15 Overview Capital management Other information Business review 14 Stanbic IBTC Annual group financial statements for the year ended 31 December 2013 Business review Annual report and financial statements Business review Business review Chairman’s statement Chief executive’s statement Economic review Financial review Executive committee Personal and Business Banking Case study – NBC Case study – Erisco Foods Limited Corporate and Investment Banking Case study – Danone and Abraaj story Case study – Power and infrastructure story Wealth Abridged sustainability report Enterprise risk review 18 22 26 30 56 60 62 64 68 72 74 78 84 88
Transcript
15
Overview Capital management
Otherinformation
Business review
14 Stanbic IBTC Annual group financial statements for the year ended 31 December 2013
Business review Annual report and financial statements
Business review
Business reviewChairman’s statementChief executive’s statement Economic review Financial review Executive committee Personal and Business Banking Case study – NBC Case study – Erisco Foods Limited
Corporate and Investment Banking Case study – Danone and Abraaj story Case study – Power and infrastructure story
announced a possible turn in the pace of quantitative easing, but recovered som
ewhat later in the year.
Comm
odity prices in 2013
trended moderately dow
nwards
due to a combination of som
ewhat lackluster dem
and from
China, a sw
itch out of comm
odities as an investment class in
favour of equities as well as the prospect of reduced global
liquidity conditions going forward. Indeed, gold bullion w
as dow
n 28%
in 2013
, but Brent actually proved resilient and
closed the year at USD
110.8 pbl.
Political lan
dscap
e
2013
w
as dom
inated by
heightening political/election
engineering as the merger betw
een the Action Congress of
Nigeria (A
CN
), Congress for Progressive Change (C
PC) and
All N
igerian People’s Party (AN
PP) finally came to fruition to
form the A
ll Progressive Congress (APC
). Additionally, further
infighting broke out within the ruling People’s D
emocratic
Party (PDP), w
ith the formation of a N
ew PD
P faction (mainly
along north-south lines) and the resignation of a number of
governors and lawm
akers who joined the opposition A
PC party.
Econ
omic grow
th
Grow
th in 2013
(rebased) was slightly higher than initially
expected under the old time series, at 7.4%
, but broadly in line w
ith the previous 2012
estimate (6
.7%
). The GD
P re-basing exercise resulted in a m
eaningful increase of the share of services (51.9
% [at current prices] vs 29.0
%) in 2
013. This adjustm
ent was reinforced by the telecom
s and information
sector which saw
its contribution to GD
P rise to 8.7
% from
0.9
%,
and the
introduction of
a m
otion picture,
sound recording and m
usic production (Nollyw
ood) sector, which
now represents 1.4%
of GD
P and was not previously captured.
Meanw
hile, the share of agriculture declined post-rebasing to 21.9
% at current prices from
an estimated 3
4.7%
in 2013
under the old G
DP series. There w
as also a drop in the weight
of the industry sector to 25.0%
, from 36
.3%, even though
the share of manufacturing actually increased (6
.8%
vs 1.9%
). M
eanwhile, the share of crude oil and natural gas reduced from
32.4%
to 14.4% on N
ational Bureau of Statistics figures.
The drop in the share of crude oil is consistent with the
sectors negative growth in recent years (-0.5%
in Q3:13
, on the old series), w
hich mirrors a decline in output and lim
ited new
investment in the sector. The passing of the Petroleum
Industry B
ill (PIB) was held off and looks set to rem
ain so at least till after the 2
015 elections.
On the old G
DP series, the finance and insurance sector
underperformed
overall non-oil
growth
again in
2013
,
expanding 4.3% YoY, from
4.0%
YoY in 2012. This is probably
as a result of various reforms w
hich banks had to contend w
ith such as the gradual removal of Com
mission on Turnover
(COT
) and total removal of ATM
fees. Banks’ private sector
lending remained constrained in 2
013 as various structural
bottlenecks had not yet been resolved.
Fiscal position
The freeze in recurrent expenditure in the 2012
and 2013
budgets is likely to be reversed in the 2
014 budget, as
recurrent expenditure of N2.43
trillion in 2014
represents a proportional increase from
a 68
% to a 72
% share of spending.
This is as a result of increased allocation to pensions as well
as a high wage bill. In addition, provision for debt servicing is
up to N712
billion in the draft budget from N
591.8 billion in
2013. The fiscal deficit –as a result of the G
DP rebasing- is set
to be at 1.1%/G
DP in 2
014.
This is as the oil price is set to be marginally low
er, with
government struggling w
ith revenue leakages throughout 2
013. Unlike the case during the approval process for the
2013
budget, the controversy over the oil price benchmark
was not repeated for the 2
014 A
ppropriation Bill, as the
National A
ssembly has agreed on a price of U
SD7
7.5 pbl,
which is still low
er than the USD
79 pbl in 2
013.
The lack of fiscal savings accretion in 2013 is worrying as the
Excess Crude Account (EC
A) w
as depleted to USD
3.2 billion by D
ecember, after opening the year at U
SD9 billion. This
suggests that the fiscal breakeven point of the economy w
as actually higher than the oil price benchm
ark. As such, N
igeria rem
ains vulnerable to oil boom and bust cycles in the long-run.
Exch
ange rate an
d interest rate d
ynam
ics
The Central Bank of N
igeria (CB
N) pursued policies to ensure
exchange rate stability, as it sees USD
/N
GN
as its nominal
monetary policy anchor. The apex bank m
aintained the view
that any meaningful devaluation in the currency w
ould add little to external com
petitiveness as oil exports still account for
c.95%
of total
exports. B
esides, this
would
weigh
negatively on imported inflation and investm
ent as well as
business confidence as experienced in the aftermath of the
global economic crisis in 2
00
8/2
00
9.
The CB
N’s decision to reintroduce the R
etail Dutch A
uction System
(RD
AS) and suspend the W
holesale Dutch A
uction System
(WD
AS), im
pose a cap on the amount of U
SD sales
by banks to the Bureau de C
hange (BD
Cs), as w
ell as place further regulations surrounding FX cash im
portation by banks,
contributed to the stability of USD
/N
GN
from Q
4:13. Despite
capital inflows basically drying up after FED
taper headwinds,
outflows w
ere indeed limited. H
owever, the im
proved FX picture has been at the expense of a w
ider spread between
the official (N155.7/
USD
1) interbank and parallel (N173/
USD
1) rates over the period. The CB
N’s steps to introduce a
restriction on the selling rate of FX by banks to BD
Cs to a m
ax of 1%
above the interbank rate and place a cap on BD
C sales at an extra 2
% above their buying rate did little to enable the
FX rates to converge.
Given the lim
ited new portfolio inflow
s since Q2:13
, foreign reserves trended m
oderately downw
ards after reaching highs of U
SD4
8.9
billion earlier in 2013
and eventually closed the year at U
SD43.6
billion.
The Monetary Policy R
ate (MPR) w
as held steady at 12%
in 2
013 w
hile the general cash reserve requirement ratio (C
RR)
was also left at 12
%. O
f note was the introduction of a 5
0%
special C
RR
on public sector deposits held by banks at the 22/
23 July M
PC meeting. This w
as aimed to address system
ic inefficiencies in liquidity m
anagement and reduce the banks’
ability to tap cheap government deposits to purchase higher
yielding treasury bills (T-bills) and Open M
arket Operations
(OM
O). Interestingly, this tightening in effective m
onetary conditions
resulted in
an initial
back-up in
T-bill yields;
however, this w
as not disorderly and subsequently dissipated as the pace of new
OM
Os reduced.
Having said that, fixed incom
e rates were responsive to global
market headw
inds in 2013
, especially from M
ay when FED
C
hairman B
en Bernanke suggested that the institution could
start tapering its asset purchases. This caused a sell-off across em
erging market asset classes w
ith FGN
T-bill rates drifting higher as a result of foreign portfolio investors lightening up on their holdings. For instance, the secondary m
arket 91-d T-bill yield w
as at 9.9%
in February, but shut up to 13.8%
by the end of July. M
arket rates remained elevated in the rem
ainder of the year, albeit at slightly low
er levels. For example, the
91-d T-bill closed 2013
at 12.5%. B
onds also reacted to the FED
taper talk coming out of the U
.S, as yields on FGN
bonds backed up about 2
00
bps as a result. FGN
bonds closed the year around the 13%
level.
Inflation remained in single-digit territory throughout 2
013,
starting the year at 9.0%
YoY and moving steadily dow
nwards
towards the end of the year to 8
.0%
YoY. Month-on-m
onth inflation rem
ained extremely benign, reaching as low
as 0.3%
in August.
29
Overview
Capital
managem
entO
therinform
ationB
usiness review
28
Stanb
ic IBT
C A
nnual group financial statements for the year ended 3
1 D
ecember 2
01
3
Bu
siness review
Annual report and
financial statements
Financialreview
31
Overview
Capital
managem
entO
therinform
ationB
usiness review
30
Stanb
ic IBT
C A
nnual group financial statements for the year ended 3
1 D
ecember 2
01
3
Bu
siness review
Annual report and
financial statements
Financial review
The group’s
diversified business
and deep
market
knowledge
allowed
us to
weather
the testing
operating environm
ent in 2013.
This report provides:
A
n overview of the operating environm
ent.
A
general
description of
how
the group
generates its revenue and the risks it faces doing so.
A
description of the impact of the econom
ic environment
on key financial ratios.
A
n overview of key features of 2
013 financial results.
A
n analysis of the group’s financial performance.
A
n analysis of the results of the banking activities.
A
n overview of the financial perform
ance of wealth and
investment banking businesses.
Com
mentary
on the
capital and
liquidity position
of the group.
A
n overview of finance function’s priorities for 2
014.
Overview
of operating environ
men
t
Glob
al operatin
g environ
men
t
The world econom
y recorded a 2.9%
growth in 2
013 (2
012: 3.2
%), driven principally by grow
th in the emerging and
developing economies. A
dvanced economies achieved a 1.3%
grow
th, down from
1.5% recorded in 2
012, despite the strong
showing of the U
S economy in the latter part of the year.
The quantitative easing measures by the U
S Federal Reserve
(FED) helped to restore m
omentum
to the US econom
y and
contributed to
the im
provement
of the
Eurozone econom
y in 2013. The U
S economy grew
by 1.9%
, while
the Eurozone recorded a negative growth of 0.3%
in 2013.
The emerging and developing econom
ies growth decelerated
marginally
to 4.5%
from
4.9
%
in 2
012
on the
back of
reduced economic perform
ances in India and China. Sub-
Sahara Africa’s grow
th remained broadly flat at 5.0
% from
4.9
% in 2
012. It is expected that the emerging m
arkets that w
ere major beneficiaries of cheap funding from
the FED
stimulus could experience financial m
arket instability in 2
014 as tapering begins, although the U
S authorities have m
ade it clear that they remain sensitive to the im
pact of their dom
estic policies on global markets and w
ill therefore aim
to minim
ise disruptions.
Most central banks m
aintained a cautious posture in 2013
, retaining or varying policy rates only slightly. G
lobal inflation w
as 2.3% in 2
013 and it is estim
ated to rise to 2.7%
in 2014
driven by the upw
ard pressure on prices of major com
modities.
Comm
odity prices declined slightly during the year as a result of the sw
itch out of comm
odities as an investment class in
favour of equities as well as the prospect of reduced global
liquidity conditions.
Dom
estic operatin
g environ
men
t
Macroeconom
ic indicators in 2013
remained m
ostly consistent w
ith that of 2012. K
ey indicators such as gross domestic
product (GD
P), inflation and exports, as well as capital m
arket indicators all m
oved in the positive direction.
The country’s
average gross
domestic
product (G
DP)
increased slightly to 6.8
% in 2
013 from
6.6%
in 2012. G
rowth
rate of 7.7%
was achieved in 4
Q 2
013, w
hich was higher than
the 6.8
%, 6
.2%
and 6.6%
recorded in 3Q 2
013, 2Q
2013
and 1Q
2013
respectively. The GD
P was driven prim
arily by grow
th in the non-oil sectors, with agriculture; w
holesale and retail trade; and services being m
ajor contributors.
Con
tribu
tion to GD
P by sector
Oil
prices, though
marginally
volatile, rem
ained largely
favorable, staying
above the
2013
federal
government
budgeted benchmark of U
SD79
per barrel. How
ever, during the year, the nation’s oil sector suffered som
e disruption due to oil bunkering and pipeline vandalism
, which adversely
affected oil
production output.
The daily
oil production
declined from 2.52
million barrel per day (m
bpd) at the beginning of the year to 2.26
mbpd at the end of 2
013.
Agriculture
41
.9%
Crude petroleumand natural gas1
2.5
%
Manufacturing
3.6
%
Others
8.5
%
Telecomm
unication7
.8%
Real
estate and construction
3.6
%
Finance andinsurance
2.8
%
Wholesale
and retail1
9.2
%
Arth
ur Ogin
ga – Group, C
FO
The reform in pow
er sector culminated in the privatisation
of the sector in 2013. W
ith the privitisation concluded, it is expected that the sector w
ill contribute significantly to the econom
y in the medium
to long term. A
lso, the agricultural transform
ation initiative embarked upon by the governm
ent and the proposed reform
of the oil sector would positively
drive the country’s growth.
The nation’s foreign reserves stood at USD
43.6 billion at the
end of 2013. This represents a 1.4%
decline over the USD
44.2
billion recorded in 2
012. The decline is attributable to the central bank (C
BN
) stance to protect the Naira to ensure
foreign exchange
stability. The
foreign reserves
reached the peak of U
SD4
8.9
billion in April 2
013.
Relative stability w
as achieved in the exchange rate as it traded largely w
ithin the CB
N target of N
155-16
0/U
SD1. The
pressure on the Naira, as a result of capital outflow
s in 2Q
2013
, necessitated the CB
N selling foreign exchange (FX
) directly to banks, w
hile increasing supply to the Wholesale
Dutch A
uction System (W
DA
S) to defend the Naira. The
CB
N reintroduced the R
etail Dutch A
uction System (R
DA
S) and suspended the W
DA
S, placed additional regulation on FX cash im
portation by banks and imposed a lim
it on the am
ount of foreign exchange sales to the Bureau de change
(BD
C) operators in the second half of 2
013 to ensure the
stability of Naira. Consequently, the end-period exchange
rate remained stable at the R
DA
S and interbank segments but
depreciated significantly at the BD
C segment. The exchange
rate at the RD
AS opened at N
157.33/U
SD at the start of
2013
and
closed at N
157.26/U
SD,
while
the inter-bank
selling rate opened at N156
.25/U
SD and closed at N
159.90/
USD
, representing a depreciation of 2.4%. H
owever, at the
BD
C, the selling rate opened at N
159.50/
USD
and closed at N
172.00/
USD
, representing a depreciation of 7.8%
.
The moderation in inflationary pressure, w
hich began in the 4
Q 2
012, continued in 2
013. The year-on-year headline inflation fell consistently from
9.0%
at the beginning of the year to 8
.0%
at the end of 2013. Sim
ilarly, core inflation declined from
11.3% in January to 7.9
% in D
ecember 2
013. This is the first tim
e the country has achieved a single digit inflation rate since 2
007. The m
oderation in domestic price
level was largely due to the tight m
onetary policy stance coupled w
ith the relatively stable exchange rate regime.
Interest rates in all segments of the m
oney market reflected
the liquidity conditions in the banking system. The M
onetary Policy R
ate (MPR) w
as retained at 12%
throughout the year as it w
as in 2012
, with a sym
metric corridor of +/- 2
00
basis points, thus effectively m
aintaining the Standing Lending Facility (SLF) and Standing D
eposit Facility (SDF) rates at 14%
and 10
% respectively. A
longside the existing Cash R
eserve R
equirement (C
RR) of 12.0
%, the C
BN
introduced a 50
%
special CR
R on public sector funds in July 2
013. This was aim
ed to address system
ic inefficiencies in liquidity managem
ent and reduce banks’ ability to tap cheap governm
ent deposits to purchase higher yielding --bills and O
pen Market O
perations. Consequently, both the w
eighted average inter-bank call and O
pen-Buy B
ack rates opened at 11.7%
in Decem
ber 2012
but closed at 10.9
% and 10.5%
respectively in Decem
ber 2013.
In the capital market, the bullish run that started in the
second half of 2012
, continued with greater im
petus in 2013.
Total market capitalization increased by 29
% from
N14.8
trillion at the beginning of the year, to N
19.1 trillion on the
last trading day of 2013. O
verall, the Nigerian Stock Exchange
All share index (N
SE ASI) grew
by 47%
from 28
,078.8
at the beginning of the year to 41,329.2
at the end of Decem
ber. The
equities m
arket perform
ance could
be attributed
to factors such as the rub-off effect of the 2
012 year end
results; impressive valuation of blue chip com
panies; growing
investors’ confidence;
and significant
increase in
capital inflow
and portfolio investment as w
ell as the tight regulatory oversight by the Securities and Exchange Com
mission (SEC
) and the N
SE.
The on-going reform of the banking sector continued in 2
013
with m
easure such as financial inclusion, cashless banking, im
plementation of International Financial R
eporting Standards (IFR
S), risk-based supervision, release of exposure draft for B
asle II/III and other sustainable banking practices introduced
and/or reinforced during the year.
How
the group gen
erates its revenu
e and key
risks that it faces in doing so
The group generates its revenue from three broad sources:
net interest incom
e;
fee and com
mission revenue;
trading revenue; and
incom
e from w
ealth business.
Net in
terest incom
e represents the difference between
interest received by the group on money lent to custom
ers and
other banks
as w
ell as
funds otherw
ise invested
in governm
ent securities, and the interest paid by the group to depositors and other providers of finance. Funds lent to individual
customers
include m
ortgage loans,
instalment
sale and finance lease on vehicles and other assets, as well
as credit card facilities. Corporate loans include corporate lending
facilities, structured
finance, project
finance and trade finance.
33
Overview
Capital
managem
entO
therinform
ationB
usiness review
32
Stanb
ic IBT
C A
nnual group financial statements for the year ended 3
1 D
ecember 2
01
3
Bu
siness review
Annual report and
financial statements
Financial review (continued)
Interest rates charged are determined by considering the
factors that influence the risk that the customer w
ill not repay the funds advanced. D
eterioration in this risk, otherwise
known as credit risk
, is reflected in credit impairm
ent charges in the group’s incom
e statement.
The group requires funding for its lending and investment
activities. Funding is obtained in the form of deposits placed
by customers on w
hich interest is payable. The interest rates on deposits are dependent on the term
and size of the deposits and m
acroeconomic variables. Interest rates on assets (loans)
and liabilities (deposits) do not necessarily reprice at the same
time and assets and liabilities consist of both fixed rate and
floating rate instruments, resulting in in
terest rate risk to the group.
In addition to supporting tier I capital adequacy, the group uses its shareholders’ funds to finance both equity-related investm
ents and a small portion of the loan book. Shareholders
require a return in the form of dividends and grow
th in share price. N
o interest is paid on shareholders’ funds. The benefit of this ‘free funding’ is a significant contributor to the “endow
ment effect” and reduces during tim
es of declining or persistently low
interest rates.
Deposits
placed on
demand
(current accounts)
can be
withdraw
n at any stage and banks therefore manage the
liqu
idity risk that could materialise if a significant portion
of total deposits is withdraw
n without cash being available
to settle these withdraw
als, or if deposits being redeemed
cannot be replaced with new
deposits.
The group is required to hold minim
um reserve balances w
ith the central bank and m
inimum
amounts of liquid assets. B
anks are typically able to access liquidity from
the central bank. This is norm
ally priced at a central bank repurchase rate which
is an important central bank-determ
ined pricing trigger for m
anaging monetary policy.
Non
-interest
revenu
e consists
of fee
and com
mission
revenue and
trading revenue,
as w
ell as
a com
bination of diverse other non-interest revenue sources.
Fee an
d com
mission
revenue is
generated through
transactional banking
activities of
corporates, sm
all and
medium
businesses
and individual
customers.
These fees
and com
missions
are earned
on banking
transactions through various channels, w
hich include branches, ATMs,
telephone banking, point-of-sale devices and internet-based transactions such as online business banking, internet banking and trading products. The group also earns know
ledge-based fees from
corporate advisory and loan structuring activities as w
ell as financial planning and equity broking services.
Trading reven
ue is generated from
trading activities on products
such as
foreign exchange,
comm
odity, credit,
interest rate and equity products. These trading activities are predom
inantly related to client flows and are m
anaged w
ithin the
group’s risk
tolerance levels.
Through these
activities the group is exposed to market risk as m
arket prices on these asset classes m
ay increase or decrease due to external factors. This risk can be reduced through offsetting trades
with
counterparties and
other clients.
The group
generates revenue through the margins earned on accepting
trading positions with clients and m
anaging the net market
risk trading exposure within its trading operations. To earn
trading revenue, the group takes on and manages m
arket risk
, coun
terparty credit risk included in credit risk and
operation
al risk arising from
large and complex trading
operations.
Oth
er reven
ue
sources include
gains on
property and
dividend income from
private equity and strategic investment
activities.
Th
e w
ealth b
usin
ess focuses
primarily
on pension
administration and m
anagement, private non- pension asset
managem
ent as well trusteeship and estate planning. The
pension business managed through Stanbic IB
TC Pension M
anagers Limited is 70.6%
owned by Stanbic IB
TC Group,
while
the asset
managem
ent and
trustee businesses,
managed through Stanbic IB
TC Asset M
anagement Lim
ited and Stanbic IB
TC Trustees Limited respectively, are 10
0%
ow
ned. The wealth business contributed 22
% to the group’s
2013
total income. Fees and com
missions are derived from
assets and funds under m
anagement and other investm
ent outlets including the capital m
arket related activities. The group’s w
ealth business is the largest institutional investment
business and number one w
ealth manager in N
igeria in terms
of assets under managem
ent, number of clients and revenue.
Retu
rns to sh
arehold
ers
The group’s
shareholders are
the prim
ary providers
of capital. They carry the ultim
ate business risk should the group’s operations not be sufficiently profitable or through the erosion of value as a result of a decline in the group’s share price. Shareholders are rew
arded for accepting this risk through biannual distributions from
the earnings of the group and the possibility of grow
th in share price. Share price growth
is dependent on the group’s ability to grow shareholders’
equity on an annual basis at a rate that exceeds the rate that shareholders w
ould expect for an investment w
ith the risk profile of the group and expected future grow
th in returns.
Impact of th
e econom
ic environm
ent on key finan
cial ratios
The table below sets out the key financial ratios that drive the earnings and ultim
ately the value of the group. The table also sets out the external econom
ic factors influencing these value drivers assuming no m
anagement action, an indication of
how these econom
ic factors influenced the performance of the group in 2
013, and the expected im
pact of these economic
factors in 2014.
Key fin
ancial ratio
Econ
omic factor im
pactin
g key finan
cial ratioIm
pact
on 20
13
Expected im
pact on 2
014
Grow
th in loans and advancesD
ebt-to-disposable income level
GD
P growth
Interest rates
Net interest m
arginInterest rates
Credit loss ratio
Num
ber of insolvencies and liquidations
Collateral values
Debt-to-disposable incom
e level
Grow
th in non-interest revenue
G
rowth in fee and com
mission revenue
GD
P growth
G
rowth in trading revenue
Market trading volum
es
Market price volatility
Grow
th in operating expensesG
DP grow
th
Inflation rate
Effective tax rateCorporate tax rates
Grow
th in long-term w
ealth business revenueEquity m
arket performance
Grow
th in assets under managem
ent
Debt-to-disposable incom
e level
Increase in econom
ic factor/positive impact on group’s perform
ance
D
ecrease in economic factor/negative im
pact on group’s performance
N
eutral
Grow
th in loans an
d advan
ces
Loans and advances represent the largest asset class on the group’s balance sheet. This asset class provides the group with its
largest source of revenue in the form of interest incom
e and creates cross-selling opportunities in the form of transactional fees
and other related revenues. Grow
th in loans and advances within the risk levels accepted by the group is therefore essential
to increasing revenue.
Grow
th in loans and advances in the personal market in particular is dependent on custom
ers’ ability to repay debt. The debt-to-disposable incom
e ratio provides a measure of the ability of households to service existing loans and also assum
e further debt.
