2009 Annual Report and Financial Statements - UBA Plc

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Risk management report (continued) The Group’s regulatory capital as managed by its Financial Control and Treasury Units is divided into two tiers: Tier 1 capital: share capital, retained earnings and reserves created by appropriations of retained earnings. The book value of goodwill is deducted in arriving at Tier 1 capital; and Tier 2 capital: preference shares, minority interests arising on consolidation, qualifying debt stock, fi xed assets revaluation reserves, foreign currency revaluation reserves, general provisions subject to maximum of 1.25% of risk assets and hybrid instruments convertible bonds. Investments in unconsolidated subsidiaries and associates are deducted from Tier 1 and Tier 2 capital to arrive at the bank solo regulatory capital adequacy measurement. The risk-weighted assets are measured by means of a hierarchy of fi ve risk weights classifi ed according to the nature of – and refl ecting an estimate of credit, market and other risks associated with each asset and counterparty, taking into account any eligible collateral or guarantees. A similar treatment is adopted for off -balance sheet exposure, with some adjustments to refl ect the more contingent nature of the potential losses. The table below summarises the composition of regulatory capital and the ratios of the Group for the years ended 31 December. During those two years, the individual entities within the Group and the Group complied with all of the externally imposed capital requirements to which they are subject. Group Group 31 Dec 09 30 Sep 08 Tier 1 capital N’million N’million Share capital 10 778 8 622 Share premium 113 645 114 036 Statutory reserve Contingency reserve 21 084 19 224 SMIEIS reserve 2 635 2 635 Bonus issue reserve – 2 156 Capital reserve 1 698 1 698 Retained earnings 18 317 31 861 Less: goodwill and intangible assets (2 983) – Total qualifying Tier 1 capital Tier 2 capital 165 174 180 232 Minority interest 5 316 1 821 Revaluation reserve – fi xed assets 11 231 11 231 Translation reserve 2 051 1 997 General provision – 4 660 Total qualifying Tier 2 capital 18 598 19 709 Total Tier 1 and Tier 2 capital 183 772 199 941 Less: unconsolidated subsidiaries and associates (8 049) (5 955) Total qualifying capital Risk-weighted assets 175 723 193 986 On-balance sheet 940 052 798 458 Off -balance sheet 136 960 159 893 Total risk-weighted assets 1 077 012 958 351 Risk-weighted capital adequacy ratio (%) 16.3 20.2 The decrease in the regulatory capital in 2009 is mainly due to the contribution of the current-year loss arising from signifi cant loan loss provisions for loans, and capital market losses. The increase of the risk-weighted assets by 12,42% refl ects the expansion of the Group into many other African countries in 2009. Annual Report 2009 111 Financials
Risk management report (continued) YEAR UNDER REVIEW – KEY INITIATIVES Internal capital adequacy assessment process The development of an initial measurement framework, premised on Basel II and Best Practice techniques, to quantify risk capital requirements (economic capital) has been a key initiative concluded during the year. The economic capital measurement framework forms the foundation of our internal capital adequacy assessment process, a process for assessing overall capital adequacy in relation to our risk profi le and informs our capital planning strategies for maintaining adequate levels. Planned benefi ts also include risk-based allocation of economic capital; risk-based budgeting/forecast and planning as well as a basis of defi ning our risk taking capacity and appetite. Economic capital The amount of capital necessary as a buff er for unexpected losses will be the basis for setting the Group’s risk appetite as well as considering tolerances under stressed conditions for fi nancial performance targets and performing risk-adjusted performance measurement across various business units, product lines and customer segmentations. In 2008, a Risk Measurement team was created. The team forms part of the Group Risk Management structure and is positioned to providing the enabling mechanisms towards greater sophistication in the quantifi cation of risks in anticipation of increased scale and organisational complexity as a result of increased international presence. The development of the ‘Economic Capital Measurement’ framework progressed well during 2009 with various iterations successfully concluded aimed at establishing the building blocks for eff ective quantifi cation and aggregation of risk across various businesses and risk types, including risks not covered by the minimum prudential requirements but specifi c to UBA’s activities. The Economic Capital Measurement framework is being developed to address the capital adequacy risk as part of our overarching ICAAP framework. The ongoing objective for the Group is to continue to incorporate economic capital measures into management processes such as strategic planning, performance measurement and business processes (such as customer selection and pricing) to achieve greater sophistication in our measurement methodologies that are consistent with fundamental elements of enterprise-risk management supporting processes. UBA commenced with a comprehensive enhancement of its enterprise risk management framework more than three years ago as evidenced through: • Signifi cant investment in international expertise, tools, systems and MIS capabilities. Also appropriate training has been made • A new platform created that has enabled pro-active risk mitigation decisions, long before the onset of the current global crisis • An asset portfolio that is well diversifi ed • Top line growth momentum that continues with high income buff er and provision coverage to absorb unexpected volatility in impairments • Capital adequacy that is suffi cient to absorb losses under worst case scenario impact • The objectives of our ICAAP framework are ultimately to quantify minimum level of capital required as a buff er against worst case unexpected losses across all risk types – credit, market, operational, and further to:- • Quantify capital impairment due to credit provision shortfall • Meet CBN’s requirements for Basel II capital impact study, as part of the industry implementation plan expected in 2010 • Provide a baseline for business strategy, capital planning, etc, to optimise capital resources going forward and • Provide an initial risk based pricing curve Basel II implementation UBA has embraced the principles of the ‘Basel Committee on Banking Supervision’ as outlined in the Basel II Accord, it has taken preparatory steps and is building capacity towards adoption under various approaches within the timelines proposed by the Central Bank of Nigeria. To this end, the Risk directorate has invested signifi cant time and resources in initial gap/readiness assessments; has completed a diagnostic review of risk systems and data and has prepared ‘capital impact study’ to eff ectively guide further commitments and resources towards full compliance under CBN agreed approaches. 112 Annual Report 2009
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United Bank for Africa Plc RC: 2457
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Deposits (N’Billion) 1500 1200 90
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Group at a glance Countries of oper
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Board of directors 4 Annual Report
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Board of directors (continued) 6 An
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Board of directors (continued) 8 An
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Senior management 10 Annual Report
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Chairman’s statement CHIEF FERDIN
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Chairman’s statement (continued)
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Group Managing Director/Chief Execu
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Review of Group’s fi nancial perf
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Review of Group’s fi nancial perf
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Our products and services Selected
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Corporate social responsibility rep
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Directors’ report for the period
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Directors’ report (continued) AUD
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Report of the Audit Committee To Me
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Report of the independent auditors
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Accounting policies for the period
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Consolidated profi t and loss accou
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Consolidated cash fl ow statement f
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Page 129 and 130: Notice of annual general meeting (c
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Page 137 and 138: Registrars UBA Registrars Limited R
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2009 Annual Report and Financial Statements - UBA Plc

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