission etc), (ii) to safeguard the Group’s ability to continue as a
going concern and (iii) to maintain a sufficient capital base to achieve the current regulatory capital requirement of FBN Holdings Plc.
and its subsidiaries. The regulatory capital requirement for entities within the Group, as well as the internal target for capital management
are as follows:
Name of Entity Primary Regulator Regulatory Requirement Internal Target
FBN Holdings Plc. Central Bank of Nigeria Paid-up Capital in excess Same as regulatory requirement
of aggregated capital of
First Bank of Nigeria Limited Central Bank of Nigeria subsidiaries 1% above regulatory CAR
2.5% above regulatory CAR
FBN Merchant Bank Limited Central Bank of Nigeria N100billion Capital; and Same as regulatory requirement
15% Capital Adequacy Ratio
FBN Capital Limited Securities and Exchange Life: Higher of 17% of net
Commission N15billion Capital; and premium or 200% regulatory
10% Capital Adequacy Ratio capital;
FBN Insurance Limited National Insurance General: Higher of 20% of net
Commission Issuing House: N150million; premium or regulatory capital
Trustee: N300million; 400% of regulatory capital
FBN Insurance Brokers Limited National Insurance Broker-Dealer: N300million;
Commission Underwriter: N200million; and
Fund Manager: N150million
Life Business: N2billion;
General Business: N3billion
N5million Capital
The Group’s capital management approach is driven by its strategy and organisational requirements, taking into account the regulatory
and commercial environment in which it operates. It is the Group’s policy to maintain a strong capital base to support the development
of its business and to meet regulatory capital requirements at all times.
Through its corporate governance processes, the Group maintains discipline over its investment decisions and where it allocates its
capital, seeking to ensure that returns on investment are appropriate after taking account of capital costs.
The Group’s strategy is to allocate capital to businesses based on their economic profit generation and, within this process, regulatory
and economic capital requirements and the cost of capital are key factors. The Group has an Internal Capital Adequacy Assessment
Process which proactively evaluates capital needs vis-a-vis business growth and the operating environment. It also guides the capital
allocation among the subsidiaries and the business units. The Group’s internal capital adequacy assessment entails periodic review of
risk management processes, monitoring of levels of risk and strategic business focus through a system of internal controls that provides
assurance to those charged with governance on risk management models and processes.
The Group considers both equity and debt, subject to regulatory limits, as capital.
FBN HOLDINGS PLC Annual Report and Accounts 2016 167
GROUP OVERVIEW OUR APPROACH GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDER INFORMATION
Notes to the Consolidated Financial Statements
for the year ended 31 December 2016
During 2016, the Group’s strategy, which remains significantly unchanged, was as contained in the table above. The test of capital
adequacy for FBN Holdings Plc. and its subsidiaries, in accordance with the requirements of paragraph 7.3 of the Guidelines for Licensing
and Regulation of Financial Holding Companies in Nigeria, as at 31 December 2016 and 2015 are as follows:
i. FBN Holdings Plc. Proportion of 31 December 31December
shares held 2016 2015
(%)
N’million N’million
Subsidiary Paid-up Capital (FBNHoldings’ proportion)
First Bank of Nigeria Limited 100 205,557 205,557
FBN Merchant Bank Limited 100 8,206 8,206
FBN Capital Limited 100 4,300 4,300
FBN Insurance Limited 65 4,724 4,724
FBN Insurance Brokers Limited 100 25 25
Rainbow Town Development Limited 55 5,000 5,000
Aggregated Capital of Subcos 227,812 227,812
FBN Holdings Plc.’s Paid-up Capital 251,340 270,840
Excess of FBN Holdings’ capital over aggregated capital of subcos 23,528 43,028
ii First Bank of Nigeria Limited & FBN Merchant Bank Limited
The Banks’ capital is divided into two tiers:
Tier 1 capital: core equity tier one capital including ordinary shares, statutory reserve, share premium and general reserve. Non-
controlling interests arising on consolidation from interests in permanent shareholders’ equity. The book value of goodwill, unpublished
losses and under provisions are deducted in arriving at qualifying Tier 1 capital; and
Tier 2 capital: qualifying subordinated loan capital and unrealised gains arising from the fair valuation of financial instruments held as
available for sale. Under the Basel II requirements as implemented in Nigeria, Tier 2 capital is restricted to 33 1/3% of Tier 1 capital.