Debt-to-disposable incom
e levels are not expected to reduce significantly over the short to medium
term. It is, how
ever, expected that a slow
improvem
ent in disposable income levels coupled w
ith a moderate im
provement in econom
ic growth w
ill be positive for loan grow
th in 2014.
35
Overview
Capital
managem
entO
therinform
ationB
usiness review
34
Stanb
ic IBT
C A
nnual group financial statements for the year ended 3
1 D
ecember 2
01
3
Bu
siness review
Annual report and
financial statements
Net in
terest margin
The net interest margin represents the profit m
argin between
the interest rate earned on lending products and investments,
and the interest rate paid on deposits and other funding. B
enchmark
lending rates,
such as
the prim
e lending
and m
onetary policy rates (MPR) are key factors that cause variation
in the net interest margin. W
ithin this variation, a key dynamic
is the impact of interest rates on transactional balances and
shareholders’ equity, termed the endow
ment im
pact.
During tim
es when interest rates decline, banks charge low
er interest rates on lending products like hom
e loans, vehicle and asset finance, and card products. The interest rates on the deposits in transactional accounts decline to a lesser extent than the reduction in the interest rate earned on the lending products. This m
ismatch results in a reduction in the
net interest margin. The outcom
e is referred to as a negative endow
ment im
pact and will take place during tim
es of declining interest rates. W
hen interest rates increase, as experienced since 2
011, the increase in the interest rate earned on the lending products is greater than the increase in the interest rate paid on deposits in transactional accounts, resulting in an increase in the net interest m
argin and a resulting positive endow
ment im
pact.
Equity invested by ordinary shareholders is a second form of
funding that gives rise to an endowm
ent impact. A
s equity bears no interest cost, and equity funding is used to partially finance lending products that are prim
e-linked, the margin
between the interest earned on lending products and the
‘free’ or equity funding will increase w
hen interest rates increase and reduce w
hen interest rates decline.
The high interest rate environment w
as sustained by the CB
N
in 2013. M
PR w
as retained at 12%
, while the C
ash Reserve
Requirem
ent (CR
R) was m
aintained at 12%
. How
ever, in the second half of 2
013, C
RR
for public sector deposits w
as introduced at 50
%, w
hile that of private deposits was
maintained at 12
%. This led to further contraction of net
interest margin, as cost of funding increases.
The endowm
ent risk emanating from
the anticipated turn in the econom
ic cycle is partially hedged as and when it is
considered appropriate, using derivative instruments such
as swaps and interest rate sw
aptions. Hedging strategies
also factor in the partial offset of the endowm
ent exposure by an im
provement in the credit cycle. W
hile net interest incom
e has been negatively impacted by the recent dow
nturn in
rates, the
group is
well
positioned for
a rate
tightening cycle.
Credit loss ratio
The credit loss ratio is the credit impairm
ent charge expressed as a percentage of the loan balance and indicates the loss to the group resulting from
the inability of customers to repay
loans during the year. For every naira owed by custom
ers, the group on average incurred a loss of 0.9
kobo (2012: 2.5
kobo) in 2
013. Insolvencies and defaults recorded in the economy,
as well as debt-to-disposable incom
e levels described earlier, provide
an indication
of the
stress that
consumers
and businesses experience.
We expect pressure in the level of insolvencies and defaults in
2014
as consumers continue to contend w
ith the high interest rate environm
ent.
Grow
th in non
-interest reven
ue
Non-interest revenue com
prises mainly fee and com
mission
revenue and trading revenue. Grow
th in fee and comm
ission revenue is dependent on transactional banking volum
es, which
are a function of economic activity and of the com
petitive environm
ent for
banking services.
In addition,
regulatory directives and inflationary increases in the cost base are considered in determ
ining increases in fee and comm
ission tariffs. M
odest increases in GD
P and inflation should support grow
th in non-interest revenue.
Grow
th in trading revenue is largely dependent on trading volum
es and
how
volatility affects
trading spreads.
The group’s trading revenue is substantially a function of client trading volum
es and the margin betw
een offer and bid prices. The group also takes advantage of opportunities arising from
Financial review (continued)
Net in
terest margin
0
2.0
0
6.0
0
4.0
0
10
.00
8.0
0
14
.00
12
.00 %
20
10
20
11
20
12
20
13
5.3
%
6.2
5%
12
.0%
12
.0%
12
.0%
4.9
%5
.0%
4.9
%
Net interest m
arginM
onetary policy rate
the volatility in the market. The group trades products, w
hich m
ay or may not have quoted statistics on m
arket volumes and
no single indicator can serve as a reasonable proxy for such activity levels.
Grow
th in operatin
g expen
ses
Inflation is one of the key external indicators that places pressure on grow
th in operating expenses over an extended period.
Num
erous internal
factors affect
the grow
th in
operating expenses, such as growth in staff num
bers, inflation induced salary increases, investm
ents in infrastructure and business volum
es. Average headline inflation decreased to
8.4%
in 2013
from 12.2
% in 2
012, w
ith favourable impact
on cost growth w
hen compared to the previous years. The
inflation rate is expected to increase in the latter part of 2
014 as it is a pre-election year, w
hich will result in m
oderate cost grow
th. The group will continue its focus of operational
excellence in order to manage cost grow
th within acceptable
levels.
Effective tax rate
Corporate tax rates remained unchanged and no significant
changes are anticipated in 2014.
Grow
th in earnin
gs from w
ealth bu
siness
Wealth’s
earnings are
dependent on
numerous
factors, including grow
th in assets under managem
ent, favourable perform
ance of
the capital
and m
oney m
arkets. The
performance of the N
SE has a direct impact on earnings from
the asset m
anagement operation. The N
SE All Share Index
grew by 47
% in 2
013 and contributed significantly to grow
th in the earnings of our capital m
arket related businesses. The quantitative easing by the U
S is expected to have a negative effect
on the
NSE
perfomance
in 2
014,
as the
market
is dominated by foreign investors.
Key features of 2
013
results
Th
e results
The group delivered a positive set of results in 2013. G
ross earnings increased to N111.2
billion, a growth of 21%
on the prior year, and for the first tim
e in the last five years, RO
E was in excess of 2
0%
.
Change %
20
132
012
Total income
Nm
illion26
85
,23
26
7,410
Profit after taxN
million
>100
20
,77
310
,157
Net asset value per share
Nm
illion13
94
3833
Return on average equity
%2
1.010
.9
Return on average assets
%2
.91.6
Non-interest revenue to total incom
e%
56
.65
0.2
Credit loss ratio
%0
.92.5
Tier 1 capital adequacy ratio
%2
2.0
20
.7
Cost-to-income ratio
%6
8.0
72.8
Earnings per sharekobo
186
50
Finan
cial results an
d ratios
37
Overview
Capital
managem
entO
therinform
ationB
usiness review
36
Stanb
ic IBT
C A
nnual group financial statements for the year ended 3
1 D
ecember 2
01
3
Bu
siness review
Annual report and
financial statements
Key features of the 2
013 results that influenced the financial
results and ratios were:
Slow
lending growth in corporate banking
Loans and advances grew
by 9%
despite the challenging operating
condition exacerbated
by the
high interest
rate environment and strong com
petition for top quality corporate
credits. This
resulted in
a 3%
decline
in Corporate and Investm
ent Banking’s loan book. Personal
and Business B
anking’s loan book, however, grew
by 27%
.
Increased liquid assets requirem
ent also had a negative im
pact on
lending activities.
CR
R
for public
sector deposits
was
raised from
12
%
to 5
0%
during
the year,
although the
increase had
a little
impact
on the group’s cost of funding as public sector deposits accounted
for less
than 10
%
of total
deposits at the end of 2
013.
C
ontinued pressure on margin
The M
PR rate w
as maintained at 12
% throughout 2
013 by
the CB
N, w
ith resultant pressure on margin. Loan grow
th w
as constrained by the high lending rate, while funding
continued to be influenced by the upward rate pressure.
Despite
the headw
ind, our
margin
benefitted from
im
provement in deposit m
ix as considerable low priced
deposits were gathered in 2
013.
G
rowth in transaction volum
es
Significant growth in transactional banking volum
es and activities w
ere recorded in 2013. Increased transaction
volumes w
ere also recorded in our non-banking business in w
ealth, custody, investment banking and stockbroking,
with positive im
pact on the revenues.
W
ell positioned trading book
Trading revenue benefitted from increased transaction
volumes
and correct
reading of
market
movem
ents in interest rates, coupled w
ith volatility in the foreign exchange m
arket.
Im
provement in credit im
pairment
C
redit impairm
ent benefitted from enhanced rehabilitation
and recovery capability as well as releases of specific
credit impairm
ents held against a number of exposures
in the business banking and corporate market.
Im
provement in asset quality
N
on-performing loans declined by N
0.9 billion despite
the N24
billion increase in loan book. It benefitted from
improved recoveries and loan collections.
Analysis of th
e Group’s finan
cial performan
ce
Balan
ce sheet an
alysis
The group’s
total assets
stood at N
763.0
billion at
the end of 2
013. This represents a 13% grow
th over N676
.8
billion recorded in 2012. The grow
th is driven by loans and advances and liquid assets. The total assets w
ere funded prim
arily from deposits from
customers, w
hich accounted for 55%
of total assets.
Loans an
d advan
ces
Loans and advances to customers grew
by 9%
to N3
03.3
billion and resulted mainly from
27%
growth in Personal
and Business B
anking (PBB) loans to custom
ers. Corporate and Investm
ent Banking loan book decreased by 3%
.
Loans an
d advan
ces by bu
siness u
nits
Person
al an
d B
ankin
g B
usin
essN
million
Corp
orate an
d In
vestmen
t B
ankin
gN
million
Total
Nm
illion
Overdrafts
18,5
77
14,9
49
33
,52
6
Term loans
88
,22
314
5,5
04
23
3,7
27
Instalment sales
and finance leases18
,08
49
,30
32
7,38
7
Mortgage lending
8,6
67
-8
,66
7
Total loan
s an
d advan
ces13
3,5
50
169
,75
63
03
,30
7
The ratio of non-performing loans to total loans im
proved to 4.4%
from 5.1%
in 2012
, driven by the reduction in non-perform
ing loans from N
14.3 billion in 2
012 to N
13.4 billion.
Cumulative provision on non-perform
ing loans improved from
91.6%
to 101.1%.
Financial review (continued)
NP
L ratio and p
rovision adeq
uacy
02
01
02
01
12
01
22
01
3
10
NPL/
Total loasProvision adequacy
7.0
%6
.2%
5.1
%4
.4%
46
.0%
56
.6%
91
.6%
10
1.1
%
NPL/
total loanProvision adequacy
Dep
osits
Total deposits from custom
ers grew by 17
% on the back of a
21% grow
th in PBB deposit book and a 14%
growth in that
of CIB. The group’s m
ost stable and low cost funding source
– demand and savings deposits from
PBB business w
as 28%
higher than the prior year, w
hile that of CIB grew
by 62%
.
Dep
osits by bu
siness u
nit
Change%
20
13N
million
2012
Nm
illion
Person
al and B
usin
ess B
ankin
g21
197,8
98
164
,031
Current deposits28
98
,55
076
,793
Savings deposits26
19,0
97
15,116
Call deposits
>100
8,8
63
1,799
Term deposits
27
1,3
88
70,323
Corp
orate and
Investm
ent B
ankin
g14
218
,45
4191,38
8
Current deposits62
99
,77
061,731
Call deposits
>100
44
,06
42
0,37
7
Term deposits
(32)74
,62
010
9,28
0
Total d
epo
sits and
curren
t accou
nts
17416
,35
2355
,419
The group is focused on generating low cost deposits to
improve funding cost.
Incom
e statemen
t analysis
The group delivered a 21% grow
th in gross revenue to cross the N
100
billion mark to N
111.2 billion from
N91.9
billion in 2
012. Total income also grew
by a respectable 26% during
the year. The growth in total incom
e is supported by a 42
%
growth in non-interest revenue and a 10
% grow
th in net interest incom
e. Profit after tax was buoyed by the reduction
in credit
impairm
ent charges
and a
moderate
growth
in operating expenses.
Net in
terest incom
e
The group’s net interest income w
as up 10%
and was supported
by continued growth in lending activities, increased incom
e from
investment securities, albeit at a low
er yield than prior year and m
oderate growth in interest expense. The interest
expense benefitted from im
proved deposit mix as the ratio of
low cost deposits to total deposits grew
significantly to 52%
(2
012: 43%) during the year.
Change%
20
13N
million
2012
Nm
illion
Personal and B
usiness Banking
-18
,44
318
,374
Corporate and Investm
ent Banking
2316
,62
213
,496
Wealth
161
,94
81,6
84
Net in
terest incom
e10
37,0
1333
,554
Corporate and
Investment
Banking’s
net interest
income
increased by 23% to N
16.6
billion on the back of a 9%
reduction in interest expense, w
hile Personal and Business
Banking’s net interest incom
e was flat at N
18.4
billion. Wealth
net interest income grew
by 16% to N
1.9 billion.
PBB
’s net
interest incom
e w
as adversely
impacted
by a
53% grow
th in interest expense driven largely by growth
in deposit
book and
customer’s
preference for
call deposits. C
all deposits, although is a lower priced deposit
than term
deposits,
grew
significantly to
N8
.9
billion from
N1.8
billion in 2012. W
ealth net interest income also
recorded a 16% grow
th driven by increased income from
m
oney market activities.
Net in
terest incom
e by bu
siness u
nit
Non
-interest reven
ue
Non-interest revenue increased significantly by 4
2%
to N4
8.2
billion on the back of significant grow
th in fee and comm
ission revenue
and trading
revenue. N
et fee
and com
mission
revenue grew by 29
% to N
32.9 billion, w
hile trading revenue w
as up 84%
. The growth in net fee and com
mission revenue
is supported by increased transaction volume, steady grow
th in assets under m
anagement w
ithin the wealth business,
considerable growth in assets under custody and closure of
good advisory mandates in the investm
ent banking business. Trading revenue, on the other hand, benefitted from
increased custom
er transactional volumes, good reading of interest rate
movem
ents and relative volatility in the foreign exchange m
arket.
Corporate and Investment B
anking’s non-interest revenue grew
by 51%, and accounted for 51%
of total group’s non-interest revenue, w
hile Personal and Business banking’s non-
interest revenue was up 3
4% and accounted for 14%
of total non-interest revenue. W
ealth contributed 35% to total non-
interest revenue, with non-interest revenue grow
ing by 35%.
39
Overview
Capital
managem
entO
therinform
ationB
usiness review
38
Stanb
ic IBT
C A
nnual group financial statements for the year ended 3
1 D
ecember 2
01
3
Bu
siness review
Annual report and
financial statements
Change%
20
13N
million
2012
Nm
illion
Specific credit im
pairment charges
(64)
2,4
746
,816
Provision for perform
ing loans4
874
55
04
Total impairm
ent charges(56
)3
,219
7,320
Recoveries
30
(55
2)
(425
)
Cred
it imp
airmen
t ch
arges(61)
2,6
67
6,8
95
Op
erating exp
enses
Operating expenses grew
by 18%
to N57.9
billion. The growth
is driven by the increase in staff cost and other operating expenses. Staff cost grew
by 20
%, w
hile other operating cost grew
by 17%
. Cost-to-income ratio im
proved from 72.4%
to 6
8.0
% as revenue continue to grow
faster than cost.
CIB
’s operating expenses grew 21%
, with cost-to-incom
e ratio im
proving to 50.6%
from 57.9
% in 2
012. The major
driver of CIB
’s cost growth is staff cost, attributable to the
continued investment in people and skills. PB
B witnessed a
22%
growth and recorded a cost-to-incom
e ratio of 121.1%
(2012: 107.1%
). Marketing and brand expenses, prem
ises m
aintenance cost as well as N
DIC insurance expenses w
ere m
ajor drivers of operating costs in PBB.
Wealth
however,
recorded a
3%
reduction in
operating expenses and consequently w
itnessed improvem
ent in cost-to incom
e ratio from 4
6.8
% in 2
012 to 3
4.3%. W
ealth operating cost
benefitted from
the
absence of
regulatory induced
technology expenses incurred in 2012.
Op
erating exp
enses by b
usin
ess un
it
Taxation
The group effective tax rate benefited from tax exem
pt sources during the year. The effective tax rate w
as 15.6%
in 2013
(2012: 11.0
%). C
IB’s effective tax rate im
proved to 8
.6% from
20.0
% in 2
012, w
hile PBB
’s tax credit declined by 39
%. W
ealth effective tax rate deteriorated from 25.4%
in 2
012 to 31.6%
.
Change%
20
13N
million
2012
Nm
illion
Corporate and Investm
ent Banking
21
20
,84
4
17,264
Personal and Business
Banking
223
0,7
03
25,258
Wealth
(3)6
,40
1
6,581
Op
erating exp
enses
18
57,9
48
49
,103
Credit im
pairm
ent ch
arges
Credit
impairm
ent charges
decreased by
61%
to N
2.7
billion, benefitting from resolution of delinquent assets and
improvem
ent in debt collection capabilities. Corporate and Investm
ent Banking as w
ell as Personal and Business B
anking recorded a 9
0%
and 34%
reduction in credit impairm
ent charges respectively during the year.
Movem
ent in credit im
pairm
ent ch
arges
Financial review (continued)
20
10
20
11
20
12
20
13
00
.0
50
,00
09
0.0
100.0
80
.0
70
.0
60
.0
50
.0
40
.0
30
.0
20
.0
10
.0
40
,00
0
30
,00
0
20
,00
0
10
,00
0
60
,00
0
34
,47
6
68
.6%
75
.6%
49
,10
3
72
.8%
57
,94
8N
million
%
10
68
.0%
41
,79
2
Operating expenses
Cost-to-income ratio
Change%
20
13N
million
2012
Nm
illion
Corporate and Investm
ent Banking
51
24
,59
916
,334
Personal and B
usiness Banking
34
6
,90
9
5,15
4
Wealth
35
16,7
12
12,36
8
Non
-interest reven
ue
42
4
8,2
19
33,856
Op
erating cost an
d cost-to-in
come
Non
-interest in
come by b
usin
ess un
it
The high lending rate resulted in a decrease of 18%
and 9%
in m
ortgage loans and instalment sale and finance leases
respectively. How
ever, overdrafts grew by 13%
, while term
loans w
ere up 12%
and benefitted from grow
ing customer
relationships.
Asset quality continued to im
prove as the ratio of non-perform
ing loans (NPL) to total loans (TL) declined further
from 5.1%
in 2012
to 4.4%. N
PLs reduced by 7%
, despite grow
th in loan book. The reduction in NPLs is driven by the
decline in NPLs of m
ortage loans and term loans products.
CTB
’s non-performing loans products decreased by 4
0%
, w
hile the ratio of NPL/
TL, improved from
3.3% in 2
012
to 2.0%
in 2013. PB
B’s N
PLs increased 15% as a result of
newly classified loans in the business banking. H
owever, the
improvem
ent in PBB
’s ratio of NPL/
TL to 7.5% from
8.2
% in
2013
is occasioned by the increase in loan book.
Asset q
uality
Dep
osits an
d cu
rrent acco
un
ts, increased by N59.5
billion to N
419.0 billion, thus representing a 17
% grow
th. The increase in deposits is attributable to the significant grow
th in num
ber of customers, a function of our ability to leverage
on our expanded network. The num
ber of customers crossed
Overall, the group’s profit after tax im
proved by N10.5
billion to N
20.7
billion, thus, representing a 105%
growth. C
IB’s
profit after tax grew by 14
0%
to N18
.4 billion, w
hile that of W
ealth grew by 5
0%
to N8
.4 billion. PB
B’s loss after tax grew
from
N3.0
billion in 2012
to N6
.0 billion.
The group’s return on equity improved significantly from
10.9
% in 2
012 to 21.0
% in 2
013.
Analysis of th
e bankin
g busin
ess results
Balan
ce sheet an
alysis
The banking
business is
structured along
two
business units; nam
ely Corporate and Transactional Banking (C
TB) and Personal and B
usiness Banking (PB
B). The investment
banking business is carried out under a separate business entity Stanbic IB
TC Capital Lim
ited.
Total assets in the banking activities of the Group increased by
11% to N
725.1 billion. The main drivers of the grow
th were
loans to customers and banks, financial investm
ents and cash and cash equivalents. These accounted for 85%
of total assets.
Gross loan
s and ad
vances, w
ere up 9%
, with Corporate and
Transactional Banking (C
TB) reporting a 3% decline, w
hile Personal and B
usiness Banking (PB
B) grew by 27
%. The bank
grew its loan book responsibly in the light of the prevailing
high interest rate operating environment and com
petition for good quality credit.
Loans an
d advan
ces C
AG
R (2
010-2
013): 18%
20
10
20
11
20
12
20
13
0
30
0.0
25
0.0
20
0.0
15
0.0
10
0.0
50
.0
35
0.0
18
5.0
26
6.1
27
9.5
30
3.3
Nbillion
10
Overdrafts
11
% (2
01
2: 1
0%
)
Term loans
77
% (2
01
2: 7
5%
)
Mortgage
3%
(20
12
: 4%
)Instalm
ent salesand finance leases9
% (2
01
2: 1
1%
)
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
20
10
20
11
20
12
20
13
00
.0
15
.0
10
.0
5.0
20
.0
12
.8
7.0
%1
6.6
14
.3
13
.4
Nbillion
%
10
6.2
%
5.1
%
4.4
%
Non-perform
ing loansN
PL/total loans
Com
position of gross loan
s and ad
vances
41
Overview
Capital
managem
entO
therinform
ationB
usiness review
40
Stanb
ic IBT
C A
nnual group financial statements for the year ended 3
1 D
ecember 2
01
3
Bu
siness review
Annual report and
financial statements
Liqu
idity and cap
ital; The bank’s liqu
idity remains strong
with liquidity buffers held for potential stressed conditions
in line with the group’s liquidity stress-testing philosophy.
Liquidity ratio was 87.8
% at end of 2
013 (2
012: 45.5%).
This is above the 30
% statutory requirem
ent.
Liqu
idity ratio comp
utation
20
13N
million
2012
Nm
illion
Specified liq
uid assets
Cash
12,9
65
12,39
8
Balance w
ith CB
N
(net DR
/CR
balance, and excluding C
RR)
83
,92
216
,246
Net balance held w
ith banks w
ithin Nigeria
95
,018
Treasury Bills
171
,50
965
,995
Net M
oney At C
all w
ith Other B
anks-
2,551
Federal Governm
ent of N
igeria bonds5
,186
55,219
Stabilisation Securities1
,08
55
,395
Total A
sset (A)
274
,67
7162
,822
Cu
rrent liab
ilities
Adjusted deposit liabilities
312
,69
5357,474
Total liab
ilities (B)
312
,69
5357,474
Liqu
idity ratio A
/B
*10
08
7.8%
45.5%
Financial review (continued)
the 1 m
illion mark in 2
013. D
uring the year, the bank m
ade a conscious decision to reduce reliance on expensive w
holesale funding
and focus
more
on gathering
lower
priced deposits to improve cost of funding. This decision
resulted in a significant growth in dem
and deposits (42
%)
and savings deposits (26
%), w
ith positive impact on cost of
funds. Deposit m
ix, which is the ratio of low
cost and stable deposits (current and savings) to total deposits, im
proved from
43%
in 2012
to 52%
.
Deposits from
customers funded 58
% (2
012: 55%) of total
assets in 2013.
Dep
osits and cu
rrent accou
nts
(CAGR 2
01
0- 2
01
3): 3
1%
Corporate and Transactional Banking’s deposits increased by
N25.7
billion to N221.1
billion, representing a 13% grow
th. The increase is supported by grow
th in demand (62
%) and call
deposits (116%) but adversely affected by the 32
% reduction
in term deposits. The significant grow
th in demand deposits
resulted in improvem
ent in deposit mix from
32%
in 2012
to 45%
in 2013
and reduction in cost of funding. Personal and B
usiness Banking’s deposit book grew
by 21% to N
197.9
billion benefitting from increased retail custom
ers. Dem
and deposits grew
by 28%
, while savings account w
as up 26%.
The growth in low
er priced deposits improved to 6
4% from
57
% in 2
012.
During the year, the bank obtained a 7
year subordinated debt am
ounting to USD
40
million (N
6.4
billion) to support funding for foreign currency based lending.