The Central Bank of Nigeria prescribed the minimum limit of total qualifying capital/total risk weighted assets as a measure of capital
adequacy of banks in Nigeria. Total qualifying capital consists of tier 1 and 2 capital less investments in subsidiaries and other regulatory
adjustments.
The table below summarises the Basel II capital adequacy ratio for 2016 and 2015. It shows the composition of regulatory capital and
ratios for the years. During those years, the Banks complied with all the regulatory capital requirements to which it was subjected.
168 FBN HOLDINGS PLC Annual Report and Accounts 2016
GROUP OVERVIEW OUR APPROACH GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDER INFORMATION
Notes to the Consolidated Financial Statements
for the year ended 31 December 2016
FBN MERCHANT BANK FIRST BANK OF NIGERIA
31-Dec-16 31-Dec-15 31-Dec-16 31-Dec-15
N’million N’million N’million N’million
Tier 1 capital 4,302 4,302 16,316 16,316
Share capital 189,241
Share premium 3,905 3,905 189,241 63,237
Statutory reserve
SMEEIS reserves 6,561 5,287 70,748 6,076
Retained earnings 130,787
Less: goodwill/deferred tax - - 6,076
Less: loan to subsidiary (excess over single obligor limit) (5,386)
Less: Investment in subsidiaries 14,014 9,235 153,924 (29,181)
Total qualifying for tier 1 capital (37,208)
(9,774) (8,083) (6,890) 333,883
Tier 2 capital
Fair value reserve - - -
Other borrowings
Total tier 2 capital - - (35,649)
Tier 2 capital restriction
Less: Investment in subsidiaries 19,008 15,184 393,766
Total qualifying for tier 2 capital
Total regulatory capital (2,417) 319 29,102 54,090
Total risk-weighted assets
Risk-weighted Capital Adequacy Ratio (CAR) - - 233,976 152,434
Tier 1 CAR
(2,417) 319 263,078 206,524
(2,417) 319 143,138 133,424
- - (35,649) (37,208)
(2,417) 319 107,490 96,216
16,591 15,504 501,256 430,099
73,431 67,313 2,818,158 2,518,285
22.59% 23.03% 17.79% 17.08%
25.88% 22.56% 13.97% 13.26%
iii. Other Regulated Subsidiaries
Regulatory 31 December Excess/ 31 December Excess/
Requirement 2016 (Shortfall) 2015 (Shortfall)
N’million N’million N’million N’million N’million
FBN Capital Limited 1,100 15,514 14,414 38,463 37,363
FBN Insurance Limited:
Life business 2,000 7,784 5,784 9,496 7,496
General business 3,000 4,109 1,109 3,989 989
FBN Insurance Brokers Limited 831
5 331 326 836
All the regulated entities within the Group complied with all the regulatory capital requirements to which they were subjected.
FBN HOLDINGS PLC Annual Report and Accounts 2016 169
GROUP OVERVIEW OUR APPROACH GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDER INFORMATION
Notes to the Consolidated Financial Statements
for the year ended 31 December 2016
5 Significant accounting judgements, estimates and assumptions
The Group’s financial statements and its financial result are influenced by accounting policies, assumptions, estimates and
management judgement, which necessarily have to be made in the course of preparation of the consolidated financial
statements. The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within
the next financial year. All estimates and assumptions required in conformity with IFRS are best estimates undertaken in
accordance with the applicable standard. Estimates and judgements are evaluated on a continuous basis, and are based on
past experience and other factors, including expectations with regard to future events. Accounting policies and management’s
judgements for certain items are especially critical for the Group’s results and financial situation due to their materiality.
a Impairment charges on financial assets
The Group reviews its loan portfolios for impairment on an on-going basis. The Group 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. Impairment provisions are also recognised for losses not specifically
identified but which, experience and observable data indicate, are present in the portfolio at the date of assessment. For
individually significant financial assets that has been deemed to be impaired, management has deemed that cashflow from
collateral obtained would arise within 24 months where the financial asset is collaterized.
Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective
evidence of impairment similar to those in the portfolio, when scheduling its future cash flows. The methodology and
assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any
differences between loss estimates and actual loss experience.
The use of historical loss experience is supplemented with significant management judgment to assess whether current
economic and credit conditions are such that the actual level of inherent losses is likely to differ from that suggested
by historical experience. In normal circumstances, historical experience provides objective and relevant information from
which to assess inherent loss within each portfolio. In other circumstances, historical loss experience provides less relevant
information about the inherent loss in a given portfolio at the balance sheet date, for example, where there have been changes
in economic conditions such that the most recent trends in risk factors are not fully reflected in the historical information.
In these circumstances, such risk factors are taken into account when calculating the appropriate levels of impairment
allowances, by adjusting the impairment loss derived solely from historical loss experience.
The detailed methodologies, areas of estimation and judgement applied in the calculation of the Group’s impairment charge
on financial assets are set out in the Financial risk management section.
The estimation of impairment losses is subject to uncertainty, which has increased in the current economic environment,
and is highly sensitive to factors such as the level of economic activity, unemployment rates, property price trends, and
interest rates. The assumptions underlying this judgement are highly subjective. The methodology and the assumptions used
in calculating impairment losses are reviewed regularly in the light of differences between loss estimates and actual loss
experience. See note 3 for more information.
b Fair value of financial instruments
The fair value of financial instruments where no active market exists or where quoted prices are not otherwise available are
determined by using valuation techniques. In these cases, the fair values are estimated from observable data in respect of
similar financial instruments or using models. Where market observable inputs are not available, they are estimated based on
appropriate assumptions.
Where valuation techniques (for example, models) are used to determine fair values, they are validated and periodically
reviewed by qualified personnel independent of those that sourced them. All models are certified before they are used, and
models are calibrated to ensure that outputs reflect actual data and comparative market prices. To the extent practical,
models use only observable data; however, areas such as credit risk (both own credit risk and counterparty risk), volatilities
and correlations require management to make estimates.
Changes in assumptions about these factors could affect the reported fair value of financial instruments. All fair values are
on a recurring basis. Refer to note 3.7 for additional sensitivity information for financial instruments.
170 FBN HOLDINGS PLC Annual Report and Accounts 2016
GROUP OVERVIEW OUR APPROACH GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDER INFORMATION
Notes to the Consolidated Financial Statements
for the year ended 31 December 2016
5 Significant accounting judgements, estimates and assumptions
continued
c Held-to-maturity investments
In accordance with IAS 39 guidance, the Group classifies some non-derivative financial assets with fixed or determinable
payments and fixed maturity as held to maturity. This classification requires significant judgement. In making this judgement,
the Group evaluates its intention and ability to hold such investments to maturity. If the Group were to fail to keep these
investments to maturity other than for the specific circumstances – for example, selling an insignificant amount close to
maturity – the Group is required to reclassify the entire category as available for sale. Accordingly, the investments would be
measured at fair value instead of amortised cost. During the year, the held to maturity investment portfolio was not tainted.
d Retirement benefit obligation
For defined benefit pension plans, the measurement of the group’s benefit obligation and net periodic pension cost/(income)
requires the use of certain assumptions, including, among others, estimates of discount rates and expected return on plan
assets. See note 43, “Retirement benefits obligation,” for a description of the defined benefit pension plans and sensitivity
analysis. An actuarial valuation is performed by actuarial valuation experts on an annual basis to determine the retirement
benefit obligation of the group.
e Impairment of goodwill
The group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy. The
recoverable amounts of cash-generating units (CGU) have been determined based on value-in-use calculations. These
calculations require the use of estimates. See note 35 for detailed information on impairment assessment performed on the
CGU.
There was no impairment charge during the year (2015: N872million). The 2015 impairment charges of N872million arose
in FBN Gambia (N630million) and FBN Senegal (N242million), both part of the Commercial Banking Group segment.
6 Segment information
Following the management approach of IFRS 8, operating segments are reported in accordance with the internal reports
provided to the Group’s Management Committee (the chief operating decision maker), which is responsible for allocating
resources to the operating segments and assesses its performance.
The Group is divided into the following business units:
Commercial Banking Business Group
This is the Group’s core business, which provides both individual and corporate clients/customers with financial intermediation
services. This business segment includes the Group’s local, international and representative offices offering commercial
banking services.
Merchant Banking and Asset Management Business Group (MBAM)
This is the investment-banking arm of the Group, providing advisory, asset management, markets and private equity services
to a large institutional (corporations and governments) clientele, as well as merchant banking services.