20
10
20
11
20
12
20
13
0
35
0.0
40
0.0
30
0.0
25
0.0
20
0.0
15
0.0
10
0.0
50
.0
45
0.0
18
6.1
28
7.2
35
9.5
41
9.0
Nbillion
10
Equity1
0%
Deposits from
customers
58
%
Borrowings
8%
Other
liabilities8
%
Deposits
from banks
7%
Tradingliabilities
9%
Fun
ding m
ixIn
come statem
ent an
alysis
The bank witnessed a m
ore than 100
% grow
th in profit after tax. The grow
th in profitability is driven by the increases in net interest incom
e, trading revenue, fees and comm
ission revenue, significant reduction in credit im
pairment charges
and favourable tax position.
Net in
terest incom
e increased by 10%
to N3
4.8 billion,
despite the testing operating environment. Interest incom
e grew
by 7%
and benefitted from continued grow
th in income
from lending activities, investm
ent securities and interbank placem
ent. Income from
loans and advances accounted for 71%
of total interest income. This w
as made possible by the
growing custom
er relationships and growing suite of tailor-
made lending products being offered to custom
ers. Income
from investm
ent securities grew by 3
4% and accounted for
29%
of total interest income. It benefitted from
increased transaction volum
es and stable yields in government securities.
Interest expense grew m
arginally by 4% to N
25.7 billion,
driven primarily by the grow
th in the deposit book. The effect of the m
onetary policy tightening was som
ewhat m
oderated by the im
provement in deposit m
ix. The bank’s net interest m
argins (net interest income as a percentage of total assets
less derivative assets), declined slightly to 4.8%
from 4.9
% as
a result of growth in total assets.
20
13N
million
2012
Nm
illion
Tier I capital6
3,13
0
59,14
8
Tier II capital6
,40
8
(129)
Total q
ualifyin
g capital
69
,53
8
59,019
Risk w
eighted assets3
80
,43
7
362,855
Cap
ital adeq
uacy
Tier I16
.6%
16.3
%
Tier II1.7
%-
Total
18.3
%16
.3%
The bank’s capital is considered adequate to support business risks and contingencies and to pursue grow
th opportunities as they arise.
Change%
20
13N
million
2012
Nm
illion
Interest income on investm
ent securities3
417,3
42
12,9
85
Interest income loans and advances to banks
>100
3,16
136
6
Interest income loans and advances to custom
ers(7
)4
0,0
26
43,070
Medium
term advances
(8)
26
,02
928
,150
Overdrafts
(5)
7,160
7,525
Hom
e loans(12)
1,8
32
2,073
Instalment sales and finance leases
(6)
5,0
05
5,32
0
Interest in
come
76
0,5
29
56,4
21
Interest expense4
25
,72
724
,818
Savings deposits87
37
32
00
Current accounts55
69
44
48
Call deposits
(7)
2,741
2,9
48
Time deposits
319
,75
419
,190
Other interest bearing liabilities
72
,165
2,032
Net in
terest incom
e10
34
,80
231,6
03
Breakd
own o
f net in
terest incom
e
The bank maintained a healthy level of cap
italization above
the regulatory requirement in 2
013. Total capital adequacy w
as 18.3%
(2012: 16
.3%) at the end of year. The increase
is due to the growth in Tier 2
capital attributable to the subordinated debt obtained during the second quarter of 2
013. Tier 1 capital adequacy ratio im
proved slightly to 16.6%
from
16.3%
recorded in 2012. These ratios are significantly
higher than the statutory minim
um of 10
%.
43
Overview
Capital
managem
entO
therinform
ationB
usiness review
42
Stanb
ic IBT
C A
nnual group financial statements for the year ended 3
1 D
ecember 2
01
3
Bu
siness review
Annual report and
financial statements
Corporate and Transactional Banking’s net interest incom
e grew by 24%
to N16
.4 billion, supported by the grow
th in income
from investm
ent securities and reduction in interest expense. Personal and Business B
anking’s net interest income w
as flat at N
18.4
billion due to the growth in interest expense, a function of increased deposit book. C
TB’s net interest m
argin expanded to 3.7
% from
3.4%, w
hile that of PBB contracted from
7.1% in 2
012 to 6
.5% m
ainly due to increase in total assets.
Non
-interest reven
ue
Non-interest revenue increased by 25%
during the year with net fee and com
mission revenue and trading revenue up 6%
and 82
% respectively. The lim
ited growth in fee and com
mission revenue in 2
013 is attributable to the m
ovement of investm
ent banking revenues to Stanbic IB
TC Capital (‘C
apital’), as a result of the organisational restructuring of the bank in late 2012.
Other revenue w
as down by 9
4% as a result of the absence of dividend incom
e received from the erstw
hile subsidiaries of the B
ank, which are now
the Holding com
pany’s subsidiaries with effect from
Novem
ber 2012.
Breakd
own of n
on-in
terest revenu
e
Change%
20
13N
million
2012
Nm
illion
Net fee an
d comm
ission revenu
e6
11,6
88
10,978
Account transaction fees
13
,54
33
,495
Card based com
mission
>100
1,4
60
518
Know
ledge based fees and comm
ission(16
)2
,91
03
,469
Foreign currency service fees10
1,2
99
1,185
Docum
entation and administration fees
(27)
1,0
05
1,376
Electronic banking5
02
41161
Others
591
,62
59
60
Fees and Comm
ission expenses(3
95
)(1
86
)
Tradin
g revenu
e82
14,6
03
8,013
Foreign exchange57
6,6
44
4,23
0
Interest rates(14)
1,3
29
1,541
Credit
>100
6,6
30
2,24
2
Oth
er revenu
e(9
4)13
52
,134
Dividend incom
e(9
8)
34
2,114
Other non-bank revenue
>100
10
12
0
Total n
on-in
terest revenu
e25
26
,42
621,125
Financial review (continued)
Net
fee and
comm
ission revenue
increased by
6%.
The follow
ing are the factors that impacted net fee and com
mission
revenue in 2013:
G
rowth in the custom
er base resulting in increased income
from accou
nt tran
saction fees although the income
was som
ewhat affected by the regulatory reduction in
transaction fees such as comm
ission on turnover, SMS,
ATM etc. during the year.
C
ard based com
mission
grew in excess of 10
0%
as a result of increased turnover volum
es, a larger account base and higher m
erchant penetration.
Foreign cu
rrency service fees increased by 10
% on the
back of improved client flow
s during the year.
E
lectronic b
ankin
g revenu
e increased by 50
% due to
higher utilization of Stanbic IBTC devices and grow
th in the num
ber of transactions, especially internet transactions.
D
ocu
men
tation and adm
inistration fees reduced by
27%
as a result of regulatory induced reduction in fees relating to lending activities.
The
16%
reduction in
know
ledge
based
fees is
attributable to the significant reduction in revenue from
financial advisory services in 2013. R
evenue generated by
investment
banking business,
such as
structuring, origination and advisory fees w
ere reported under the Stanbic IB
TC Bank in 2
012 but are now
reflected under Stanbic IB
TC Capital in line w
ith new G
roup structure.
The grow
th in Oth
er fee and com
mission reven
ue by
59%
is supported by comm
ission received on government
bonds with the bank acting as agent.
Trading revenue
grew
82%
m
ainly due
to the
following
reasons:
Forex
trading
benefitted from
favourable
trading environm
ent and grew by 57
%.
C
redit tradin
g reven
ue
grew
in excess
of 10
0%
on the back of large hedging transactions for clients.
R
educed liquidity in the interest rate m
arket resulted in the 14%
decline in credit trading revenue.
Credit im
pairm
ent ch
arges; decreased by 61% resulting in
improvem
ent in credit loss ratio to 0.9%
from 2.5%
in 2012.
Credit im
pairm
ent an
d credit loss ratio
Corporate and
Transactional B
anking’s credit
impairm
ent charges reduced by 9
0%
, while credit loss ratio im
proved to 0.2
% from
1.9%
in 2012. Corporate loan im
pairments
benefitted from the non-recurrence of specific provisions
raised on 3 corporate clients in the prior year and im
provement
in rehabilitation
and recovery
capabilities. Personal
and B
usiness Banking’s credit im
pairment charges also w
itnessed a decline by 3
4%, resulting in im
provement in credit loss ratio
from 3.4%
in 2012
to 1.8%
. The resolution of some assets in
business banking aided the reduction.
Op
erating exp
enses; increased by 17
% to N
49.1 billion on
the back of a 12%
growth in staff cost and 19
% grow
th in other operating expenses. Consequently, the bank’s cost-to-incom
e ratio increased marginally to 8
0.2%
from 79.4%
in 2
012. Personal and Business B
anking as well as Corporate and
Transactional Banking reported increases of 22
% and 13%
in operating expenses and cost-to-incom
e ratios of 121.1%
and 52.1% respectively.
0.5
1.5
2.5
(5,0
00
)
5,0
000
10
,00
0
0.0
2.0
1.0
3.0
Nm
illion%
(2,1
67
) 2,3
58
0.9
%
2.5
%
0.1
%
2,3
81
96
85
04
1,9
227
45
5
1.3
%
6,3
91
20
10
20
11
20
12
20
13
Credit impairm
ent charge on non-performing loans
Credit impairm
ent charge on performing loans
Credit loss ratio
45
Overview
Capital
managem
entO
therinform
ationB
usiness review
44
Stanb
ic IBT
C A
nnual group financial statements for the year ended 3
1 D
ecember 2
01
3
Bu
siness review
Annual report and
financial statements
Breakd
own of th
e ban
k’s op
erating exp
enses
Change%
20
13N
million
2012
Nm
illion
Staff costs
12
19,2
18
17,164
Salaries and allowances
11
18,3
95
16
,632
Staff cost: below m
arket loan adjustment
(25)
24
5
327
Equity linked transactions>10
05
78
2
05
Oth
er operatin
g expen
ses:19
2
9,8
69
24
,90
5
Comm
unication8
6
15
571
Depreciation
20
3
,86
3
3,231
Information technology
24
3,16
1
2,55
4
Marketing and advertising
73
2,15
2
1,243
Premises and m
aintenance (2
0)3
,01
0
3,76
7
Security 29
1
,140
8
85
Adm
inistration and mem
bership fees>10
06
44
19
6
Training expenses3
0
32
8
253
Stationery and printing(9)
65
5
717
Insurance: AM
CON
, ND
IC and others6
4
5,4
30
3
,321
Travel and transportation3
1
,015
9
85
Professional fees(14)
4,15
3
4,8
48
Provision on contingent and other known losses
>1
00
2,411
1,1
37
Others
131
,29
21,197
Total op
erating exp
enses
17
49
,08
7
42
,069
Staff cost and h
eadcou
nt is im
pacted by:
inflation adjusted salary increase for staff
m
arket driven
fixed rem
uneration increase
for non-
managerial staff, and
recruitm
ent of
non-full tim
e staff
to drive
sales and custom
er acquisition
Full tim
e staff
headcount decreased
by 8
%,
while
the headcount for non- full tim
e staff grew by 2
0%
to 2,147.
Change%
20
132
012
Personal and Business B
anking(11)
99
81,125
Corporate and Transactional B
anking(16
)15
2181
Enabling functions(36
)3
05
473
Total
(8)
1,3
55
1,475
Oth
er operatin
g expen
ses is imp
acted by:
higher depreciation cost due to im
pairments on leasehold;
higher
information
technology cost
for securing
competitive advantage in business efficiency;
higher m
arketing cost due to new product and brand
awareness initiatives;
higher com
munication cost due to increase in business
volume;
Increased regulatory and com
pliance related insurance cost – A
MCO
N sinking fund and N
DIC deposit insurance;
Increased training cost to im
prove staff technical skills; and
Increased security cost due to netw
ork expansion and increased focus on protection of bank’s resources.
Financial review (continued)
Full tim
e ban
king staff h
eadcou
nt by b
usin
ess un
it
Overview
of the finan
cial performan
ce of w
ealth and investm
ent ban
king bu
siness
Wealth b
usin
ess
The Wealth group com
prises three companies nam
ely:
Stanbic
IBTC
Asset
Managem
ent Lim
ited (SIA
ML)
for the managem
ent of non-pension assets;
Stanbic IB
TC Pension Managers Lim
ited (SIPML) for the
administration and m
anagement of pension assets, and
Stanbic
IBTC
Trustees Lim
ited (SITL)
for trusteeship
and estate managem
ent functions.
SIPML is the largest com
pany within the W
ealth Group as
it contributes more than 8
0%
of the group’s revenue, total assets and assets under m
anagement.
The Wealth group closed the year as the largest w
ealth m
anager in
Nigeria
in term
s of
revenue, assets
under m
anagement and num
ber of clients. Two (SIPM
L and SIAM
L) of the three com
panies under the wealth group m
aintained their m
arket leadership in 2013. The third com
pany (SITL), established in 2
011, continued to make good inroad into
the trusteeship business and estate managem
ent.
Incom
e statemen
t analysis
The wealth group recorded a profit after tax of N
8.4
billion, representing a 5
0%
increase over the N5.6
billion recorded in 2
012. The group’s profit after tax represented 40
% of
the total
Stanbic IB
TC G
roup’s profit
after tax.
Wealth’s
profitability benefitted from continued grow
th in assets under m
anagement, im
pressive performance of the N
igerian capital m
arket as well as thought through investm
ent decisions.
Net in
terest incom
e grew by 16%
to N1.9
billion, on the back of positive yields on investm
ent securities, which w
as strong enough to support positive return on the portfolios.
Non
-interest
revenu
e, consisting
only net
fee and
comm
ission, grew strongly by 35%
to N16
.7 billion. The
growth is buoyed by the grow
th in assets under managem
ent, a
function of
growth
in num
ber of
clients and
size of
contributions as well as the good perform
ance of the stock m
arket during the year.
As a consequent of the good perform
ance in net interest incom
e and non-interest revenue, total income increased
by 33% to N
18.7
billion.
Total in
come by b
usin
ess un
its
Pensionm
anagement
84
%
Asset m
anagement
15
%Trustees
1%
Op
erating exp
enses, w
hich is inclusive of staff and other operating cost, w
as down 3%
. Staff cost grew by 17
% as a
result of inflation adjusted salary increase. Other operating
costs declined by 15%, benefiting from
non-occurrence of one-off
regulatory induced
technology im
provement
that existed in the prior year. Consequently, cost-to-incom
e ratio im
proved significantly from 4
6.8
% in 2
012 to 3
4.3%.
47
Overview
Capital
managem
entO
therinform
ationB
usiness review
46
Stanb
ic IBT
C A
nnual group financial statements for the year ended 3
1 D
ecember 2
01
3
Bu
siness review
Annual report and
financial statements
Pen
sion m
anagem
ent
Nm
illion
Asset
man
agemen
tN
million
Trustees
Nm
illion
Total W
ealth gro
up
Nm
illion
Total income
15,7
39
2,7
77
144
18,6
60
Profit before tax1
0,7
75
1,414
43
12,2
32
Profit after tax7,3
57
1,0
01
28
8,3
86
Total assets stood at N
22.6 billion at the end of 2
013, representing a 33%
growth over 2
012. Liquid assets accounted for over 70
% of total assets.
The wealth group achieved a record assets under m
anagement (A
uM) of N
1.32 trillion to m
aintain its position as the largest institutional investm
ent business in Nigeria. This represents a 33%
increase over the N9
90.9
billion achieved in 2012. A
breakdow
n of the group’s AuM
shows that SIPM
L crossed the N1trillion m
ark to N1.16
trillion, thus achieving a 37%
growth,
while SIA
ML recorded a 27
% grow
th in AuM
to N158
.8 billion.
The wealth business also w
itnessed considerable growth in num
ber of clients and products. The pension business achieved a 16%
growth in the num
ber of retirement savings accounts (R
SA), ending the year w
ith 1.22 m
illion clients. The non-pension asset m
anagement m
aintained a client base of about 35,0
00
in its mutual funds during the year. M
any new products w
ere also launched during the year by the tw
o businesses.
Assets u
nd
er man
agemen
t and retirem
ent savin
gs accoun
t
Overall, the w
ealth group achieved a return on average equity of 65.2%
in 2013
, an improvem
ent over the 52.6% recorded
in 2012.
Financial review (continued)
20
10
20
11
20
12
20
13
0
1,2
00
.0
1,0
00
.0
80
0.0
60
0.0
40
0.0
20
0.0
1,4
00
.0
Nbillion
91
.4
48
8.8
83
4.3
93
9.2
1,0
54
.5
1,2
21
.0
93
.6
60
6.2
12
5.0
86
5.9
15
8.5
1,1
57
.9
Nbillion
0 1,2
00
1,0
00
80
0
60
0
40
0
20
0
1,4
00
‘000
5Asset m
anagement
Pension managem
entR
etirement saving accounts
Investm
ent ban
king b
usin
ess
The group’s investment banking functions and transactions
are managed through Stanbic IB
TC Capital Lim
ited, which w
as incorporated in second quarter of 2
012. These functions were
previously performed by and reported in the B
ank. Stanbic IB
TC Capital is a leading investm
ent bank in Nigeria and w
ell respected in the industry. It has participated in m
ajor deals ranging from
oil and gas, infrastructure and project financing to debt and equity raising. Fin
ancial p
erforman
ce
The investment banking revenue is m
ade up of non-interest revenue only as no lending activities are undertaken by the entity. Fee and com
mission revenue is generated through
structuring, originating and provision of advisory services on various transactions for clients.. R
evenue growth w
as particularly
strong in
the advisory,
property group,
debt capital m
arkets, and mining energy and infrastructure in 2
013.
Net fee and com
mission revenue grew
by 70%
, while a m
ore than 250
% grow
th was achieved in trading revenue. The prior period
comparison is for 8 m
onth (May-D
ecember 2012), starting from
w
hen the date of the company’s incorporation. W
hen the prior period is annualized, net fee and com
mission revenue and trading
revenue grew by 15%
and 145% respectively.
Breakd
own of n
on-in
terest revenu
e
Overview
of the group’s liquidity an
d capital m
anagemen
t
Liquidity m
anagem
ent
Liquidity market overview
The
group’s liquidity
risk m
anagement
framew
ork is
designed to measure and m
anage the liquidity position at various levels of consolidation so that paym
ent obligations could
be m
et at
all tim
es, under
both norm
al and
considerably stressed conditions. Under the delegated
authority of the board, the Asset and Liability Com
mittee
(ALCO
) sets
liquidity risk
policies in
accordance w
ith regulatory requirem
ents and international best practice.
The group’s overall liquidity risk has rem
ained unchanged over 2
013 w
ith continued active managem
ent of financial resources w
ithin the group’s stated risk tolerance.
N
ew term
lending and investment activity are m
onitored and
priced to
take into
account liquidity
costs of
anticipated regulatory changes that will im
pact the group.
C
BN
maintained its m
onetary policy tightening stance throughout 2
013. It retained the monetary policy rate,
liquidity ratio and cash reserve requirement at 12
%, 3
0%
and 12
% respectively. D
uring the second half of the year, a new
cash reserve requirement of 5
0%
was introduced
for public sector deposits, while the 12
% w
as retained for private sector deposits.
The average cost of w
holesale funding continued to be high as a result of the m
onetary policy tightening, with
adverse effect on margin.
R
epricing of risk assets continued to be challenging in C
IB due
to com
petitive pressures.
How
ever, this
was
effectively done in PBB business segm
ent.
Liquidity buffer
Portfolios of highly liquid marketable securities, over and
above prudential requirements, are m
aintained as protection against unexpected disruptions in cash flow
s. These holdings are considered in the context of internal stress tests and discounts assum
ed on certain securities in a possible sale.
The am
ount of contingent liquidity required the group’s liquidity risk standard is influenced by the nature of the depositor, and the contractual term
s of the deposit as well
as the prevailing and anticipated regulation.
The surplus liquidity holdings are m
anaged taking into account liquidity stress testing results and C
BN
regulation. The unencum
bered surplus liquidity amounted to N
265.2
billion as at 31 D
ecember 2
013.
Change%12
mon
thN
million
8 m
onthN
million
Net fee and
comm
ission revenue70
2,7
25
1,59
9
Corporate advisory services
>100
2,418
914
Structuring fees(5
0)3
07
616
Others
(100)
-69
Trading revenue>10
02
81
76
Total non-interest revenue79
3,0
06
1,6
75
Total income grew
by 79%
(annualized: 20
%) to N
3.0 billion.
The growth in total incom
e was how
ever muted by the
significant growth in operating expenses, as the prior year
cost allocation was done only in latter part of 2
012. Cost-to- incom
e ratio in 2013
was 5
0.2%
Breakd
own of p
rofitability by en
tity
49
Overview
Capital
managem
entO
therinform
ationB
usiness review
48
Stanb
ic IBT
C A
nnual group financial statements for the year ended 3
1 D
ecember 2
01
3
Bu
siness review
Annual report and
financial statements
Structu
ral liqu
idity requ
iremen
ts
Behavioural profiling is applied to assets, liabilities and off balance sheet com
mitm
ents with an indeterm
inable maturity
or drawdow
n period, as well as to certain liquid assets.
In
respect of
liabilities, behavioural
profiling assigns
probable maturities based on historically observed custom
er behaviour. This process is used to identify core deposits, such as current and savings accounts. These core deposits, although repayable on dem
and or at short notice, can be considered stable funding based on their past behaviour.
In
respect of
assets, behavioural
profiling is
used to
identify additional sources of structural liquidity in the form
of liquid assets or assets that could be used to generate liquidity w
ithin a specific time fram
e, and certain contractually
demand
assets are
profiled in
order to
recognize inflow rates in realistic am
ounts.
Lim
its are
set to
restrict the
cumulative
liquidity m
ismatch
between
expected inflow
s and
outflows
of funds in different tim
e buckets based on contractual and behavioural analysis.
The behaviourally adjusted cum
ulative liquidity mism
atch rem
ains well w
ithin liquidity risk appetite.
Diversified fu
ndin
g base
The group’s funding strategy is determ
ined after reviewing
the group projected balance sheet, which includes taking
into account business unit forecasts, the group’s capital requirem
ents, the maturity profile of existing funding
and anticipated changes in the deposit base. Funding requirem
ents and initiatives are assessed in accordance w
ith the group ALCO
requirements for diversification,
tenor and currency exposure, as well as the availability and
pricing alternative liquidity sources.
Concentration risk lim
its are used within the group to
ensure that funding diversification is maintained across
products, sectors, geographic regions and counterparties.
Prim
ary sources of funding consist of deposits from a w
ide range of retail and w
holesale clients as well as long-term
funding. D
eposit liabilities funded 55% of total assets in
2013.
M
edium to long term
funding from D
evelopment and
Financial institutions form part of our diversified funding
base. Funding from this source accounted for 10
% of
total liabilities and decreased to N4
8.8
billion from N
66
.9
billion in 2012.
A
7 year tenor unsecured subordinated debt am
ounting to N
6.4
billon (USD
40
million) w
as received during the year to im
prove funding.
Liqu
idity stress testing an
d scenario an
alysis
A
nticipated on-and
off-balance sheet
cash flow
s are
subjected to a variety of bank-specific and systematic
liquidity stress scenarios. These stress scenarios facilitate the evaluation of the im
pact of unlikely but plausible stress events on liquidity positions.
The outcom
es of the stress tests are reviewed by A
LCO on
at least a monthly basis, and inform
minim
um liquid asset
portfolio requirements and liquidity contingency recovery
plans. The scenarios themselves are review
ed periodically to ensure they rem
ain valid.
Cap
ital man
agemen
t
Capital
managem
ent involves
among
other things,
monitoring
and proactively
anticipating trends
or m
ovements in regulatory ratios. The G
roup is subject to host of requirem
ents by the Central B
ank of Nigeria. For
the South African R
eserve Bank (SA
RB
) purposes, SIBTC’s
capital requirem
ents are
recomputed
based on
Basel
II Standardised approach rules for m
easuring Standard Bank
Group consolidated capital requirem
ents. How
ever, South A
frican rules do not impose a requirem
ent on SIBTC to be
capitalised at these levels.
The CB
N requires every licensed B
ank operating in Nigeria
to have a minim
um capital adequacy ratio (C
AR) of 10
%.
How
ever, the Group’s C
AR
trigger has been set at 15%, w
hile the C
AR
risk tolerance level is set at 12%
.
The group manages its capital base to achieve a prudent
balance between m
aintaining capital ratios to support business grow
th and depositor confidence, and providing competitive
20
13N
million
2012
Nm
illion
Marketable assets
174,0
94
13
0,07
7
Short-term foreign
currency placements
6,13
9
38,4
20
Total u
nen
cum
bered
marketab
le assets18
0,2
34
16
8,49
8
Other readily
accessible liquidity8
4,9
97
5
,001
Total u
nen
cum
bered
surp
lus liq
uid
ity2
65
,23
1
173,49
9
20
13%2
012%
Single depositor 5
4
Top 10 depositors
25
21
Financial review (continued)
Group unencum
bered liquityD
epositor concentration
sreturns to shareholders. The capital m
anagement process ensures that each group entity m
aintains sufficient capital levels for legal and regulatory com
pliance purposes.
During the year, the group im
plemented a capital allocation fram
ework to encourage business functions to optim
ize capital requirem
ents by making a trade-offs betw
een product lines. The increased focus on capital and muted grow
th in risk weighted
assets resulted in an improved capital position, w
ith tier 1 capital adequacy ratio of 22.0
% (2
012: 20.7
%) and total capital
adequacy of 24.5% (2
012: 21.3%). The group com
plied with m
inimum
capital requirements im
posed by the regulators during the period under review
.
The implem
entation of the treasury and capital managem
ent operating model during the year, w
ill increase focus on enhancing shareholder value by providing a financial resource m
anagement function, that is optim
ized, comprehensive and integrated
across capital, liquidity, ratings and portfolio managem
ent.
In 2013
, the CB
N released a guidance note on “The N
ew R
egulatory Framew
ork for Prudential Supervision of the Nigerian
Banking System
”. The guidance note essentially details the proposed prudential guidelines to move the supervisory fram
ework
to Basel II and III.
The impact of the im
plementation of B
asel II/III on the capital adequacy ratio is that it w
ill:
result in increased risk-weighted assets/exposures, prim
arily due to introduction of operational risk, market risk, w
hich w
ere not measured under B
asel I rules.
result in disallowance of im
pairments for perform
ing loans (General loan loss provision), w
hich will negatively affect the total
qualifying capital and lead to reduction in capital adequacy ratio.
Gro
up
31
Dec 2
013
Nm
illion
Group
31 D
ec 2012
Nm
illion
Ban
k 3
1 D
ec 20
13N
million
Bank
31 D
ec 2012
Nm
illion
Total q
ualifyin
g Tier 1
capital
86
,37
6
78,197
6
3,13
0 5
9,1
48
Tier 1 capital:
Share capital 5
,00
0
5,0
00
1
,87
5 1
,87
5
Share premium
65
,45
0
65,45
0
42
,46
9 4
2,4
69
Retained earnings
22
,86
4
15,3
00
8
,98
6 4
,92
4
Other reserves
77
8
(2,3
41) 17,2
41 1
5,0
49
Deferred tax asset and intangible assets
(7,716
) (5
,212) (7,4
41) (5
,16
9)
Total q
ualifyin
g Tier 2
capital
9,9
41
2,24
2 6
,40
8 (1
29
)
Tier 2 capital:
Non-controlling interest
3,3
21
2
,310
- -
Available-for-sale reserve
22
1
(68
) 9
(12
9)
Subordinated debt 6
,39
9
- 6
,39
9 -
Total q
ualifyin
g /regu
latory capital
96
,317
8
0,439
6
9,5
38
59
,01
9
Total risk-w
eighted assets
39
2,8
88
37
7,992
3
80
,43
7 3
62
,85
5
On-balance sheet
36
0,16
2
34
6,011
3
47,7
11 3
30
,87
4
Off-balance sheet
32
,72
6
31,981
3
2,7
26
31
,98
1
Cap
ital adeq
uacy
Tier 12
2.0
%2
0.7
%16
.6%
16
.3%
Tier 22
.5%
0.6
%1.7
%0
.0%
Cap
ital adeq
uacy ratio
24
.5%
21
.3%
18.3
%1
6.3
%
Com
pu
tation of capital ad
equ
acy ratio
51
Overview
Capital
managem
entO
therinform
ationB
usiness review
50
Stanb
ic IBT
C A
nnual group financial statements for the year ended 3
1 D
ecember 2
01
3
Bu
siness review
Annual report and
financial statements
The group’s act of compliance w
ith the capital adequacy requirement in term
s of South African banking regulations m
easured on B
asel II principles coupled with the risk governance structure and im
plementation of Enterprise R
isk Managem
ent fram
ework as w
ell as collation of loss data and stress testing, amongst others, have continued to reinforce the group’s readiness
for a regulatory regime that is anchored on B
asel II principles from 2
014.
Group finan
ce priorities in 20
14
The group finance function’s priorities in 2014
are to:
facilitate strict control over costs to im
prove the group’s overall profitability and enhance returns to shareholders.
evaluate and respond appropriately to the im
plementation of B
asel II/III.
ensure that the highest standards of execution are applied to the group’s corporate activity.
optim
ize the allocation of the key financial resources of capital and liquidity in order to improve the group’s return on equity.
analyse the im
pact of and prepare for changes in accounting standards.
evaluate opportunities for further standardization, alignm
ent of processes and efficiencies within the group.
ensure a seam
less implem
entation of financial reporting systems.
continue
to provide
relevant and
reliable financial
information
to the
group’s stakeholders,
including regulators,
tax authorities and shareholders.
Financial review (continued)
Th
ree-year reviewC
onsolidated statem
ent of fin
ancial p
osition
CAGR%
20
13
Nm
illion2
01
2N
million
20
11
Nm
illion2
01
3U
SDm
illion2
01
2U
SDm
illion2
01
1U
SDm
illion
Assets – B
anking activities
Cash and balances with central banks
91
10
9,3
85
99
,84
0
30
,07
2
68
6
63
8 1
89
Trading assets(2
2)
38
,04
9 1
13
,40
1
63
,32
4
23
9
72
5
39
7
Pledged assets1
3 2
4,7
33
2
4,4
40
1
9,5
01
1
55
1
56
1
22
Derivative assets
(30
) 1
,52
6
1,7
09
3
,08
1
10
1
1
19
Financial investments
24
12
3,4
57
71
,62
9
80
,76
2
77
4 4
58
50
7
Loans and advances 1
3 3
83
,92
7
29
0,9
15
3
02
,77
1
2,4
08
1
,86
0 1
,89
9
Loans and advances to banks4
4 9
4,1
80
2
4,5
71
4
5,1
32
5
91
1
57
28
3
Loans and advances to customers
6 2
89
,74
7
26
6,3
44
2
56
,72
0
1,8
17
1
,70
3
1,6
10
Other assets
23
14
,63
4 1
9,3
78
9
,75
0
92
12
4 6
1
Current and deferred tax assets6
7 7
,44
1 5
,16
9
2,6
68
4
7 3
3
17
Intangible assets(1
00
)-
- 5
,03
3
- -
32
Property and equipment
(5)
21
,94
8 2
3,9
89
2
4,1
61
1
38
15
3 1
52
Investment banking
15
,37
3 8
,74
5
- 9
6 5
6 -
Wealth
30
22
,57
3
17
,60
4
13
,38
4
14
2
11
3
84
Total assets1
7 7
63
,04
6
67
6,8
19
5
54
,50
7
4,7
86
4
,32
7
3,4
78
Liabilities – Banking activities
Trading liabilities3
66
,96
0
88
,37
1
63
,17
3
42
0
56
5
39
6
Derivative liabilities
20
1,0
85
7
72
7
49
7
5
5
Deposit and current accounts
25
47
0,7
18
3
86
,13
5
29
9,7
87
2
,95
2
2,4
69
1
,88
0
Deposits from
banks>
10
0 5
1,6
86
2
6,6
32
1
2,5
45
3
24
1
70
7
9
Deposits from
customers
21
41
9,0
32
3
59
,50
3
28
7,2
42
2
,62
8
2,2
99
1
,80
2
Other borrow
ings1
48
,76
4
66
,87
3
47
,61
8
30
6
42
8
29
9
Subordinated debt6
,39
9 -
- 4
0 -
-
Current and deferred tax liabilities(5
) 2
,72
3
1,5
77
3,0
28
1
7
10
19
Other liabilities
3 5
7,8
71
4
2,5
54
54
,18
3
36
3 2
72
34
0
Investment banking
6,6
42
(3,2
17
) -
42
(21
) -
Wealth
38
7,9
26
6
,52
6
4,1
91
5
0
42
2
6
Total liabilities 1
9 6
65
,41
2 5
91
,16
8
47
2,7
29
4
,17
3 3
,78
0
2,9
65
Equity
Equity attributable to ordinary shareholders9
94
,31
3 8
3,3
41
7
9,8
67
5
92
53
2
50
1
Banking activities
-7
0,5
80
64
,18
8
70
,67
4
44
3 4
10
4
43
Investment banking
9,0
86
8,0
75
- 5
7 5
1 -
Wealth
26
14
,64
7 1
1,0
78
9
,19
3
92
7
1
58
Attributable to m
inority interest3
23
,32
1 2
,31
0
1,9
11
2
1
15
1
2
Equity
9 9
7,6
34
85
,65
1
81
,77
8
61
3 5
47
5
13
Total equity and liabilities 1
77
63
,04
66
76
,81
95
54
,50
7 4
,78
6
4,3
27
3,4
78
53
Overview
Capital
managem
entO
therinform
ationB
usiness review
52
Stanb
ic IBT
C A
nnual group financial statements for the year ended 3
1 D
ecember 2
01
3
Bu
siness review
Annual report and
financial statements
Financial review (continued)
^ Figures included in the three year review
have been restated where necessary to provide m
eaningful comparison of
performance over the years
Exchange rates utilized to convert the statem
ent of financial position are: 2013: N
159.0
8/U
SD1; 2
012: N
158
.40/
USD
1 ; 2
011: N155
.69/U
SD1
Th
ree-year reviewC
onsolidated in
come statem
ent
CAGR%
20
13
Nm
illion2
01
2N
million
20
11
Nm
illion2
01
3U
SDm
illion2
01
2U
SDm
illion2
01
1U
SDm
illion
Banking activities
Net interest incom
e1
4 3
4,8
02
3
1,6
03
2
6,8
36
2
19
2
00
1
72
Non-interest revenue
20
26
,42
6
21
,12
5
18
,38
5
16
6
13
3
11
8
Net fees and com
mission revenue
13
11
,68
8
10
,97
8
9,2
08
7
3
69
5
9
Trading revenue2
8 1
4,6
03
8
,01
3
8,8
45
9
2
51
5
7
Other revenue
(36
) 1
35
2
,13
4
33
2
1
13
2
Total income
16
61
,22
8
52
,72
8
45
,22
1
38
5
33
3
29
0
Credit impairm
ent charges(1
1)
(2,6
67
) (6
,89
5)
(3,3
49
) (1
7)
(43
) (2
1)
Net specific credit im
pairment charges
(10
) (1
,92
2)
(6,3
91
) (2
,38
1)
(12
) (4
0)
(15
)
Portfolio credit impairm
ent charges(1
2)
(74
5)
(50
4)
(96
8)
(5)
(3)
(6)
Income after credit im
pairment charges
18
58
,56
1
45
,83
3
41
,87
2
36
8
29
0
26
9
Operating expenses
14
(49
,08
7)
(42
,06
9)
(37
,57
6)
(30
9)
(26
6)
(24
1)
Staff costs9
(19
,21
8)
(17
,16
4)
(16
,12
9)
(12
1)
(10
8)
(10
4)
Other operating expenses
18
(29
,86
9)
(24
,90
5)
(21
,44
7)
(18
8)
(15
7)
(13
7)
Profit before taxation
46
9,4
74
3
,76
4
4,2
96
6
0
24
2
8
Taxation 6
55
1
,53
6
(1,6
17
) 4
1
0
(11
)
Banking activities profit attributable
to ordinary shareholders 9
4
10
,12
9
5
,30
0
2
,67
9
6
4
3
4
1
7
Wealth
Profit for the year 4
5 8
,38
6
5,5
76
3
,96
4
53
3
5
25
Attributable to non-controlling interest
49
(2,1
63
) (1
,28
9)
(97
6)
(14
) (8
) (6
)
Wealth profit attributable to ordinary
shareholders 4
4 6
,22
3
4,2
87
2
,98
8
39
2
7
19
Investment banking
Profit for the year
2,2
58
(7
19
) -
14
(5
) -
Attributable to group ordinary
shareholders 8
1
18
,61
0
8,8
68
5
,66
7
11
9
56
3
6
Change %2
01
32
01
2
Profit before taxN
million
>1
00
2
4,6
17
1
1,4
12
Balance sheet
Total assetsN
million
13
7
63
,04
6
67
6,8
19
Loans and advances (net of credit impairm
ents)N
million
9
28
9,7
47
2
66
,34
4
Deposits from
customers
Nm
illion 1
7
41
6,3
52
3
55
,41
9
Key perform
ance indicators
Net interest m
argin%
4.9
5.0
Non-interest revenue to total incom
e%
56
.65
0.2
Cost-to-income ratio
%6
8.0
72
.8
Return on average equity (pre-tax)
%2
7.7
14
.4
Return on average equity (after-tax)
%2
1.0
10
.9
Return on average assets (pre-tax)
%3
.4 1
.9
Return on average assets (after-tax)
%2
.9 1
.6
Basic earnings per share kobo
>1
00
1
86
50
Net asset value per share
kobo 1
3
94
3 8
33
Shareholders' equityN
million
13
9
4,3
13
8
3,3
41
Other indicators
Price-to-book (P/B ratio)
times
74
2.3
1.3
Effective tax rate%
15
.6
11
.0
Average number of em
ployees%
(5)
2,0
77
2
,18
4
Financial results, ratios an
d statistics
55
Overview
Capital
managem
entO
therinform
ationB
usiness review
54
Stanb
ic IBT
C A
nnual group financial statements for the year ended 3
1 D
ecember 2
01
3
Bu
siness review
Annual report and
financial statements
Financial review (continued)
Change %
20
13
20
12
Banking activities
Balance sheet
Total assetsN
million
11
72
5,1
00
6
50
,47
0
Loans and advances (net of credit impairm
ents)N
million
9 2
89
,74
7
26
6,3
44
Deposits from
customers
Nm
illion1
7 4
19
,03
2
35
9,5
03
Selected returns and ratios
Return on average equity (pre-tax)
%1
4.1
5.6
Return on average equity (after-tax)
%1
5.0
7.9
Return on average assets (pre-tax)
%1
.40
.6
Return on average assets (after-tax)
%1
.50
.9
Loan to deposit ratio%
72
.47
7.7
Net interest m
argin%
4.8
4.9
Non-interest revenue to total incom
e%
43
.24
0.1
Credit impairm
ent chargesN
million
>1
00
2,6
67
6
,89
5
Credit loss ratio%
0.9
2.5
Cost-to-income ratio
%8
0.2
79
.8
Tier 1 capital adequacy
%1
6.6
16
.3
Total capital adequacy%
18
.31
7.4
Non-perform
ing loan to total loan%
4.4
5.1
Effective tax credit %
6.9
34
.1
Financial results, ratio and statistics
Change %2
01
32
01
2
Market Indicators
NSE A
ll Share Index4
7 4
1,3
29
.2
28
,07
8.8
NSE turnover
Nbillion
(84
) 1
06
.4
65
8.2
Average daily activityN
million
19
42
9.2
3
59
.5
Aggregate m
arket capitalisationN
trillion2
9 1
9.1
1
4.8
Equity market capitalisation
Ntrillion
47
13
.2
8.9
8
Stanbic share statistics
Share price
High for the period
kobo7
2 2
,13
5
1,2
38
Low for the period
kobo6
1,1
00
1
,04
1
Closingkobo
94
2,1
35
1
,10
0
Shares traded
Num
ber of sharesthousands
(17
) 5
27
,80
1
63
3,5
67
Value of sharesN
million
85
8,2
17
4
,43
1.6
Market capitalisation
Nbillon
94
21
3.5
1
10
.0
Share p
rice perform
ance:
20
13
(rebased)
Stanbic Share priceN
SE All Share index
Banking Index
0
0.5
1.0
1.5
2.0
2.5 %
02-May-13
02-Apr-13
02-Mar-13
02-Feb-13
02-Jan-13
02-Jun-13
02-Jul-13
02-Aug-13
02-Sep-13
02-Oct-13
02-Nov-13
02-Dec-13
Capital m
arket statistics
57
Overview
Capital
managem
entO
therinform
ationB
usiness review
56
Stanb
ic IBT
C A
nnual group financial statements for the year ended 3
1 D
ecember 2
01
3
Bu
siness review
Annual report and
financial statements
Executive com
mittee
Sola David
-Borh
aChief Executive:Stanbic IBTC H
oldings
William
le Rou
xH
ead: CIB Credit
An
gela Om
o-D
are H
ead: Legal Services
Yin
ka Sann
iChief Executive:Stanbic IBTC B
ank
Obin
nia A
bajue
Executive Director PBB
Stanbic IBTC Bank
Victor W
illiams
Executive Director C
TB Stanbic IBTC B
ank
Fun
ke Am
obiH
ead: Hum
an CapitalO
peyem
i Adoju
teleganAg. Chief Com
pliance Officer
Ch
idi Okezie
Company Secretary
Babatu
nde M
acaulay
Head: Transactional
Products and Services
Dem
ola Sogu
nle
Chief Executive Stanbic IBTC Pension M
anagers
Nkiru O
lum
ide-Ojo
Head: M
arketing and Com
munications
Steve IdehH
ead: Internal Audit
Wole A
deniyi
Executive Director Business
Support Stanbic IBTC Bank
Yewan
de Sadiku Chief Executive Stanbic IBTC Capital Ltd
Arth
ur O
ginga
Chief Financial Officer
M’fon A
kpanH
ead: Group Risk
59
Overview
Capital
managem
entO
therinform
ationB
usiness review
58
Stanb
ic IBT
C A
nnual group financial statements for the year ended 3
1 D
ecember 2
01
3
Bu
siness review
Annual report and
financial statements
Personal
and Business
Banking
61
Overview
Capital
managem
entO
therinform
ationB
usiness review
60
Stanb
ic IBT
C A
nnual group financial statements for the year ended 3
1 D
ecember 2
01
3
Bu
siness review
Annual report and
financial statements
Personal and B
usiness Banking
Overview
In line with our earlier articulated strategic plan, the focus
of the business in 2013
was to scale up by grow
ing our client base across all lines of business w
ith particular attention to Personal B
anking and SME. W
e were able to surpass the
one million custom
er mark w
ithin the year after acquiring >36
0,0
00
new custom
ers in the period. We w
ill continue to grow
our active customer base to achieve desirable scale.
We continued to pay particular attention to our relationship
managem
ent capability and service delivery, ensuring that every target custom
er is served by a relationship manager
and that customer experience w
ithin our branches and other touch points continue to be consistent and reliable.
It has been an impressive year in our retail banking business,
having successfully assisted individuals and small businesses
to smoothen their cash flow
s with the provision of consum
er and sm
all business loans to support their needs, our unsecured lending position has reflected overall good credit behaviour of benefitting custom
ers. Our focus on providing consum
er finance w
as recognized in the course of the year when our B
ank w
on best Vehicle and Asset Finance B
ank at the On W
heels M
otor Industry awards for the third tim
e in a row and the M
ost Innovative B
ank by Business D
ay newspaper for our focus
on those market segm
ents.
Our transactional banking offering continues to be popular
with our grow
ing customer base. This has also been spurred
by the CB
N’s cash lite initiative and the proliferation of m
any electronic
alternatives that
support client
convenience. C
hannel expansion and efficiency was therefore in focus in
2013
as we grew
our ATM com
plement by 4
2%
to close at 359
deployed machines at the end of the year. O
ur machines
continue to be known for reliability in the m
arket, having m
aintained a 95% m
inimum
uptime across our infrastructure,
with higher availability during peak periods. O
ur Point of Sale term
inals were also m
ore efficient as we focused on im
proving utilization, grow
ing from about 13%
active ratio to about 28%
com
pared to industry ratio of 10%
. Although for strategic
and operational reasons, we w
ere not very aggressive in grow
ing our Mobile M
oney client base, we still achieved a
client base of c80
0,0
00
with transactions valued at N
7 billion
during the year.
With
the progressive
rollout of
cash lite
Nigeria
and understanding that the w
ay customers interact w
ith financial services is changing, w
e have added an all-inclusive digital solution
to enhance
customer
convenience. O
ur G
roup app w
as developed to provide end-to-end financial service
to individual
customers
of Stanbic
IBTC
Group.
Available
services on the platform include M
obile Money, B
anking services,
Pension and
Mutual
Fund services
with
airtime
and other value added services, provided in a safe environment.
The Bank com
menced the developm
ent of an Agent netw
ork and has already grow
n its agency network to >2
,00
0 w
ithin the
period. A
gency banking
allows
us to
further extend
our distribution network and offer banking and other value
added services to both banked and unbanked customers
across the country. We believe that this netw
ork will prove
particularly useful in the new w
orld of privatized electricity operations.
We
must
now
focus on
driving aw
areness in
the m
arketplace to
derive the
benefits of
efficiency expected from
the channel. This is also consistent with the
CB
N’s
goal of
financial inclusion
and serves
well
as a part of the MobileM
oney ecosystem.
Bu
siness perform
ance
We continue to gather m
omentum
in the business focusing on
the grow
th and
efficiency of
our balance
sheet. G
iven our existing investments and cost base, our focus
is on
achieving a
stronger top
line w
hile m
anaging our expenses appropriately.
Ou
tlook for 20
14
We plan to continue to grow
our business with focus on
acquiring more custom
ers across our chosen client segments
as the
importance
of scale
cannot be
over em
phasized in the grow
th phase that we are in. In addition, w
e will
maintain our focus on Custom
er Relationship M
anagement
and im
proving operational
efficiency through
effective channel m
anagement.
Finan
cial Perform
ance
20
13N
million
2012
N
million
Grow
th %
Total income
25
,35
123
,5288
Staff costs(13
,36
6)
(12,6
85)
5
Other operating expenses
(17,33
7)
(12,573)
38
Provision for risk assets(2
,34
4)
(3,56
6)
(34)
Tax provision1
,68
92
,286
(26)
Loss after tax6
,00
73
,01010
0
Deposits
197,8
98
164
,03121
Gross loans and advances
133
,55
010
5,0
5527
63
Overview
Capital
managem
entO
therinform
ationB
usiness review
62
Stanb
ic IBT
C A
nnual group financial statements for the year ended 3
1 D
ecember 2
01
3
Bu
siness review
Annual report and
financial statements
A very h
appy w
ork place b
ankin
g relationsh
ip
It w
as a
great opportunity
gone bad.
We
had a
series of com
plaints and very unhappy customers.
In a show of increasing confidence in our w
ork place banking proposition, Stanbic IB
TC re-launched the work place banking
offering in Nigerian B
ottling Company. W
e went in to m
eet w
ith the top executives; we listened to the issues and gave
a comm
itment to resolve all the issues w
ithin a timefram
e. W
e kept our promise and w
e wow
ed them.
This re-launch of the group scheme involved the regularization
of existing accounts and the acquisition of new em
ployees of N
igerian Bottling Com
pany through our salary domiciliation
and loan offering agreement platform
. We got their attention
and they came on-board.
To date, Nigerian B
ottling Company has grow
n to become one
of the key and strategic customers of the bank in the Personal
Banking space. The bank has been able to acquire about 6
0%
of the senior staff w
orkforce and we have recently gotten the
go ahead to bank their entire junior staff workforce – over
3,0
00
staff and we have started the acquisition of these
customers on to our books.
Our relationship w
ith the organisation and its employees has
grown trem
endously as exemplified in the recent transfer
of their
junior staff
loan schem
e to
us outrightly
from
a competitor.
“A very happy w
ork place banking relationship”N
igeria Bottling C
ompany (N
BC
)
Case Study
The benefits
of a
well-m
anaged w
ork place
banking proposition im
pacted positively on our CIB business. D
uring the year under review
, our share of the client’s Corporate banking business doubled from
8%
in the 2012
FY to 16%.