Insurance Business Group
This includes the Group’s legacy insurance brokerage business and the more recent full underwriting business (both life and
general). The underwriting business is performed by FBN Insurance Limited, a partnership with South African based Sanlam
Group.
FBN HOLDINGS PLC Annual Report and Accounts 2016 171
GROUP OVERVIEW OUR APPROACH GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDER INFORMATION
Notes to the Consolidated Financial Statements
for the year ended 31 December 2016
32 Asset Held for Sale: Discontinued operations
(a) Discoutinued operations
The assets classified as held for sale in 2016 included Rainbow Town Development Limited and FBN Mortgages Limited.
(i) Rainbow Town Development Limited
The assets and liabilities of Rainbow Town Development Limited (RTDL) were classified as held for sale following the decision and
resolution of the Board of Directors of FBN Holdings Plc. on October 21, 2016 to dispose the Group’s interest in RTDL. The carrying
amount of the investment is expected to the recovered principally by a sale rather than through continuing use. The expected completion
date for the transaction is October 2017. The amount has been presented in note 6 as part of Others.
(ii) FBN Mortgages Limited
The assets and liabilities of FBN Mortgages Limited were classified as such following the decision and resolution of the Board of Directors
of First Bank Limited, the immediate parent company, to divest from FBN Mortgages Limited. The Board of Directors demonstrated
commitment to the sales in line with the requirements of IFRS 5 and as such the sales is expected to be completed before the end of
the next financial year 2017. The amount has been presented in note 6 as part of the Commercial Banking Group.
The operating results and net cash flows are separately presented in the income statement and statement of cash flows respectively
because the disposal group represents a separate line of buisness within the Group, and as such meets the definition of discontinued
operation.
The carrying amount of the assets and liabilties of the disposal group classified as held for sale are as listed below.
Group
31-Dec-16 31-Dec-15
N’million N’million
Assets classified as held for sale
Cash and balances with central banks 203 -
Loans and advances to banks 510 -
Loans and advances to customers 3,067 -
Investment securities 58 -
Other assets 2,036 -
Inventory 43,805 570
Deferred tax assets 459
Property, plant and equipment 67 -
Intangible assets 7 -
50,212 570
Liabilities classified as held for sale
Deposit from customers 10,039 -
Company income tax liability 25 -
Other liabilities 2,303 -
Borrowings 109 -
Retirement benefit obligations 39
12,515 -
Net Asset 37,697 570
FBN HOLDINGS PLC Annual Report and Accounts 2016 199
GROUP OVERVIEW OUR APPROACH GOVERNANCE FINANCIAL STATEMENTS SHAREHOLDER INFORMATION
Notes to the Consolidated Financial Statements
for the year ended 31 December 2016
The 2015 balance in the Statement of Financial Position represents the inventory balance of the property development portfolio of FBN
Mortgages Limited, which was classified as held for sale.
The operating results of the discontinued operations are as follows.
Group
31-Dec-16 31-Dec-15
N’million N’million
Interest income 1,005 1,028
Interest expense (2,517) (1,170)
Net interest income (1,512) (142)
Impairment charge (845) (528)
Net interest income after impairment charge (2,357) (670)
Net fee and commission income 50 198
Other income (1,626) 1,274
Operating expense (1,010) (871)
Loss before tax (4,943) (69)
Taxation 45 (322)
Loss after tax (4,898) (391)
The cash flows of the discontinued operations are as follows.
Group
31-Dec-16 31-Dec-15
N’million N’million
Net cash flow used in operating activities (2,877) (2,744)
Net cash flow from/(used in) financing activities 278 (55)
Net cash flow (used in)/from investing activities (17) 1,395
Net cash outflow (2,616) (1,404)
(b) Non-current asset held for sale
FBN Senegal, a subsidiary of First Bank of Nigeria Limited, has classified a building from its property, plant and equipment as held for sale
following management’s decision to dispose the asset within 12 months in line with IFRS 5.
Group
31-Dec-16 31-Dec-15
N’million N’million
Property, plant and equipment 120 -
Total assets classified on held for sale 50,332 570
200 FBN HOLDINGS PLC Annual Report and Accounts 2016
The words you are searching are inside this book. To get more targeted content, please make full-text search by clicking here.
FBN-Holdings-Plc-2016-Annual-Report-and-Accounts
Discover the best professional documents and content resources in AnyFlip Document Base.
Search