Our pension business also continued to w
itness imm
ense patronage from
Nigerian B
ottling Company, w
ith 60
% of
the entire workforce of N
BC using Stanbic IB
TC Pension M
anagers as
their Pension
Fund adm
inistrator as
new
employees continue to join.
“Your bank, Stanbic IBTC, is a brand that has com
e to stay in the N
igerian Bottling Com
pany because of its responsiveness, transparency and integrity”These are the w
ords of a senior Hum
an resource personnel as also echoed by other em
ployees.
65
Overview
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managem
entO
therinform
ationB
usiness review
64
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ic IBT
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nnual group financial statements for the year ended 3
1 D
ecember 2
01
3
Bu
siness review
Annual report and
financial statements
Descrip
tion of bu
siness
Our long term
comm
itment to support N
igerian entrepreneurs to grow
and succeed can be described with Erisco Foods
Limited, an indigenous food processing com
pany. Erisco has been banking w
ith Stanbic IBTC since A
ugust 20
08
when they
first opened an account with us and experienced our quality
service with our Toyin street branch in Lagos.
Erisco Foods
Limited
was
incorporated in
20
04
as
an indigenous m
anufacturer of food products in Nigeria. The
company began operations in 2
00
9, producing one brand of Tom
ato Paste in sachet called Nagiko. Soon after they
introduced another brand of tomato paste called R
ic-Giko.
They currently have over 10 SK
U’s including tw
o brands of tom
ato paste in sachet, along with other products like N
agiko Sugar, N
agiko Monosodium
glutamate, N
agiko Basm
ati Rice
in the market. Erisco Foods Ltd is currently expanding their
product lines by introducing new products to the m
arket.
Com
pan
y office and ou
tlets
The com
pany’s corporate
head office
as w
ell as
factory and w
arehouse are all located at Oregun, A
lausa Lagos.
The target market zones of its products include Lagos, O
ndo, O
yo, Kw
ara, Kano, Sokoto, K
aduna, Ogun and Enugu State.
The Com
pany’s intention
is to
establish w
arehouse and
offices in all the states of the federation in order to meet up
with the m
arket demand for their products w
hich is growing
astronomically. The Com
pany’s distribution channels involve the use of m
ajor distributors that buy directly from its factory.
These major distributors resell to sm
aller distributors who
then sell to the retailers that sell directly to the consumers.
Relation
ship w
ith Stanb
ic IBT
C
In May 2
010, the com
pany requested for working capital
finance which the bank evaluated and approved. The com
pany utilized the facility to stabilize its operations, and enhance its liquidity requirem
ents. The Bank w
as repaid within the tenor
of the loan.
In M
arch 2
013,
the com
pany approached
the bank
for grow
th finance and working capital due to the heavy capital
outlay involved in acquiring their warehouse, equipm
ent and m
achinery, and also to enable them increase their production
lines and introduce the canned tomato products to m
eet the latent dem
and in the market. This w
as granted by the bank and ensured the com
pany met up w
ith its 2013
objectives.
The managem
ent team of the com
pany led by Chief Eric
Um
eofia, has a strong passion for manufacturing and is focused
on steadily growing the business and increasing the com
pany’s m
arket share of Tomato paste in N
igeria. Accordingly to C
hief Eric U
meofia’s com
ments about the bank published in D
aily Sun Thursday, O
ctober 10, 2
013 “Stanbic IB
TC Bank saw
our vision and keyed into it’’, “Even w
hen some advised us
to import finished tom
ato paste from china for them
to grant us funds for trading rather than for m
anufacturing, we stuck
to our dream, due to our good intentions for our country”.
Bu
siness d
evelopm
ent an
d futu
re prosp
ects
The company plans to have com
pleted the installation of its tin tom
ato production line before the end of the first quarter in 2
014. This is expected to add a production capacity of 24
0,0
00
tins per day to its existing capacity of 230
,00
0
sachets per day. The expansion will also require the services
of new technicians, engineers, supervisors as w
ell as sales staff in addition to the 5
0 staff already em
ployed by the com
pany and
ultimately
result in
additional em
ployment
of at least 65 staff.
The client is present in other African countries, w
hich presents additional opportunity to assist its expansion w
ith Standard B
ank’s presence in Africa. In essence the B
ank has been able to support Erisco’s operations through liquidity m
anagement,
growth finance and international trade facilitation, three key
pillars of our strategy in supporting local entrepreneurs who
are able to create sustainable value for all stakeholders.
This story inspires us and demonstrates how
the right type of support from
a bank can create the platform for sustainable
business growth, and im
prove society through job creation and value addition.
Erisco Foods Lim
ited
Case Study
67
Overview
Capital
managem
entO
therinform
ationB
usiness review
66
Stanb
ic IBT
C A
nnual group financial statements for the year ended 3
1 D
ecember 2
01
3
Bu
siness review
Annual report and
financial statements
Corporate
and Investment
Banking
69
Overview
Capital
managem
entO
therinform
ationB
usiness review
68
Stanb
ic IBT
C A
nnual group financial statements for the year ended 3
1 D
ecember 2
01
3
Bu
siness review
Annual report and
financial statements
Corporate and Investm
ent Banking
The Corporate
and Investm
ent B
anking (C
IB) business
continues to
make
great strides
in N
igeria’s challenging
and com
plex econom
ic, capital
markets
and regulatory
environment in pursuit of its goal of being the clear leader
in corporate and investment banking in, and for, N
igeria. The diversified skills and expertise of the various units in C
IB – C
lient Coverage, Global M
arkets, Transactional Products and Services and Investm
ent Banking – and our linkages to the
international capabilities of Standard Bank G
roup, enables us to deliver to our clients a broad array of services at m
arket-leading levels of quality.
In 2013
, greater collaboration across units in CIB and w
ith the W
ealth and PBB businesses w
ithin Stanbic IBTC G
roup has helped to m
ake the CIB client proposition m
ore robust. O
ur CIB client revenue achieved record levels, up nearly
100
% from
the year before. Increasingly, we are utilizing
our breadth of capabilities more effectively to capitalize on
the opportunities we see in the m
arket. An exam
ple of the collaboration across functions is our retail foreign exchange business, w
hich drew on capabilities in G
lobal Markets, the
branch network, B
usiness Banking and the public sector, to
achieve year-on-year growth of 211%
.
The significant growth in our total client revenue reflects
in part our linkages to Standard Bank’s franchise. Standard
Bank G
roup’s sustainable competitive advantages are based
on our presence, knowledge and experience across A
frica, our capabilities in key strategic international capital m
arkets, and the heritage and extent of our expertise in natural resources. O
ur strategy is to be the full-service corporate and investm
ent bank in Nigeria that offers clients the best of local
capabilities and execution, on-the-ground presence in key A
frican markets, and access to international capital m
arkets to support A
frican transactions.
CIB
’s success in executing its strategy and our strong market
position is exemplified by the industry aw
ards received for our services and the transactions in w
hich we have been involved:
B
est Investment B
ank in Nigeria, EM
EA Finance B
anking A
ward, 2
013 (for the second year running)
B
est Bank in A
frica, Euromoney R
eal Estate Aw
ard, 2013
(for the second year running)
The M
ost Active D
ealing Mem
ber Firm (Stockbroking) -
The Nigerian Stock Exchange C
EO A
ward 2
013
B
est Custodian in Nigeria 2
013 by G
lobal Investor for the seventh year running
B
est Sub-Custodian in Nigeria, 2
013 - G
lobal Finance M
agazine at SIBO
S
B
est Foreign Exchange Provider in Nigeria, 2
013 - G
lobal Finance M
agazine at SIBO
S
M
&A
Deal of the Year, The B
anker awards (2
013): for Tiger B
rand’s acquisition of a 63 percent stake in N
igeria’s D
angote Flour Mills
Structured Finance D
eal of the Year, The Banker aw
ards (2
013) for the USD
150
million Skye B
ank Rem
ittances Future Flow
Securitisation in Nigeria.
Overview
of 20
13
Transactional P
roduct an
d Services (TP
S)
Transactional Product and Services (TPS) client offerings
include domestic and cross border paym
ents, trade finance, cash m
anagement and custodial services.
In 2013
, revenues from both cash m
anagement and trade rose
significantly compared to the prior year, driven in particular by
the market share gain in trade and favorable m
arket conditions w
ith lower interest rates.
With an im
proved payment platform
, TPS offered clients
customized
solutions w
hich provided
added value
in the
area of working capital liquidity and paym
ent terms. O
verall, transactional value and volum
es increased notably compared
to 2012. D
eposits grew by 8
%.
Departm
ental h
ighligh
t
Stanb
ic IBT
C N
omin
ees Nigeria Lim
ited
Stanbic IBTC B
ank PLC pioneered the custody business in N
igeria in 199
4 to serve foreign investors that are in need
of safekeeping and administration capabilities. Stanbic IB
TC B
ank PLC has since emerged as and rem
ained the biggest custodian in the N
igerian market.
We provide custodial services to both local and international
clients and investors, namely fund m
anagers, asset managers,
global custodians, international broker dealers, stockbrokers, retirem
ent benefit schemes and other institutional investors
wishing to invest in the N
igerian market.
Stanbic IBTC B
ank PLC is one of the six appointed custodians of m
oney market and fixed incom
e instruments by the C
BN
. In A
ugust 2012
, Stanbic IBTC B
ank PLC was also appointed
as one of the two agents to pioneer securities lending in
Nigeria, a significant testam
ent to our thought-leadership initiatives that are aim
ed at improving m
arket processes and the investing clim
ate.
71
Overview
Capital
managem
entO
therinform
ationB
usiness review
70
Stanb
ic IBT
C A
nnual group financial statements for the year ended 3
1 D
ecember 2
01
3
Bu
siness review
Annual report and
financial statements
Corporate and Investm
ent Banking (continued)
In interfacing
with
clients, w
e strive
to develop
a clear
understanding of their service requirements in order to deliver
a total client experience. Our w
ell trained and experienced operations and relationship team
s are supported with robust
infrastructure, which enables us to provide excellent and best-
in-class value proposition.
Our strong expertise, m
arket leadership and excellent client services have resulted in the grow
th of assets under custody (A
UC
) and transaction volumes w
hich have been trending upw
ard since early 2012.
Global M
arkets (GM
)
The Global M
arkets unit comprises sales and trading team
s w
ith varying specializations in equities, fixed income, foreign
exchange, money m
arkets and structuring of a wide range
of financial hedging solutions. The research team provides
analysis of markets, products and client activities.
Global M
arkets performed w
ell in 2013
, despite the volatile m
arket environment seen over the course of the year. In
our Foreign
exchange business,
trading volum
es reached
a record level in 2013
, and retail FX revenue increased significantly w
ith a wider reach to our retail custom
ers. Our
FX desk was ranked best Foreign Exchange Provider in N
igeria by G
lobal Finance.
In 2013
, we continued to be a m
arket leader in structured products by providing innovative solutions that delivered cost savings to a w
ider scope of customers.
Departm
ental h
ighligh
t
Stanb
ic IBT
C Sto
ckbrokers Lim
ited
Stanbic IBTC Stockbrokers Lim
ited (SISL) is the wholly-ow
ned subsidiary of Stanbic IB
TC Holdings PLC
. It is registered by the Securities and Exchange Com
mission as a broker-dealer and
was licensed on 24
June 1987.
We have consistently been N
igeria’s largest stockbroking firm
in terms of transaction value (2
00
6 to 2
013) with a m
arket share of approxim
ately 19%
as at 2013
year end.
SISL has continually demonstrated its expertise in executing
primary m
arket transactions by acting as stockbrokers to various
capital raisings.
We
also w
on the
Nigerian
Stock Exchange C
EO A
ward for the m
ost active dealing mem
ber firm
and InterContinental Finance Magazine’s aw
ard for the Stockbroker of the Year 2
013 in N
igeria.
The Debt M
anagement O
ffice re-appointed SISL for another year (2
014) as the only stockbroker to Federal Governm
ent
bonds. SISL was also the m
ost active stockbroking firm trading
retail bonds on the floor of The Nigerian Stock Exchange
(NSE) in 2
013 and w
e will continue to prom
ote retail bond trading on the N
SE.
As stockbrokers, w
e are always w
illing to place our experience and
expertise in
dealing securities
of public
companies
and bonds quoted on the NSE. W
e do not only execute transactions, w
e build relationships.
Investmen
t bankin
g (IB)
Investment
banking (IB
) continues
to receive
market–
wide acknow
ledgement of its leading position in N
igeria, as exem
plified by the awards w
e have received. Our investm
ent banking team
turned in strong performance in grow
ing fee incom
e. Year-on-year revenue growth w
as particularly strong in advisory, real estate, debt capital m
arkets, and mining,
energy and infrastructure.
Some notable transactions during the year included:
Sole Issuing house for La C
asera’s N3
billion Corporate B
ond Issue
Joint
financial advisor
to A
MCO
N’s
NG
N5.6
trn debt
restructuring in 2013
Sole advisor for D
anone’s acquisition of a 49%
stake in Fan M
ilk.
Sole advisor on the m
erger of Consolidated Brew
eries, DIL
Maltex, &
BB
L
A
dvisor on
the m
erger of
Intercontinental Properties
Limited and W
APIC Insurance Plc
B
uy side advisor to Southern Sun Africa on the acquisition
of a 75% equity stake in Ikoyi H
otels Limited
A
dvisory on UA
C of Nigeria PLC’s acquisition of Portland
Paints & Products N
igeria PLC
Initial Public O
ffering for the UPD
C REIT
Clien
t Coverage (C
C)
Coverage of
corporate clients
is provided
by the
Client
Coverage (C
C) team
which is organized into the follow
ing sectors:
Conglomerates
and D
iversified Industries,
Fast M
oving Consumer G
oods; Telecom and Com
modities; O
il &
Gas, Pow
er & Infrastructure; and Financial Institutions. C
lient R
evenue grew significantly across all sectors reflecting greater
relevance of our offerings to our clients’ needs.
20
13N
million
2012
N
million
Grow
th %
Total income
41,2
22
29,83
038
Staff costs(7,5
86
)(4
,791)58
Other operating expenses
(13,2
58
)(12
,473)6
Provision for risk assets(3
23
)(3
,329)(9
0)
Tax provision(1
,66
0)
(1,64
6)
(1)
Pro
fit after tax18
,39
47,591
>100
Deposits
218
,45
4191,38
814
Gross loans and advances
169
,75
6174
,418(3)
Financial P
erforman
ce
The key performance indicators are highlighted below
:
Strategic direction
G
enerating value for our clients underpins our strategy and differentiates our franchise. We w
ill continue to develop our client m
anagement capabilities and deliver a consistent C
IB client offering and experience which w
ill enable us to maxim
ise cross-selling opportunities and deliver optim
al financial resource utilisation.
Cost efficiency and im
proving our operational performance are the cornerstones of im
provements in our cost structure,
margins and capital ratios.
W
e will continue to help our clients grow
through increased lending to the resource, manufacturing, agriculture and service
sectors, and by raising debt and equity for our clients in the local and international capital markets.
73
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siness review
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Fan M
ilk is
the leading
manufacturer
and distributor
of frozen dairy products and juices in W
est Africa. Since its
establishment over 5
0 years ago, Fan M
ilk has grown rapidly
through a unique distribution network and currently operates
in Nigeria, G
hana, Togo, Burkina Faso, B
enin and Ivory Coast.
The Company generated sales of c. EU
R120
million in 2
012
and ow
ns strong
and deeply
entrenched brands
in the
countries in which it operates.
In 2013
, Stanbic IBTC C
apital Limited advised D
anone, one of the largest food product m
anufacturers in the world,
producing fresh
dairy, w
ater and
nutritional products
globally, on the acquisition of Fan Milk in partnership w
ith A
braaj, a leading emerging m
arket focused private equity group. The partnership w
ith Abraaj com
bined Danone’s deep
global resources across various functions, including route-to-m
arket, marketing functions and research and developm
ent capabilities
with
Abraaj’s
understanding of
the dom
estic environm
ents in which Fan M
ilk operates.
In 2012
, the shareholders of Fan Milk, assisted by advisers,
comm
enced a
process to
divest of
their interest in
the C
ompany via a com
petitive auction process that entailed several financial and trade buyers. Potential bidders w
ere attracted by Fan M
ilk’s strong brands, historical financial perform
ance, geographic diversification, unique distribution m
odel and strong governance.
Stanbic IBTC assisted D
anone in deepening its understanding of the m
arkets in which Fan M
ilk operates, conducting due diligence on the com
pany and outlining a compelling proposal
to Fan Milk’s shareholders. The com
petitive auction process culm
inated with D
anone and Abraaj partnering to acquire
Fan Milk.
Advising D
anone on the acquisition of Fan Milk represents
Stanbic IBTC’s com
mitm
ent to assisting global players on m
aking strategic investments aim
ed at benefiting from the
significant growth potential in A
frica.
“Bringing the world to A
frica” D
anone and Abraaj’s A
cquisition of Fan Milk
Case Study
75
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01
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siness review
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Our A
spiration, Our C
omm
itment…
“Pow
er and Infrastructure Story”
Stanbic IBTC’s com
mitm
ent to the power sector reform
which
will boost the econom
ic and social development of N
igeria is dem
onstrated by its focus on financing and advisory solutions offered
during the
privatisation of
the PH
CN
successor
generating companies (“G
encos”) and distribution companies
(“Discos”) in 2
013.
Stanbic IBTC and Standard B
ank Group (SB
G) supported V
igeo H
oldings in its acquisition of Benin D
isco and Copperbelt Energy Corporation PLC (C
EC) in the acquisition of A
buja D
isco and Shiroro Hydro G
enco.
The first stage of the bidding process comm
enced with each
consortium subm
itting a bid bond with its com
plete technical and com
mercial bid docum
ents. The technical bid was then
evaluated upon which successful consortium
s proceeded to the com
mercial bid stage and w
ere required to post a Post Q
ualification Security
before their
comm
ercial bids
were
opened. The successful consortium at the com
mercial bid
stage was declared the preferred bidder and required to post
a Preferred Bidders’ G
uarantee equivalent to 15% of the bid
price. The preferred bidder proceeded to negotiate industry and transaction docum
ents with B
PE and was required to pay
25% of the bid price upon execution of agreem
ents, while the
balance 75% w
as paid within 6
months thereafter.
In August 2
013, 15
consortia paid the required 75% final
payments
for their
respective assets
to com
plete the
acquisition process with U
SD3
billion accruing to the federal governm
ent from the divestm
ent. Subsequently on Novem
ber 01, 2
013, the 15
PHC
N successor com
panies were handed
over to new ow
ners declaring the emergence of the new
privatized electricity m
arket and making the N
igeria the first country on the A
frican continent to achieve this milestone.
Vigeo H
oldings Ltd
Vigeo
Holdings
evolved into
a conglom
erate holding
company
with
subsidiaries operating
in various
sectors including
financial services,
marketing
and distribution,
real estate managem
ent since its inception in 1985. V
igeo H
oldings’ business activities in the power sector are carried
out via Vigeo Pow
er Limited (“V
PL”) and Global U
tilities M
anagement C
ompany Lim
ited (“GU
MCO
”). GU
MCO
had gained experience of the N
igerian power sector since 2
002
, w
hen it participated in the Federal Governm
ent’s metering
billing and revenue managem
ent program.
Copperbelt E
nergy C
orporation PLC
(CE
C)
CEC is a m
arket leader in providing power to the m
ining industries on the Copperbelt and distributes around 5
0%
of Z
ambia’s pow
er. CEC is a 52
% subsidiary of Z
ambia Energy
Corporation Limited. C
EC submitted its bid via K
ann Utility
Limited (N
igerian incorporated vehicle, in which C
EC owns
a m
ajority stake)
for the
acquisition of
Abuja
Electricity D
istribution Plc.
Stanbic IBTC and SB
G provided all the bonds and guarantees
towards
the acquisition
bid culm
inating in
the preferred
bidders guarantee upon Kann U
tility being named w
inner of the bid process for A
buja Disco, and part financed paym
ents for the assets.
We are com
mitted to the pow
er sector reforms and are excited
about the prospects for the sector going forward. To that end,
Stanbic IBTC and SB
G sponsored tw
o investor forums in the
United States in Septem
ber 2013
, which enabled m
inisters of the Federal G
overnment to present the pow
er strategy to groups of U
S and international investors.
The bank will continue to support the m
arket as the new
owners
comm
ence investm
ents into
rehabilitation and
expansion of the sector towards the achievem
ent of the goal of 4
0,0
00
MW
s by the year 202
0. We w
ill also work w
ith other parties to support off-grid and clean energy solutions to expand the range and capacity of pow
er solutions in Nigeria.
Case Study
77
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siness review
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Wealth
79
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entO
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ationB
usiness review
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01
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siness review
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Wealth
What w
e offer
The Wealth division focuses prim
arily on pension administration
and managem
ent, private non-pension asset managem
ent as w
ell as trusteeship and estate planning business.
20
13 h
ighligh
ts
A
chieved record
assets under
managem
ent of N
1.32
trillion (USD
8.18
billion) to maintain position as the largest
institutional investment business and num
ber one wealth
manager in N
igeria with Stanbic IB
TC Pension Managers
crossing the N1
trillion mark in assets under m
anagement.
R
ecorded year on year net profit growth of 6
4%.
Im
proved cost efficiency by attaining a cost to income
ratio of
35%,
a 12
%
improvem
ent over
last year’s
ratio of 47%
.
R
ecorded an impressive return on equity of 57.3%
.
Launched the first m
obile office in the pension industry – “Pension on W
heels”.
Conducted successfully the first pre-retirem
ent seminar
to educate our “soon-to-be” retirees.
W
on our first State Bond m
andate as Lead Trustee.
Secured
approval from
the
Securities and
Exchange Com
mission on the Stanbic IBTC Im
an Fund bringing the total num
ber of Collective Investment Schem
es to seven (7).
A
warded
the B
est Investm
ent M
anager Com
pany in N
igeria in 2013
by World Finance.
Introduced
the online
self-service channels
for subscription,
redemption
and passw
ord auto-reset
processes for existing mutual fund unit-holders.
Investm
ent in the Stanbic IBTC N
igerian Equity Fund by the Securities and Exchange Com
mission on behalf of
winners of the 2
013 SEC Integrity A
ward.
Enhanced visibility and aw
areness of Stanbic IBTC Trustees
Limited w
ithin the industry.
20
14 priorities
A
ctive collaboration with B
anks that do not have associated Trustee Com
panies.
Launching of the Stanbic IB
TC Trustees Limited w
ebsite to create m
ore awareness/visibility.
Introduction of an online application process for pension paym
ents via secure web.
Extension of the pre-retirem
ent seminar for “soon-to-be”
retirees to other regions within the country.
Focus on service quality and greater accessibility to clients by building a culture of service and being custom
er centric.
Exploration
of online
registration as
an alternative
to capture
the internet
savvy subset
of prospective
Retirem
ent Savings Account (R
SA) holders.
C
reation of
an alternative
investment
desk and
the launching of our first Exchange Traded Fund.
Overview
The Wealth division is one of the arm
s of Stanbic IBTC H
oldings Plc. This division com
prises three companies:
Stanbic IB
TC Pension Managers Lim
ited (SIPML) for the
administration and m
anagement of pension assets,
Stanbic IB
TC Asset M
anagement Lim
ited (SIAM
L) for the m
anagement of non-pension assets and
Stanbic IB
TC Trustees Limited (SITL) for trusteeship and
estate managem
ent functions.
The Wealth group as at 31
Dec 2
013 had circa N
1.32 trillion
as assets under managem
ent (AU
M) and has rem
ained the leading w
ealth manager in N
igeria with SIPM
L consolidating its pre-em
inent position as the largest PFA in term
s of AU
M
and number of R
SAs, SIA
ML also m
aintained its position as
the largest
independent non-pension
assets m
anager m
easured by value of AU
M, num
ber and size of mutual funds
and number of custom
ers with SITL broadening our product
offering by catering to the needs of different strata of our clientele w
ith respect to estate managem
ent and trusteeship.
81
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siness review
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Wealth (continued)
Strategy
The wealth business m
odel is primarily focused on assisting our
clients in investing in a variety of eligible asset classes including fixed
income
and equities
markets
to effectively
deploy, accum
ulate and preserve wealth. H
owever, in doing this, w
e are com
mitted to ensuring security, liquidity and reasonable
returns over a medium
-long term investm
ent horizon.
Across
the W
ealth division
in 2
013,
we
maintained
our leadership position in the industry by further increasing our client base and assets under m
anagement as w
ell as introducing new
product offerings. For the pension business, we added
over 160
,00
0 clients closing the year w
ith 1.22 m
illion RSA
clients. A
ssets under managem
ent grew by 3
4% to close at
N1.16
trillion (USD
7.19 billion). The first ever m
obile pension office “Pension on W
heels” was launched during the year.
This initiative is in line with our com
mitm
ent to ensuring that all our clients experience excellent and convenient service at all tim
es.
The non-pension
asset m
anagement
business closed
its assets under m
anagement at N
159 billion (U
SD9
87 m
illion) recording a 27
% increase over the 2
012 closing figures.
During the year, SIA
ML m
aintained a subscriber base of about 35
,00
0 in its m
utual funds despite investors’ apathy and other m
acro-economic challenges. The Stanbic IB
TC Iman Fund w
as also launched in the course of the year creating an additional avenue for investors to diversify their portfolios.
The trusteeship and estate managem
ent business continued to thrive in the year and m
aintained its profitable position. We
focused on entering into the bond market by acquiring State
Bond m
andates in 2013. W
e were appointed as Lead Trustees
to the Nasaraw
a State Bond O
ffering which w
as a first for us.
Financial perform
ance
In 2013
, the Wealth G
roup continued to benefit from the
positive performance of the N
igerian capital market. The
impressive equities m
arket performance could be attributed
to factors such as the rub-off effect of the largely impressive
2012
year end results; impressive valuation of blue chip
consumer
names;
growing
investors’ confidence;
and significant increase in foreign inflow
into the market. Y
ields on fixed incom
e instruments w
ere lower than last year on
average due to a significant drop in headline inflation levels and relative price stability; they w
ere however still strong
enough to support positive return on our portfolios.
Despite the negative im
pact of the policy changes by the C
BN
during the year and increased competition from
peers, the W
ealth Group w
as able to surpass its set budgetary
Reven
ue by b
usin
ess un
it
20
13
Nm
illion2
012
Nm
illionG
rowth%
Net interest incom
e1
,94
81,6
84
16
Non-interest revenue
16,7
1212
,368
35
Total in
come
18,6
60
14,0
5233
Staff cost(2
,89
9)
(2,47
7)
17
Other operating cost
(3,5
02
)(4
,104)
(15)
Tax provision(3
,87
3)
(1,895
)>10
0
Pro
fit after tax8
,38
65
,5765
0
Assets under
managem
entN
1.32
trnN
991
bn33
Retirem
ent savings accounts
1,2
20
,77
71,0
54
,52516
Cost-to-income ratio
34
%47
%
SIPML
84
.34
%
SITL0
.77
%SIA
ML
14
.89
%
target, benefitting from favourable m
arket indices and well-
researched investment decisions. R
evenue grew by 33%
and net profit rose by an im
pressive 64%
over the 2012
figures, w
hile total assets under managem
ent increased by 33% to
close at N1.32
trillion (USD
8.18
billion). We w
ere able to leverage on the strength of our businesses and our prem
ier positioning
in the
industries to
sustain im
provement
in incom
e levels, while keeping operational expenses in check by
improving internal efficiencies.
Looking forw
ard
2014
has the potential to be another positive year for global equities, though not on the level w
itnessed in 2013. A
fter a year in w
hich multiple expansion has been the dom
inant factor,
we
expect that
financial m
arkets w
ill gradually
pay more attention to the underlying profitability of the
companies, given the gradual phasing out of the U
S Fed’s generous m
onetary policy. On the fixed incom
e side, 2014
is a pre-election year in N
igeria and is usually characterized by higher spending; Federal governm
ent spending increased by nearly 5
0%
YoY before the last election in 2011, enhanced
by supplementary budgets. W
e expect that there will be
supplementary budgets to support political spending in 2
014.
A couple of regulatory changes are expected to take-off
in 2
014,
including the
appointment
of a
new
Director-
General of the N
ational Pension Comm
ission, as well as other
Comm
issioners. The
much
awaited
multi-fund
structure on
the R
SA
Funds and
opening of
the transfer
window
in the Pension industry are also expected to take off during the year. W
hile we still expect to face challenges in investm
ent returns and fee generation, w
e intend to remain steadfast to
our core values and policies which w
ill guide our decisions throughout the course of the N
ew Year.
The R
SA
number
and size
will
be driven
by continually
exploring new
m
arkets and
aiming
for a
larger share
of existing m
arkets by taking advantage of the transfer window
w
hich we expect w
ill go live in 2014. W
e also intend to launch additional m
obile offices making our services m
ore accessible and convenient for our custom
ers. In addition, to capture the internet savvy subset of the m
arket, we intend to explore
online applications for pension payments as w
ell as online registration for prospective R
SA custom
ers.
To further make our services available and convenient to our
customers, w
e will enable new
subscriptions to the mutual
funds online thereby eliminating the need for physical hum
an interaction and/or docum
ent submission. W
e will also be
expanding our asset managem
ent business by introducing our first Exchange Traded Fund to enable investors obtain a broad exposure to the N
igerian Equities Market in a cost
efficient manner.
We intend to collaborate w
ith key Trust companies in the
industry to get on board state government bonds and other
related transactions. In addition, we w
ill go on an aggressive m
andate acquisition
drive by
partnering w
ith B
anks that
do not have associated Trust Companies.
83
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Abridged
sustainabilityreport
85
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Abridged sustainability report
Sustainability rem
ains a fun
damen
tal part of our bu
siness strategy
At Stanbic IB
TC, w
e understand that sustainable practices w
ithin a business can create value for customers, investors,
and all other key stakeholders. We believe that a sustainable
business m
ust m
eet custom
er needs
while,
at the
same
time, take care of the social needs of its host com
munity.
And because our m
ain objective as a business is to create value for our stakeholders, Sustainability w
ill always rem
ain a fundam
ental part of our business strategy.
We proactively em
bed sustainability thinking and sustainable business practices at every level of our business. W
e believe that our m
ost important contribution to sustainable developm
ent is to operate an effective and profitable bank. B
y providing access to credit, savings and other financial products, w
e enable individuals to im
prove their quality of life and enhance their financial security. B
y providing finance to large and small
businesses we facilitate econom
ic growth and job creation,
and by financing infrastructure and the development of key
sectors, we assist in resolving global challenges such as energy
and food scarcity, resource depletion and climate change.
The very nature of our business positions us to help our custom
ers and stakeholders manage social and environm
ental challenges and invest for the future, w
hich in turn contributes to the viability and sustainable grow
th of local markets and
national economies. The success of our custom
ers, clients and stakeholders guarantees future business, w
hich underpins our sustainability.
A journ
ey to sustainable social im
pact
What does Social Im
pact mean to our stakeholders? H
ow do
we deliver sustainable social value that w
ill resonate with
the yearnings of our key stakeholders? How
can we m
ake contribution that w
ill satisfy the needs of today and those of generations to com
e? These are questions that we ask
ourselves constantly as we strive to create a sustainable
business. Our strategies are constantly evolving and im
proving to
ensure that
the answ
ers to
these questions
remain
fresh and relevant. Our journey to creating a sustainable
business is deliberately never ending because we are m
ore interested in the lessons that w
e pick along the way than
the actual destination.
Corporate social investm
ent: B
usin
ess Needs
and Societal N
eeds
As
with
any strategic
endeavour, O
ur Corporate
Social Investm
ent activities are hinged on three thematic areas
(Health,
Education and
Economic
Empow
erment).
Socio econom
ic research has identified these thematic areas as
part of the current most pressing needs of our business
environment. Focus helps us align our investm
ents so that we
can make considerable im
pact in any of these thematic areas.
It has also helped us define framew
orks for engagement. W
e try to balance C
SI investments betw
een business interests and the needs of our host com
munity.
We w
ork in partnership with the com
munities in w
hich we
operate and prioritize comm
unities in which w
e want to do
business. We em
ploy a research-based approach to understand the deeper socio-econom
ic needs of these comm
unities by engaging w
ith government, other businesses and com
munity
organisations. Through merging business and C
SI goals, we
aim to create m
eaningful and lasting mutual benefit.
Creatin
g thrivin
g partn
ership
s
At Stanbic IB
TC, m
onitoring and evaluation of projects is a routine business practice. W
e ensure that every step in the project lifecycle is com
pleted and proper evaluation of project is carried out at the end of each project. This is part of the data that feeds the engine that drives our “continuous im
provement journey”.
We have a pre-defined fram
ework for engagem
ent. The fram
ework differs from
project to project and is reviewed
periodically. O
ur m
ajor C
SI objectives
are; supporting
strategic and credible projects that are aligned with business
objectives, deploying solutions that can be scaled, reaching a large pool of beneficiaries and being able to leverage business opportunities as they arise.
Category
Major so
cial partn
ers
EducationFederal U
niversity of Technology, Ado Ekiti
Zuru Comm
unity
Ekiti State Governm
ent (SUB
EB)U
NIB
EN
Depot N
igerian Arm
yM
inistry of Education (Kaduna)
Yaba College of TechnologyM
inistry of Education (Maiduguri)
Lagos Progressive SchoolM
usic Society of Nigeria
Junior Achievem
entM
inistry of Education (Yobe)
Federal Ministry of Finance (YO
UW
IN)
Enterprise Developm
entN
igerian Bar A
ssociation
South African Consulate
Health and W
ellnessFree optom
etry services with the O
gun State Governm
ent (Oriade LG
A)
Modupe Cole C
hild Care
Hyssop Foundation
International Wom
ens Organisation for C
harity
Employee Com
munity Involvem
entSchool Library Project by the Finance departm
ent
Breakd
own of C
SI Spen
d 20
13
Social partners in N
igeria 20
13
Education8
5%
Health
9%
Economic
empow
erment 7
%
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ic IBT
C A
nnual group financial statements for the year ended 3
1 D
ecember 2
01
3
Bu
siness review
Annual report and
financial statements
Enterprise risk review
Overview
The group’s strong enterprise risk managem
ent practice is the bedrock of its com
mitm
ent to continually enhance shareholders’ value in strict adherence to the risk appetite as set by the board w
hilst considering the wider interest of other stakeholders
amongst w
ho are depositors and regulators.
The tone for a responsive and accountable risk managem
ent culture is set at the board level and this flow
s down through
the organisation to each business manager and independent
risk officer.
R
isks are managed according to set risk governance standards,
which are im
plemented across the group and are supported
by appropriate risk policies and procedures. The bank and other subsidiaries w
ithin the group have each adopted the Enterprise
Risk
Managem
ent (ER
M)
framew
ork w
ith an
independent control process that provides an objective view
of risk taking activities across all business and risk types at both an individual and aggregated portfolio level.
The group seeks to achieve the right balance betw
een risk and rew
ard in its businesses, and limits adverse variations in
earnings by appropriately managing its capital w
ithin specified risk appetite levels.
Key achievem
ents in 20
13
Am
idst randomly unfolding new
regulatory guidelines and fram
eworks, the group w
as able to distinguish itself in the industry by the quality and robustness of its risk m
anagement
practices and tools. Some specific achievem
ents include:
Operational R
isk
B
usiness continuity
managem
ent sim
ulation for
crisis m
anagement and em
ergency evacuation teams; and
Consolidation of N
ew Product A
pproval process across the group.
Market R
isk
D
iversified Norm
al and Stress VaR reporting across all
trading desks with the im
plementation of H
istorical 10
day Stress VaR;
Partial
introduction of
automated
Market
Risk Report (M
RR);
U
pgrade of Trading/R
isk system from
Calypso version 9
to version 13;
Introduction of point of w
eakness scenarios;
Im
plementation of a m
arket-oriented FTP methodology
which has resulted in attracting the right am
ount of liability;
C
reation of an endowm
ent hedge portfolio for managing
the Interest Rate R
isk of Banking B
ook (IRR
BB); and
Q
uantitative R
isk M
anagement
(QR
M)
software
implem
entation to
replace IP
S Sendero
for A
LM
monitoring.
Compliance
R
oll out of the Anti M
oney Laundering (AM
L) / Countering
Financing of Terrorism (C
FT) com
puter based training for all em
ployees of the group;
Focus areas for 20
14
Against a backdrop of an expected increase in the level of
financial transactions on the electronic payment platform
with
the attendant rise in cyber fraud, the roll-out of Basel II and III
by the
CB
N,
and other
macroeconom
ic factors
like the
expected increase in Direct Foreign Investm
ents, a few of the
risk focus areas for 2014
are:
D
eployment of an Enterprise-w
ide fraud managem
ent solution;
D
eployment of a new
AM
L solution that would be used for
the detection, identification and reporting of suspicious transactions;
Enhancem
ent of
the group’s
IT disaster
recovery infrastructure;
Im
plementation of a local B
asel II/III fram
ework in line
with the C
BN
guidelines;
Full im
plementation of M
RR
for automated reporting and
limit m
onitoring across all market risk m
etrics;
D
evelopment of a m
ethodology to deal with stale trading
inventory;
Set-up of a M
iddle Office that w
ill oversee the operations of non-standard lending transaction; and
Set-up of the R
isk Oversight Com
mittee (R
OC
) that would
be responsible for the oversight in respect of all risk types and facilitate risk independence from
the business.
Risk m
anagement fram
ework
Approach and structure
The group’s approach to risk managem
ent is based on well
established governance processes that rely on both individual responsibility
and collective
oversight that
is supported
by a robust MIS. This approach balances strong corporate
oversight at senior managem
ent level with independent risk
managem
ent structures in the business. Business unit heads
are known as the first line of defense and are specifically
responsible for the managem
ent of risk within their business
using appropriate
risk m
anagement
framew
orks that
are adequate in design, effective in operation and that m
eet the required group m
inimum
standards.
An im
portant element that underpins the group’s approach to
the managem
ent of all risk is independence and appropriate segregation of responsibilities betw
een business and risk. Risk
officers report separately to the head of group risk who reports
to the chief executive officer of Stanbic IBTC and also through a
matrix reporting line to the Standard B
ank Group (SBG
).
All key risks are supported by the risk departm
ent.
Governan
ce structure
Stanbic IBTC
Holdings P
LC B
oardShareholders
Audit
Com
mittee
Risk M
anagement
Com
mittee
Executive C
omm
ittee
Career M
anagement
Com
mittee
New
Products
Com
mittee
Wealth
EXCO
Shared ServiceO
perations EXCO
IT Steering Comm
ittee(Program
me of W
orks)
Operational R
isk and Com
pliance Comm
ittee
Renum
eration C
omm
ittee (REM
CO)
Nom
inations C
omm
ittee
Board Comm
ittees
Statutory Comm
ittee
Managem
ent Comm
ittee
Governance structure
The risk
governance structure
provides the
board and
executive/senior m
anagement
through the
various com
mittees, w
ith the platforms to evaluate and debate key
risks faced by the group and assess the effectiveness of risk responses through the risk profiles received from
the chief risk officers across the group (please refer to the pictorial representation of the group risk governance structure below
).
The board comm
ittees comprise the statutory audit com
mittee,
board credit
comm
ittee and
board risk
managem
ent com
mittee, w
hile executive managem
ent oversight at the subsidiary and group levels are achieved through m
anagement
comm
ittees that focus on specific risks. Each of the board and m
anagement com
mittees is governed by m
andates that set out the expected com
mittee term
s of reference.
91
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usiness review
90
Stanb
ic IBT
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nnual group financial statements for the year ended 3
1 D
ecember 2
01
3
Bu
siness review
Annual report and
financial statements
The group has developed a set of risk governance standards for each m
ajor risk type i.e. credit, market and operational risks.
The standards
define the
acceptable conditions
for the
assumption
of the
major
risks and
ensure alignm
ent and
consistency in the manner in w
hich these risks are identified, m
easured, managed, controlled and reported, across the group.
All standards are applied consistently across the group and are
approved by the board. It is the responsibility of the business unit executive m
anagement to ensure that the requirem
ents of the risk governance standards, policies and procedures are im
plemented w
ithin the business units.
Each standard
is supported
by policies
and procedural
documents.
Risk appetite
Risk appetite is an expression of the m
aximum
level of residual risk that the group is prepared to accept in order to deliver its business objectives. It is the balance of return and risk as the group im
plements business plans, w
hilst recognising a range of possible outcom
es.
Risk appetite is expressed by balancing:
budgetary provisions for expected losses that are consistent
w
ith the risk appetite implied by the business plans;
an agreed tolerance for profit and loss volatility;
the
risk adjusted
returns generated
from
risk-taking
activities; and
the
absolute constraints
on financial
resources under
stressed conditions.
The board establishes the group’s parameters for risk appetite by:
providing strategic leadership and guidance;
review
ing and approving annual budgets and forecasts for
the group and each subsidiary; and
regularly
reviewing
and m
onitoring the
group’s
performance in relation to set risk appetite.
Stress testing
Stress testing serves as a diagnostic and forward looking tool
to improve the group’s understanding of its credit; m
arket and operational risks profile under event based scenarios.
Managem
ent reviews the outcom
e of stress tests and selects appropriate m
itigating actions to minim
ise and manage the
impact of the risks to the group.
Residual risk is then evaluated against the risk appetite.
Risk categories
The group’s
enterprise risk
managem
ent fram
ework
is designed to govern, identify, m
easure, manage, control and
report on the principal risks to which the group is exposed.
The principal risks are defined as follows:
Credit risk
Credit risk arises prim
arily in the group operations where an
obligor/counterparty fails
to perform
in
accordance w
ith agreed term
s or where the counterparty’s ability to m
eet such contractual obligation is im
paired.
Credit
risk com
prises counterparty
risk, settlem
ent risk,
country risk and concentration risk.
Counterparty risk
Counterparty risk is the risk of loss to the group as a result of failure
by a
counterparty to
meet
its financial
and/or contractual obligations to the group. It has three com
ponents:
i. primary credit risk w
hich is the exposure at default (EA
D)
arising from lending and related banking product activities,
including their underwriting;
ii. pre-settlement credit risk w
hich is the EA
D arising from
unsettled forw
ard and derivative transactions, arising from
the default
of the
counterparty to
the transaction
and m
easured as the cost of replacing the transaction at current m
arket rates; and
iii. issuer risk which is the E
AD
arising from traded credit and
equity products, and including their underwriting.
Settlement risk
Settlement
risk is
the risk
of loss
to the
group from
a
transaction settlement, w
here value is exchanged, failing such that the counter value is not received in w
hole or part.
Country and cross border risk
Country and
cross border
risk is
the risk
of loss
arising from
political
or econom
ical conditions
or events
in a
particular country which reduce the ability of counterparties
in that
particular country
to fulfill
their obligations
to the group.
Cross border risks is the risk of restriction on the transfer and
convertibility of local currency funds, into foreign currency funds thereby lim
iting payment by offshore counterparties to
the group.
Enterprise risk review
(continued)
Concentration risk
Concentration risk refers to any single exposure or group of exposures large enough to cause credit losses w
hich threaten the group’s capital adequacy or ability to m
aintain its core operations. It is the risk that com
mon factors w
ithin a risk type or across risk types cause credit losses or an event occurs w
ithin a risk type which results to credit losses.
Market risk
Market risk is defined as the risk of a change in the actual
or effective market value or earnings of a portfolio of
financial instruments caused by adverse m
oves in market
variables such
as equity,
bond and
comm
odity prices,
foreign exchange
rates, interest
rates, credit
spreads, recovery rates, correlations and im
plied volatilities in the m
arket variables. Market risk covers both the im
pact of these risk factors on the m
arket value of traded instruments
as well as the im
pact on the group’s net interest margin as
a consequence of interest rate risk on banking book assets and liabilities.
Liquidity risk
Liquidity risk is defined as the risk that the group, although balance-sheet solvent, cannot m
aintain or generate sufficient cash resources to m
eet its payment obligations in full as they
fall due (as a result of funding liquidity risk), or can only do so at m
aterially disadvantageous terms (as a result of m
arket liquidity risk).
Funding liquidity risk refers to the risk that the counterparties, w
ho provide the group with funding, w
ill withdraw
or not roll-over that funding.
Market
liquidity risk
refers to
the risk
of a
generalised disruption in asset m
arkets that makes norm
al liquid assets illiquid and the potential loss through the forced-sale of assets resulting in proceeds being below
their fair market value.
Operational risk
Operational risk is defined as the risk of loss resulting from
inadequate or failed processes, people and system
s (including inform
ation technology and infrastructure) or from external
events.
The definition of operational risk also includes:
inform
ation risk – the risk of unauthorised use, modification
or disclosure of inform
ation resources;
fraud risk – the risk of losses resulting from
fraudulent
activities;
environm
ental risk – the risk of inadvertently participating
in the destruction of the environment;
legal risk – the risk that the group w
ill be exposed to
litigation;
taxation risk – the risk that the group w
ill incur a financial
loss due to incorrect interpretation and application of
taxation legislation or due to the impact of new
taxation
legislation on existing business;
com
pliance risk – the risk that the group does not comply
w
ith applicable
laws
and regulations
or supervisory
requirem
ents.
Business risk
Business risk is the risk of loss due to adverse local and global
operating conditions such as decrease in demand, increased
competition,
increased cost,
or by
entity specific
causes such as inefficient cost structures, poor choice of strategy, reputation dam
age or the decision to absorb costs or losses to preserve reputation.
Credit risk
Principal credit standard and policies
The Standard Bank G
roup’s Credit R
isk Governance Standard,
as reviewed regularly, sets out the broad overall principles
to be applied in credit risk decisions and sets out the overall fram
ework
for the
consistent and
unified governance,
identification, measurem
ent, managem
ent and reporting of credit risk in the group.
The Corporate and Investment B
anking (CIB) and the Personal
and B
usiness B
anking (PB
B) G
lobal C
redit Policies
have been designed to expand the G
roup Credit R
isk Governance
Standard requirem
ents by
embodying
the core
principles for identifying, m
easuring, approving, and managing credit
risk. These
policies provide
a com
prehensive fram
ework
within w
hich all credit risk emanating from
the operations of the bank are legally executed, properly m
onitored and controlled in order to m
inimize the risk of financial loss; and
assure consistency of approach in the treatment of regulatory
compliance requirem
ents.
In addition to the Credit R
isk Governance Standard, C
IB and PB
B Global C
redit Policies, a number of related credit policies
and documents have been developed, w
ith contents that are relevant to the full im
plementation and understanding of the
credit policies.
Risk governance standards, policies and procedure
93
Overview
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usiness review
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ic IBT
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nnual group financial statements for the year ended 3
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01
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Bu
siness review
Annual report and
financial statements
Methodology for risk rating
Internal counterparty ratings and default estimates that are
updated and enhanced from tim
e-to-time play an essential role in
the credit risk managem
ent and decision-making process, credit
approvals, internal capital allocation, and corporate governance functions. Ratings are used for the follow
ing purposes:
C
redit assessment and evaluation
C
redit monitoring
C
redit approval and delegated authority
Econom
ic capital calculation, portfolio and managem
ent
reporting
R
egulatory capital calculation
R
AR
OR
C (Risk-A
djusted Return on R
egulatory Capital)
calculation
Pricing: PD
s, EA
Ds, and LG
Ds m
ay be used to assess and
compare relative pricing of assets/facilities, in conjunction
w
ith strategic,
relationship, m
arket practice
and
competitive factors
The starting point of all credit risk assessment and evaluation
lies in the counterparty risk grading, which is quantified and
calculated in compliance w
ith the group’s credit rating policy and using such B
asel-2 com
pliant models as are in current use
and which are updated or enhanced from
time to tim
e.
Credit risk quantification for any exposure or portfolio is
summ
arised by the calculation of the expected loss (EL), w
hich is arrived at in the following w
ay:
based on the risk grading foundation w
hich yields the
counterparty’s probability of default (PD), the nature and
quantum
of the credit facilities are considered;
a
forward-looking
quantification of
the exposure
at
default (EA
D) is determ
ined in accordance with group
standard guidelines;
risk
mitigants
such as
security and
asset recovery
propensities are then quantified to m
oderate exposure at
default to yield the loss given default (LGD
); and
finally, the EL is a function of the PD
, the LGD
and the EAD
.
These parameters are in turn used in quantifying the required
regulatory capital reserving, using the Regulatory C
apital C
alculator developed, maintained and updated in term
s of B
asel 2, and the econom
ic capital implications through the use
of Credit Portfolio M
anagement’s (C
PM’s) Econom
ic Capital
tools. Furthermore, bearing in m
ind the quantum of the facility
and the risk/reward thereof, an appropriate consideration
of Basel 2
capital requirements (w
here applicable) and the revenue and return im
plications of the credit proposal.
Framew
ork and governance
Credit risk rem
ains a key component of financial risks faced by
any bank given the very nature of its business. The importance
of credit risk managem
ent cannot be over emphasised as
consequences can
be severe
when
neglected. The
bank has established sound governance principles to ensure that credit risk is m
anaged effectively within a com
prehensive risk m
anagement and control fram
ework.
In reaching credit decisions and taking credit risk, both the credit and business functions m
ust consistently and responsibly balance risk and return, as return is not the sole prerogative of business neither is credit risk the sole prerogative of credit. C
redit (and the other risk functions, as applicable) and business m
ust work in partnership to understand the risk and apply
appropriate risk pricing, with the overall aim
of optimising the
bank’s risk adjusted performance.
The reporting lines, responsibilities and authority for managing
credit risk
in the
bank are
very clear
and independent.
How
ever, ultimate responsibility for credit risk rests w
ith the board and w
hich has delegated this to the following organs:
Board credit com
mittee
The purpose of the board credit comm
ittee is to ensure that effective credit governance is in place in order to provide for the adequate m
anagement, m
easurement, m
onitoring and control of credit risk including country risk. In addition to its pre-existing role, the com
mittee has also been vested w
ith the follow
ing responsibilities as may be set by the board:
setting overall risk appetite;
review
ing and approving credit facilities that are within
m
onetary amounts as approved by the board;
ensuring
comm
ittees w
ithin the
structure operate
according to defined m
andates and delegated authorities;
m
aintaining overall accountability and authority for the
adequacy and appropriateness of all aspects of the group
credit risk managem
ent process;
utilising appropriate tools to m
easure, monitor and control
credit risk in line w
ith the SBG
policies whilst taking into
account local circum
stances;
Enterprise risk review
(continued)
recom
mending the group’s credit policies and guidelines
for board approval; and
any other m
atters relating to credit as may be delegated
to the com
mittee by the board.
Credit com
mittee
The credit
comm
ittee (CC
) is
the senior
managem
ent credit decision-m
aking function of the bank with a defined
delegated authority (DA
) as determined by the board through
the board credit comm
ittee from tim
e to time.
The credit
comm
ittee exercises
responsibility for
the independent assessm
ent, approval, review and m
onitoring of all credit risk assets relating to the bank’s business, w
hile ensuring that the origination and m
anagement of the assets
comply w
ith the principles documented in the credit risk
governance standard.
In addition to the above, the CC ensures that the credit portfolio is m
aintained within the risk appetite set by the
board credit comm
ittee.
Credit risk m
anagement com
mittee
The credit
risk m
anagement
comm
ittee (C
RM
C)
is the
senior managem
ent credit oversight function with a defined
oversight role as determined by the board through the board
credit comm
ittee from tim
e to time.
The CR
MC effectively enhances credit discipline w
ithin the bank and is responsible for controlling, inter alia, delegated authorities, concentration risk, distressed debt and regulatory issues
pertaining to
credit, credit
audits, policy
and governance.
In addition to the above, the CR
MC provides oversight of
governance; recomm
ends to the board credit comm
ittee the level of the bank’s risk appetite; m
onitors model perform
ance, developm
ent and
validation; determ
ine counterparty
and portfolio risk lim
its and approval, country, industry, market,
product, customer segm
ent and maturity concentration risk,
risk mitigation; ,m
pairments and risk usage.
Heads of C
IB and P
BB
credit
The heads of CIB credit and PB
B credit ensure granularity and function-specific details at the business unit levels. They have functional responsibility for credit risk m
anagement across
the group and are positioned at sufficiently senior levels in order to ensure the necessary experience and independence of judgm
ent.
They are
responsible for
providing an
independent and
objective check on credit risk taking activities to safeguard the integrity of the entire credit risk process.
Credit risk m
itigation
Credit risk m
itigation is defined as all methods of reducing
credit expected
loss w
hether by
means
of reduction
of E
AD
(e.g. netting), risk transfer (e.g. guarantees) or risk transform
ation.
Guarantees,
collateral and
the transaction
structures are
used by the group to mitigate credit risks both identified
and inherent though the amount and type of credit risk is
determined on a case by case basis. The group’s credit policy
and guidelines are used in a consistent manner w
hile security is valued appropriately and review
ed regularly for enforceability and to m
eet changing business needs.
The credit risk mitigation policy establishes and defines the
principles of
risk transfer,
transformation
and reduction.
Processes and
procedures for
accepting, verifying,
maintaining, and releasing collateral are w
ell documented
in order to ensure appropriate application of the collateral m
anagement techniques.
Credit delegated authority
In terms of specific delegated authority (D
A) levels approved
(and updated from tim
e to time) by the board upon advise,
authority for approval of any credit facilities accorded to counterparties
is vested
in individuals,
and/or groups
of individuals acting in concert, and/or credit com
mittees.
Such DA
levels are quantified according to counterparty risk grade. Individuals m
ay be accorded DA
levels on the authority of the parties specifically m
andated to do so in terms of the
credit governance framew
ork.
95
Overview
Capital
managem
entO
therinform
ationB
usiness review
94
Stanb
ic IBT
C A
nnual group financial statements for the year ended 3
1 D
ecember 2
01
3
Bu
siness review
Annual report and
financial statements
Enterprise risk review
(continued)
Group’s rating
Global and A
frica Credit
Com
mittee /
Board C
redit C
omm
ittee
Managem
ent Credit
Com
mittee
Country C
redit Head /
H
ead of CIB
Credit
Maxim
um approval lim
it (N’m
)
Corporate and investm
ent banking
SB0
1 – SB
10
Up to legal lending lim
itU
p to Legal Lending Limit
Up to Legal Lending Lim
it
SB1
1 – SB
12
Up to legal lending lim
itU
p to Legal Lending Limit
11
,20
0
SB1
3U
p to legal lending limit
Up to Legal Lending Lim
it8
,00
0
SB1
4 – SB
15
Up to legal lending lim
itU
p to Legal Lending Limit
4,8
00
SB1
6 – SB
18
Up to legal lending lim
it1
2,8
00
4,0
00
SB1
9 – SB
20
Up to legal lending lim
it6
,40
01
,60
0
SB2
1U
p to legal lending limit
4,8
00
1,6
00
SB2
2 – SB
23
Up to legal lending lim
it4
,80
08
00
SB2
4 – SB
25
Up to legal lending lim
it4
,80
06
00
Personal and business banking
SB0
1 – SB
25
Up to legal lending lim
it2
,40
01
,20
0
The global credit comm
ittee approves based on the mandate
given to them by the board credit com
mittee. A
ll approvals are sanctioned by the board credit com
mittee. The board credit
comm
ittee approves all insider-related credit irrespective of the am
ount.
C
redit risk measurem
ent
A
key elem
ent in
the m
easurement
of credit
risk is
the assignm
ent of credit ratings, which are used to determ
ine expected
defaults across
asset portfolios
and risk
bands. The risk ratings attributed to counterparties are based on a com
bination of factors which cover business and financial risks:
The group uses the PD M
aster Scale rating concept with a
single scale to measure the credit riskiness of all counterparty
types. The grading system is a 25
-point scale, with three
additional default grades.
Group’s rating
Grade
descriptionE
xternal rating
SB01
– SB12
/SB1
3Investm
ent grades A
AA
to BBB-
SB13
– SB25
Speculative grades BB- to CCC
IFRS 7: - Finan
cial Instum
ent D
isclosure
The tables that follow analyse the credit quality of loans and
advances measured in term
s of IFRS.
M
aximum
exposure to credit risk
Loans and advances are analysed and categorised based on credit quality using the follow
ing definitions.
Perform
ing loans
Neither past due nor specifically im
paired loans are loans that are current and fully com
pliant with all contractual term
s and conditions.
Early arrears but not specifically im
paired loans include those loans w
here the counterparty has failed to make contractual
payments and paym
ents are less than 90
days past due, but it is expected that the full carrying value w
ill be recovered when
considering future cash flows, including collateral. U
ltimate
loss is not expected but could occur if the adverse conditions persist.
Non-perform
ing loans
Non-perform
ing loans are those loans for which:
the group has identified objective evidence of default,
such as a breach of a m
aterial loan covenant or condition;
or
instalm
ents are due and unpaid for 90
days or more.
Non
-perform
ing b
ut n
ot sp
ecifically imp
aired loans are
not specifically impaired due to the expected recoverability
of the full carrying value when considering future cash flow
s, including collateral.
Loans
Perform
ing loansN
on-performing loans
SubstandardCurrent
Doubtful
Close m
onitoringLoss
Neither past due nor
specifically im
paired loans
Non-perform
ing but not
specifically im
paired loans
Early arrears but not
specifically im
paired loans
Specifically im
paired loans
Loans stru
cture
Portfolio credit impairm
ents
Specific credit impairm
ents
Non
-perform
ing sp
ecifically imp
aired loans are those
loans that are regarded as non-performing and for w
hich there has been a m
easurable decrease in estimated future
cash flows. Specifically im
paired loans are further analysed into the follow
ing categories:
Substandard item
s that
show
underlying w
ell-defined
weaknesses
and are
considered to
be specifically
im
paired;
D
oubtful items that are not yet considered final losses due
to som
e pending factors that may strengthen the quality
of the item
s; and
Loss items that are considered to be uncollectible in w
hole
or in part. The group provides fully for its anticipated loss,
after taking collateral into account.
97
Overview
Capital
managem
entO
therinform
ationB
usiness review
96
Stanb
ic IBT
C A
nnual group financial statements for the year ended 3
1 D
ecember 2
01
3
Bu
siness review
Annual report and
financial statements
Enterprise risk review
(continued)
Maxim
um exposure to credit risk by credit quality
1
Includes loans of N0
m that are past due but are not specifically im
paired.
Additional disclosures on loans and advances is set out in note 1
1.
Decem
ber 20
13
Perform
ing loansN
on-performing loans
Neither past due nor
specifically impaired
Not specifically
impaired
Specifically impaired loans
Total loans and A
dvances to Custom
ers N
million
Balance sheet im
pairments
for perform
ing loans
Nm
illion
Norm
al m
onitoring N
million
Close m
onitoring N
million
Early arrears
Nm
illion
Non-
performing
1
Nm
illion
Sub-standardN
million
DoubtfulN
million
LossN
million
Total N
million
Securities and
expected recoveries
on specifically
impaired loans
Nm
illion
Net after
securities and
expected recoveries
on specifically
impaired loans
Nm
illion
Balance sheet im
pairments
for non-perform
ing specifically
impaired loans
Nm
illion
Gross
specific im
pairment
coverage %
Total non-perform
ing loans
Nm
illion
Non-
performing
loans%
Personal and B
usiness B
anking 1
33
,55
0
1,7
29
8
7,0
00
6
,85
2
29
,70
3
- 3
,73
0
3,0
27
3
,23
8
9,9
95
3
,11
6
6,8
79
6
,87
9
69
9
,99
5
7.5
Mortgage loans
8,6
67
6
8
6,7
09
-
1,5
39
-
86
6
0
27
2
41
8
11
1
30
7
30
7
73
4
18
4
.8
Instalment sale and finance leases
18
,08
4
44
7
7,4
46
2
24
6 6
,19
8
- 5
45
1
,38
3
26
7
2,1
95
8
39
1
,35
6
1,3
56
6
2
2,1
95
1
2.1
Card debtors 8
50
3
5
87
-
18
6
- 2
1
55
-
76
7
6
9
69
9
1
76
8
.9
Other loans and advances
10
5,9
49
1
,21
1
72
,25
8
46
06
21
,78
0
- 3
,07
8
1,5
29
2
,69
9
7,3
06
2
,15
9
5,1
47
5
,14
7
70
7
,30
6
6.9
Corporate and Investment B
anking 1
69
,75
6
2,8
58
1
50
,56
3
15
,78
1
- -
1,0
51
2
93
2
,06
8
3,4
12
1
,31
8
2,0
94
2
,09
4
61
3
,41
2
2.0
Corporate loans 1
69
,75
6
2,8
58
1
50
,56
3
15
,78
1
- -
1,0
51
2
93
2
,06
8
3,4
12
1
,31
8
2,0
94
2
,09
4
61
3
,41
2
2.0
Gross loans and advances
30
3,3
06
4
,58
7
23
7,5
63
2
2,6
33
2
9,7
03
-
4,7
81
3
,32
0
5,3
06
1
3,4
07
4
,43
4
8,9
73
8
,97
3
67
1
3,4
07
4
.4
Less:
Impairm
ent for loans and advances
(13
,55
9)
Net loans and advances
28
9,7
47
Exposures:
Cash and cash equivalents 1
20
,31
2
Derivatives
1,5
26
Financial investments
13
9,3
04
Loans and advances to banks 9
4,1
80
Trading assets 4
0,7
11
Pledged assets 2
4,7
33
Other financial assets
10
,34
6
Total on-balance sheet exposure
72
0,8
59
Unrecognised financial assets:
Letters of credit 2
0,8
36
Guarantees
23
,77
9
Total exposure to credit risk 765,474
99
Overview
Capital
managem
entO
therinform
ationB
usiness review
98
Stanb
ic IBT
C A
nnual group financial statements for the year ended 3
1 D
ecember 2
01
3
Bu
siness review
Annual report and
financial statements
Enterprise risk review
(continued)
Maxim
um exposure to credit risk by credit quality
1
Includes loans of N0
m that are past due but are not specifically im
paired.
Additional disclosures on loans and advances is set out in note 1
1.
Decem
ber 20
12
Performing loans
Non-perform
ing loans
Neither past due nor
specifically impaired
Not specifically im
pairedSpecifically im
paired loans
Total loans and Advances to Custom
ers Nm
illion
Balance sheet im
pairments
for performing
loans Nm
illion
Norm
al m
onitoring Nm
illion
Close m
onitoring Nm
illion
Early arrears
Nmillion
Non-
performing
1
Nmillion
Sub-standardNm
illionD
oubtfulNm
illionLoss
Nmillion
Total Nm
illion
Securities and
expected recoveries
on specifically
impaired loans
Nmillion
Net after
securities and expected
recoveries on specifically
impaired loans
Nmillion
Balance sheet im
pairments
for non-perform
ing specifically
impaired loans
Nmillion
Gross specific im
pairment
coverage %
Total non-perform
ing loans
Nmillion
Non-
performing
loans%
Personal and B
usiness Banking
10
5,0
55
1
,98
3
75
,21
6
- 2
1,1
73
-
3,3
66
2,3
33
2,9
66
8
,66
5
3,1
04
5
,56
1
5,5
61
6
4
8,6
65
8
.2
Mortgage loans
10
,57
1
19
0
6,6
69
-
2,8
51
-
28
8
37
4
38
9
1,0
51
3
21
7
32
7
32
7
0
1,0
51
1
0.0
Instalment sale and finance leases
17
,08
0
61
8
11
,82
3
- 4
,12
8
- 5
6
36
8
70
5
1,1
29
3
50
7
78
7
78
6
9
1,1
29
6.6
Card debtors 4
94
1
8
42
3
- 4
4
- 1
0
- 1
7
27
1
2
6
26
9
7
27
5
.5
Overdrafts
13
,03
7
11
0
11
,88
6
- 5
32
-
18
3
1
43
5
61
9
10
8
51
1
51
1
83
6
19
4
.8
Unsecured Personal Loans
34
,15
4
27
3
25
,24
4
- 7
,83
6
- 3
53
2
97
4
24
1
,07
4
18
4
88
9
88
9
83
1
,07
4
3.1
Business Term Loans
29
,71
9
77
4
19
,17
1
- 5
,78
2
- 2
,47
6
1,2
93
9
96
4
,76
5
2,1
40
2
,62
5
2,6
25
5
5
4,7
65
1
6.0
Corporate and Investment B
anking 1
74
,41
8
1,8
59
1
68
,74
4
- -
- 1
76
3
,09
8
2,4
01
5
,67
5
1,9
48
3
,72
6
3,7
26
6
6
5,6
75
3
.3
Corporate loans 1
74
,41
8
1,8
59
1
68
,74
4
- -
- 1
76
3
,09
8
2,4
01
5
,67
5
1,9
48
3
,72
6
3,7
26
6
6
5,6
75
3
.3
Central and Other
- -
--
- -
- -
- -
- -
- -
- -
Gross loans and advances
27
9,4
73
3
,84
2
24
3,9
60
-
21
,17
3
- 3
,54
2
5,4
31
5
,36
7
14
,34
0
5,0
52
9
,28
7
9,2
87
6
5
14
,34
0
5.1
Less:
Impairm
ent for loans and advances
(13
,12
9)
Net loans and advances
26
6,3
44
Add the follow
ing other banking activities exposures:
Cash and cash equivalents1
06
,68
0
Derivatives
1,7
09
Financial investments
85
,75
7
Loans and advances to banks2
4,5
71
Trading assets 1
14
,87
7
Pledged assets 2
4,4
40
Other financial assets
13
,34
0
Total on-balance sheet exposure 6
37
,71
8
Unrecognised financial assets:
Letters of credit 1
9,1
45
Guarantees
25
,67
2
Total exposure to credit risk 682,535
10
1
Overview
Capital
managem
entO
therinform
ationB
usiness review
10
0Stan
bic IB
TC
Annual group financial statem
ents for the year ended 31
Decem
ber 20
13
Bu
siness review
Annual report and
financial statements
Enterprise risk review
(continued)
Ren
egotiated loans an
d advan
ces
Renegotiated loans and advances are exposures which have
been refinanced, rescheduled, rolled over or otherwise m
odified due to w
eaknesses in the counterparty’s financial position, and w
here it has been judged that normal repaym
ent will likely
continue after the restructure. Renegotiated loans that would
otherwise be past due or im
paired comprised N
1.8
71
billion as at 3
1 D
ecember 2
01
3 (D
ec 20
12
: N2
.86
9 billion).
C
ollateral
The table that follows show
s the financial effect that collateral has on the group’s m
aximum
exposure to credit risk. The table is presented according to Basel II asset categories and includes collateral that m
ay not be eligible for recognition under Basel II but
that m
anagement
takes into
consideration in
the m
anagement of the group’s exposures to credit risk. A
ll on- and off-balance sheet exposures w
hich are exposed to credit risk, including non-perform
ing assets, have been included.
Collateral includes:
financial securities that have a tradable m
arket, such as
shares and other securities;
physical item
s, such as property, plant and equipment; and
financial guarantees, suretyships and intangible assets.
All exposures are presented before the effect of any im
pairment
provisions.
In the
retail portfolio,
58
%
(Dec
20
12
: 3
9%
) is
fully collateralised.
Of
the group’s
total exposure,
69
%
(Dec
20
12
: 74
%) is unsecured and m
ainly reflects exposures to w
ell-rated corporate counterparties, bank counterparties and sovereign entities.
Less than3
1 days
Nm
illion
31
-60
daysN
million
61
-90
daysN
million
91
-18
0days
Nm
illion
More than
18
0 days
Nm
illionTotal
Nm
illion
Decem
ber 20
13
Personal and Business Banking 2
5,2
56
3
,16
4
1,2
83
-
- 2
9,7
03
Mortgage loans
1,1
09
2
85
1
46
-
- 1
,54
0
Instalment sales and finance lease
4,6
54
1
,26
7
27
6
- -
6,1
97
Card debtors 1
28
3
6
22
-
- 1
86
Other loans and advances
19
,36
5
1,5
76
8
39
-
- 2
1,7
80
Corporate and Investment Banking
--
--
--
Corporate loans-
--
- -
-
Total 2
5,2
56
3
,16
4
1,2
83
-
- 2
9,7
03
Decem
ber 20
12
Personal and Business Banking 1
4,8
23
4
,85
7
1,4
93
-
- 2
1,1
73
Mortgage loans
1,8
64
7
43
2
43
-
- 2
,85
0
Instalment sales and finance lease
2,4
10
1
,48
5
23
3
- -
4,1
28
Card debtors -
31
1
3
- -
44
Other loans and advances
10
,54
9
2,5
98
1
,00
4
- -
14
,15
1
Corporate and Investment Banking
- -
- -
- -
Corporate loans -
- -
- -
-
Total 1
4,8
23
4
,85
7
1,4
93
-
- 2
1,1
73
Ageing of loans and advances past due but not specifically im
pairedTotal collateral coverage
Note
TotalexposureN
million
UnsecuredN
million
SecuredN
million
Netting
agreements
Nm
illion
Securedexposure
afternettingN
million
1%
-50
%N
million
50
%-
10
0%
Nm
illion
Greater
than100%
Nm
illion
Decem
ber 20
13
Corporate2
18
,90
2
65
,13
9
15
3,7
63
-
- 8
3,1
24
3
6,4
51
3
4,1
88
Sovereign2
00
,86
8
20
0,8
68
-
- -
- -
-
Bank2
04
,44
2
20
4,4
42
-
- -
- -
-
Retail
13
8,3
48
5
8,2
46
8
0,1
02
-
- 1
3,4
65
2
1,2
45
4
5,3
92
Retail m
ortgage 8
,66
7
- 8
,66
7
- -
12
4
99
3
7,5
49
Other retail
12
9,6
81
5
8,2
46
7
1,4
35
-
- 1
3,3
41
2
0,2
52
3
7,8
43
Total7
62
,56
0
52
8,6
95
2
33
,86
5
- -
96
,58
9
57
,69
6
79
,58
0
Add: Financial assets not
exposed to credit risk
16
,48
0
Less: Impairm
ents for loans and advances
(13
,55
9)
Less: Unrecognised off
balance sheet items
(44
,61
5)
Total exposure 7
20
,86
6
Reconciliation to balance
sheet:
Cash and cash equivalents
7 1
20
,31
2
Derivatives
10
1,5
26
Financial investments
11
13
9,3
04
Loans and advances1
23
83
,92
7
Trading assets9
40
,71
1
Pledged assets8
24
,73
3
Other financial assets
10
,34
6
Total7
20
,85
9
Collateral
10
3
Overview
Capital
managem
entO
therinform
ationB
usiness review
10
2Stan
bic IB
TC
Annual group financial statem
ents for the year ended 31
Decem
ber 20
13
Bu
siness review
Annual report and
financial statements
Enterprise risk review
(continued)
Total collateral coverage
Note
TotalexposureN
million
UnsecuredN
million
SecuredN
million
Netting
agreements
Nm
illion
Securedexposure
afternetting
Nm
illion1
%-5
0%
Nm
illion
50
%-
10
0%
Nm
illion
Greater
than1
00
%N
million
Decem
ber 20
12
Corporate2
26
,71
1
97
,35
4
12
9,3
57
-
- 5
5,4
75
7
3,4
26
4
56
Sovereign1
91
,03
3
19
1,0
33
-
- -
- -
-
Bank1
52
,51
3
15
2,5
13
-
- -
- -
-
Retail
10
9,8
71
6
6,7
42
4
3,1
29
-
- 6
,75
6
34
,15
0
2,2
23
Retail m
ortgage 1
1,4
00
-
11
,40
0
- -
- 1
1,4
00
-
Other retail
98
,47
1
66
,74
2
31
,72
9
- -
6,7
56
2
2,7
50
2
,22
3
Total6
80
,12
8
50
7,6
42
1
72
,48
6
- -
62
,23
1
10
7,5
76
2
,67
9
Add: Financial assets not
exposed to credit risk
15
,53
6
Less: Impairm
ents for loans and advances
(13
,12
9)
Less: Unrecognised off
balance sheet items
(44
,81
7)
Total exposure6
37
,71
8
Reconciliation to
balance sheet:
Cash and cash equivalents
71
06
,68
0
Derivatives
10
1,7
09
Financial investments
11
85
,75
7
Loans and advances1
22
90
,91
5
Trading assets9
11
4,8
77
Pledged assets8
24
,44
0
Other financial assets
13
,34
0
Total6
37
,71
8
CollateralC
redit provisionin
g based on pruden
tial guidelines
In accordance with the Prudential G
uidelines issued by the Central Bank of Nigeria, provision against credit risk is as follow
s;
Non perform
ing accounts
Interest and/or principal outstanding for over:
Classification
Minim
um provision
90
days but less than 18
0 days
Substandard1
0%
18
0 days but less than 3
60
daysD
oubtful5
0%
Over 3
60
daysLost
10
0%
When a loan is deem
ed uncollectible, it is written off against the related provision for im
pairments. Subsequent recoveries are
credited to the provision for loan losses in the profit and loss account. If the amount of the im
pairment subsequently decreases
due to an event occurring after the write-dow
n, the release of the provision is credited as a reduction of the provision for im
pairment in the profit and loss account.
Perform
ing accounts
A m
inimum
of 1%
general provision on performing loans is m
ade in accordance with the prudential guidelines.
Prudential guidelines disclosures
Had the Prudential G
uidelines been employed in the preparation of these financial statem
ents, the impairm
ents for loans and advances to custom
ers as well as related disclosures, w
ould have been made as follow
s:
Group
31
Dec 2
01
3N
million
31
Dec 2
01
2N
million
Prudential disclosure of loan and advances
to customer
Gross loans and advances to custom
ers 3
06
,30
6
28
1,0
80
Accrued interest on im
paired loans-
1,6
07
Customer exposure for loans and advances
30
3,3
06
2
79
,47
3
Mortgage loans
8,6
67
1
0,5
71
Instalment sale and finance leases
27
,01
2
29
,97
2
Card debtors 8
50
4
94
Overdrafts and other dem
and loans 3
2,6
76
2
9,1
93
Other term
loans 2
34
,10
1
20
9,2
43
Credit impairm
ents for loans and advances (1
4,3
29
) (1
3,9
49
)
Specific credit impairm
ents (1
1,4
20
) (9
,69
1)
Interest in suspense-
(1,6
07
)
Portfolio credit impairm
ents (2
,90
9)
(2,6
51
)
Net loans and advances
28
8,9
77
2
67
,13
1
10
5
Overview
Capital
managem
entO
therinform
ationB
usiness review
10
4Stan
bic IB
TC
Annual group financial statem
ents for the year ended 31
Decem
ber 20
13
Bu
siness review
Annual report and
financial statements
Enterprise risk review
(continued)
Liquidity risk
Framew
ork and governance
The nature of banking and trading activities results in a continuous exposure to liquidity risk. Liquidity problem
s can have an adverse im
pact on a group’s earnings and capital and, in extrem
e circumstances, m
ay even lead to the collapse of a group w
hich is otherwise solvent.
The group's liquidity risk managem
ent framew
ork is designed to m
easure and manage the liquidity position at various levels
of consolidation such that payment obligations can be m
et at all tim
es, under both normal and considerably stressed
conditions. Under the delegated authority of the board of
directors, ALCO
sets liquidity risk policies in accordance with
regulatory requirements and international best practice.
Lim
its and guidelines are prudently set and reflect the group's conservative appetite for liquidity risk. A
LCO is charged w
ith ensuring com
pliance with liquidity risk standards and policies.
Liquidity and funding managem
ent
A sound and robust liquidity process is required to m
easure, m
onitor and
manage
liquidity exposures.
The group
has incorporated the follow
ing liquidity principles as part of a cohesive liquidity m
anagement process:
structural liquidity m
ismatch m
anagement;
long-term
funding ratio;
back-testing;
m
aintaining minim
um levels of liquid and m
arketable
securities;
depositor concentration;
local currency loan to deposit lim
it;
foreign currency loan to deposit lim
it;
intra-day liquidity m
anagement;
daily cash flow
managem
ent;
liquidity stress and scenario testing; and
liquidity contingency planning.
The cumulative im
pact of the above principle is monitored,
at least monthly by A
LCO and the process is underpinned
by a system of extensive controls. The latter includes the
application of
purpose-built technology,
documented
processes and procedures, independent oversight and regular independent review
s and evaluations of the effectiveness of the system
.
Structural liquidity mism
atch managem
ent
The m
ismatch
approach m
easures a
group’s liquidity
by assessing the m
ismatch betw
een its inflow and outflow
of funds w
ithin different time bands on a m
aturity ladder. The structural liquidity m
ismatch is based on behaviourally-adjusted cash flow
s w
hich factors a probability of maturity into the various tim
e bands. D
etailed assumptions and reasoning applied in com
piling the structural liquidity m
ismatch are w
ell documented.
In the m
ain, readily available liquidity is profiled based
on realistic
liquidation periods
(including appropriate
forced-sale
discounts), w
hile other
cash flow
s w
ith a
predeterm
ined runoff
are profiled
according to
their
remaining contractual m
aturity;
A
mbiguous
maturity
loan and
advance products
are
profiled using an attrition analysis;
A
mbiguous m
aturity deposit and borrowing products are
profiled using a volatility analysis, except w
here such
products do not exhibit term behaviour, in w
hich case they
are profiled in the sight-to-7 day m
aturity bucket;
W
here material, off-balance sheet facilities granted by the
group m
ust be profiled on the basis of probable drawdow
n;
all other cash flow item
s or positions in respect of which
no right or obligation in respect of m
aturity exists must be
profiled in the >12-m
onths maturity bucket.
All other cash flow
items or positions in respect of w
hich no right or obligation in respect of m
aturity exists must be
profiled in the >12-months m
aturity bucket.
A net m
ismatch figure is obtained by subtracting liabilities and
net off-balance sheet positions from assets in each tim
e band. The group’s liquidity position is assessed by m
eans of the net cum
ulative mism
atch position (aggregation of net position in each successive tim
e band), expressed as a percentage of total funding related liabilities to the public.
The maturity analysis for financial liabilities represents the
basis for effective managem
ent of exposure to structural liquidity
risk. B
ehavioural profiling
is applied
to assets,
liabilities and
off-balance sheet
comm
itments
with
an indeterm
inable maturity or draw
-down period, as w
ell as to certain liquid assets. The m
onitoring of liquidity risk using the behavioural adjusted basis is facilitated by the adoption of m
aximum
mism
atch limits and guidelines to restrict the
mism
atch between the expected inflow
s and outflows of
funds in different time buckets.
Based on forecast business grow
th and the structural dynamics of the balance sheet, A
LCO projects long-term
funding requirem
ents, thereby setting targets for long-term funding ratios. The projected long-term
ratio is a transparent and practical m
easure for the funding desk to target and monitor the pace of raising long-term
deposits. There are no limits for m
ismatches
due to contractually based inflows and outflow
s.
The group’s ability to withstand huge outflow
was very strong as show
n in the tables below w
here the net cumulative m
ismatch
positions as a percentage of total funding related liabilities were in excess of the lim
its in all the time bands.
Anticipated liquidity gap (local currency) (lcy) - A
ll figures in millions
LCY (N
million)
Overnight
1
month
2
months
3
months
4-6
m
onths7
-12
m
onths1
3-2
4
months
> 2
4
months
Period gap 7
3,9
40
(8
,96
2)
(34
,13
6)
(30
,18
6)
1,3
95
2
,38
0
46
,99
3
56
,56
0
Cumulative gap
73
,94
0
64
,97
8
30
,84
2
65
7
2,0
51
4
,43
1
51
,42
4
10
7,9
84
Anticipated liquidity gap (foreign currency) (fcy) - A
ll figures in millions
Period (U
SDm
illion)O
vernight1
m
onth2
m
onths3
m
onths4
-6
months
7-1
2
months
13
-24
m
onths>
24
m
onths
Period gap 4
5
5
(34
) (3
3)
(74
) (2
02
) (1
63
) 5
07
Cumulative gap
4
59
2
5
(8)
(82
) (2
84
) (4
47
) 6
0
Cumulative gap as a %
of TFLRP* - Local currency
Cumulative gap as a %
of TFLR
P*O
vernight1
m
onth2
m
onths3
m
onths4
- 6
months
7 - 1
2
months
Decem
ber 20
13
20
.46
%1
7.9
8%
8.5
3%
0.1
8%
0.5
7%
1.2
3%
Decem
ber 20
12
33
.82
%2
2.1
1%
(6.2
1%
)(1
2.3
0%
)(1
5.5
2%
)(2
0.8
3%
)
Limit
0%
(5%
)(1
0%
)(1
0%
)(1
5%
)(2
0%
)
Cumulative gap as a %
of TFLRP* - Foreign currency
Cumulative gap as a %
of TFLR
P*O
vernight1
m
onth2
m
onths3
m
onths4
- 6
months
7 - 1
2
months
Decem
ber 20
13
0.2
8%
4.6
1%
1.9
3%
(0.6
5%
)(6
.45
%)
(22
.31
%)
Decem
ber 20
12
9.1
0%
21
.20
%1
4.8
0%
5.8
0%
(4.9
0%
)(1
9.8
0%
)
Limit
0%
(5%
)(1
0%
)(1
0%
)(1
5%
)(2
0%
)
* TFLRP - Total funding liability related to public.
10
7
Overview
Capital
managem
entO
therinform
ationB
usiness review
10
6Stan
bic IB
TC
Annual group financial statem
ents for the year ended 31
Decem
ber 20
13
Bu
siness review
Annual report and
financial statements
Enterprise risk review
(continued)
Maintaining m
inimum
levels of liquid and m
arketable assets
Minim
um
levels of
prudential liquid
assets are
held in
accordance w
ith all
prudential requirem
ents as
specified by
the regulatory
authorities. The
group needs
to hold
additional unencumbered m
arketable assets, in excess of any m
inimum
prudential liquid asset requirement, to cater for
volatile depositor withdraw
als, draw-dow
ns under comm
itted facilities, collateral calls, etc.
The following criteria apply to readily m
arketable securities:
prices m
ust be quoted by a range of counterparties;
the asset class m
ust be regularly traded;
the asset m
ay be sold or repurchased in a liquid market,
for paym
ent in cash; and
settlem
ent must be according to a prescribed, rather than
a negotiated, tim
etable.
Depositor concentration
To ensure that the group does not place undue reliance on any single entity as a funding source, restrictions are im
posed on the short dated (0
-3 m
onths term) deposits accepted from
any entity. These include:
the sum
of 0-3
month deposits and standby facilities
provided by any single deposit counterparty m
ust not, at
any time, exceed 10
% of total funding related liabilities to
the public; and
the
aggregate of
0-3
m
onth deposits
and standby
facilities from
the 10 largest single deposit counterparties
m
ust not, at any time, exceed 2
0%
of total funding related
liabilities to the public.
Concentration risk limits are used to ensure that funding
diversification is maintained across products, sectors, and
counterparties. Primary sources of funding are in the form
of deposits across a spectrum
of retail and wholesale clients. A
s m
itigants, the group maintains m
arketable securities in excess of regulatory requirem
ent in order to condone occasional breaches of concentration lim
its.
Loan to deposit limit
A lim
it is put in place, restricting the local currency loan to deposit ratio to a m
aximum
specified level, which is review
ed periodically. Sim
ilarly, in order to restrict the extent of foreign currency lending from
the foreign currency deposit base, a foreign currency loan to deposit lim
it, which is also referred to
as own resource lending, is observed. A
s mitigants, the group
maintains high levels of unencum
bered marketable and liquid
assets in excess of regulatory benchmark.
Intra-day liquidity managem
ent
The group manages its exposures in respect of paym
ent and settlem
ent systems. Counterparties m
ay view the failure to
settle payments w
hen expected as a sign of financial weakness
and in turn delay payments to the group. This can also disrupt
the functioning of payment and settlem
ent systems. A
t a m
inimum
, the following operational elem
ents are included in the group’s intra-day liquidity m
anagement:
capacity to m
easure expected daily gross liquidity inflows
and outflow
s, including anticipated timing w
here possible;
capacity
to m
onitor its
intraday liquidity
positions,
including available credit and collateral;
sufficient intraday funding to m
eet its objectives;
ability to m
anage and mobilise collateral as required;
robust capacity to m
anage the timing of its intraday
outflow
s; and
readiness
to deal
with
unexpected disruptions
to its
intraday liquidity flow
s.
Daily cash flow
managem
ent
The group generates a daily report to monitor significant
cash flows. M
aturities and withdraw
als are forecast at least 3
-months in advance and m
anagement is alerted to large
outflows. The report, w
hich is made available to the funding
team, A
LM and m
arket risk also summ
arises material daily new
deposit as w
ell as the interbank and top depositor reliance (by value and product).
The daily cash flow m
anagement report form
s an integral part of the ongoing liquidity m
anagement process and is a crucial
tool to proactively anticipate and plan for large cash outflows.
Liquidity stress testing and scenario testing
Anticipated
on-and-off balance
sheet cash
flows
are subjected to a variety of the group specific and system
ic stress scenarios in order to evaluate the im
pact of unlikely but plausible events on liquidity positions. Scenarios are based on both historical events, such as past em
erging markets crises,
past local financial markets crisis and hypothetical events,
such as a entity specific crisis. The results obtained from
stress testing provide meaningful input w
hen defining target liquidity risk positions.
Maturity analysis of financial liabilities by contractual m
aturity
The tables below analyses cash flow
s on a contractual, undiscounted basis based on the earliest date on which the group can
be required to pay (except for trading liabilities and trading derivatives) and may therefore not agree directly to the balances
disclosed in the consolidated statement of financial position.
Derivative liabilities are included in the m
aturity analysis on a contractual, undiscounted basis when contractual m
aturities are essential for an understanding of the derivatives’ future cash flow
s. Managem
ent considers only contractual maturities
to be essential for understanding the future cash flows of derivative liabilities that are designated as hedging instrum
ents in effective hedge accounting relationships. A
ll other derivative liabilities are treated as trading and are included at fair value in the redeem
able on demand bucket since these positions are typically held for short periods of tim
e.
The following tables also include contractual cash flow
s with respect to off-balance sheet item
s which have not yet been
recorded on-balance sheet. Where cash flow
s are exchanged simultaneously, the net am
ounts have been reflected.
Maturity analysis of financial liabilities by contractual m
aturity
Redeem
able on dem
andN
million
Maturingw
ithin1
month
Nm
illion
Maturing
between
1-6
months
Nm
illion
Maturing
between
6-1
2
months
Nm
illion
Maturing
after1
2 m
onthsN
million
TotalN
million
Decem
ber 20
13
Financial liabilities
Derivative financial instrum
ents -
63
4
13
9
15
2
97
1
,08
5
Trading liabilities -
20
,66
4
34
,98
8
9,5
94
1
,71
4
66
,96
0
Deposits and current accounts
31
0,9
15
8
7,9
23
5
6,9
52
1
2,2
09
3
9
46
8,0
38
Subordinated debt -
- -
- 6
,39
9
6,3
99
Other borrow
ings -
1,1
96
3
08
1
,42
2
45
,83
8
48
,76
4
Total 3
10
,91
5
11
0,4
17
9
2,3
87
2
3,2
40
5
4,2
87
5
91
,24
6
Unrecognised financial instrum
ents
Letters of credit 6
07
8
77
1
9,3
08
4
4
- 2
0,8
36
Guarantees
- 2
,19
7
5,4
26
5
,22
9
10
,92
7
23
,77
9
Total 6
07
3
,07
4
24
,73
4
5,2
73
1
0,9
27
4
4,6
15
Decem
ber 20
12
Financial liabilities
Derivative financial instrum
ents -
31
3
45
9
- -
77
2
Trading liabilities 1
1,4
37
1
6,9
39
1
4,7
88
8
,09
1
37
,11
6
88
,37
1
Deposits and current accounts
20
5,2
71
1
09
,63
9
50
,32
0
16
,78
9
32
3
82
,05
1
Other borrow
ings -
3,1
73
3
89
1
,46
3
61
,84
8
66
,87
3
Total 2
16
,70
8
13
0,0
64
6
5,9
56
2
6,3
43
9
8,9
96
5
38
,06
7
Unrecognised financial instrum
ents
Letters of credit 1
,50
8
60
2
17
,03
0
5
- 1
9,1
45
Guarantees
86
2
,10
2
12
,71
3
9,4
39
1
,33
3
25
,67
3
Total 1
,59
4
2,7
04
2
9,7
43
9
,44
4
1,3
33
4
4,8
18
10
9
Overview
Capital
managem
entO
therinform
ationB
usiness review
10
8Stan
bic IB
TC
Annual group financial statem
ents for the year ended 31
Decem
ber 20
13
Bu
siness review
Annual report and
financial statements
Enterprise risk review
(continued)
Liquidity contingency plans
The group recognises that it is not possible to hold sufficiently large enough quantity of readily available liquidity to cover the least likely liquidity events. H
owever, as such event can
have devastating consequences, it is imperative to bridge the
gap between the liquidity the group chooses to hold and the
maxim
um liquidity the group m
ight need.
The group’s liquidity contingency plan is designed to, as far as possible, protect stakeholder interests and m
aintain market
confidence in order to ensure a positive outcome in the event
of a liquidity crisis. The plan incorporates an extensive early w
arning indicator methodology supported by a clear and
decisive crisis response strategy. Early warning indicators span
group specific crises, systemic crises, contingency planning,
and liquidity risk managem
ent governance and are monitored
based on assigned frequencies and tolerance levels. The crisis response strategy is form
ulated around the relevant crisis m
anagement structures and addresses internal and external
comm
unications, liquidity generation, operations, as well as
heightened and supplementary inform
ation requirements.
Foreign currency liquidity managem
ent
A num
ber of indicators are observed to monitor changes in
either market liquidity or exchange rates. Foreign currency
loans and advances are restricted to the availability of foreign currency deposits.
Funding strategy
Funding markets are evaluated on an ongoing basis to ensure
appropriate group funding strategies are executed depending on the m
arket, competitive and regulatory environm
ent. The group em
ploys a diversified funding strategy, sourcing liquidity in both dom
estic and offshore markets, and incorporates a
coordinated approach to accessing capital and loan markets
across the group.
Concentration risk limits are used w
ithin the group to ensure that funding diversification is m
aintained across products, sectors, geographic regions and counterparties.
Primary funding sources are in the form
of deposits across a spectrum
of retail and wholesale clients, as w
ell as long-term
capital and loan markets. The group rem
ains comm
itted to
increasing its
core deposits
and accessing
domestic
and foreign capital markets w
hen appropriate to meet its
anticipated funding requirements.
20
13%
20
12%
Single depositor5
4
Top 10
depositors2
52
1
Depositor concentrations
Market risk
The identification, managem
ent, control, measurem
ent and reporting of m
arket risk is categorised as follows:
Trading market risk
These risks arise in trading activities where the bank acts as
a principal with clients in the m
arket. The group policy is that all trading activities are contained w
ithin the bank's Corporate and Investm
ent Banking (C
IB) trading operations.
Banking book interest rate risk
These risks arise from the structural interest rate risk caused
by the differing re-pricing characteristics of banking assets and liabilities.
Foreign currency risk
These risks arise as a result of changes in the fair value or future cash flow
s of financial exposures due to changes in foreign exchange rates.
Equity investment risk
These risks arise from equity price changes in listed and
unlisted investm
ents, and
managed
through the
equity investm
ent com
mittee,
which
is a
sub-comm
ittee of
the executive com
mittee.
Framew
ork and governance
The board approves the market risk appetite and standards
for all types of market risk. The board grants general authority
to take on market risk exposure to the asset and liability
comm
ittee (ALCO
). ALCO
sets market risk policies to ensure
that the measurem
ent, reporting, monitoring and m
anagement
of market risk associated w
ith operations of the bank follow a
comm
on governance framew
ork. The bank’s ALCO
reports to EXCO
and also to the board risk managem
ent comm
ittee.
The in-country risk managem
ent is subject to SBG
oversight for com
pliance with group standards and m
inimum
requirements.
The market risk m
anagement unit w
hich is independent of trading operations and accountable to A
LCO, m
onitors market
risk exposures due to trading and banking activities. This unit m
onitors exposures
and respective
excesses daily,
report m
onthly to ALCO
and quarterly to the board risk managem
ent com
mittee.
Market risk m
easurement
The techniques used to measure and control m
arket risk include:
daily net open position;
daily VaR
;
back-testing;
P
V01;
other m
arket risk measures; and
annual net interest incom
e at risk.
Daily net open position
The board on the input of ALCO
sets limits on the level
of exposure by currency and in aggregate for overnight positions. The latter is also aligned to the net open position lim
it as specified by the regulators, which is usually a
proportion of the groups’ capital.
Daily value-at-risk (V
aR)
VaR is a technique that estim
ates the potential losses that m
ay occur as a result of market m
ovements over a specified
time period at a predeterm
ined probability.
VaR lim
its and exposure measurem
ents are in place for all m
arket risks the trading desk is exposed to. The bank generally uses
the historical
VaR
approach to
derive quantitative
measures, specifically for m
arket risk under normal m
arket conditions. N
ormal VaR
is based on a holding period of one day and a confidence level of 95%
. Daily losses exceeding
the VaR are likely to occur, on average, 13
times in every
250
days.
The use of historic VaR has lim
itations as it is based on historical correlations and volatilities in m
arket prices and assum
es that future prices will follow
the observed historical distribution. H
ence, there is a need to back-test the VaR
model regularly.
VaR
back-testing
The group and the banking business back-test its foreign currency, interest rate and credit trading exposure VaR
model
to verify the predictive ability of the VaR calculations thereby
ensuring the
appropriateness of
the m
odel. B
ack-testing exercise is an ex-post com
parison of the daily hypothetical profit and loss under the one-day buy and hold assum
ption to the prior day VaR
. Profit or loss for back-testing is based on
the theoretical profits or losses derived purely from m
arket m
oves both interest rate and foreign currency spot moves
and it is calculated over 250
cumulative trading-days at 95%
confidence level.
Stress tests
Stress testing provides an indication of the potential losses that could occur in extrem
e market conditions.
The stress tests carried out include individual market risk factor
testing and combinations of m
arket factors on individual asset classes and across different asset classes. Stress tests include a com
bination of historical and hypothetical simulations.
PV
01
PV
01 is a risk m
easure used to assess the effect of a change of rate of one basis point on the price of an asset. This lim
it is set for the fixed incom
e, money m
arket trading, credit trading, derivatives and foreign exchange trading portfolios.
Other m
arket risk measures
Other m
arket risk measures specific to individual business units
include permissible instrum
ents, concentration of exposures, gap lim
its, maxim
um tenor and stop loss triggers. In addition,
only approved products that can be independently priced and properly processed are perm
itted to be traded.
Pricing models and risk m
etrics used in production systems,
whether
these system
s are
off-the-shelf or
in-house developed, are independently validated by the m
arket risk unit before their use and periodically thereafter to confirm
the continued applicability of the m
odels. In addition, the market
risk unit assesses the daily liquid closing price inputs used to value instrum
ents and performs a review
of less liquid prices from
a reasonableness perspective at least fortnightly. Where
differences are significant, mark-to-m
arket adjustments are
made.
Annual net interest incom
e at risk
A
dynamic
forward-looking
annual net
interest incom
e forecast is used to quantify the banks’ anticipated interest rate exposure. This approach involves the forecasting of both changing balance sheet structures and interest rate scenarios, to determ
ine the effect these changes may have on future
earnings. The analysis is completed under both norm
al market
conditions as well as stressed m
arket conditions.
11
1
Overview
Capital
managem
entO
therinform
ationB
usiness review
11
0Stan
bic IB
TC
Annual group financial statem
ents for the year ended 31
Decem
ber 20
13
Bu
siness review
Annual report and
financial statements
Enterprise risk review
(continued)
Distribution of trading incom
e in 2013
The histogram below
shows the distribution of daily incom
e and losses during 2
013. It captures trading income volatility
and shows the num
ber of days in which the bank’s trading
related revenues fell within particular ranges. The distribution
is skewed to the profit side. O
verall, it shows that trading
income w
as realised on 180
days out of a total of 240
days w
ith 22 positive outliers.
Analysis of V
alue-at-Risk (V
aR) and actual incom
e
The graph below show
s the normal VaR
analysis and the actual
income
of the
trading unit
in 2
013. It
reflects a relative stability in VaR
amount despite the fluctuation
in trading income.
Trading income - 2
013Trading incom
e and diversified normal V
aR - 2
013
The table below highlights the historical diversified norm
